Giancarlo Set to Defend CFTC Budget Request at Odds With Trump

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Richard Hill

Acting CFTC Chairman J. Christopher Giancarlo will ask lawmakers June 8 to give the agency $281.5 million to operate for another year—a request that puts him at odds with the White House that recently nominated him to the position permanently.

Washington observers, including long-time derivatives lawyers Kathryn Trkla and Steven Lofchie, cautioned against viewing the Commodity Futures Trading Commission’s parallel request as defying the White House, even though the tactic is rarely used. They said Giancarlo’s move signals the former businessman’s pragmatism, and Lofchie said Giancarlo’s reputation as a fiscal conservative may give him a chance at getting the extra money.

Capitol Hill aides familiar with the appropriations process told Bloomberg BNA that the CFTC is using a procedure available to independent agencies known as “bypass authority,” which allows an agency to make a parallel appropriations request. However, the White House’s budget request—in this case $250 million—is what the appropriations committees consider to be the “official number,” a source said.

While not ruling out that it has happened before, the Hill aides couldn’t point to any other agency that has used its bypass authority, as the White House and agency heads are almost always from the same party and on the same page.

Criticism `Noted’

In 2015, CFTC Chairman Timothy Massad criticized a budget deal between the White House and Congress that left the commission’s funding at $250 million. “At the time, it was noted how unusual it was for a chairman to speak up against a budget deal his own administration made,” Dan Berkovitz, a former CFTC general counsel, told Bloomberg BNA.

Berkovitz, a partner at Wilmer Cutler Pickering Hale and Dorr LLP in Washington, said the CFTC’s parallel request this year was “rather unusual” from a historical perspective. In 2009, then-CFTC Chairman Gary Gensler told appropriators that the White House’s budget request was inadequate, but the agency didn’t make a parallel request, he said.

The CFTC has been funded at $250 million since fiscal 2015. While prior agency leaders have said that amount falls far short of what it needs to oversee the multi-trillion-dollar derivatives and futures markets, Giancarlo had said he would use his business acumen to make do with whatever the White House proposed. When it came time to make a request, however, the agency told Congress it needed approximately 13 percent more than what the Trump administration felt was necessary.

In its parallel request sent to lawmakers in May, Giancarlo said the extra $31.5 million “is not a formulaic or superficial number, but a thorough and informed assessment of what the CFTC needs to execute its mission” in fiscal 2018, which begins Oct. 1.

Approximately one-third of the $31.5 million would fund additional economic analysis and examinations to better monitor systemic risk in derivatives markets, with an emphasis on clearinghouse safety, according to the request. The raise also would help pay for more examinations and a new initiative to foster financial technology innovation.

Giancarlo said the $281.5 million figure came from a “bottom up” assessment of the CFTC’s needs that started from scratch and ignored prior years’ requests.

The acting chairman’s request “is certainly a recognition that with the increased responsibilities and increased sophistication in the markets, the flat funding of $250 million for so many years in a row is insufficient,” Berkovitz said.

`Being Pragmatic’

Trkla, a Foley & Lardner LLP, Chicago, partner, said that despite his talk of fiscal conservatism, Giancarlo’s request represents a reality check on the part of the acting chairman. “While optically it appears he may be defying the president, I take it more as the acting chairman being pragmatic,” she said. “I think he’s demonstrated, both as a commissioner and now as acting chairman, that he has a very sort of pragmatic approach towards how he wants to run the agency and how regulation should apply.”

Lofchie, a partner in the financial services department at Cadwalader, Wickersham & Taft LLP, New York, said lawmakers may have an easier time swallowing a $281.5 million request from Giancarlo than from one of his two immediate predecessors, who Lofchie said were seen by appropriators as too “expansionistic” of the CFTC’s mission. Giancarlo, he said, is seen as more in line with Congress’ directive to minimize regulation.

As a lawmaker, “you can look at the difference in the philosophies of [previous chairmen] and Giancarlo, and you can reasonably find you are more on the same page with Giancarlo,” Lofchie said. “You will have more confidence that the money will be better spent.”

To contact the reporter on this story: Richard Hill in Washington at rhill@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law