CFTC Commissioner Brian Quintenz described the role of derivatives in supporting economic growth, the advantages of the "principles-based" regulatory model of the U.S. derivatives markets and concrete steps China has taken to liberalize its financial markets.
In remarks at the 14th Annual China International Derivatives Forum, Mr. Quintenz disagreed with the label that derivatives are "risky," stating that the derivatives present tools to manage and efficiently transfer risk to market participants who have the ability to bear it. He described derivatives as being vital to the "health and growth of a country's real economy" and said that, as China's derivatives markets grow, it should adopt an approach to futures market regulation akin to that taken by the CFTC.
He stated that participant diversity, customer protection, and market integrity promoted by principles-based regulation are three characteristics of the U.S. futures market that have contributed to "resiliency, vitality, and efficiency." In particular, Mr. Quintenz added that:
- the policy of open participation helped increase liquidity, which enables companies to engage with the market even during times of instability;
- the legal regime supporting the U.S. futures markets leads to strong customer protections (i.e., the CFTC and exchanges "police the markets for fraud, abuse and manipulation"); and
- a "principles-based approach" has numerous advantages over a "prescriptive approach" (i.e., principles-based regulation enables market participants to be "individually responsive to market dynamics").
Mr. Quintenz explained that the growth of China's futures markets has been critical to its economic rise. In particular, he cited recent incremental steps that have lowered barriers on the ability of non-Chinese entities to access Chinese financial markets.
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