CFTC House Hearing

Chairman Thompson (00:00):

... on changing to protect commodity markets and their participants with a system of effective self-regulation overseen by the Commission. That is why what we know today is principle-based regulation. I look forward to the chairman providing us with his views on these many policy issues, as well as his plans for agency operations enforcement priorities and reauthorization legislation. While the rise in prediction markets has created an innovative new class of financial derivatives, it also has spawned significant confusion and debate about the role and the authority of the Commission. On the one hand, the Commodity Exchange Act is clear. The Commission's authority is broad and deep. The definitions of commodity and swap are sweeping, and the Commission's authority over transitions on registered exchanges is complete and exclusive. As we learn from Dr. Sandor at our 50th anniversary hearing last year, the original framers of CFTC were intentional in providing the Commission with broad definitions and exclusive jurisdiction. But understanding the Commission's jurisdiction is not the end of the public policy questions that we must consider. Many members have raised important questions about the roles for trading event contracts and the appropriateness of certain contracts to be listed for public trading. Importantly, the Commission has significant tools currently at its disposal to address many of these concerns. The chairman has already issued guidance and is committed to issuing a rulemaking using those tools. And I look forward to discussing those actions further today.

(01:55)
Where the Commission's authority is found to be insufficient to meet its mandate to support responsible innovation and protect market participants, we will consider legislation as may be appropriate. But first, the committee must understand if such gaps exist. Today's hearing is another step in that process. The chairman's testimony will help our members to further understand the law and the Commission's authorities. Prediction markets are important and newsworthy, however, they are not the only issue before the Commission.

(02:27)
Chairman Selig's announced agenda for the year is a busy one, touching on a broad cross-section of issues important to the derivatives industry and the American public. And I look forward to exploring it in detail today. I want to thank the chairman again for coming today, and we look forward to your testimony. With that I will yield to the ranking member distinguished Congresswoman from Minnesota, Ms. Craig, for her opening statement.

Ms. Craig (02:52):

Thank you so much, Mr. Chairman. And thank you, Chairman Selig, for being here today. We appreciate it. I'm grateful for the chance to discuss the work of the Commodity Futures Trading Commission in the critical areas of consumer protection, market integrity, and the stability of our financial system. For 50 years, the CFTC has been the cop on the beat for America's derivatives markets. Markets that touch everything from the price of groceries and gas to how our farmers manage risk out in the field. But today, CFTC's responsibilities and markets have expanded and become more complex than ever, and that's just in the last few years. Digital assets and prediction markets have opened new horizons and created new risks, and we cannot expect the agency to keep up if Congress doesn't set the appropriate rules and regulations, as well as give the CFTC the staffing, the funding, and the tools it needs to do its job well.

(03:51)
Let me start with something that should be uncontroversial. The CFTC needs to be fully staffed. We are asking a relatively small agency to oversee enormous technologically sophisticated markets that operate at the speed of light, and in some quarters, 24 hours a day. The agency's workforce is stretched too thin to meet the demands currently placed upon it. And without a sufficient staff, the CFTC simply cannot provide the rigorous oversight that consumers and market participants need. That includes having a full five commissioners in place, as Congress intended to ensure that consumers come first and nonpartisan norms are maintained without being tainted by unnecessary politics.

(04:41)
That brings me to my second point. The CFTC needs full, stable funding. Just last year, we heard from industry leaders and commercial end users of traditional commodities markets, farmers, ranchers, cooperatives, that stagnant or insufficient funding at the CFTC undermines market certainty and raises risks across the system. And that was before digital assets and events contract markets exploded in use. Today, the CFTC is effectively the nation's primary regulator of two of the fastest growing and most volatile markets in the country. Digital commodity trading and event-based prediction markets. These markets are global, complex, and technologically advanced, and can be accessed by bad actors using nothing more than a smartphone. The CFTC needs the tools, staff, and capacity to respond quickly in this new environment and to hold bad actors accountable.

(05:45)
We've all watched the growth of event prediction platforms, markets where people can wager on outcomes ranging from March Madness to geopolitical crises. In recent months, we've even seen alleged insider trading on platforms like Polymarket and other offshore entities where individuals reportedly made enormous profits betting on political events, including a coup in Venezuela and the war in Iran. When people can gamble on war or political instability and potentially use non-public or sensitive information to do it, that crosses a red line.

(06:28)
We also need a full review of whether these platforms violate local and state gaming laws, and keep in mind the unique role that tribal governments play in this space as well. This is exactly why we need strong rules, regulations, clear guardrails, and consumer protections, and why we need the CFTC fully equipped to enforce these protections. Consumers operate in fast moving digital assets markets or prediction platforms. They deserve transparency, fairness, and safety. They deserve a referee who's on the field, not one sitting on the sidelines because Congress didn't fund the agency adequately. At the end of the day, protecting consumers and maintaining market integrity is not a partisan issue. It's not an industry issue either. It's a stability issue, a fairness issue, and frankly, a basic responsibility of this community.

(07:27)
My message today is straightforward. If we want safe markets, if we want innovation without exploitation, if we want risk management tools that serve Main Street as well as Wall Street, then we must give the CFTC, the staff, the funding, and the clear statutory authority it needs to do its job, and we need a CFTC committed to protecting consumers first.

(07:53)
Again, I want to thank Chairman Selig for being here today. I look forward to the discussion. And with that, Mr. Chairman, I yield back.

Chairman Thompson (08:00):

I thank the gentlelady. The Chair would request that other members submit their opening statements for the record, so our witness may begin his testimony and ensure that there's ample time for questions. I'm pleased to welcome to the committee, our witness for today, CFTC Chairman Michael Selig. Chairman Selig, thank you for joining us. We will now proceed to your testimony. You'll have five minutes. The timer in front of you will count down to zero, at which point your time has expired. Chairman please begin whenever you're ready.

Chairman Selig (08:32):

Chairman Thompson, ranking member Craig and members of the committee. Thank you for the opportunity to testify here today. Just over 100 days ago, I was sworn in as the 16th chairman of the Commodity Futures Trading Commission. During my November confirmation hearing, I pledged to work tirelessly as chairman to maintain the agency's stature as a world-class financial markets regulator. I committed to protect and provide regulatory relief to our farmers, ranchers, and producers, roll back outdated rules and regulations and modernize the agency to keep pace with the rapid speed of innovation. I'm pleased to report I've made significant progress on these goals since rejoining the agency last December. One of my first priorities upon taking charge of the agency was identifying regulations to prevent farmers, ranchers, and producers from accessing our derivatives markets. My staff have been working diligently to right size cumbersome rules so that even our smallest producers can properly manage risk.

(09:29)
I've also revived the agency's Annual Agriculture Convention known as AGCON to bring together leaders from government, business, and academia to discuss the most pressing issues in our agricultural markets. Most importantly, I'll continue to visit with farmers, ranchers, and producers across the country to hear from them directly. The agriculture community is the backbone of this country, and it will always have a seat at the table in this administration. Another key priority is to lower the compliance burdens and energy costs for small businesses. Many of our rules and regulations discourage firms from servicing and trading with the businesses that are most in need of our markets. The agency is finalizing regulatory relief for firms that transact with energy, agriculture, and critical minerals producers to provide access to more market intermediaries and contribute to lower commodity prices.

(10:17)
The agency has also taken a leading role in delivering on President Trump's mandate to make America the crypto capital of the world. Importantly, the CFTC joined an SEC interpretation to provide guidance that resolves significant ambiguities in the marketplace as to which types of crypto assets are securities and which are commodities. We've also worked quickly to provide clarity concerning tokenized collateral, the capital treatment of payment stablecoins, and the obligations of software developers building in the United States. I applaud the important work of this committee to deliver bipartisan market structure legislation that will cement clear rules of the road for the millions of Americans who use crypto assets each day. I'm optimistic that Congress will soon send this landmark legislation to the president's desk.

(11:03)
The agency's also working to provide explicit guidelines and further strengthen investor protections for prediction markets, which offer trading and event contract derivatives that are regulated under the exclusive authority of the CFTC. Commission staff recently issued a prediction markets advisory and published notice soliciting public input before considering new regulations for these markets.

(11:25)
Now, I'm sure I'll be getting questions about our enforcement efforts related to crypto prediction markets and the commodity derivatives markets more broadly. I want to be crystal clear, to anyone who engages in fraud, manipulation, or insider trading in any of our markets, we will find you and the full force of the law will come to bear. Nothing is more important than protecting market integrity, and that's why I've been diligently working to reinvigorate our enforcement division and upgrade our surveillance tools to meet the challenges of our growing markets. None of these accomplishments would have been possible within such a short period of time without the agency's talented and experienced career civil servants. I've also brought on new senior leadership who bring a wealth of experience to the agency. As chairman, I believe it's vital to break from the restrictive regulatory practices of the past and create derivatives markets that work for everyone.

