In the context of a constrained budget environment and the agency’s dramatically expanded mission, the CFTC took three significant steps in the past year to prepare for implementation of financial reform. First, we developed a new strategic plan for fiscal years 2011-2015. This plan raises the bar on the agency’s performance measures to more accurately evaluate our progress. But the agency’s performance is affected by the challenges of limited resources. The CFTC’s first performance report said the agency was only able to meet 57 percent of its performance targets. For example, the Commission examined fewer derivatives clearing organizations (DCOs) than called for in the strategic plan. In addition, fewer staff members were available to review new contracts for susceptibility to market manipulation, resulting in a backlog in such reviews.
Second, the CFTC put in place an organizational restructuring that went into effect in October 2011, which aligned the agency with our expanded mission. It created the Division of Swap Dealer and Intermediary Oversight and the Office of Data and Technology, as well as reorganized a number of other divisions. And third, the agency began presenting its budget request by the agency’s mission activities, a change from our presentation approach in years past, which was by agency divisions. It offers Congress and the public a much clearer picture of what the CFTC does for the American people. In the chart attached to this testimony, you can see each of our missions and the associated funding request.
In my remaining testimony, I will review the five areas that make up over 90 percent of our requested budgeted staff increase: registrations, examinations, surveillance and data, enforcement, and economics and legal analysis.
Registration and Product Reviews
A significant task before us in FY 2013 will be the registration of an unprecedented number of new market participants, as well as reviews of new products for both the clearing mandate and the trading mandate.
We want to consider registration applications in a thoughtful and timely manner, be efficient in reviewing submissions, and be responsive to market participant inquiries, but this will require sufficient funding. We are seeking $36.8 million and 142 FTEs for these two mission areas, an increase of $18.2 million and 70 FTEs.
The more than 200 entities that may seek CFTC registration within the next year is a dramatic increase over any registration effort the agency has overseen in the past. The Commission needs staff to facilitate the registration of the following market participants:
- Clearinghouses – Entities that lower risk to the public by guaranteeing the obligations of both parties in a transaction. We are working with four new entities seeking to register as DCOs and have inquiries from others. These entities will join the 16 we currently oversee.
- Designated contract markets (DCMs) – U.S. trading platforms that list futures and options and likely will start listing swaps. The CFTC currently oversees 16 DCMs, and by 2013, staff expects another five to seek registration.
- Foreign board of trade (FBOTs) – Regulated trading platforms in other countries that are generally equivalent to DCMs. Since the FBOT rule became effective in February, two have filed formal applications to be registered with the CFTC. Another 20 FBOTs currently operate under staff no-action letters. By 2013, staff expects a total of 28 FBOTs to seek registration with the CFTC.
- Swap data repositories (SDRs) – Recordkeeping facilities created by Dodd-Frank to bring transparency to the swaps market. Four have already filed with the CFTC, and by 2013, an additional two SDRs are expected to seek registration.
- Swap dealers – Under Dodd-Frank, the CFTC is working to comprehensively regulate swap dealers to lower their risk to the economy. A rule finalized in January requires them to register with the National Futures Association (NFA). For planning purposes, Commission staff currently estimates somewhere between 100 and 150 swap dealers may request registration with the NFA, and we’ll be overseeing their registration and related questions.
- Swap execution facilities (SEFs) – The new trading platform for swaps. Commission staff estimates that 20-30 entities may request to become SEFs.