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CFTC Has to Be 'Tough Cop on Beat,' Nominee Says

President Obama's nominee to lead the Commodity Futures Trading Commission (CFTC) last Wednesday urged Congress to give the agency "more tools" to deal with abuses in the futures markets.

"I absolutely believe the CFTC needs more tools. I believe it has to be a tough cop on the beat and strong in enforcement," Gary Gensler, former Treasury undersecretary and executive at Goldman Sachs, said during his confirmation hearing before the Senate Agriculture Committee.

"We need more resources to do that...The enforcement wing itself [had] 150 lawyers, which shrunk to 110" during a period in which the futures markets increased sixfold in volume, Gensler said. He further noted that the current CFTC staff level (500) is the same as it was in 1974. The agency, Gensler said, has put in a request to increase the staff to 690.

"But beyond that I believe that we do...have a broad agenda, if I'm confirmed, to try to get additional authorities to address some of the very real issues in the agriculture and energy markets and [the] over-the-counter markets [OTC] to control some of the excesses that we've seen," he told the Senate panel.

Gensler believes that the CFTC should "bring the whole over-the-counter derivatives [market] into the regulatory regime with centralized clearing and exchanges." As for credit default swaps, which are blamed for the credit crisis, Gensler said they "raise an additional set of unique challenges." (see NGI, Dec. 15, 2008)

He made clear that he believes the CFTC has "exclusive jurisdiction from Congress to regulate the futures market." Gensler said the agency is "best situated among federal regulators" to address abuses in the futures market.

The full Senate will vote on Gensler's nomination after it is cleared by the Senate agriculture panel. Committee Chairman Tom Harkin (D-IA) did not indicate whether he supported the nomination of Gensler for CFTC chairman, but Sen. Saxby Chambliss of Georgia, the ranking Republican on the panel, said Gensler had his vote.

"His nomination comes at a very challenging time. Since the CFTC was created 35 years ago, it has never faced more daunting market challenges than those that the next chairman and other commissioners will face," Harkin said. "Our financial markets are still unstable, and the physical commodities -- energy, agriculture and metals -- have experienced unprecedented price volatility."

Harkin has introduced legislation in the Senate that would bring all OTC financial transactions, which currently are traded without federal oversight, onto regulated exchanges. But "the best intentioned and most brilliantly crafted legislation will be only as effective as the regulators who will implement the law. We must have an unflinching determination on the part of the Commodity Futures Trading Commission to restore integrity to these important markets. That is why the position of chairman of the CFTC is so critical," he said.

"We need to know if Mr. Gensler will be committed to repairing the abuses and mistakes of the past, and ensure that they are never repeated."

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