(12:21)
Under my leadership, the CFTC will administer fit for purpose regulation appropriately tailored to material risks, no more and no less, to ensure that the future of finance is made here in America. If the past is prologue, the next 100 days and the years beyond will build on this transformative foundation as the CFTC remains the gold standard for smart, effective oversight of our financial markets. Our work here is just getting started. Thank you again, and I look forward to answering your questions.

Chairman Thompson (12:53):

Well, Chairman, thank you so much for your testimony today. At this time, members will be recognized for questions in order of seniority, alternating between majority minority members and in order of arrival for those who joined after the hearing convened, you'll be recognized for five minutes each in order to allow us to get to as many questions as possible. I'm going to hold pretty firm to that five minutes because we have, I guess, a vote series before noon today for some reason.

(13:26)
So, I recognize myself for five minutes. Chairman, crafting digital asset market structure legislation has been a long, thoughtful process for this committee for a number of years. In your testimony, you expressed optimism that it will reach the president's desk. Where do you see the process on the Clarity Act in the Senate and how important is it in your estimation to get clarity done?

Chairman Selig (13:53):

Thank you, Chairman. And as I said in my opening statement, I applaud the efforts of this committee in Congress to get bipartisan market structure legislation on the president's desk for signature. And I do believe that this is absolutely essential. We have had too much ambiguity in these markets for way too long. The crypto asset community wants to build here in the United States and they want to develop technologies that are going to move our country forward, are going to promote innovation and market integrity, but they have to have solidified legislation on the books that will provide future-proof clarity for the markets.

(14:29)
I am too concerned that if we do not get this right now, we will continue to see the lack of certainty, consumer protection and clarity in these markets that will just drive builders and innovators offshore. So I very much applaud the efforts of this committee to get legislation finalized that will distinguish between securities, commodities, and also provide the investor protections, consumer protections that the American people deserve.

Chairman Thompson (14:53):

Thank you, Chairman. Chairman, a discussion around prediction markets feels a lot like the discussion around digital asset felt several years ago. These markets are popular, they're newsy and somewhat controversial, but unlike digital asset spot markets, there is a crucial difference. Unlike spot digital commodity trading, event contracts are already within the Commission's jurisdiction. Nevertheless, there is a significant confusion here about the Commission's authority here. Some stakeholders have described these markets as "unregulated gambling" or a loophole. Without a clear understanding of the Commission's historic jurisdiction, its regulatory posture and the tools it has to oversee these markets. Mindful that I only have a few minutes. Can you explain the jurisdiction and the authorities of the Commission with respect to event contracts?

Chairman Selig (15:47):

Well, Congress wisely granted the CFDC very broad exclusive jurisdiction over commodity derivatives markets. And the Commodity Exchange Act, our authorizing statute has a very broad definition of the term commodity. It includes virtually everything except for onions and motion picture box office receipts. And we take that broad authority very seriously. When there are new creative instruments that are structured as derivatives, we of course have the authority to regulate those to the extent that the underlying asset is a commodity. And with that broad definition, that's a lot of things. And so we take this responsibility very seriously to police fraud, insider trading, and manipulation in the markets, and we are defending that authority in court.

(16:26)
As I'm sure this committee's aware, we are involved in some active litigation, so I can't speak to some of those matters, but rest assured that we will continue to defend the agency's authority to make sure that we police these markets.

Chairman Thompson (16:43):

Thank you, Mr. Chairman. It's clear that you and your staff are thinking deeply about these issues. Would you be willing for your staff to give a deep dive briefing into the many jurisdictional and regulatory questions that committee members might have?

Chairman Selig (17:00):

Chairman, absolutely we'd be happy to provide that briefing. And as you state, these are very complex issues that we as subject matter experts are spending a lot of time on. We'll be happy to educate your staff and others on the committee on.

Chairman Thompson (17:13):

Very good. Thank you so much. And I will yield back the balance of my time and recognize the ranking member for five minutes.

Ms. Craig (17:20):

Thank you, Mr. Chairman. And again, thank you for being here, Mr. Secretary. It's my understanding that the agency is currently operating with approximately 543 full-time employees, down from 708 at the end of fiscal year 2024. That's a reduction of over 20% of the workforce. Your budget request to Congress only seeks to fund 650 employees at a time when we're seeing continued growth of traditional futures markets, the swaps markets, and an emerging digital assets and prediction markets. Do you think it's reasonable to believe that the agency can be effective in 2026 and beyond with staffing levels significantly less than what the first Trump administration had requested with the increased demands on your time?

Chairman Selig (18:13):

Well, thank you, ranking member. And yes, I do believe that we are running more efficiently and effectively than ever before, thanks to some of the right sizing of the government that's occurred under this administration, thanks to the president's leadership. And it's absolutely vital that we continue to monitor, surveil, and police our markets, and we are doing just that. We are utilizing new tools from AI to automation and other surveillance systems that we're building out, and we take this responsibility very seriously, I assure you. We have ranked up in terms of our staff.

(18:45)
I will say that the resume for themselves, hiring very talented people from the private sector as well as talent from throughout the government. So we will continue to build up our staff. We have job postings on USAJobs today and are actively looking for folks, but it's absolutely critical that we have the funding and resources to continue to monitor and surveil our markets.

Ms. Craig (19:08):

I'm going to resist the temptation to argue with you on the efficiency in the Trump administration, but I'll stick with the CFTC here this morning. I'm very concerned about some of the activity going on with prediction markets under your jurisdiction. In policing these new prediction markets for fraud, manipulation, and insider trading, the exchanges where these contracts are traded, designated contract markets also play a role in policing their own markets. Can you give us a little more detail about the differences between the activity the CFTC engages to police these markets compared to what these prediction market DCMs are doing? Is the agency surveilling these markets itself or is it just overseeing the efforts of the DCMs?

Chairman Selig (19:53):

The Commodity Exchange Act sets forth a regulatory scheme where the exchanges are the first line of defense. They're self-regulatory organizations, which means that they have quasi-regulatory authority granted to them by the government. These exchanges monitor for activity in their markets, including insider trading, abusive trading practices, fraud and market manipulation. They're also the first line in reviewing contracts that are listed. These contracts are typically self-certified with the agency, the exchanges certifying to us that they're not readily susceptible to manipulation, among other things. We are the second line. We are always reviewing the activity of these exchanges on a regular basis and reviewing each contract self-certification. We have the ability to reject those contracts.

(20:40)
We also have the ability, of course, to work together with the exchanges to police fraud, insider trading, and market manipulation. And so we're in regular dialogue to learn about what's occurring in these markets. We're surveilling them, the exchanges are surveilling them, and we're of course working with law enforcement where appropriate as well. It's a comprehensive scheme where we have multiple levels of review of each contract and various activities in the markets, and we will continue to work together with the exchanges to make sure that the markets are well functioning.

Ms. Craig (21:09):

Mr. Chairman, you mentioned you have the ability to reject these contracts. Do you know off the top of your head, under your leadership, how many of these contracts have been rejected?

Chairman Selig (21:21):

Ranking member, we regularly reject contracts. I don't have the exact number in front of me, but what I will say is that under the prior administration, there was a lack of clarity on a lot of these contracts. And the floodgates really opened and I inherited a lot of these contracts when I took office just over 100 days ago. So we're actively reviewing what's out there. We're making sure there's clear guidelines and guidance. And we've submitted for the record actually our advanced notice proposed rulemaking on the topic of prediction markets, which a lot of these new self-certified contracts are within the event contract space. And so we are soliciting input as to what sorts of standards and guidelines we should have in the marketplace.

Ms. Craig (21:59):

Thank you. As you well know, you are the only commissioner at the CFTC. A scenario that it is fair to say Congress never intended. I talked about this in my opening remarks. Can I get your commitment that you will, well, number one, can I get your commitment that the Trump administration, when it adds commissioners, will do so as Congress intended on a bipartisan basis, and also your commitment that you won't finalize any new regulations with you as the only sitting commissioner?

Chairman Selig (22:35):

Well, of course, the president makes decisions around nominations, and so I look forward to working with whoever the president chooses to nominate, but in the interim, we cannot, for the sake of the American people, slow down on our rulemaking. It's very important that we get investor protections, consumer protections, and safeguards for our markets, and so I cannot unfortunately commit to not do my job that I was appointed to do by the president.

Ms. Craig (22:59):

Thank you. You just confirmed that you will not stop any regulation when you're the only sitting commissioner. And sadly, I think this points to continued partisanship. Thank you, and I yield back.

Chairman Thompson (23:13):

The gentle ladies time expired, I now recognized a gentleman from Oklahoma, the chairman emeritus of the House Agriculture Committee, one of them, Mr. Lucas, for five minutes.

