CFTC Breaks Down FY 2017 Budget Request (with Delta Strategy Group Summary)
Commentary by Bob Zwirb
CFTC Chair Timothy Massad detailed proposed spending priorities in the FY 2017 CFTC budget request. In testimony before the U.S. House Appropriations Committee Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies, Chair Massad stated that the proposed increase to $330 million and 897 full-time equivalents ("FTEs") was intended to "help ensure that U.S. derivatives markets continue to be stable, transparent, competitive and free of fraud and manipulation."
Chair Massad broke down the CFTC's FY 2017 budget request in the following areas:
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Data and Technology: $61.1 million and 60 FTEs for enterprise-wide data and technology support activities – an increase of $17.1 million and 11 FTEs above the FY 2016-enacted level.
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Surveillance: $62.8 million and 160 FTEs for surveillance – an increase of $25.7 million and 56 FTEs over the FY 2016-enacted level.
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Enforcement: $68.7 million and 212 FTEs for enforcement activities – an increase of $15.5 million and 51 FTEs over the FY 2016-enacted level.
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Examinations: $34.2 million and 128 FTEs for examinations – an increase of $3.4 million and 13 FTEs over the FY 2016-enacted level.
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Registration and Compliance: $18.0 million and 62 FTEs for registration and compliance activities – an increase of $3.5 million and 10 FTEs over the FY 2016-enacted level.
Chair Massad also stressed that an increase in funding is "essential to responding to the concerns of market participants promptly and properly, in particular commercial end-users." In addition, he emphasized, further resources would help the CFTC to take necessary actions to address potential market risks, specifically cybersecurity and automated trading.
Commentary
Included in Chair Massad's request for greater resources is an additional 51 full-time personnel in the Enforcement Division, representing an increase of nearly a third of the current level. In connection with this request, Chair Massad observed that the CFTC recently obtained $3.2 billion in sanctions from respondents.
Before committing more resources to the CFTC, however, it might be worthwhile to examine (i) the quality of the cases that have been brought by the CFTC and (ii) the actual harm that was addressed in those matters. When it comes to enforcement, the analysis begins and ends with the numbers far too often. It's also important to assess what is happening on a qualitative basis. Steep fines are often paid by large financial institutions that may not want to spend the time and resources to litigate, for example, aggressive new theories of "manipulation" that are propounded by the government. Congress has the right to know more about this budget request than the numbers involved. What are we getting for our money beyond huge extractions of funds from market participants? How enthusiastic are "end users" about staffing up the CFTC, given not only its vigorous money collecting from market participants, but also its rules and proposals, which have hit end users nearly as hard as financial institutions?
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The administration requested that CFTC and SEC funding be doubled from their 2015 levels. In a statement contained in his FY 2017 budget submission to Congress, the administration recommended that the down payment toward the five-year doubling target include $1.8 billion for the SEC and $330 million for the CFTC.
