As the Commodity Futures Trading Commission (CFTC) met Thursday to consider proposals to implement the Dodd-Frank Wall Street Reform Act, commissioners expressed fear that the deep budget cuts proposed by the House for fiscal year 2011 will not only threaten the agency's ability to meet Dodd-Frank's mandate to regulate the derivatives market but also its oversight of the futures market.
"The CFTC is under serious strain in its current funding level. We lack the staff and technological resources to implement Dodd-Frank and continue to fulfill our pre-Dodd-Frank duties under the Commodity Exchange Act" to regulate the futures markets, said Commissioner Michael Dunn. "Without additional funding the strain will only become worse in July when much of Dodd-Frank goes into effect."
Dodd-Frank, which was signed by President Obama last July, requires the CFTC to assume the responsibility of regulating the swaps market in addition to overseeing the futures market. The swaps markets, which has been estimated at about $300 trillion in the United States, is about nine times larger than the futures market, Dunn said.
"All of these things [proposed reforms] that we've been doing...will mean nothing; they'll mean squat; they'll be diddly...if we don't get the resources to do the job," Commissioner Bart Chilton said.
"We're going from roughly $5 trillion in annualized [futures] exchange trading to...hundreds of trillions in oversight. To think that we can do that without another cent is crazy...We will be [particularly] vulnerable in the regulated futures market to fraud, abuse and manipulation if we don't receive at least the current funding. If we get cut, we are going to be in a world of hurt," he said.
A budget resolution passed by the House would slash the initial annualized budget of $168 million for the CFTC in the current fiscal year to about $112 million (see Daily GPI, Feb. 23). As a result, the agency would be forced to cut its current staff of 680 to fewer than 440, which would make it difficult for it to enforce the reforms in the Dodd-Frank bill, CFTC Chairman Gary Gensler told Congress last week (see Daily GPI, Feb. 16).
"Even at the administration's requested funding level [$168 million] and with increased assistance from SROs [self regulatory organizations, exchanges], this [regulation of both swaps and futures markets] would be a Herculean task," Dunn said.
"There would essentially be no cop on the beat and no one to ensure that our industry, which was largely untarnished by the financial meltdown, would not be blamed if another meltdown occurs."
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