Mr. Lucas (23:23):

Thank you, Mr. Chairman. And thank you, Chairman Selig. It's good to see you again. I want to start off by thanking you for finalizing last year's proposal to expand cross-marginalizing to customers. As chairman of the task force on treasury market resilience over on another committee, I've been calling for the CFTC and the SEC to finalize this proposal and well in advance of the clearing rules effective date, especially in coordination with the Basel re-proposals, changes in netting. Chairman Selig, the treasury market is the most important market in the world. And the last time Chairman Atkins testified before Financial Services, he and I agreed that cross-marginalizing must be efficient with the capital. How are you working with the prudential regulators through the Basel III comment period to ensure that their proposed changes on netting work together with the actions you've been taking today?

Chairman Selig (24:22):

Congressman, I absolutely share your view that the treasury markets are critical and we've got to make sure that we have efficiencies in our markets. And for too long, the SEC and CFTC regimes have not been compatible with one another. And so we've had broker dealers on the SEC side and futures commission merchants on the CFTC side that have different sets of customers, sometimes similar customers, but they've not been able to cross margin and net their collateral across the regimes. And so we're working together with the SEC to make sure that that's no longer the case.

(24:53)
Yesterday, of course, we've put out some exemptive relief for the CME and FICC to make sure that their customers are able to cross margin, and we believe this will trickle down and benefit our everyday American consumers and market participants as customers of these brokers. I think it's absolutely essential that we continue to work together.

Mr. Lucas (25:14):

Absolutely. The previous Basel proposal would have significantly increased capital associated with banks clearing derivative products, disincentivizing the already limited capacity for ag end users. We know clearing reduces systematic risk and that hedging and derivatives markets is helpful and a helpful risk management tool. In your view, what are the benefits that clearing derivatives have in reducing systematic risk in derivatives markets? And how are you working with the bank regulators to make sure their final rules reflect that?

Chairman Selig (25:51):

One of the important reforms that came out of Dodd-Frank was focusing more of our derivatives markets into clearing, and I think this has been very beneficial. We've had much more transparency and much less risks, much less counterparty risks when you have a central counterparty clearing each trade. I think that's absolutely essential. We are getting more information as to the risk in our markets by coordinating with the clearing houses at the agency and we'll continue to monitor that risk and surveil that risk, but it does create a much more well-functioning system to have the central counterparty clearing each transaction.

Mr. Lucas (26:26):

You've mentioned previously that you're considering agriculture and energy exceptions from the swap dealer de minimis calculation. What liquidity benefits do you anticipate for commodity swaps markets with these changes?

Chairman Selig (26:41):

Well, it's very important that we have well-functioning commodity derivatives markets for our participants. And part of that goes to, as we just mentioned, central clearing, it also goes to making sure that we have robust order books with deep liquidity. And so we're continuing to surveil the markets, making sure that these [inaudible 00:26:58] are liquid that they're deep, that they've got investor protections to ensure that our market participants who are accessing these markets are able to get the best value for their money, and also making sure that there's not risk of these clearing houses and exchanges damaging the books of our everyday Americans who are using the markets.

Mr. Lucas (27:19):

Chairman, Congress created the CFTC and the SEC with separate and distinct missions. How are you ensuring jurisdictional lines of authority are not being blurred between CFTC and the SEC? I understand your interest in harmonization, but we must protect the market benefits of having bright lines of responsibility between the regulators.

Chairman Selig (27:41):

Congressman, I absolutely agree. And the CFTC and SEC serve very different functions. The SEC is a capital markets regulator. The CFTC is a risk management regulator, and we've been really focused on the agricultural markets for so long, whereas the SEC has been more focused on Wall Street. And so it's very important that we keep these two agencies distinct, but it's important that they work well together and that they have the ability to harmonize their rule sets. We don't want to overly regulate, to duplicatively regulate our market participants because that cost trickles down to the consumers that are using these markets.

Mr. Lucas (28:15):

Mr. Chairman, Congress created the CFTC to regulate our derivatives markets for ag commodity end users. I look forward to seeing you reorient the focus of the agency on serving our producers, and I encourage you to work closely with this committee and Secretary Rollins. And with that, I yield back, Mr. Chairman.

Chairman Thompson (28:29):

The gentleman's time expired. Now recognize a distinguished gentleman from Georgia, also a Chairman Emeritus. Mr. Scott, for five minutes.

Mr. Scott (28:39):

Thank you, Chairman. And welcome, Chairman Selig. Good to have you here, but I would like to focus on how Congress can help the CFTC protect sensitive information in our markets from hackers and data breaches. And I spoke about this issue in the Financial Services Committee yesterday as it pertains to the SEC. Now, the CFTC and the SEC have recently entered into a memorandum of understanding to better align regulations on emerging trading models, and I'm working on a bill to address that, along with my colleague and friend from Cobb County, which we serve in together. I want to ask you, Mr. Selig, could you clarify to members of this committee, what this partnership will accomplish and why it is so important to the CFTC?

Chairman Selig (30:17):

Thank you, Congressman. For too long, the SEC and CFTC have failed to work well together. And this has been to the disadvantage of the American people. When our agencies are not able to share information and coordinate at the staff level, that means that things fall through the cracks. That also means that sometimes we might act in very different ways and that's going to lead to inconsistent rules and regulations for the American people. It also is important for our surveillance system. We've got to make sure that we're comprehensively surveilling the markets, and so it's helpful to have an understanding of what's going on in the securities markets while we're at the CFTC, and for the SEC also to have an understanding of what's happening in the commodities market.

(30:57)
Under this memorandum of understanding, we've committed to work together on certain areas of shared regulatory interest and also for our staff to share information and coordinate on various matters. And this can include things like surveillance, policymaking, as well as just day to day, making sure the staff have the open lines of communication on all matter of issues.

Mr. Scott (31:19):

Okay. Thank you. And I recently worked with my colleague from North Carolina, Mr. Rouzer, on introducing the CFTC Proprietary Information Act to safeguard sensitive information. My second question to you is this. Mr. Selig, can you tell us how the Commission handles requests and shares sensitive information? Tell us how you do that.

Chairman Selig (32:00):

Congressman, we adhere to all statutory requirements with respect to protecting sensitive information, whether it's PI or other types of sensitive information. We take that very seriously. And so we are complying, of course, with all requirements in our statute and our rules that we've promulgated, as well as any other federal standards.

Mr. Scott (32:19):

Okay. Well, thank you for that. And are there any other authorities Congress can provide to you, to the CFTC that can help you and the Commission better protect American's sensitive information? And as I mentioned to you, I'm going to be working on this issue. I look forward to working with you. And as I mentioned, I'm working on a bill with Mr. Loudermilk, my friend and colleague. And so we're going to be working with you. This is a tremendous problem and our nation is losing a lot of money because of these hackers. And you two have got to work together and synthesize what we're doing. I look forward to working with you on it. Thank you. And I yield back, Mr. Chairman.

Chairman Thompson (33:33):

The gentlemen yields back. Now recognized the other distinguished gentleman from Georgia, the vice chair of the full Ag Committee, Mr. Austin Scott, for five minutes.

Mr. Austin Scott (33:43):

Thank you. Chairman Selig, decentralized exchanges like Hyperliquid are now listing perpetual contracts on crude oil. These products are functionally identical to what is traded on the Chicago Mercantile Exchange and the Intercontinental Exchange, but

Mr. Austin Scott (34:00):

They do not have segregated funds, market surveillance, or US oversight. As a result, many market participants and hedgers are concerned about real world economics of these platforms. For example, surging volumes in oil contracts are potentially impacting the price of a gallon of gas for US drivers. And if my understanding is correct, as many as 200,000 orders per second occur on hyperliquid and other decentralized exchanges. How should Congress ensure these platforms meet the same standards as our regulated exchanges, and what is the risk if we do not?

Chairman Selig (34:46):

Congressman, I appreciate you pointing out this distinction between our offshore and onshore markets. And of course, the markets here in the United States are subject to comprehensive CFTC regulation. We require these exchanges and clearinghouses to register with us and to abide by certain core principles that are set forth in our statute, and we surveil these markets on a regular basis.

(35:08)
We are very much aware of some of these products trading offshore in markets that are not comprehensively supervised by us. And of course, our goal's always going to be to onshore those markets and to have the markets subject to our regulation here in the United States and accessible to our US persons here in the US, but we are monitoring this. And of course, to the extent that there are products available that are taking liquidity out of the United States, we're going to make sure that we bring that back here into the United States under comprehensive regulation.

Mr. Austin Scott (35:41):

Well, I look forward to specific recommendations that you have that Congress can do to make sure that those markets have to meet the same standard. If the volume that I'm seeing is correct, it has the potential to be detrimental to the United States consumer.

(35:58)
In your testimony, you said a priority of yours is to modernize the agency, keep pace with innovation. The markets overseen by the agency continue to evolve rapidly, including some of the technology that I just discussed. As we've discussed, innovation is in the Commodity Futures Trading Commission's mandate. I introduced the CFTC Research and Development Modernization Act with Congresswoman McDonald Rivet to give the agency necessary tools to stay ahead of the curve. This particular piece of legislation expands and future-proofs the commission's mandate to explore new technologies, which we're seeing more trading on, encourages the agency to establish a research and development plan, provides new procurement authorities to facilitate that plan, and allows the CFTC to work more closely with technology companies to understand what those technologies are developing and how those products will fit into or may fit into the agency's framework and their rules and regulations. Do you think updating and formalizing the commission's research mandate and tools make sense? And will this be helpful? And how will this help the agency, if you do?

