Correction: The Sept. 9 op-ed by Fred Hatfield and James E. Newsome, respectively a former member and former chairman of the Commodity Futures Trading Commission, should have noted that Hatfield is a director of the Intercontinental Exchange, which operates exchanges and trading platforms for credit, emissions, energy and other products; and that Newsome is a co-founder of the Delta Strategy Group, which has clients that trade in futures and swaps. The views expressed were their own. The corrected op-ed appears below.
Sen. Bernie Sanders (I-Vt.) posted on his Web site last month information from the Commodity Futures Trading Commission that was clearly marked “confidential.” Presumably, he did so because he felt this breach was justified by what he believed was information supporting his claims about the impact of so-called speculators in the marketplace. Many people who understand these markets have criticized his conclusions, but we are more concerned with his actions: the process whereby this non-public information was leaked.
At a time when trust in government is at an all-time low, it is unconscionable that information members of the public supply to the government with the understanding that it will be held confidentially is released to the press for political purposes. Would it be okay for a federal official to leak information about an individual’s payments to the Internal Revenue Service because a government employee believes it bolsters a policy position he or she is promoting? Of course not. This reckless, unprecedented action deserves a full examination by the CFTC and congressional oversight committees.
For decades, participants in the futures market have reported their positions to the CFTC. Provisions of the 2010 Dodd-Frank Act will soon require the routine reporting of swaps data. These data are submitted in good faith by various individuals and companies in energy and other commodities with the understanding that they will be protected by law, because of the information’s proprietary nature and value. When the data were made public last month, this trust was broken. Increased transparency in the financial markets has been a topic of serious congressional debate since the financial crisis began in 2008.
Some have argued unwisely that transparency should include the tremendous amount of new data not only being made available to regulators under Dodd-Frank but also extended to the public.
They may ask: What’s the big deal with this leak?
Here is the big deal:
First, the laws governing the CFTC make the divulgence of confidential information by a commission official a criminal act. So it would have been illegal if the commission, not a congressional office, had leaked the data to the press or to the general public. Second, if market participants know their positions may be made public based on political factors — in which case their competitors and other market participants may take advantage of their now-public positions — they will undoubtedly lose confidence in these markets. Finally, this breach of trust sends a terrible message to the market that no matter the stated protections, no trading data are immune from public dissemination.
The real question is, who needs the data? The clear answer: regulators who are equipped to monitor these markets and prosecute wrongdoing. For these regulators to effectively oversee markets under the new regulatory scheme, data are key. And to ensure cooperative efforts from market participants, this information must be kept confidential.
It is important that the new U.S. regulatory regime gives investors and other global market participants confidence in our markets. Dodd-Frank regulations are still being implemented, but there is no question the amount of proprietary data in the hands of federal regulators will increase substantially upon adoption of final rules. This leak came at a particularly bad time, sparking new concerns about how all of the data will be treated.
We believe that this leak was wrong and that a strong response by regulators and Congress is necessary. The commission should immediately review its policies and procedures for releasing confidential data. It should consult with fellow regulators to determine whether the highest standards and protections are being ensured. We are not aware of any legal restrictions on the data once information is in congressional possession, so the appropriateness of this exemption should be evaluated. As part of this comprehensive review, there should be a full account of how information clearly marked “confidential” got from the commission to the senator’s office and under what terms.
In a global, competitive marketplace, participants seek many types of advantages, most linked to hard work and good ideas. Market participants often believe they have superior hedging and trading strategies than competitors. If these participants believe others have a likelihood of re-creating trading strategies or identifying their derivatives positions from leaked data, they will work to avoid sharing data with regulators. Doing so would be a tremendous blow to regulators and a critical setback for industry participants who want to operate in markets free from fraud, manipulation and other abuses.
Confidence in our new regulatory system depends on congressional leaders and federal regulators putting policy above politics when it comes to confidential data.
James E. Newsome, a Republican, was chairman of the Commodity Futures Trading Commission from 2000 to 2004 and is a co-founder of the Delta Strategy Group, which has clients that trade in futures and swaps. Fred Hatfield, a Democrat, was a member of the commission from 2004 to 2006 and is a director of the Intercontinental Exchange, which operates exchanges and trading platforms for credit, emissions, energy and other products.