3. Our Division of Clearing and Risk cannot expect to examine all of our derivative clearing organizations annually, as is needed, under the proposed budget. The budget will not permit us to effectively manage the risk of cleared positions. Given that clearing organizations are one of the cornerstones of Dodd-Frank, hobbling our DCR Division from adequate inspection and management under our new rules is unacceptably risky.
4. With such a limited budget, the development of our compliance and exam programs in the Division of Swap Dealer and Intermediary Oversight will be drastically slowed. These funds leave us unable to adequately exam and monitor risk of our registrants. At best, we are left only with the ability to react in our monitoring and oversight of the firms – instead of proactively looking for and identifying potential red flags that may indicate a firm is in trouble (like MF Global or Peregrine Financial). Plus, it greatly limits our ability to respond in a timely manner to requests for interpretation and relief in this very important rule implementation phase.
5. In our Division of Market Oversight, there are significant, unmet needs for additional resources for data and reporting, registration, and surveillance. For example, we won't be able to keep up with the high frequency cheetah traders who are scooping up microdollars in milliseconds and potentially roiling markets. Again, we will only be reactive.
Finally, for several years, the President’s budget has called for a transaction fee to fund the Agency. Calling for such allows the out-year budgets (those beyond the requested year funding) to not score. That is, suggesting that a transaction fee will fund the Agency instead of appropriations from Congress, means when the out year budget totals are tabulated, it costs nothing. But there is no real desire to see Congress enact such a transaction fee. It's the old smoke and mirrors, but with a strobe for enhanced misdirection. If the request were genuine, a thoughtful, formal legislative proposal would have been forthcoming as part of the budget, as had been promised, years ago.
That’s an unfortunate condition because all of the other four main financial regulators have, in some part, self-funding. Yet, the CFTC does not. When the government shut down last October, equity markets were still overseen by the Securities and Exchange Commission. The Federal Reserve was open for business. Yet futures and most swaps markets were left with essentially no cop on the beat.
This budget request portends a self-inflicted wound upon the essential goal of appropriate and needed oversight and enforcement. Dodd-Frank is a success story, and the under-resourcing of the CFTC is pushing us dangerously close to seizing defeat from the jaws of victory.
In summary, this budget asks a strained and exhausted CFTC staff to do the impossible with too little. We work hard here, and have been granted needed regulatory tools to do the job. A magic wand, however, is not among those tools, and we are not magicians. The Agency requires basic, minimal support to accomplish our newly assigned tasks. Sadly, in this regard, the President’s budget request fails.