For US Commodity Futures Trading Commission chairman Rostin Behnam, the irony must have been galling – even if he didn’t show it.

As a particularly contentious open meeting of the CFTC on May 10 drew to a close, Democrat commissioner Christy Goldsmith Romero appealed to the press not to focus on partisan divisions within the agency.

Partisan disputes would seem to be the least of Behnam’s problems.

Minutes earlier, Goldsmith Romero had sided with Republicans on the commission to amend a proposed rule banning listed derivatives that can be used to bet on elections and other real-world events. The amended proposal was ultimately adopted in a party line vote.

It was not the first time the CFTC’s Democratic commissioners have failed to fully support the chairman’s proposals, undermining Behnam’s ability to advance his agenda.

The Democratic commissioners have articulated clear views on certain issues that don’t necessarily align with the chairman’s views

Matthew Kulkin, WilmerHale

“The Democratic commissioners have articulated clear views on certain issues that don’t necessarily align with the chairman’s views,” says Matthew Kulkin, chair of the futures and derivatives practice at WilmerHale and a former CFTC official. “Reconciling those differences is certainly possible, but it seems to make it harder to get things done.”

Others say the differences go beyond policy. “You wonder if people are behaving in a way just to make his life difficult,” says a former CFTC employee. 

This article is based on interviews with 17 regulatory and market sources – including 12 current and former CFTC officials and commissioners. They describe an agency paralysed by a divided majority, with policy differences between the chairman and his fellow Democratic commissioners – particularly over crypto regulation – in some cases boiling over into personal animosity and mutual distrust.

The intraparty infighting has hampered rulemaking and slowed down routine administrative work. The CFTC has approved 10 final rules since Behnam was confirmed as chairman in January 2022 – the slowest pace of rulemaking since Mark Wetjen’s brief term as acting chairman in 2014.

Behnam’s tenure as chairman has seen an unusual amount of dissent from Democratic commissioners. Goldsmith Romero has cast three dissenting votes in open meetings and publicly criticised the agency’s actions at least nine times since taking office, while Kristin Johnson has dissented once and criticised the rulemaking process on at least two other occasions.

“You’re not seeing this at the Securities and Exchange Commission,” says a source at the CFTC. “The Democratic commissioners generally follow along with what chairman [Gary] Gensler is doing.”

There’s a tension if the chairman says, ‘here’s our agenda, you should do this too’. That’s not enough of an argument with our current makeup of the commission

CFTC source

As for the reasons behind the dysfunction, there are competing narratives. One blames the commissioners in the majority for putting their personal and political agendas ahead of those of the agency.

“I think this commission is unique in some of the challenges it has faced externally and internally,” says one industry lobbyist. “I know Russ personally and the political winds that are coming his way from his two fellow Democratic commissioners, and then on the Hill as well from his party, are certainly having some effect.”

Behnam is not short of supporters in regulatory and industry circles who praise his accomplishments – including advancing the CFTC's agenda in Congress and securing budget increases to expand staffing and step-up enforcement efforts – in a perilous political climate. 

The other narrative faults the chairman for failing to craft an agenda that addresses the priorities of his commissioners.

“We’re a group of very independent thinkers,” says the source at the CFTC. “No-one wants to be considered a rubber stamp for the chairman’s agenda. Nobody wants to be the backup singer. There’s a tension if the chairman says, ‘here’s our agenda, you should do this too’. That’s not enough of an argument with our current makeup of the commission.”

Behnam, who declined to comment for this article, seems intent on stepping up rulemaking activity. “The commission will spend the remainder of 2024 largely focused on finalising rules and considering a few additional proposals currently in drafting,” he said during a speech in March, in which he reminded the audience of a goal he set in 2023 for the CFTC to consider and vote on at least 30 outstanding proposed rules and orders.

That message was not particularly well received by some at the commission. A second source inside the agency says part of the problem with Behnam’s CFTC is that rules have been proposed without sufficient consultation or analysis of the risks. Rushing to hold more votes will negatively affect the quality of rulemaking, this person says.

The first CFTC source describes Behnam’s agenda for 2024 as “aggressive” and wonders if he will “make those sacrifices that you need to make to get your votes”.

“[He’s] just trying to push too much too fast.”

