US CFTC Chairman: Distributed Ledger Technology May Help in Monitoring Trading Markets

Christopher Giancarlo, the chairman of the US Commodity Futures Trading Commission (CFTC), recently said that distributed ledger technology (DLT) may help regulatory authorities monitor trading markets more effectively.

Giancarlo’s comments regarding blockchain technology came as he delivered his speech (on November 7th) titled: “Quantitative Regulation: Effective Market Regulation in a Digital Era” – at the FinTech Week conference at Georgetown University’s Law School campus.

“A World Where Majority Of Tasks Are Managed By Machines”

Giancarlo, who’s an American attorney and former business executive, also discussed the potential impact of other innovative technologies including big data, artificial intelligence (AI), and automated data analysis.

Commenting on the evolving global trading markets, Giancarlo noted that we should prepare ourselves for “a world where the majority of standard tasks are managed by machines.” He added that DLT-based systems may not only help in automating routine procedures, but also in reducing operational costs of trading platforms.

The Vanderbilt University School of Law graduate explained that blockchain-enabled transactions could allow for improved settlement, clearing, processing, and trade matching.

According to Giancarlo, higher-order computing technologies such as machine learning and advanced blockchain networks will be used extensively in the future, particularly in the global commodity and financial derivatives markets.

Data-Driven Policies, Automated Analysis

Because of the potential benefits of emerging financial technologies, Giancarlo said that the CFTC and other regulatory authorities must stay well-informed regarding the latest developments – specifically those related to AI and DLT.

Giancarlo also recommended that the CFTC consider developing regulations related to automated analysis, data collection, and data-driven policy application – which would help the agency become a “truly quantitative regulator.”

However, Giancarlo pointed out that “being a quantitative regulator does not mean replacing human judgment and market intelligence; it means reinforcing it.”

Human Judgement Will Still Be Required

The CFTC chairman explained:

[Proper use of technology and automation means] freeing agency staff from repetitive and low value tasks to focus on high value activities that require their expert judgment and domain knowledge. It means marshalling quality data that is efficiently and, perhaps, algorithmically analyzed upon which human judgement can be deployed, unfurled and expanded.

He added that DLT and AI could potentially help in analyzing data, real-world scenarios, and determine whether certain regulatory policies will be effective (if implemented). This would be much better than the existing system which “relies on static rules and regulations that were put in place without knowing the consequences or results they would drive in the market”, the CFTC chief said.

Giancarlo further noted:

We can also envision the day where rulebooks are digitized, compliance is increasingly automated or built into business operations through smart contracts, and regulatory reporting is satisfied through real-time DLT networks.