Speeches and Testimonies

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October 29, 1997



Chairman Ewing, Distinguished Members of the Subcommittee, Ladies and Gentlemen.

My name is Jean Tippins and I am Vice President, Administration of National Futures Association. I would like to thank you for the opportunity to appear here today to present our views on the CFTC's Vision and Strategies document which was recently published in the Federal Register. Obviously, this document is very important for all of the witnesses you will be hearing from. Where the Commission is planning to go in the next five years and how it plans to get there will have a real impact on all of us in the futures industry.

Although all of the witnesses you will hear from have a keen interest in this document, I think our perspective at NFA will be quite a bit different from everyone else's for two reasons. The first stems from our unique position within the industry. NFA is something of a hybrid, a cross between the exchanges and trade associations, on the one hand, and the Commission on the other. Like the exchanges and the trade associations, NFA is a membership organization and, like them, we rely heavily on our Members' input to shape our policies and direction. In our fundamental purpose and focus, though, we are much more like the Commission. NFA is purely a regulatory body. We do not operate any markets and do not engage in any commercial activity. Our sole mission is to ensure market integrity through effective and efficient regulation.

The second reason we may have a different point of view on the Commission's Vision and Strategies document is that we are currently going through a similar process at NFA. NFA has been around for 15 years now and by all accounts has been a very successful organization. That kind of success can lead to complacency, and complacency is something we just can't afford. We are currently undergoing a top to bottom review of what we do and how we do it. The whole purpose is the same as the Government Performance and Results Act that prompted the Commission's effort, to make sure that we are focused every day on what's important and what we're trying to accomplish.

The point is not to produce a document but to change an attitude. Everyone at NFA has to recognize that even though we are a regulator, we have customers we have to satisfy. Our customers are the market participants who look to us for protection and our Members who look to us for fair, consistent and efficient regulation. Like any other enterprise, our success depends on doing a good job for those customers. That requires that we constantly look for smarter ways to work. In our audits, for example, we can't blindly perform each and every audit step for each and every firm just because we've always done it that way. We have to find ways to tailor each audit to the potential problem areas of each particular firm. The Commission has to take the same approach in its work, whether auditing a registrant or doing a rule enforcement review of an SRO. A regulator which loses that kind of customer focus becomes a bureaucracy, and neither NFA nor the CFTC can afford to let that happen.

My comments on the proposed plan are more general than specific. Certainly, I can't disagree with the Commission's stated strategic goals or objectives. We are all in favor of meeting our customers' needs by "protecting market users and the public" and "fostering open, competitive and financially sound markets." The trick is figuring out how to do that.

At NFA we have realized that if you want to meet your customers' needs you need to listen to your customers. Over the years we have relied very heavily on Member input in developing our rules and policies, and we will continue to do that through our fairly extensive network of committees. We have to do a better job, though, of including market users in that process. Although we have always had plenty of public representatives on our Board, even before Congress required it, we can and will have more involvement by market users in NFA's rule making process.

What's true at NFA is also true at the Commission. I think the Commission recognizes that it needs an ongoing dialogue with both the industry it regulates and the public it serves on a wide range of regulatory issues. Although that point is mentioned here and there in the document, I think it has to be a real focal point for the Commission's plans for the next five years; it has to become part of the routine way of doing business.

Receiving that sort of input means more than putting proposals out for comment in the Federal Register. There are plenty of ways for the Commission to establish that sort of dialogue:

  • The Commission is reviving the Financial Products Advisory Committee, which should be an excellent way for the Commission to hear from both the industry and market users on a wide range of issues involving regulatory relief;

  • The Commission should continue to convene roundtable discussions which bring a number of outside experts to discuss one particular issue, but there should be some sort of follow up mechanism. Perhaps, that same group should be reconvened at some point to hear what progress has been made on the issue they discussed.

  • NFA can help by inviting the Commissioners and Commission staff to the "town hall" meetings we hold around the country from time-to-time. We have found them to be a great way for us to talk to our Members face-to-face, to tell them what we are working on at NFA and, more importantly, to hear from them on what we should be working on. We would be happy to include the Commission in those meetings;

  • We can also help by inviting the Commissioners and Commission staff to attend meetings of the various committees we set up to tackle specific regulatory issues. We always try to keep the Commission posted on what we are doing, but I am sure it would be helpful for the Commission to have one more way to hear firsthand from the industry the types of problems the industry is dealing with. And it wouldn't hurt to have one more way where the industry can hear from the Commission on its perspective.

The second general observation I would offer on the Commission's Vision and Strategies document involves accountability. Organizations are just like people in one way. The organization is much more likely to accomplish a goal if the tasks to do so are specifically defined, if completion dates are set and if it will be held accountable to someone if those dates aren't met. To really meet its goal of creating a culture of innovation, adaptability and responsiveness, the Commission has to impose that sort of accountability.

I am certainly not suggesting that the Commission can or should in this document identify the specific tasks it will complete in the next five years to create that culture. Five years is a very long time, and none of us has the crystal ball you would need for that job. But the Commission can set shorter term goals which specify tasks and deadlines which have been assigned to specific groups or individuals. If those goals aren't met, then the staff should be answerable to the Commission and the Commission should be answerable to this Committee.

Finally, Mr. Chairman, I should point out that NFA recognizes the efforts the CFTC has already made to listen to the industry and to respond to an ever changing marketplace. Your proposal to amend the Commodity Exchange Act sparked a lively discussion on a number of important issues, and I think the Commission has recently shown a real responsiveness in a number of areas. The use of the Internet by CPOs and CTAs, electronic delivery of statements by FCMs and IBs, electronic filing of disclosure documents and financial statements with regulators, and further delegations of responsibility to NFA are all issues in which the Commission has shown its willingness to change.

NFA is confident that the kind of dialogue sparked by your bill will be continued because of the Government Performance and Results Act that required the Commission to issue its five-year plan. We look forward to helping the Commission "be all that it can be" in any way we can.

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