Rules of conflict

With a divided majority, getting rules on the books has proven to be a challenge for Behnam – especially of late.

The CFTC has approved 10 final rules in Behnam’s 29 months as chairman, the fewest of any chair that held the role for at least a year since the turn of the century.

His predecessor, Heath Tarbert, oversaw the approval of 32 final rules in 18 months as chairman, while Christopher Giancarlo got 12 passed during his 23 months as chairman.

Behnam’s tenure got off to a slow start, with just two rules approved in 2022, including an annual inflation adjustment to civil monetary penalties. This compares with 11 rules passed in the previous year, including six after Behnam was elected acting chairman on January 21, 2021. Three more rules were added to the books in 2023 along with another inflation adjustment for fines.

An open meeting on December 13, 2023 laid bare the divisions within the Democratic majority, with Behnam having to rely on Johnson's support and concurring votes from Republican commissioners to approve an order granting crypto exchange Bitnomial’s application to register as a derivatives clearing organisation (DCO) over Goldsmith Romero’s objection.

Even getting rules proposed has been tricky. After dissenting on a proposed customer protection rule at the open meeting on December 13, Goldsmith Romero issued a fiery statement that seemed to accuse Behnam of rushing out rules to accommodate the crypto industry – a charge that has dogged the chairman since he assumed office.

In April, US senators Chuck Grassley and Elizabeth Warren wrote to Behnam with questions about his links to FTX founder Sam Bankman-Fried.

“This has gotten abnormally bad,” says a former commissioner’s aide. “I think it’s because there’s no sense of shared ‘if I win, we all win’. It’s more zero sum.”

Things haven’t been any easier for Behnam this year. Johnson voted against a proposed rule on conflicts of interests and the transfer of ownership interests in regulated entities in February, and criticised another proposal on customer protections for separate accounts. Goldsmith Romero grudgingly supported the conflicts of interests rule – calling it a “baseline minimum” – and then sided with Republicans in May to amend the CFTC’s proposed rule on event contracts.

Perhaps predictably, there are few complaints within the industry about the scarcity of new CFTC rules. “We’ve had a lot of rules in the last 15 years and a lot of revisions to those rules – and a lot of revisions to the revisions of those rules,” says the head of regulatory affairs at a large bank. “At some point, you do need some time to bed them in. A little bit more of a stable environment is helpful for us.”

More concerning is that even routine matters, such as securing approval to offer new products and services, are taking longer than expected. Market participants report delays in approving new contract listings, while BGC Partners had to wait 18 months for authorisation to launch a new futures exchange. 

The general malaise seems to have spread to other mundane but important areas of the CFTC’s work. A former agency staffer claims the process of implementing technical fixes to existing contracts is “broken” and suspects that staff are reluctant to raise even routine matters for fear of being “caught in a power play between the chairman and the commissioners”.

On February 22 – two days after Johnson voted against the conflicts of interest proposal – Goldsmith Romero objected to CFTC staff issuing a no-action letter exempting swap dealers from certain disclosure requirements. A former CFTC enforcement official says it is customary for commissioners in the majority to raise such concerns privately with the chairman, rather than criticising the agency publicly. “It’s unusual that you get a letter coming out and someone in the majority objected,” this person says.

Behnam has had to resort to procedural tricks and strong-arm tactics to get even trivial rules approved. Since January, the CFTC has called and then cancelled at least three open meetings, stating that “the matters under consideration are being resolved through the commission’s seriatim process”.

The seriatim process sees written proposals circulated to each commissioner and voted on in order of seniority and is typically used to deal with routine matters. 

“The seriatim process is a feature, not a bug, for the CFTC because it allows them to carry out the commission’s agenda and do the work of the agency without dedicating time and attention to public speeches and statements for the record,” says Kulkin, who was previously director of the CFTC's division of swap dealer and intermediary oversight, which is now known as the market participants division.

But that process can break down if commissioners delay casting their votes. “This commission seems to move much more slowly on routine matters that are dispatched through seriatim,” says Kulkin. “Historical practice would be that something goes into seriatim with a deadline. That deadline is professional courtesy, it’s a recommendation, but it appears from the outside that practice has been difficult to maintain.”