Chairman Selig (37:13):

Congressman, I appreciate your leadership on this issue. And I think it's absolutely essential that we future-proof the agency, that we modernize the agency for things to come, and that can include things like research and using new technologies, understanding those technologies. And we've taken clear leadership on that since I've joined the agency, making sure the staff are prepared for this new age of innovation. And so I support your efforts and we look forward to working with you on the legislation.

Mr. Austin Scott (37:41):

Thank you. I'm looking forward to any specific suggestions that you have with any changes that you may need to the legislation to make it more effective. With that, Mr. Chair, I yield the remainder of my time.

Chairman Thompson (37:51):

Does the gentlemen yield?

Mr. Austin Scott (37:52):

Yes, sir.

Chairman Thompson (37:53):

Thank you. Mr. Chairman, I appreciate your emphasis on efficiency, kind of going back to previous discussions. I think that's important, especially it sounds like you're really trying to leverage AI and automation where appropriate in order to gain greater efficiency. I also know that we're putting a lot on your plate with digital assets and we're obviously going down this path with prediction markets. I don't know how that's going to wind up. So I just want to make sure that if you find yourself in the future in a situation where the need for additional qualified staff emerges, that you will communicate that back to the committee.

Chairman Selig (38:47):

Absolutely.

Chairman Thompson (38:49):

I appreciate it. And I yield back. Now recognize to the distinguished farmer from California, Mr. Costa, for five minutes.

Mr. Costa (39:02):

Thank you very much, Mr. Chairman, Ranking Member, and my colleagues for this hearing. I think it's important and I think we need to continue this style. There's a lot to dig into. [inaudible 00:39:12] observation, Chairman Selig, and I thank you for being here. As I observed and I looked back at the last 26 years of the commission and its makeup on the membership and the requirement under the law that Congress set that three members be of one party and the other two vacancies be of the other party, I am at a loss to understand, and I'm sure you follow the law and you have a level of integrity, but no one has determined that you're Solomon-like nor king. And I think it's inappropriate to have one person, as much as you'll try to be attentive to making these determinations, when the law was very clearly intended to be a bipartisan representation. And that's my observation, and I hope we will address that at some point.

(40:09)
But I want to talk about some other efforts that are new today. We have the so-called event contracts. It's not just some new harmless financial product, in my view. In too many cases, it's gambling by just another name. Betting on sports, on politics, on some cases even on war, instability, and human suffering. While companies try to hide behind the federal law and call it innovation, it's not innovation. It's a bet. This is a serious problem I think we have in states, like I represent in California, where voters have already rejected expanded online sports betting.

(40:54)
It's serious problem for tribal governments, and we have 106 of them in California whose gaming rights and revenues depend upon carefully negotiated tribal state compacts, and it's a serious problem for credibility of your agency, your agency, Commodity and Future Tradings Commission, if an agency starts looking less like a market regulator and more like a body that's giving permission for these platforms and what they cover.

(41:23)
I want to say this plainly. When I was here when Dodd-Frank was passed, Congress did not put public interest guardrails in a place for contracts involving gaming, war, death, or assassination so that they could be later repackaged as a new line of business on a federally regulated exchange. That's my view.

(41:43)
And so I want to know where you think this is going, Chairman Selig. Let me shift to what this means for states like California. Tribal gaming does not exist in a vacuum. It operates under long negotiated tribal compacts tied directly to their sovereignty. Do you recognize these platforms offer sports or casino style gaming contracts undermine that sovereignty?

Chairman Selig (42:11):

Congressman, we are taking our authority very seriously over prediction markets. As I laid out, the Commodity Exchange Act has a very broad definition of the term commodity as well as-

Mr. Costa (42:21):

Okay. On that point, then tell me the commission is not undercutting the tribes while these markets continue to exponentially grow, because that's what's happening.

Chairman Selig (42:33):

Congressman, as I was saying, we take this responsibility very seriously to regulate these markets and we've come out with advanced notice and proposed rulemaking that lists out virtually every question imaginable on the subject matter.

Mr. Costa (42:45):

I'd like you at a separate time to provide this committee how ... I'm not doubting that you're taking it seriously, but Congress intended sports wagering to be repackaged, I don't believe Congress intended sports wagering to be repackaged as a financial product to dodge rules that apply to everyone else, including our tribes. And for colleagues who are concerned about this, I'm working on legislation. I'd like to certainly encourage your participation if you're interested.

(43:15)
Another aspect, I find it deeply troubling that event contracts tie not just to sports and politics, but to war. Reuters reported that six accounts made a combined 1.2 million profit from Polymarket bets that were placed in hours immediately before the February 28 strikes that killed the Ayatollah Khomeini. And Kalshi, there was a bet on whether Ayatollah Khomeini would be out as the supreme leader, reached more than $54.5 million in volume. I mean, this is nuts. You think this is what was intended?

Chairman Selig (43:53):

Congressman, our statute has a very broad definition of the term commodity and a very broad definition of the term swap. We have put out an advanced notice of proposed rulemaking to solicit input as to how we should address these new markets.

Mr. Costa (44:05):

Well, I don't find that a satisfactory answer. My time's expired, but let me just close on this note, Mr. Chairman. I'll tell you, I don't believe this is market innovation. That is profiting from tragedy, and I think we need to get more invested and detailed with where this is all going. Thank you.

Chairman Thompson (44:26):

The gentleman's time has expired. Now recognize the gentleman from North Carolina, Mr. Rouzer, for five minutes.

Mr. Rouzer (44:31):

Thank you, Mr. Chairman. Chairman Selig, great to have you here this morning. I'm over here. Great to have you here this morning and appreciate your testimony very much. I want to touch on what my colleague, Mr. Scott from Georgia, former chairman of the committee, mentioned as it related to protecting all sensitive data. The bill he and I are working on applies the same Section Eight disclosure protections to sensitive data, proprietary information to harmonize the commission's treatment of such data.

(45:12)
What's your thoughts on the importance of Section Eight protection, and if you believe it's appropriate to expand the types of data covered, given the expanding reporting requirements of the commission?

Chairman Selig (45:24):

Congressman, I appreciate your leadership on this legislation, and I share your view that it's really important to be harmonized standards across agencies, in particular when we have common registrants and common market participants. So I look forward to working with your office on this legislation and will be very happy to continue the discussion. Our staff, I believe, have already been providing some technical assistance and will continue to do so.

Mr. Rouzer (45:47):

And we appreciate that very much. Moving on, your testimonies highlights on agriculture markets, or your testimony highlights agriculture markets and how CFTC can improve. You specifically mentioned working on timely publishing reports and data so the market has the best information possible. Can you speak about your goals with the commitment of traders report and how it would help improve the market?

Chairman Selig (46:13):

Absolutely. I think this is a really important issue to our agricultural community. I've met with many farmers, ranchers, and producers who feel that they don't have access to the transparent information that they need. We, of course, are producing these reports and generating reports on a daily basis, but we only publish them on a weekly basis. And so we are evaluating whether to start pushing these out on a more frequent basis and hope to update you all on that very soon, but it's a top priority for us.

Mr. Rouzer (46:42):

Very good. One other issue that's big in farm country, particularly right now, the supply chain impacts in the Middle East have cut global fertilizer supplies by a third and prices have skyrocketed as a result. According to a report released by the American Farm Bureau this past week, it says almost 80% of farmers in southern United States, in the southern part of the United States, they won't be able to afford all their needed supplies this year. Input costs obviously are high all across the board. And only 19% of southern farmers pre-booked fertilizer purchases in advance of the planning season.

(47:22)
So the question is this, as you look at global markets and how they operate, with foreign traders possibly buying up our domestic supply and either reselling at a higher price or shipping it out of the country, what's the CFTC doing to ensure bad actors are not taking advantage of the market volatility there?

Chairman Selig (47:42):

Well, as I said in my opening statement, we have a zero tolerance policy when it comes to manipulation, fraud, or other abusive trading in our markets. And we will use the full force of the law against bad actors. We are also comprehensively surveilling these markets, and that's part of the reason we entered into this memorandum of understanding with the SEC so that we understand what's going on in the securities markets as well, and are comprehensively evaluating what's happening in our markets offshore, as well as in related markets. So we are a cop on the beat and we will continue to monitor and protect these markets to ensure that they're well-functioning.

Mr. Rouzer (48:16):

Thank you. We've seen shifts towards 24/7 trading models, and some participants, particularly in agriculture, are concerned about this approach expanding to all contract types. Has this been a topic that's come up in relation to the work you're doing with the agriculture advisory committee? And how are you looking at market questions like 24/7 trading with ag stakeholders?

