By Richard Hill
President Obama requested $315 million April 10 for the Commodity Futures Trading Commission for fiscal year 2014 as part of his overall $3.778 trillion budget, numbers that are all but certain to be slashed in the coming months by House Republicans.
The request for the CFTC is slightly more than the $308 million the president requested for the agency for fiscal 2013, but would be a boost of more than $100 million over the approximately $206 million the commission was slated to receive under a previous continuing resolution, which became effective prior to sequestration (29 SLD, 2/14/12).
Much of the CFTC budget would be spent to implement and enforce rules under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
In addition, the White House said it “strongly supports” fully funding the agency through user fees on futures and derivatives trades. Such a move has been proposed in the past, but the concept has never received much traction among lawmakers.
The largest single expenditure in the 2014 budget request would be $102 million for data and technology updates. The bulk of those funds would go to surveillance programs, including integrating new swap data repository and derivative clearinghouse data, overseeing the enforcement efforts of self-regulatory organizations, reducing “latency” for processing market data, and increasing the number of entities providing order message data.
In a statement, CFTC Chairman Gary Gensler said that as market participants expand their technological sophistication, “CFTC technology upgrades are critical for market surveillance and to enhance customer fund protection programs.”
Overall, Gensler said the budget increase from its current level is necessary as “the CFTC is not the right size for the new and expanded mission Congress has directed it to perform” under Dodd-Frank. Fully funding the agency at $315 million is key, according to the White House's budget justification, to help the CFTC shift into implementing Dodd-Frank, including “unanticipated issues that will naturally arise.”
In addition to the $102 million to be spent on data technology initiatives, $51 million would be allocated to enforcement; $42 million to market-oversight operations; $37 million to swap dealer and intermediary oversight; and $27 million to clearing and risk initiatives. Altogether, the budget request would fund 1,015 full-time equivalent positions at the CFTC.
“CFTC technology upgrades are critical for market surveillance and to enhance customer fund protection programs,” Chairman Gary Gensler said.
In its budget request, the White House said “the markets under CFTC's regulatory purview are large and economically significant”--the U.S. futures and options markets amount to $30 trillion notionally, and the domestic swaps market more than $300 trillion notionally.
The president's request now goes to Congress for debate and ultimate resolution. Democrats in the Senate have hewed to the White House's request in recent years, but House Republicans, citing the need to slash government spending overall, pressed for leaner and more efficient funding at the agency level. Because of Congress's failure to pass final budgets, the CFTC, and the rest of the government, have been operating under continuing resolutions for several years.
Fiscal 2014 begins Oct. 1. Gensler will go before a House Appropriations subcommittee to defend the budget request April 12.
According to the White House, the CFTC plans to spend approximately one-third of its resources in fiscal year 2014 on surveillance and examinations of systemically important derivatives clearinghouses, as well as exams of other “significant registered entities.”
Twenty-two percent of the budget request would go toward registering new entities and ensuring that existing entities comply with regulations and core principles; making mandatory clearing determinations; providing Dodd-Frank guidance and interpretations; and coordinating with global regulators on a cross-border oversight regime.
Approximately 18 percent of the requested funds would go towards enforcement, and the remaining 26 percent for information technology infrastructure and administrative support.
Commissioners Jill Sommers and Scott O'Malia, both Republicans, dissented from the budget request.
O'Malia, in particular, called the $315 million request “improbable.” Given the government's financial state, he said, “I do not believe it is fiscally prudent for the commission to make broad, unsubstantiated appeals for massive budget increases without specifically identifying its mission needs and priorities.”
However, O'Malia, said he supported the “detailed” call for $102 million in information technology. He chairs the agency's Technology Advisory Committee.
For her part, Sommers said the budget request is insufficient in an enforcement context. She noted that Gensler told the Senate Agriculture Committee in February that, due to a lack of resources, the agency was “shelving” some enforcement activity (40 SLD, 2/28/13).
“If we are indeed 'shelving' enforcement cases, then we have gravely mismanaged our resources,” she said. “Irrespective of what resources are allocated to us through the appropriations process, we clearly need to shift more resources to enforcement.”
Commissioner Bart Chilton, meanwhile, praised the budget request. “It's pretty simple,” he said. “We need resources to be a reliable regulator and protect the public.” In particular, he supported the call for user fees. He said he has changed his stance on the fees as “Congress won't fund our essential efforts.”
By Richard Hill
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