Sources say Behnam has been calling open meetings – usually reserved for major rules – to force a deadline and deter commissioners from slowing down routine business.

This commission seems to move much more slowly on routine matters that are dispatched through seriatim

Matthew Kulkin, WilmerHale

That tactic has irked at least one source at the agency, who complains that commissioners are being pressured to cast votes on proposals before they are “cleaned up and ready for primetime”.

And while rulemaking activity has slowed to a snail’s pace, there has been no shortage of advisory committee meetings and other hearings to fill the time. Four former CFTC staffers that now work in the industry complain that the agency’s five advisory committees – each sponsored by a different commissioner – have embarked on expansive and overlapping workplans.

A former CFTC official says there is “a huge problem” with committee sponsors not co-ordinating to divvy up issues, and that this is creating “very widespread frustration” in the derivatives industry.

The former head of an FCM says the CFTC’s advisory committees have become talking shops where policy takes a back seat to speechmaking and grandstanding. While the commissioners “have launched lots of glamourous MRACs, GMACs, SNACKs and McMACs with lots of red carpet market celebs and many global keynote addresses, their policy-making has been horrible and they are getting outmaneuvered by folks with major skin in the game,” this person says.

A senior industry executive who sits on one committee says simply: “These committee meetings are a complete waste of time.”

In April, members of the CFTC’s market risk advisory committee (MRAC) pushed back against a plan to study the use of artificial intelligence in derivatives markets on the grounds that this would duplicate work already being done by other CFTC committees and federal agencies. A second former CFTC staffer claims Johnson, who sponsors the MRAC, was encroaching on the turf of Goldsmith Romero's technology advisory committee. A subcommittee of the MRAC is understood to be pressing ahead with the AI workplan even after members indicated they did not support it.

Long shadow of FTX

So, where did it all go wrong? Perhaps before it even began.

On December 6, 2021 – before Behnam was sworn in for his current term – FTX filed an application with the CFTC to offer customers direct access to margined crypto derivatives.

The agency at the time was still struggling to convince staffers to return to the office after the Covid-19 pandemic and didn’t seem to have a clear agenda.

Behnam seemed to seize on crypto regulation as the centerpiece of his rulemaking efforts.

On March 10, 2022 – while the other commissioners were still waiting to be sworn in – the CFTC issued a request for public comment on FTX’s application.

The following week, Behnam signalled his openness to approving the application, describing it as “an innovative proposal that deserves careful consideration” at an industry conference where Bankman-Fried was scheduled to speak the following day.

That seemed to put him at odds with Goldsmith Romero, who struck a very different tone after she was sworn in on March 30, 2022, giving a series of speeches warning of financial stability risks in crypto markets and staking out her opposition to bending the rules to accommodate the industry.

If you traced it back, the issues around FTX and how he and the CFTC were very focused on crypto, I think that probably threw a wrench in his plans and his agenda

Industry lobbyist

Behnam and Goldsmith Romero continued to disagree over the issue. In remarks to the press at an industry conference on October 24, Behnam again suggested he was inclined to approve FTX’s application. “I understand what they’re trying to do and why they think there are efficiencies around it, and I think it just requires a level of regulatory scrutiny,” Behnam said.

At another conference just two days later, Goldsmith Romero repeated her concerns about the potential risks posed by crypto firms, “particularly if customer assets are not segregated, and there are unresolved conflicts of interest”.

The next week, a press report about hidden losses at FTX’s affiliated proprietary trading firm, Alameda Research, set off a run on deposits that eventually brought down the exchange.

The collapse of FTX didn’t take the crypto issues off the table. Behnam had spent much of the year lobbying Congress to grant the CFTC regulatory authority over crypto markets and seemed intent on passing rules that would allow the industry to operate within the agency’s remit. The simmering tensions came to a head at an open meeting on December 13, 2023, when the CFTC voted to propose a rule requiring the segregation of customer funds at clearing houses – effectively sanctioning the direct-to-retail model of crypto exchanges – and approve Bitnomial’s application to register as a DCO.

Goldsmith Romero dissented on both decisions.

Concerns over vertically integrated crypto exchanges were also at the heart of the proposed conflicts of interest rule, which drew only tepid support from Goldsmith Romero and was opposed by Johnson.