Chairman Selig (48:39):

We're meeting with agricultural stakeholders on a daily basis and getting input. We are also, as you mentioned, we have an agricultural advisory committee, which I'm the sponsor of and have a senior agricultural advisor that is managing the committee. So we're getting a lot of input from that. We hope to soon come out with some more information about the topics and subject matters that are under consideration by the committee.

(49:03)
We also, of course, will be hosting the AgCon later this year. I believe the invites or the save the dates should go out tomorrow. So these are all topics that we plan to consider. 24/7 is an important issue. I've said it before, and I'll say it again, that it's not one size fits all, so we need to be very careful as we're evaluating where 24/7 is appropriate in different products and markets.

Mr. Rouzer (49:25):

Very good. Thank you, Mr. Chairman. My time's expired.

Chairman Thompson (49:30):

Gentleman yields back. Now please recognize the gentleman from Massachusetts.

Mr. McGovern (49:35):

Thank you. And I want to thank you, Mr. Chairman, for being here. And while I appreciate that you think this administration has done right by American farmers, let me tell you that our farmers are struggling like never before, in a large part due to policies that this administration has championed.

(49:50)
But I want to talk about the predictions markets. As you know, I and others, including Ranking Member Craig, wrote you a letter expressing our serious concerns about the possibility of insider trading, and I'll get to that in a moment, but I just want to ask a couple of basic questions here. Mr. Chairman, would you say that the two biggest prediction markets, Kalshi and PolyMarket, are competing with one another? They're competitors, right?

Chairman Selig (50:19):

I believe all market participants are in competition.

Mr. McGovern (50:21):

So I take that as a yes. And as competitors in the same field, it would stand to reason then that they're trying to gain an advantage over one another. That's what competitors do, right?

Chairman Selig (50:34):

That's what competition is, yes.

Mr. McGovern (50:36):

So Mr. Chairman, are you aware that President Trump's son, Donald Trump Jr., has been hired as an advisor for both Kalshi and PolyMarket, two competing companies?

Chairman Selig (50:51):

Congressman, I'm aware of this.

Mr. McGovern (50:54):

And would you say that it's accurate then that the Trump family has a financial stake in how these prediction markets are regulated?

Chairman Selig (51:06):

Congressman, I believe this hypothetical that you're trying to engage in is a political exercise.

Mr. McGovern (51:11):

I don't know how this is hypothetical. The president's son is involved with both of these companies. He makes a lot of money for it. But of course they have a financial interest in all of this. The president's son is on the board of both multi-billion dollar prediction market companies. So it seems to me like the only reason two competing companies hired the same person is because they think he must be really, really, really valuable. And I wonder why they would think that, right? But Mr. Selig, has anybody in the White House ever asked or insinuated that you should drop the CFTC's probe into Polymarket?

Chairman Selig (51:53):

Congressman, we treat all market participants alike. We do not pick winners and losers or engage in favoritism or bring politics into any of these matters. We take them very seriously, and I think it's insulting that you're insinuating that we would-

Mr. McGovern (52:06):

No, I'm worried because it smells like corruption. I'll be honest with you. Mr. Selig, back to something you said about prediction markets and going after insider trading. You said in your testimony just now that anyone who engages in fraud, manipulation, or insider trading in any of our markets will face the full force of the law.

(52:23)
And just before 7:00 AM on Monday, March 23rd, someone placed roughly $500 million in oil and equities future trades, betting that oil prices would plummet and the market would rally. And at 7:04 AM, President Donald Trump posted on Truth Social that the US had begun ceasefire talks. Now, whoever placed that bet knew what the president was about to post and made a lot of money off of that, made a lot of money off of that. Mr. Selig, you and I both know that the odds of that bet is like a billion to one, and I have one example after another of similar bets.

(53:08)
There was no public information about ceasefire talks. These are decisions that are made in the White House at the highest levels, decisions that very, very, very few people know about until the president posts them. So yes or no, Mr. Selig, do you think the president's top staff would have that knowledge about a ceasefire?

Chairman Selig (53:30):

Congressman, as I said in my opening statement, we have a zero tolerance policy when it comes to fraud, abusive trading practices, and manipulation, and anyone who engages in that behavior will face the full force of the law.

Mr. McGovern (53:41):

Do you think the president's family would have knowledge of that? What about Donald Trump, Jr.? Do you think he would have known that maybe an announcement of a ceasefire was coming?

Chairman Selig (53:52):

Congressman, I'm not going to play speculation games with you, but I will tell you that we have a zero tolerance policy when it comes to fraud, manipulation, insider trading, and we will bring actions against those who engage in that behavior.

Mr. McGovern (54:03):

So yes or no, are you aware of public reporting that the net worth of the Trump family, meaning President Trump and his immediate family members, has gone up by $1.4 billion since he took office a little over a year ago? Because it has.

(54:17)
And I believe that this president is using public power for private profit. And I think he and his family are lining their pockets with insider information. And I think Donald Trump Jr. is trading his access for money, and I think it's the definition of corruption, and I think that your actions to deregulate this market are helping them do it, and I think it is wrong. I think it is wrong. And I think it's something that this committee needs to pay much more attention to. With that, I yield back.

Chairman Thompson (54:45):

The gentleman's time has expired. Now recognize the gentleman from Nebraska.

Mr. Bacon (54:49):

Thank you, Mr. Chairman.

Chairman Thompson (54:50):

Five minutes.

Mr. Bacon (54:51):

Also, thank you, Mr. Chairman, for being here. I would like to follow up on some of the questions that Mr. McGovern asked. There are a number of stories circulating describing patterns of insider trading, that the authors claim to be obvious trading. So my first question is, can publicly available trading data disclose individual traders, their individual positions, or the intentions behind individual trades?

Chairman Selig (55:16):

Well, Congressman, we have a number of different venues for transparency in our markets. Of course, the exchanges themselves have order books that we are monitoring, as the CFTC, as a regulator of these markets. We also have swap data reporting. So a lot of the swaps markets that are over the counter, in the wake of the financial crisis, we had Dodd-Frank, which has brought transparency to those markets. So of course, the public has a line of sight into what's happening over the counter as well as on the exchanges, and the CFTC is the real line of defense in monitoring all of that.

Mr. Bacon (55:48):

Okay, a follow-up. Second, does the commission, either directly or with applicable self-regulatory organizations, examine reports of insider trading in the markets regulated by the commission?

Chairman Selig (56:01):

As self-regulatory organizations, the exchanges have the ability to surveil and police and monitor their markets. They of course have rule books that expressly prohibit things like insider trading, market manipulation, and abusive trading practices. And some of the exchanges have brought recently actually actions both in the prediction space as well as in other contexts in our more traditional markets. And so that's something exchanges are doing on a regular basis. We're examining and overseeing those programs as the regulator of these SROs, and we'll continue to do so.

Mr. Bacon (56:33):

Third, has the commission examined the facts behind some of the recent high profile accusations of insider trading in oil and in S&P 500 futures?

Chairman Selig (56:43):

As I said in my opening statement, we have a zero tolerance policy when it comes to fraud, insider trading, and manipulation in our markets, and we're actively policing and surveilling these markets. I can't speak to any particular investigation, the existence of an investigation or not, because of course that would hinder the investigation itself, but we are a cop on the beat and we'll continue to be.

Mr. Bacon (57:03):

I also have a follow-up with Mr. Costa's question. I've seen some of the uncomfortable [inaudible 00:57:08] related to prediction markets in recent months, including the markets on Maduro's ouster and the war in Iran, markets settled just by words spoken on earnings calls and a story about a journalist being threatened over his reporting. My question to you is, do you need more authorities, or how can we assist in this area?

Chairman Selig (57:26):

We have a wealth of authority under the Commodity Exchange Act. As I mentioned previously, the definition of commodity is very broad. The definition of swap is very broad. Our extraterritorial authority to the extent things are happening offshore is fairly broad. There are areas where it could be expanded. Under Dodd-Frank, we have much greater extraterritorial authority when it comes to the swaps markets, but the futures contracts markets less so. And so that's certainly something we'd be willing to consider and work with your office on expanding.

Mr. Bacon (57:56):

If we could take some of your counsel and advice on how we can provide the better and more defined authorities for you, we'd be glad to support and work with you. With that, Mr. Chairman, I yield.

Chairman Thompson (58:09):

The gentleman yields back. Now please recognize the distinguished lady, Dr. Adams from North Carolina.

Dr. Adams (58:15):

Thank you, Mr. Chairman, and thank you, Mr. Selig, for being here. I want to follow up on the Ranking Member's question, and also Mr. Costa made reference to this. In terms of the new regulations and you being the only sitting commissioner, did you say that you would move ahead, move forward with making major new regulations? Did I understand you say that?

Chairman Selig (58:47):

Congressman, woman, I believe I need to do that as chairman of the agency. It's absolutely essential that the American people have the investor protections that they deserve, and so we will continue to evaluate the need for new rules and move forward with those rulemakings as appropriate.

