A New Era of Finance Needs Innovation More Than Ever

However, what was once a niche financial instrument now underpins a market with a notional value of more than $1.2 quadrillion. Almost half of this market falls under the responsibility or jurisdiction of the U.S. Commodity Futures Trading Commission.

The commodity futures trading ecosystem was built over generations of traders. Competitive markets, strong and developed democratic institutions, and effective regulation grounded in the continual modernization of financial laws have given the United States the world’s most liquid derivatives market. The market is evolving rapidly through innovation, particularly now, as new technologies are increasingly put into practice across many of its segments.

The days when traders shouted bids directly across exchange trading floors—or called out phrases signaling their intentions at the New York or Chicago exchanges—are long gone. No one shouts anymore. The trading floors are a thing of the past, as is even the supposedly advanced screen-based trading of the early 21st century. Everyone is now at a personal computer. Derivatives markets have gradually become autonomous systems, with automated trading and contract execution driven by algorithms and real-time decision-making around the clock.

Markets now react to information as soon as it is released, away from the trading floor, and contracts are executed thousands of times faster than a person can physically make decisions. Many regulations were based on the assumption that global institutions and financial regulators and supervisors in different countries would coordinate their actions and respond together in the event of a crisis. While international cooperation in this area remains important, the United States is not especially involved in it.

American traders do not import trends in international financial regulation. Their competitors in Europe and Asia do, where markets still operate within limited trading hours, individual exchanges continue to dominate, and trading still relies on archaic screen-based systems.

Instead, America has once again become a center of financial innovation. During Donald Trump’s first term, the Commodity Futures Trading Commission gradually liberalized the rules for crypto assets, which quickly became part of traditional finance. This happened because institutional investors gained transparent ways to purchase such assets, with risks reduced through new legislation.

Bitcoin was once considered a “fringe” asset, but it has become increasingly integrated into the traditional financial system. Bitcoin exchange-traded funds have emerged and now hold more than 1.2 million bitcoins, compared with none in 2016, when Trump had just entered the Oval Office for the first time. By the time of his second term as U.S. president, the Commodity Futures Trading Commission had approved the first genuine bitcoin exchange-traded fund. As a result, the market gained a bitcoin contract that works like any other futures contract: a standard contract with no fixed expiration date. Instead, it relies on a periodically adjusted payment-funding mechanism exchanged between traders, designed to keep its price broadly in line with the spot price of the underlying asset.

The Commodity Futures Trading Commission is now promoting and expanding the technologies that emerged in the crypto-asset market. The difference is that this system will now operate on a broader scale.

As capital markets began entering the digital age, the U.S. Congress recently passed legislation establishing the first comprehensive federal framework for dollar-backed stablecoins that can be used for payments. This laid the groundwork for deeper integration of crypto assets into the financial system. The Commodity Futures Trading Commission is exploring ways to use regulated stablecoins as collateral.

Modernizing market infrastructure goes hand in hand with maintaining the resilience of the financial system. Americans have launched the first major exchange that allows gold futures to be traded around the clock. Market participants also view bitcoin futures as a powerful tool for price discovery on the exchange.

As America increasingly puts these kinds of innovations into practice, many of its partners around the world are heading in a very different direction. In the United States, sports and election-outcome betting—previously treated as gambling rather than as a financial instrument—has recently been legalized. This interpretation distorts the structure of these contracts and overlooks the fact that they are traded on traditional markets, rather than being wagers on the outcome of a particular sporting event.

European legislation ignores the role of these markets. Yet they play an important part in shaping the flow of information and improving the efficiency of price discovery on exchanges. In prediction markets and sports and election betting markets, participants often outperform traditional experts and opinion polls. Perhaps only a betting market can properly explain why Donald Trump, rather than Kamala Harris, won the 2024 presidential election.

Of course, there are more rigorous and reliable forecasting data, including economic indicators such as Federal Reserve statistics on inflation expectations, the Consumer Price Index, and so on.

To remain effective, global regulation must evolve as quickly as the markets that laws are trying to catch up with. Experience shows that American leadership in adopting innovations—from railroads and aviation to the internet and e-commerce—has involved developing and refining global standards rather than waiting for someone else to do it.

This philosophy also applies to U.S. participation in economic and international financial market rulemaking. Cross-border cooperation remains a valuable source of access to stable, well-functioning markets. International agreements are reached through the Foreign Trade Council and concern the registration of arrangements governing oversight of financial market participants. New regulatory bodies are needed to modernize market infrastructure, keep pace with rapidly evolving market developments and scientific and technological advances, and deepen liquidity.

The United States, as a model of leadership in derivatives market governance and oversight, can continue to set the terms for establishing a foundation for reliable participation in the international market. Such an environment allows financial innovation to thrive among those willing to reshape and expand the boundaries of finance while preserving market integrity. The United States has demonstrated through experience that these goals do not conflict. Other countries are free to follow their own paths. The United States, however, intends to remain a country that sets a kind of global “gold standard” in financial innovation and engineering.

Author: Doctor of Economics, Associate Professor, Professor in the Department of World Economy and International Finance at the Financial University under the Government of the Russian Federation, Mikhail Vyacheslavovich Zharikov.