If there is one recurring criticism of Behnam, it is that his agenda has been too focused on crypto regulation at the expense of the other priorities of the agency’s Democratic commissioners.       

“If you traced it back, the issues around FTX and how he and the CFTC were very focused on crypto, I think that probably threw a wrench in his plans and his agenda,” says the industry lobbyist.

Crypto rulemaking got bogged down in thorny questions about conflicts of interest and vertically integrated market structures, which prevented the commission from moving on to other issues where there may have been more consensus.

“The focus on conflicts of interest among affiliates has proven to be a distraction for the commission,” says Kulkin. “It has taken away from other market-driven policy items that could have been given more attention or addressed earlier in the calendar.”  

He’s actually doing a hell of a job of walking the middle ground and running the CFTC like someone who’s neutral

A former federal regulator

Some suggest the policy vacuum created by the chairman may be the root cause of the agency’s problems. “It makes you wonder if the reason there’s so much friction is the agenda was too small,” says the former commissioner’s aide. “They [the Democratic commissioners] feel Russ is not really doing enough. He’s not listened to them. It started out about policy and has become personal.”

A second former CFTC official credits the Democratic commissioners for at least trying to broaden the agency’s agenda. Goldsmith Romero and Johnson are “out there trying to achieve something and create a record because the commission is not going to do anything,” this person says. “They’re all trying to get subject matter on their résumé.”

Others, though, think the differences are more about politics than policy and that building consensus was always going to be difficult.

A second former commissioner’s aide says Goldsmith Romero and Johnson “have been very far to the left of Russ on pretty much every issue and are not willing to come to table on some of these issues, probably for political reasons”.

A former federal regulator says the chairman’s biggest problem is that his fellow Democratic commissioners are “left leaning” and want more regulation than Behnam thinks is appropriate. “He’s actually doing a hell of a job of walking the middle ground and running the CFTC like someone who’s neutral, between being a Democrat and a Republican.”

Several of the sources that spoke to Risk.net suggested the CFTC’s Democratic commissioners may be auditioning for other roles. In May, Bloomberg reported that Johnson was in the running to replace Graham Steele as assistant secretary for financial institutions at the Department of the Treasury. She is also seen as a leading candidate to head the Federal Deposit Insurance Corporation after current chair Martin Gruenberg announced he would be stepping down following reports of a toxic work culture at the agency.

Stay golden

The question now is whether the CFTC’s Democratic commissioners can put their differences aside and find a way to turn their competing interests into a workable policy agenda.

Kulkin at WilmerHale thinks the will is there even if the way is uncertain. “These are all hard working, diligent, well-intentioned commissioners,” he says. “It’s a great group to have leading the commission and they each bring a unique background, which I think helps in the policy-making process, but it makes consensus more complicated when they each have a very strong perspective.”

Others think Behnam may need to change his approach to get his agenda through the current commission. “I think Russ is a very good public servant. I think he’s done a really good job, engaging in good faith with a lot of people,” says the first former commissioner’s aide. “But I do think he probably should have handled some of these commissioners differently.”

I do think Behnam probably should have handled some of these commissioners differently

Former commissioner’s aide

Behnam seemed to throw down the gauntlet in his speech in March, entitled ‘Stay golden’, in which he signalled his intention to hold votes on outstanding rule proposals.

Behnam noted the title of his speech, a reference to a quote in SE Hinton’s novel The Outsiders, was “a phrase used to remind someone to stay true to their convictions – to have personal strength, because change is inevitable”.

There was little indication of Behnam bending his agenda to accommodate his Democratic commissioners. He reminded the audience that he had identified “disintermediation and decentralisation as the dominant disruptors of our current era” in 2022, and that the commission has to deal with the “important questions” this raised around conflicts of interest, segregation requirements and customer protections.

Whether it will, remains to be seen.

And even if the CFTC fails to codify his agenda, Kulkin thinks Behnam still deserves credit for what he has achieved as chairman. “Big picture, he’s actually done a really good job. He has been an effective administrator,” he says. “He has gotten some rules through. He has communicated well with Capitol Hill and the Biden administration, resulting in an increased budget and increased staffing for the agency, and he’s been active on the enforcement front, both in terms of volume of cases but also in terms of establishing legal theories.”

Editing by Kris Devasabai