Dr. Adams (59:02):

So as one person, other commissioners are not there, you think you ... Okay. Okay. Let me move on. Your testimony says that your staff has been [inaudible 00:59:12] cumbersome rules so that even small producers, farmers can properly manage risk. I haven't seen any proposed rule changes announced by the commission, just the ANPR on prediction markets. So can you explain what rules you have changed that directly impact farmers and how was this done without notice and comment?

Chairman Selig (59:38):

Congresswoman, we're working on rules that will help protect our farmers, ranchers, and producers. One of the biggest issues that we're addressing has been the lack of the ability to access the market. So some of the futures commission merchants, which are the brokers that these farmers, ranchers, and producers are using to get to the exchanges, they've been really heavily regulated. We've seen the massive overregulation of the real world economy through Dodd-Frank regulations over the years. So we're taking a hard look at those, and we do look forward to coming out with some new proposals that we believe will help roll that back.

(01:00:13)
We are also looking at the swap dealer de minimis threshold. As I mentioned in my opening statement, there are many of these dealers out there who are reticent to transact with the smallest producers, whether it's in energy, agriculture, or critical minerals. And so we're hoping to take a look at what sorts of swaps get calculated into the swap dealer registration threshold to help.

Dr. Adams (01:00:35):

Okay. Thank you. Let me move on. So the Financial Times reported that US broker Robinhood has excluded some prediction markets and some contracts from their customers over concerns they encourage manipulation and inside trading. They're particularly worried about so called mention contracts, where wagers are made on words that will be used at certain speeches or events. These are contracts that can be found on US registered exchanges. So if Robinhood recognizes these contracts as susceptible to manipulation and trading, why doesn't CFTC?

Chairman Selig (01:01:17):

Congresswoman, we've come out with an advanced notice of proposed rulemaking on this subject, so I don't want to prejudge any of those issues, but we've laid out, and I believe we've submitted it for the record, a list of questions related to this subject as well as many others. And so we're hoping to get stakeholder input from Robinhood, as well as anyone else that wants to comment on this issue.

Dr. Adams (01:01:37):

Okay. So do you believe that these mention contracts, for example, like what former Congressman George Santos said on a Newsmax interview, do you believe that they are not susceptible to manipulation?

Chairman Selig (01:01:52):

Well, Congresswoman, I'm not going to prejudge these questions. As I mentioned, of course the exchanges are the first line in determining whether a contract is readily susceptible to manipulation. And it's a very serious matter to self-certify that and to certify to the commission that that is the case. We evaluate that and we will continue to do so, but it's really important that we get the input from the community on these issues through our rulemaking process.

Dr. Adams (01:02:17):

So let me ask about this enforcement report. Typically, the CFTC publishes this enforcement report during the quarter at the end of the fiscal year, October one through December 31. It's six months and a half past since fiscal year '25 has ended and the CFTC still has not published its 2025 enforcement report, which would primarily cover the period of your predecessor. So is it your decision to withhold publication of this report? If so, why? And if not, whose decision is it?

Chairman Selig (01:02:57):

Congresswoman, I've been in the seat for just over a hundred days now, and so of course we've revitalized our enforcement program. We take this very seriously. As I said in my opening statement, we have a zero tolerance policy when it comes to fraud, manipulation, and abuse, and we will continue to take action to make sure that our enforcement program is strong.

Dr. Adams (01:03:17):

Thank you, Mr. Chairman. I yield back.

Chairman Thompson (01:03:19):

Gentlewoman yields back. Now recognize the favorite son of South Dakota, Mr. Johnson, for five minutes.

Mr. Johnson (01:03:25):

Chairman Selig, thanks for being here. I was glad Chairman Thompson hit a little bit on clarity, which as you know would clearly and further establish the CFTC's role as the primary regulator of digital commodities. To me, this just makes sense, given the fact that you're a principles based regulatory framework agency. That's a much better fit, I think, than the SEC. As your team has reviewed Clarity, sir, do you feel like it gives you the legal authorities and the tools you'd need on the spot market side?

Chairman Selig (01:03:56):

Well, Congressman, I applaud your leadership on digital asset issues and this committee for working to advance bipartisan crypto market structure legislation. I believe that the legislation is really critical to allow for exchanges, brokers, and custodians to register with the CFTC. I think this is an important endeavor.

(01:04:17)
We've seen for too long this patchwork of state licensing regimes, whether it's virtual currency licensing or money transmitter licensing. And I believe that the work of this committee, as well as the work ongoing in the Senate Ag Committee, have really put forward a comprehensive and very well thought out registration regime with the CFTC. I believe the bills are very similar, and so I'm looking forward to seeing these on the president's desk very soon.

Mr. Johnson (01:04:43):

So obviously if the Clarity Act gets passed into law, which it should, it's a strong bipartisan work product, I mean, your agency is going to be given some additional tasks, particularly on the spot market side. Do you have comfort, sir, that the legislation as currently drafted gives you all the tools and the authority you need to do that appropriately?

Chairman Selig (01:05:06):

Congressman, I do believe everything I've seen to date, of course, we don't have the final version on the Senate side, but everything that I've seen so far has been excellent and really provides the agency with the authority it needs to comprehensively regulate these markets to have registration of new market participants and make sure that we're really a future forward regulator for this new asset class.

Mr. Johnson (01:05:29):

Of course, too often it's the case that Congress doesn't act until there's some urgency. Talk to the committee a little bit. Is there any particular urgency in the marketplace? I mean, are there particular reasons why Congress should act to pass the Clarity Act or some other market regulating bill in the short term? Or should we just shrug our shoulders and say we could get this done in five or 10 years?

Chairman Selig (01:06:00):

Well, we saw with the implosion of FTX that the CFTC regulated FTX platform protected customer funds, whereas these offshore platforms, platforms subject to different regulatory treatment, really did not have the safeguards to protect American customers. And so I think it's absolutely critical. Every day we delay is putting American investors and consumers at risk.

(01:06:23)
And I am concerned that if we don't get this done now, we won't have adequate time to [inaudible 01:06:29] rules in place. And so that also extends the risk to investors and consumers in these markets. And so I really applaud the efforts, and I do believe there's a sense of urgency because it's absolutely vital that we have clarity, certainty, and investor protections for these markets.

Mr. Johnson (01:06:44):

Yeah. Mr. Chairman, I think that's exceptionally well said. I mean, if we care about consumer protection, and we need to, if we care about innovation, and we need to, if we care about a fully functioning marketplace, and we need to, passing the Clarity Act is really, really important.

(01:06:59)
Lots going on in your world. I just want to touch base and see how the conversations are going with your agricultural advisory committee as they look at all of the things going on at the commission that are maybe not related to the ag portfolio of your authority. Does the committee feel good about where your work's at on the agricultural side?

Chairman Selig (01:07:22):

Absolutely. So we have revitalized the agricultural advisory committee. It's got a great team. We've just announced the whole roster and we're looking forward to having the meeting, open meeting very soon with the full slate. And so the critical issues, I've discussed some of them today, but of course the COT reporting, 24/7 trading, all of that will feature prominently, I think, in these discussions.

(01:07:46)
And I'm looking forward to continued discussions with the agricultural community and other venues as well. We've announced our AgCon that will be held later this year. And so it's not just limited to the Ag advisory committee. I encourage anyone that's

Chairman Selig (01:08:00):

... interested in these issues to engage with us as much as they'd like.

Mr. Johnson (01:08:04):

Thanks much. With that, Chairman Thompson, I would yield back.

Chairman Thompson (01:08:07):

Chairman yields back. Now recognize the gentle lady from Oregon, Ms. Salinas, for five minutes.

Ms. Salinas (01:08:12):

Thank you, Chair Thompson for holding today's hearing and Ranking Member Craig, and thank you to Chairman Selig for being with us today. In his speech on March 31st that you enclosed with your two-page testimony, Director of Enforcement David Miller outlined the Division of Enforcement's five enforcement priorities and stated that CFTC will hire additional staff to help address these priorities, and you've been repeating that here today. However, since FY24, the CFTC's budget for the division of enforcement has shrunk significantly, and the FY27 budget only requests three additional staff. Will three additional staff members be able to adequately address these five priorities, specifically insider trading and fraud in the predictions markets? And how specifically do you use AI with human interaction and intervention oversight to address this?

Chairman Selig (01:08:59):

Congressman, as I said, in my opening statement, we take enforcement absolutely critically seriously. This is a top priority of mine as chairman. I cannot have threats to our markets such as insider trading, manipulation, and fraud undermining the real important policy work that we're doing here, the real important investor protections that we're putting in place. So David Miller has been staffing up within the Division of Enforcement and the number that you cite, the three persons, I believe is possibly not exactly correct. We certainly will continue to expand and we have a number of job postings currently on USAJOBS and we'll continue to post as needed. Of course, tools such as AI are going to be very helpful in surveilling and bringing investigations and we're incorporating that into various workflows. So we are a cop on the beat and we're absolutely taking this mission-critical function seriously.

