The head of the Commodity Futures Trading Commission (CFTC ) Wednesday defended the agency against Republican claims that it has moved too quickly to implement regulatory reforms under the Dodd-Frank Wall Street Reform Act and hasn't accurately figured out the costs of the proposed rules, as well as deflected GOP questions about its hiring and technology decisions.
In its budget request for fiscal year 2012, the CFTC is seeking to double its funding for technology to monitor the swaps market to $66 million and increase it staff level by 35% to 983 staffers from the current level of 720, CFTC Chairman Gary Gensler said during a hearing of the Senate Appropriations' Financial Services and General Government Subcommittee.
"We believe technology is the only way for us" to effectively oversee the U.S. over-the-counter derivatives market, which has a notional value of $300 trillion -- seven times the size of the domestic futures market, he noted. In contrast, it's been estimated that the big houses on Wall Street spend about $20-25 billion a year on technology. "We're kind of coming [at them] with a pea shooter."
While new technology will be critical to the CFTC's oversight of the swaps markets, "we can't oversee [the] market just with computers...We really do need [more] humans" on the agency's staff, Gensler said.
He objected to any delay in the implementation of the regulatory reforms under the Dodd-Frank law. "I think we'll be moving on final rules [throughout] this summer and into the fall," Gensler said, adding that the agency would phase in implementation. "A big bang [on] one date doesn't work." House Republicans have introduced legislation (HR 1573) that would postpone implementation of the Dodd-Frank regulatory reforms until at least Jan. 1, 2013 (see Daily GPI, May 4).
"I think a delay...would put the American public at risk of markets that are still dark by and large" and unregulated, he said. Gensler said he doubted that many people would benefit from postponing implementation of Dodd-Frank, with the exception of some in the financial community, which "rationally would like a darker market."
Subcommittee Chairman Richard Durbin (D-IL) observed that the "tables have turned politically here on Capitol Hill since the passage of Dodd-Frank," with Republicans in the majority in the House and the GOP having a larger presence in the Senate. Some critics of Dodd-Frank "have gone so far...as to flat out say we want to delay this for a year, 18 months or maybe longer," he noted.
"I think what we've got to do is push forward on this law, to give you [CFTC] the time you need to promulgate these rules and to give you the resources to enforce them," Durbin said.
But Sen. Jerry Moran of Kansas, the ranking member on the subcommittee, was less supportive. "I have heard many concerns expressed that the CFTC [is] moving too quickly and has not adequately established the costs of new regulations, valuing speed over deliberation," he said. He said he was pleased that the agency had given the public 30 additional days to comment on the proposed rules, but he wants the CFTC to issue a "road map for implementation."
Moreover, he criticized the CFTC for issuing proposed rulemakings for position limits and core principles for clearing houses that "are discretionary and unnecessary" under Dodd-Frank. Moran said the CFTC was required to make a finding of excessive speculation, which it hasn't done, before issuing a rulemaking on position limits.
With respect to the proposed rule on position limits, "we believe [we are] following congressional mandate," Gensler said. "We've gotten 11,000 comments on this. Of our total 16,000, this is where the big comments are. And I think that's partly because of high energy prices and high agricultural prices."
And addressing the core principles for clearing houses and exchanges, "we think that we need to move forward on this...It's the only way that clearing houses will be safe," Gensler said, adding that hundreds of trillions of dollars in swaps will come through them. "If we [don't] write rules on clearing houses, we wouldn't be up to international standards."
Citing a CFTC inspector general's (IG) report, Moran questioned the agency's hiring decisions. "The IG report suggests that unless the Commission can make...wiser hiring decisions and engage in meaningful economical analysis, Congress may need to provide additional direction on how the Commission can spend money on hiring and how it should utilize its staff," he said.
The CFTC has a budget of $202.6 million for the current fiscal year, and is seeking funding of $308 million for next year. Whether the agency will actually get this amount is iffy. Durbin conceded that the forecast "does not look rosy."
With the funding, Gensler said the Commission plans to establish a new Swaps Dealer and Intermediary Division, which would have a staff of about 120; increase the staff overseeing clearing houses to a total of 70; and hire an additional 60 staffers to oversee swaps execution facilities. This is in addition to doubling its technology capabilities.
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