[inaudible conversations] [inaudible conversations] the committee will come to order. This morning we will receive testimony from sec chairman and cftc chairman carlo with the Virtual Currency and the oversight connected by their two agencies. Welcome. Virtual currencies are meant to act as a money to be traded with the online exchanges such as dollars used to purchase goods or services predominately online. Additionally developers and individuals are selling one selling virtual coins also known as the ico to raise capital over the last year Many Americans have become increasingly interested in Virtual Currency given the rays of valuation with bitcoin it broke the 1000dollar barrier and then peaked december 2017 and almost 20000 as of this morning trading at roughly 6900. Today the market capitalization is roughly 115 billion. This is an incredible rise given in 2013 when this committee had subCommittee Hearings the total value in circulation was approximately 5 billion. As Virtual Currencies are more widespread heads of Financial Institutions have noticed and voiced their opinions regulators have tried to educate investors to make informed decisions to ensure the markets they oversee and participate in our working appropriately. For its part the fcc have put guideposts to help the markets and investors it has issued invested the initial Coin Offering and the investigative report on what characteristics make the ico a security offering issuing several statements and brought Enforcement Actions against sponsors and issue joint statements with the cftc about enforcement of Virtual Currency related products the cftc has been helping the market to launch a dedicated website and Virtual Currency bringing Enforcement Actions to those involved with crypto currency related scams issuing several statements from other commissioners on the issue to schedule hearings on the topic much of the recent nerve news of Virtual Currency has been negative between Enforcement Actions brought by your agency and the hack of the exchange in those concerns raised by Market Participants there is no shortage of examples to increase investor concern also important to note that Technology Innovation and ideas underlying the markets present significant potential to underpin the Virtual Currency has the ability to transform and access the financial landscape changing and modernizing Capital Formation and transfer of Risk Technology is forwardlooking with the regulators to carry out mandates of Investor Protection as the markets evolve. I look forward to hearing more in learning more of Virtual Currency oversight from her witnesses including what they are doing to ensure appropriate disclosures for safeguards. I welcome the chair is good to to have you birth here on both here to capture the intention of investors and speculators and programmers and regulators all over the world. I dont know how many people imagine how quickly and broadly that bitcoin would spread to most of us nothing short of remarkable but critical for regular guest regulars to understand technology so the markets can grow and evolve to understand the risk of emerging technology is not an easy task we are relying on you to maintain the integrity of these markets to minimize their risks to americans who want to participate. The volatility of bitcoin is remarkable in terms of a traditional currency the 1000 rise last year 60 decline last month makes yesterday record drop look like a rounding error. But that has shown the intersection of ingenuity sometimes it appear that a scam artist may understand more of the technology than most Market Participants and that should concern all of us. Our witnesses need to understand the evolution of the markets related to Virtual Currencies and then identify the regulatory gaps. Each of you has made several public statements recently explaining the threats to Investor Protection and the potential of abuse for Virtual Currency markets understand thus fcc or cftc has sufficient authority to police all aspects of Virtual Currency but you must make the most of what you have as you noted that analogy of the comparable i hope those lessons that you draw to do your job in addition to the investment risk currency needs to be used to fund that elicit activity outside the United States and the Regulatory Framework and other countries is still in development i am pleased that the u. S. And senate in particular has been a leader but we can do more so the committee needs to look closely at the gaps of regulation with the ability to get ahead of the curve in as you begin to adapt of those regulatory demands i call on both of you not to forget your day job to pursue and punish misconduct of more traditional misconduct wherever it might appear that means street and wall street i am concerned it is business as usual with violation from the big bank just last week the he had imposed penalties for market manipulation but then decided they deserved waivers under Securities Law. That make sense if it was an isolated incident but the banking question had 68 violations over the last ten years so it is very serious. Too often we see big banks pay fines moving along with no serious pressure punishment violators will not stop breaking the law raising the issue of waivers over the years disappointment to pursue every avenue available it is clear Virtual Currencies bring us into a new age that doesnt mean we overlook the basic principles of going after the bad guys to be tough with repeat offenders. Thank you mr. Chairman. Now we turn to the testimony of our witnesses from the honorable clayton from the securities and Exchange Commission following him we will hear from the honorable mr. Carlo chairman of the u. S. Commodity Futures Trading Commission we welcome both of you and appreciate you coming to share your knowledge and understanding on this issue you may proceed. Distinguished senators of the committee thank you for the opportunity to testify before you today. On the topic of crypto currency and related trading activities the trap market capitalization was estimated at 700 billion billion dollars earlier this year and in 2017 those initial Coin Offerings were 4 billion these markets are local and national and international now where we stand with that market regulatory perspective to be viewed by overly conflicted but it shows how i present these issues to Mainstream Investors i break this space into three categories, first Promising New Technology that proponents of the technology assert it will bring great efficiencies to the national and global economies including capital markets. I hope that it does in the commission looks forward to working with participants to bring efficiencies including oversight to her markets. The second and third categories are crypto currencies and the ico that is a subset to take advantage of the commercial opportunity from block chain technology. One is like dollars the others like stock offerings. Currencies are more widely known were introduced as substitutes to traditional currency such as the u. S. Dollar or euro those who promote those currencies make it easier and cheaper your will cheaper to buy and sell goods across borders with those verification fees and costs to be eliminated and these assertions have proved true in many areas when i see initial Coin Offering our Securities Offerings they are an interest like stocks and bonds promoters use the term coin based on the fact it is by additional entry or a coin on electronic ledger as compared to a stock certificate you can call it a coin but if it functions as a security it is a security also the ico may have nothing to do with Technology Beyond the coin itself to buy the ico does not mean you are investing in those ventures there are many problems with the way the crypto currency and ico markets are operating that you are worth particular attention first the market has substantially less oversight than traditional Securities Markets and to be blunt if you are