Ms. Salinas (01:09:57):

Thank you. How many investigations related to prediction markets are currently ongoing?

Chairman Selig (01:10:03):

Congresswoman we have numerous investigations ongoing. I can't speak to the specific number and the specifics of those investigations as that is something that's non-public.

Ms. Salinas (01:10:13):

Why not?

Chairman Selig (01:10:13):

It would hinder the investigations themselves and of course-

Ms. Salinas (01:10:16):

In the aggregate, how many investigations are ongoing? You can't give us that number?

Chairman Selig (01:10:20):

Congresswoman we receive hundreds of tips that prompt investigations. So there's many, many, whether it's in the hundreds or thousands investigations ongoing. I can't speak to the specific number, but of course we're always receiving tips and always responding and making sure that we're protecting our markets.

Ms. Salinas (01:10:36):

Okay. Those hundreds to thousands of investigations, how long do the investigations typically take?

Chairman Selig (01:10:42):

Congresswoman, the investigations can take varying lengths. It really depends on the nature of the investigation. We are not going to rush these investigations, and then oftentimes they require coordination with law enforcement and other agencies, but investigations take varying lengths. Sometimes it can take up to a year or multiple years before we charge or file any sort of complaint.

Ms. Salinas (01:11:03):

Okay. Thank you. Has the commission considered whether additional safeguards such as geofencing might be appropriate in certain contexts, including with respect to activity occurring on tribal lands? And if so, what factors would inform that kind of rulemaking?

Chairman Selig (01:11:17):

Congresswoman we've come out with a advanced notice of proposed rulemaking when it comes to prediction markets. So we are soliciting comments as to any changes to our rules with respect to these products. We of course are taking input from members of the tribal community. I've met with several of the tribes and we'll continue to meet with the tribes going forward. So that's certainly an issue that we'll consider and we'd be happy to work with your office if it's something of importance to you.

Ms. Salinas (01:11:44):

Thank you. I would like to work on that. Can you explain how the lack of geofencing might interact with the Indian Gaming Regulatory Act?

Chairman Selig (01:11:54):

Congresswoman, this again is a matter that I don't want to prejudge. It is something that can be addressed in our rulemaking. So we've asked for public comment on these questions.

Ms. Salinas (01:12:04):

Thank you. One final question. I'm co-chair of the Mental Health Caucus with one of my colleagues, Mr. Bacon as well. There's growing attention around behavioral health risks in both financial trading and gambling. How does the commission think about mitigating risks of excessive or compulsive participation in prediction markets and is this something that you track?

Chairman Selig (01:12:23):

Well, Congresswoman, this is something that is deeply concerning to the extent that there's addiction or other harms coming from the use of our financial markets. We take that very seriously and are here to assist, whether it's through legislation or otherwise, with these efforts. We also have market participants such as brokers and exchanges that have responsibilities to their customers [inaudible 01:12:48] educate on the various risks in using the market. So we'll continue to work with our exchanges and our brokers to make sure that they're providing that information and disclosure to their market participants.

Ms. Salinas (01:12:59):

Thank you again for being here. I yield back.

Chairman Thompson (01:13:01):

Genetlelady yields back. Now recognize the gentleman from Kansas, Mr. Mann, for five minutes.

Mr. Mann (01:13:09):

Great. Thank you, Mr. Chairman, and thank you for being here to testify. I represent the Big First District of Kansas, which is 60 primarily rural counties in Western and Central Kansas. The CFTC plays a critical role in our economy, ensuring that our markets for ag producers function as they should. For farmers, ranchers, and ag producers in my district, these markets are essential risk management tools to allow them to hedge a ton of uncertainty in agriculture and secure prices, which is always the case. Appreciate CFT's oversight on these very important risk management tools. It was mentioned before, but to reiterate, and as you know, well aware, the agency's gone more than 15 years without full reauthorization. Even as the markets that you regulate and the challenges facing agriculture have grown more and more complex by the day, much less the last 15 years. So I think we can all agree it's way past time that we reauthorize CFTC and make sure that we have transparent, fair, and well-functioning markets.

(01:14:10)
Just a few questions for you, Chairman Selig, and, again, thank you for being here today. In your written testimony, you mentioned that your agency is rebuilding the Agriculture Advisory Committee. I know I think just last Friday you released the members of that committee, and I know you also have mentioned that you're reintroducing AgCon in conjunction with K-State, which is in my district. I commit and appreciate that effort. Can you speak to some of the priorities that you have and what you really hope to get from this Agriculture Advisory Committee?

Chairman Selig (01:14:42):

Thank you, Congressman, and I enjoyed the opportunity to hear you speak at the Commodity Markets Council conference several months ago. The Agriculture Advisory Committee and our AgCon efforts are really critical. We've got to make sure that our farmers, ranchers, and producers have a seat at the table, and there's so many issues that they're interested in, whether it's 24/7 trading, these perpetuals and new types of products in our markets, as well as the really overregulation of the real-world economy through the regulation of our brokers and swap dealers. So we're considering all of that. We hope to have a real open and transparent dialogue with the market participants at the advisory committee, as well as the agricultural convention. And of course, I'm meeting with these folks on a regular basis in my day-to-day job.

Mr. Mann (01:15:28):

And what have you been hearing from the folks representing agriculture? What are the themes or the main things that you've been hearing so far?

Chairman Selig (01:15:35):

Well, they're both excited about the new technologies and changes in our markets, but they do have some concern about things like 24/7... Reporting's an important issue. So the reporting of the trading on call reports, they want to make sure that that is transparent. They've been concerned that some participants have accessed this information from proprietary tools that they don't get, and so they want that reported so that they understand what's going on in the markets. We're also seeing interest and concern around new types of derivative instruments, whether it's prediction markets or perpetuals. And so we're certainly listening to all these voices and making sure that we're addressing these concerns.

Mr. Mann (01:16:17):

I'm glad that you've mentioned the 24/7 model. I had stop-started with the district the last couple of weeks, met with a cattle feeder in Garden City, Kansas, which is in Southwest Kansas. These are very sophisticated ag producers that are trying to hedge tens of millions of dollars of risk on very thin margins, so they cannot afford to make errors. He mentioned to me this concern about 24/7 markets. What thoughts do you have on that and what ought we be doing in your view so far as helping our ag producers with this 24/7?

Chairman Selig (01:16:49):

Well, 24/7 is not one size fits all. So we have to look at each product, each market, and consider whether it makes sense for that product market. And, as I mentioned, many of the farmers, ranchers, and producers are concerned that they're going to have to trade on a 24/7 basis, monitor the markets all night. And that also means 24/7 seven risk management. So these are all considerations and concerns that we're taking in. We've actually come out, I believe under Trim and Fam previously in soliciting input on these issues and we'll consider all of those comments, but it's definitely something that we're on top of and making sure we don't roll out all over the place. It may work for crypto, but not for other things.

Mr. Mann (01:17:37):

I really appreciate you saying that. I think it's important to acknowledge that if we get this wrong and 24/7 previously has the impact to, or the potential to really impact our food supply, because you could have some very sophisticated, large ag producers, small ag producer for that matter, that go out of business because they're on the wrong side of a market move because it happens at 3:30 in the morning because of something going on on the other side of the world, right? So I think we have to understand and acknowledge the complexities of these markets and the importance of getting it right for ag producers. So thank you for being here. Mr. Chairman, I'll yield back the five seconds that I have.

Chairman Thompson (01:18:11):

Gentlemen yields back. I recognize gentleman from North Carolina, Mr. Davis for five minutes.

Mr. Davis (01:18:15):

Minutes. Thank you so much, Mr. Chair, and to the ranking member for having today's meeting and all the work of the committee regarding the CFTC. And to the chair, thank you so much for being here today. I've taken tremendous interest in the CFTC, and I want to jump in here. The recent SEC, CFTC Memorandum of Understanding, which represents a significant step towards reducing fragmentation, improving coordination among our financial regulators. From your perspective, Mr. Chair, what are the most meaningful ways this agreement will improve regulatory clarity and consistency for market participants, particularly in areas like digital assets where jurisdiction has historically been less clear?

Chairman Selig (01:19:06):

Thank you for that question, Congressman. This is a really important issue. If you look at digital assets, as you suggest, blockchain networks span all sorts of products. We've seen digital securities, digital commodities, collectibles, and all sorts of things put on a blockchain. And if we have different rules and requirements on the security side from the commodity side, that can create market issues and that can also result in essentially having [inaudible 01:19:34] blockchains and different types of technologies on each side. We want things built in a way that works for both securities and commodities. And of course, there are differences in the way we regulate in our requirements. So having the open line of communication, having the ability to share ideas and work together to make sure we get it right on both sides in a way that really fits comprehensively and works well together is important to the American people.

(01:19:58)
And so Chairman Atkins and I are committed to working together and this Memorandum of Understanding really solidifies our vision for comprehensively regulated, well-regulated markets.

