House appropriators consider budget increase for commodity trading regulator
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WASHINGTON, March 22, 2012- Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler defended his agency's request for a 50 percent funding increase in fiscal year 2013 this week. He testified in front of Congress members representing heavily agricultural districts during today's House Appropriations Subcommittee on Agriculture hearing.
“Congress added oversight of the $300 trillion swaps market, which is far more complex than the futures market,” Gensler said regarding the oversight responsibility assigned to the CFTC in the Dodd-Frank Act.
The request is for an appropriation of $308 million, an increase of 50 percent over the fiscal year 2012 funding level. He said this increase includes a 56 percent increase in IT services and a 43 percent increase in staff.
“Congress asked CFTC to oversee the swaps market, which helped cause the 2008 financial crisis and put millions of Americans out of work,” Gensler said. “This investment of $100 million in context of a multi-trillion dollar federal budget is a good investment.”
“It's an absolutely hard sell in Congress, I admit that,” he added.
Rep. Rosa DeLauro, D-Conn., and Rep. Sam Farr, D-Calif., both supported the increase for CFTC, although acknowledged the requested level may not be available after a budget agreement.
“I think your testimony points out that you really do need the staff and technology to implement this new law,” Farr said.
Rep. Sam Graves reminded the CFTC Chairman of the measures Congress is attempting to lower the federal deficit and that several other agencies are also asking for more funding.
“It's hard for me to go back home and explain how a chairman can ask for 50 percent more,” Graves said. “The fact is, there are only so many dollars. Everybody has come before us saying ‘we need more' and it's just not there.”
While Gensler claims the swaps market is eight times larger than the futures market, which the CFTC already regulates, Chairman Jack Kingston, R-Ga., said the number of entities the CFTC oversees has only grown by a marginal five percent in the past decade.
However, Gensler said the CFTC estimates that the number of trading platforms and clearing houses it oversees will at least double and likely triple. He said he expects more than 200 entities to seek CFTC registration within the next year.
“The Dodd-Frank swaps market transparency rules mean a major increase in the amount of incoming data for the CFTC to aggregate and analyze,” he said. “I fear that many market participants will have to queue up and not be able to get the registrations through and then the American public will not have confidence in this market.”
The 20 Dodd-Frank rules yet to be finalized include the definitions of “swap dealer” and “swap.” Gensler said he is committed to making sure that only those “making markets” will be classified as swap dealers and that those hedging risk against the market would be exempt.
“There is a lot of common ground in making sure commercial hedgers do not get caught up in the definition of swap dealer,” Kingston said.
Tentatively, CFTC expects to have most of the rules completed throughout the summer.
Regarding the oil market, DeLauro argued that the ability of the CFTC to fund its technology and staff also impacts its ability to monitor inappropriate activity. She referenced several studies concluding that speculation significantly impacts the inflation of oil prices and increase in gasoline prices.
Gensler agreed that speculators' involvement in any market affects prices. Although the Commission can oversee markets to prevent manipulation, he emphasized that it is not a price-setting agency. Farr asked why the CFTC has not used its authority to enact reforms that prevent excessive oil speculation.
“What we have is the authority to limit the size of any one speculator. We finalized those rules this past October,” Gensler said, referencing the finalized rule authorizing CFTC to set position limits.
Senator Bernie Sanders (I-Vt.) introduced a bill in the Senate on Wednesday that would require that the CFTC reign in oil speculation on Wall Street. The bill, if passed, would give the CFTC 14 days to create regulations designed to halt excessive oil speculation.
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