trading crypto currencies on a platform that looks like a Stock Exchange do not take any comfort. Our Stock Exchanges that are required to conduct surveillance and to facilitate facilities trading with capital conduct requirements these without a doubt are necessary to protect those markets and investors. Second, many ico are conducted illegally with promoters and other participants are not fighting Securities Laws some say because it is not clear. I do not buy that the analysis is simple if youre offering a security you have a choice conduct a Public Offering with the fcc and with these professionals those who engage in semantic gymnastics in the effort to avoid having a wayne ba security are in the crosshairs of the enforcement division. What do we do . I look forward to discussing that question in more detail and comment on jurisdiction and enforcement we do not have direct jurisdiction over the popular markets to trade true crypto currencies. This is not oversight but the result of a new product the traditional currency market did not need direct regulation by market regulators they are sovereign back and regulated with a long history that crypto currency has no sovereign backing or oversight and are currently functioning as assets much more than mediums for exchange. We do not use this for jurisdiction if asked me will work with other regulators who evaluate to address this issue including our friends at the fad and the cftc who all have an interest in the market my time is short but to the extent Digital Assets are securities and i believe every ico i have seen is a security we have jurisdiction we will enforce these laws many also include private rights of action and working with the doj and other regulators to enforce these laws. Thank you for the opportunity to testify i stand ready to work with congress on these issues and look forward to your questions. Thank you chairman and distinguish members i have submitted a statement detailing cftc work over the Virtual Currency and with your permission i would like to begin briefly with a slightly different perspective as a dad as a father of three collegeage children senior, junior and freshman during High School Years we try to interest them in the Financial Markets my wife and i set up small brokerage accounts they could use to buy stocks. Other than my youngest son we havent been able to be there interest in the stock market i guess they are not much different cap kids their age but something changed last year suddenly they are talking about bitcoin and what i thought one of their older cousins was telling them about it and they got excited. I imagine some members may have had some similar experiences. It strikes me we are in a position to respect their enthusiasm about Virtual Currency with a thoughtful and balanced response not dismissive but yet we must crack down hard on those who try to abuse the enthusiasm with fraud and manipulation. We must educate ourselves in the public about this new innovation to make good policy choices to put in place the Regulatory Framework to reduce risks for consumers. Putting on my hat on the cftc first we must learn everything we can with that new initiative to engage with the innovators to farm the agency about Virtual Currencies next to put things into perspective as of 8 00 a. M. This morning the total value is 113 billion that is less than the market cap of a publicly traded company of mcdonalds. The total value of all Virtual Currency is around 313 billion in comparison the global money supply is around 7. 6 trillion. Because that coin is compared to gold the value of all the gold in the world is 8 trillion which dwarfs the size of the Virtual Currency market such as how the public what we learn there is a lot of noise around Virtual Currency and regulators must help set the record straight the cftc has produced a large amount of Consumer Education materials including written statements and podcast webinars and a dedicated that coin bitcoin website we have never conducted this much outreach for any other Financial Product and another element is regulatory coordination because no one agency has direct authority we have to Work Together that includes us ec, the fed the irs and state banking officials. To exercise our Legal Authority with derivatives while clarifying the statutory limitations and to be clear the cftc does not regulate the dozens of virtual platforms here and abroad we cannot require them to meet those requirements with market surveillance standards for conduct, Capital Requirements or cyberprotections with these are all standard regulations in the futures markets that we oversee but through that commodity derivative markets we do have enforcement power with newly launched futures the cftc can now obtain trading data to analyze that manipulation and that leads to the final element of tough enforcement. Led by the Virtual Currency task force we brought several civil actions over the past few weeks to cry crackdown and more will follow. Enclosing pro one looking at something we wrote recently in the wall street journal the markets are new and evolving international that require us to be numeral and forwardlooking to coordinate with International Colleagues and engage with stakeholders including congress. I am glad to be with you today i hope my kids are listening. Thank you very much. I have had those dinner conversations with the children and you are right this is incredibly interesting and growing new area of financial challenge particularly among at least with my children and yours. You both have said one way or another that neither of your agencies have complete jurisdiction over crypto currencies. The question i have is if you have sufficient jurisdiction i would like both of you to address that question should congress address revising and refining our financial loss so one agency or group of agencies have complete jurisdiction . If you look at the jurisdiction of all agencies today do we have sufficient jurisdiction in place today . Be back in my position youre always cautious speaking for other agencies but to be very direct we should all come together as federal banking regulators and states that are involved as well to have a coordinated plan to deal with Virtual Currency trading market. I think mainstreet investors look at the Virtual Currency trading platforms and assume they are regulated in the same way the Stock Exchange is regulated and think we should address the issue. See you dont think we need additional legislative authorities . We may. The first get together what you can and cannot do that and advise us . That is a good way to put it. I think that is exactly right but the first step is to recognize the gap as we both said in different ways what we call the spot market is not regulated so for us we are familiar with that because generally we dont have regulatory supervision over the spot markets for which derivatives apply that is a longstanding basis and to take enforcement action for manipulation but we dont set the standards in those markets and that is what we have today with bitcoin so there is that gap in the starting point is that there is that so there are other elements with agencies that come to bear like the state regulators there is a patchwork across the nation some have been very assertive and others have been less so also to be active with Money Laundering and know your customer requirements so there is a patchwork but not a comprehensive structure but that is a policy discussion to be ha had. Leading to my next question much of the activity in the Virtual Currency market is crossborder and international. So obviously what challenges does that present i only have about a minute left. The International Nature of the market is why a patchwork is probably not sufficient if it will develop as a significant market there are reports that these currencies are used for Illicit Activity and i encourage them to do so up with this this activity but this is a challeng