CFTC Chairman Gensler and Commissioner O'Malia Disagree in Testimony on Budget and Other Matters

On April 12th, CFTC Chairman Gary Gensler and CFTC Commissioner Scott O'Malia testified before the House Appropriations Committee on the Fiscal Year 2014 budget request for the CFTC. The chairman of the subcommittee, Robert Aderholt, stated that the CFTC had received six consecutive annual increases in funding, an overall increase of 85 percent since the 2008 Financial Crisis, which he indicated was disproportionate to increases in federal spending generally. He then went on to say that the CFTC's focus on hiring additional staff was "disconnected to the reality"; that most activity under CFTC's purview is conducted electronically, which led him to "question of the rationality" of the CFTC's request for a large staff increase.

Chairman Gensler started his testimony by asserting the CFTC's accomplishment in completing 80 percent of the swap market reform rules under Dodd-Frank and how the public is benefiting from seeing the price and volume of each swap transaction and the oversight of swap dealers. However, Chairman Gensler claimed that the CFTC is not the right size for its new and expanded mission and that the current funding of $207 million is too low, hence the budget request of $315 million and 1015 full-time equivalent (FTE) staff. Chairman Gensler stated that the President's budget strikes a balance between technology and human capital, with 62% increase in IT and a 44% increase in staff. Chairman Gensler further laid out five areas that make up over 90% of the requested budget staff increase. Although Chairman Gensler requested increases in most areas of CFTC staffing from current levels, somewhat interestingly, as set out below, he requested a decrease in those involved in economic and legal analysis.

1. Registration and Product Reviews: Requesting an increase of $22.6 million and 92 FTEs to facilitate the registration of clearinghouses, DCMs, foreign boards of trade, swap data repositories, swap dealers and major swap participants and swap execution facilities.
2. Examinations: Requesting an increase of $25.6 million and 104 FTEs to perform more in-depth examinations of the major market participants.
3. Surveillance and Data: Requesting an increase of $18.3 million and 53 FTEs to acquire and analyze large volumes of data to identify trends and events.
4. Enforcement: Requesting an increase of $18.1 million and 51 FTEs to protect market participants and the public from fraud, manipulation and other abusive practices.
5. Economics and Legal Analysis: Requesting a decrease of $3.6 million and 20 FTEs in investing in robust economic and legal analysis.

Chairman Gensler concluded by stating that the futures market has grown five-fold and that the swaps market is even eight times larger than the futures market, and suggested that without sufficient funding the agency cannot effectively promote transparency and lower risk to the economy.

Commissioner O'Malia stated that he did not vote for the budget request because (i) the request is improbable and unsustainable, and (ii) the budget fails to provide specifics, making a broad appeal for more resources without demonstrating mission priorities or essential deliverables. He insisted on the importance of developing a business strategy that maximizes technology because of the expansion of amount of data being reported to the CFTC and the expansion of the oversight of many new trading venues. Commissioner O'Malia stated his belief that the CFTC has only scratched the surface of the technology applications it can develop and deploy and requested a detailed five-year plan focused on technology, with annual milestones and budgets. Commissioner O'Malia also criticized the CFTC for its ad-hoc and often last-minute exemptions, which "has made the rules look like swiss cheese, leaving market participants uncertain as to the application of the Commission's rules." He urged the CFTC to put forth a comprehensive and transparent implementation plan to provide clarity and certainty to the markets.

Although the printed testimony of the Commissioners was on budget matters, in fact the oral testimony covered a much broader range of topics and had some directly stated disagreements, particularly on matters such as international coordination and SEC coordination.

See: Chairman Gensler's Testimony.See also: Commissioner O'Malia's Testimony.See also: Representative Aderholt Press Release on the CFTC Testimony;Representative Aderholt's Opening Statement.See also: Government Videotape of Congressional Testimony.