The CFTC has been fairly aggressive in writing and launching new regulations, particularly for the clearing and execution of over-the-counter derivatives — a key reform of the Dodd-Frank Act. Getting the follow-up support from Congress to effectively oversee these reforms has been a major challenge for the regulator.
Undaunted, Mark P. Wetjen, the acting chairman for the CFTC, went before the U.S. Senate Appropriations Subcommittee on Financial Services and General Government last week to plead his case for more “cops” and better IT to enforce the new rules of the road for OTC derivatives, among other things..
In particular, President Obama’s fiscal year 2015 funding request for the CFTC “would provide $62 million and 200 [full-time equivalents] for enforcement, an increase of $16 million and 51 FTEs over FY 2014,” Wetjen says. “The simple fact is that, without a robust, effective enforcement program, the commission cannot fulfill its mandate to ensure a fair playing field.”
The funding request also includes “a substantial increase in technology investments relative to FY 2014, roughly a 42 percent increase,” Wetjen says. “The $50 million investment in technology will provide millions of dollars for new and sophisticated analytical systems that will, in part, assist the commission in its efforts to ensure market integrity.”
The IT investment would be for systems that “collect and analyze market data, and to handle the unprecedented volumes of transaction-level data provided by financial markets,” he says. “The President’s FY 2015 budget request supports, in addition, 103 data-analytics and surveillance-related positions in the Division of Market Oversight alone, an increase of more than 98 percent over the FY 2014 staffing levels.”
The acting chairman also added to his pitch that “experienced market professionals” would be able to analyze “extremely complex and voluminous data” from multiple securities transaction centers. To identify trading activity that warrants investigation, the regulator needs use sophisticated analytics and models. “These new positions, together with the technology investments included in the FY 2015 request, will enable the commission to make market surveillance a core component of our mission,” he says.
The increased IT funding and enforcement would build upon the investments made in in FY 2013 and FY 2014. Wetjen adds. “We have the groundwork in place to receive and effectively analyze swaps transaction data submitted to repositories and [self-regulating organizations] related to new authorities,” he says. The FY 2015 funding request would aim to hasten progress and “also support the additional examination, enforcement, and economic and legal staff.”
The new IT “must be paired with investments in personnel that can employ technology investments effectively,” Wetjen adds. “More cops on the beat means the public is better assured that the rules of the road are being followed.”
Among the matters that the new cops on the beat would explore are:
- “Sophisticated manipulative and disruptive trading schemes” in financial instruments, oil, gas, precious metals and agricultural products;
- New Ponzi schemes;
- And carry out complex litigations over financial market integrity and customer protection such as the false reporting of LIBOR and other benchmark interest rates
Wetjen’s budget pitch is part of the complex process of getting funding out of Congress and we are nowhere near the end of it.
If the CFTC is stuck again with an extremely tight budget, “the CFTC will continue to face difficult choices about how to use its limited enforcement resources,” Wetjen says. Fewer enforcement staffers and paltry IT tools will take their toll.
“At this point, it is not clear that the agency could maintain the current volume and types of cases, as well as ensure timely responses to market events,” Wetjen says.
Let’s hope that there’s more hype than truth to Wetjen’s appeal to Congress.
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