President Obama Requests 30 Percent CFTC Budget Increase as Financial Regulator Plans to Step Up Enforcement

Alerts / March 6, 2014

President Obama is seeking a 30 percent budget increase for the U.S. Commodity Futures Trading Commission ("CFTC"). A 30 percent increase would be the largest budget increase in the agency's history and one of the largest budget increases under a bipartisan agreement that caps government spending through fiscal year 2015.[1] Although the proposed increase is considerably less than past CFTC budget requests, it reveals the administration's commitment to regulating the futures and swaps markets.[2] Accordingly, market participants should revisit their compliance programs in anticipation of heightened CFTC scrutiny.

In the wake of the 2008 financial crisis, President Obama and Congress strengthened CFTC authority by enacting the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"). The Dodd-Frank Act required the CFTC to reform the previously unregulated swaps market and intensify authority over historically regulated entities.[3] The $693 trillion global swaps market is "eight times bigger and far more complex than the futures markets."[4]

Markets and industries subject to CFTC regulation are constantly evolving and expanding due to: amplified trading activity, increased number of participants, advanced trading technologies, eased cross-border activities, heightened product innovation, and intensified competition. The CFTC has sought budget increases each year since the enactment of the Dodd-Frank Act to keep pace with progressive market participants. While advocating for a budget increase in 2013, CFTC Chairman Gary Gensler communicated his concern that "the CFTC is not the right size for the new and expanded mission Congress has directed it to perform."[5] During a February 5, 2014, House Financial Services Committee Meeting, CFTC acting chairman, Mark P. Wetjen, stated "we are resource-constrained at the CFTC."[6] Last year, the CFTC was forced to furlough employees, required an emergency infusion of funds, and lost senior-level employees to higher-paying jobs.[7] Regulation of vast futures and swaps markets has become a reality for the CFTC and the agency regularly advocates for an increase of agency resources to match the increase in responsibility.[8]

Not all CFTC resource deficiencies will be resolved with the proposed budget increase -- Commissioner Bart Chilton released a statement calling the President's proposal "woefully insufficient for needed oversight and enforcement"[9] — however, the CFTC is getting some much needed attention. The administration is supporting the largest budget increase in CFTC history while government spending is capped. A 30 percent budget increase would result in an additional $65 million in CFTC resources. It is suspected that the CFTC will allocate most of these funds to increase its staff by more than a third and update technology systems.[10]

Although it is unlikely the CFTC will receive the complete 30 percent budget increase, the proposal reflects a shift in momentum. According to administration officials, the "President is committed to securing sufficient funding to enable the CFTC to effectively oversee the futures and swaps markets."[11] CFTC Nominee Timothy Massad has pledged to aggressively enforce rules against misconduct and to beef up oversight of the derivatives markets.[12] Market participants should expect and plan for heightened CFTC surveillance, regulation, and enforcement.

If you have any questions about this alert, please contact Marc D. Powers at mpowers@bakerlaw.com or 212.589.4216; William K. Kane at wkane@bakerlaw.com or 312.416.6211; Gillian Lindsay Whittlesey at gwhittlesey@bakerlaw.com or 312.416.6231; or any member of BakerHostetler's Securities Litigation and Regulatory Enforcement or Hedge Fund Industry teams.

Authorship Credit: William K. Kane and Gillian Lindsay Whittlesey

 


[1] Andrew Ackerman, Obama to Request 30% Bump in CFTC Funding, Wall Street Journal (Feb. 28, 2014 9:35 p.m. ET).
[2] Commodity Futures Trading Commission, President's Budget and Performance Plan Fiscal Year 2014, Apr. 10, 2013.
[3] U.S. Commodity Futures Trading Commission, (last visited Mar. 4, 2014).
[4] Commodity Futures Trading Commission, President's Budget and Performance Plan Fiscal Year 2014, Chairman's Transmittal Letter, Apr. 10, 2013, Andrew Ackerman and Katy Burne, CFTC Is Poised to Expand Its Reach Overseas, Wall Street Journal (Dec. 16, 2013, 9:01 p.m. ET).
[5] Commodity Futures Trading Commission, President's Budget and Performance Plan Fiscal Year 2014, Chairman's Transmittal Letter, Apr. 10, 2013.
[6] Testimony of Acting Chairman Mark Wetjen Before U.S. House Committee on Financial Services on the Vocker Rule Impact, February 5, 2014,
www.cftc.gov.
[7] Andrew Ackerman, 2015 Budget: White House Seeks More Money for Wall Street Oversight, Wall Street Journal (March 4, 2014 11:30 a.m.)
[8] See e.g. Commodity Futures Trading Commission, President's Budget and Performance Plan Fiscal Year 2014, Chairman's Transmittal Letter, Apr. 10, 2013; Commodity Futures Trading Commission, Statement of Commissioner Bart Chilton of the President's FY 2015 Budget, Mar. 4, 2014.
[9] Commodity Futures Trading Commission, Statement of Commissioner Bart Chilton of the President's FY 2015 Budget, Mar. 4, 2014.
[10] Andrew Ackerman, Obama to Request 30% Bump in CFTC Funding, Wall Street Journal (Feb. 28, 2014 9:35 p.m. ET).
[11]
Id.
[12] Scott Patterson, Nominee For CFTC Boss to Stress Enforcement, Wall Street Journal (March 6, 2014). Scott Patterson, Massad to Push for "Strong Enforcement" of CFTC Rules, Wall Street Journal (Mar. 5, 2014 5:45 p.m. ET).

 


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