Mr. Davis (01:20:11):

Thank you. In your remarks at the DC Blockchain Summit, you spoke about a shift towards trust and decentralization where market confidence can increasingly come from transparent systems and verifiable code. As the CFTC evaluates digital asset markets, how do you think about translating that concept into regulatory framework that still ensures accountability, market integrity, and customer protection?

Chairman Selig (01:20:46):

Well, for too long, our software developers, our builders, our innovators have been living in this world of uncertainty where they're trying to build software systems that oftentimes achieve the goals of our regulations, but they might do it in a way that's slightly different from the way our rules and regulations are set up, the way that they require things to run. And so we need to create a future-proof, flexible regulatory scheme that allows for these software systems to function. Oftentimes, automation really works better than regulation because you know that the code is designed to achieve the aim and it functions as designed as opposed to regulation where we have to look over each participant and make sure that they're following the rules. So we don't want to discourage software systems that are autonomous and function on chain in a way that achieves our regulatory aims. We need to accommodate that and allow for it. So we're working closely, as I mentioned with the SEC and also with the market participants to understand what they're building and make sure we have the space here in the United States for them to do it.

Mr. Davis (01:21:53):

Well, I want to make clear, I don't come up here to focus on throwing attacks at anybody, the other side, but I do believe that this is a very, for me, I think an important conversation that we should be able to have in a meaningful way. You're currently the only commissioner at the CFTC, leaving four commissioner seats vacant, and I realize the President has a role in this, and again, it's not aimed here at an attack, but my question just for perspective and background is, what do you see as the impact, the lack of having other commissioners that's on board working during this critical time, because right now the role of the CFTC is vastly changing?

Chairman Selig (01:22:56):

What I believe is critically important is that we get a wide range of input on our work. And what I've committed to do, and as I've put forward advanced [inaudible 01:23:06] rulemaking already, is that we're going to do more through rulemaking. We can't have the staff deciding on discretion what the rules are. So we're putting that out for public input, that allows for a wide range of comment from all stakeholders, and we will consider those comments. We're statutorily required to do so.

Mr. Davis (01:23:26):

Thanks. Ms. Chair, I yield back.

Chairman Thompson (01:23:27):

Gentleman's time expired. Now recognize a gentleman from Indiana, Mr. Messmer for five minutes.

Mr. Austin Scott (01:23:35):

Thank you, Chairman, and thank you Chairman Selig for being here today. Last November, Representative McLean, Delaney and I introduced the CFTC Charitable Organization Exemption Act. Many churches provide retirement and medical benefits to their employees through something called a church plan. And while a small church may not be able to provide robust benefits for its staff, church plans allow multiple churches to pool the resources and improve how they can serve their employees. Unfortunately, the Commodity Exchange Act does not account for church plans, so the commission regulates them as a commodity pool operator or a commodity trading advisor. Chairman Selig, the commission has laid out robust disclosure and reporting requirements for CPOs and CTAs. While prudent for these market actors, would you agree that the same regulations might be burdensome for a church plan?

Chairman Selig (01:24:22):

Congressman, I appreciate your leadership on this issue. And I do believe that some of our rules and regulations really are ill fit for market participants and for different purposes. And church plans is one great example of where you might have a group pulling together funds to manage risk or to create an investment position. And the rules and regulations are really designed for very sophisticated, large institutions. So it's certainly something that I'd be very happy to work with your office on. I believe we're already providing TA on this bill.

Mr. Austin Scott (01:24:52):

Okay. Would you commit to partnering with me as Congress works for a legislative solution for church plans?

Chairman Selig (01:24:58):

Congressman, I'm very happy to work with your office on this legislation.

Mr. Austin Scott (01:25:00):

Thank you. Now I want to pick your brain about another one of CFTC's legal priorities. As you know, in the 2019 CFTC reauthorization bill, which passed out of this committee with broad bipartisan support, included a provision related to privilege retention. Could you explain what privilege retention is and why it's an important protection for the CFTC?

Chairman Selig (01:25:23):

Well, Congressman, as we are working with various matters, we engage in certain communications and oftentimes those communications are protected by a privilege such as attorney-client privilege, work-product privilege, or deliberative privilege, and this privilege protects that information from being disclosed, but there are instances where we're disclosing this information, for example, to another agency or to Congress, and that could jeopardize the privilege.

Mr. Austin Scott (01:25:48):

Okay. Thank you. How would benefits of privilege retention protection translate to the CFTC registrants or individual consumers?

Chairman Selig (01:25:57):

Well, Congressman, I do believe it's very important that we protect privilege when it comes to our communications, but sometimes, as I mentioned, we do have to share certain information with Congress or with other agencies, and we don't want to jeopardize the ability to protect that information. Some of this information's very sensitive, and if it were disclosed, could put individuals at risk. So we are very supportive of protections for our privilege.

Mr. Austin Scott (01:26:21):

Thank you. Yield back the remainder of my time.

Chairman Thompson (01:26:24):

Gentlemen yields back. Votes will be called momentarily, but my intention is to at least get through at least two more members and then we'll reconvene five minutes after the last vote is called. But we're going to keep going and recognize Ms. Budzinski of Illinois for five minutes.

Ms. Budzinski (01:26:44):

Thank you, Chairman. And thank you for being here, Chairman Selig. I want to thank my ranking member too. I don't want to miss that opportunity, but thank you, Chairman Selig for being here. I do appreciate that. Right now, the Commodity Futures Trading Commission is really in the spotlight because of the role it plays in new and emerging markets, especially prediction markets. At their core, prediction markets can look pretty harmless. People are trading on questions such as what song will be number one, who the next James Bond will be, but that's not really where it stops is on these kind of more lighter questions, obviously. These markets are also being used to trade on real world events, government decisions, geopolitical conflicts, and even military action. And that is where prediction markets start to raise some really serious concerns for me.

(01:27:38)
Earlier this year, an article crossed my desk that made this risk very real, and I point this out hours before the United States carried out airstrikes on Iran, [inaudible 01:27:50] newly created accounts on Polymarket place significant bets that those strikes would happen. Six wallets funded within 24 hours of these strikes bet yes, that they would happen and when the strikes would happen. And then they ended up these six wallets, those folks that had them walked away with about $1.2 million in profit. That looks like someone that perhaps might've knew some inside information, in my opinion, or at the very least was trading like they did. And it is not just a one-off event. We are seeing repeated patterns of well-timed, highly profitable bets tied to sensitive global events. That should concern every single one of us, I think, in Congress.

(01:28:37)
I think the question is pretty simple. How did they know that information? And that's why I introduced a bipartisan bill called the PREDICT Act to make sure senior government officials, including members of Congress, senior staff, and executive and judiciary branch officials cannot participate in prediction markets using non-public information that they gained through the jobs that they have. This bill is straightforward. If you are entrusted with sensitive information, you cannot turn around and profit off of it. Because there is a clear difference between making an educated guess on what can happen and insider trading. Public servants should not be profiting off of privileged information that is entrusted to them by the American people.

(01:29:20)
If we do not draw a clear line here, we are leaving the door wide open to corruption. So Chairman Selig, I want to thank you again for being here to talk with us about this important topic, and I do look forward to working with you to stop any insider trading in the prediction markets. My first question is on the PREDICT Act, do you have any thoughts or feedback on what additional steps you would recommend to rooting out insider trading and protecting the integrity of the prediction markets?

Chairman Selig (01:29:54):

Congresswoman, thank you very much for your leadership on this issue. I think it's vitally important that we protect our markets from insider trading, fraud, manipulation, and abuse. And as I said in my opening statement, we have a zero tolerance policy when it comes to any of this activity in our markets. I believe that it's in our statute currently to, of course, police these things, but we can always use additional authorities as we'd be happy to work with your office on how to build that out further. In our statute, the insider trading authority is based on our anti-fraud and nancy manipulation authority, and so it's quite broad, but there are always areas where we can expand that. In particular, some of the contracts you reference are offshore. I mentioned our authority when it comes to policing fraud manipulation is different when it comes to swaps versus futures, so that might be an area where we can work together.

Ms. Budzinski (01:30:48):

That would be great. I look forward to that. The CFTC is responsible for overseeing the markets that our farmers, producers, and cooperatives rely on every single day to manage real risk, as you know. At the same time, the commission's responsibilities are rapidly expanding into digital assets, into prediction markets, and into increasing complex and fast-moving financial products. I know this has been covered by some of my other colleagues, but I share their concern about the lack of staffing at the CFTC. And I want to specifically highlight, you're an independent agency, just like the Consumer Product Safety Commission is an independent agency. There's a lawsuit that's a legal action that is escalating to the Supreme Court on the fact that they too, like the CFTC, don't have their commissioner spots filled. They too only have one person serving on that commission. And my question is just with two, three seconds remaining, how challenging is that to not have other colleagues, other commissioners, when you're taking on more and more responsibility there at the CFTC?

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