Perhaps to the surprise of no one, the Commodity Futures Trading Commission (CFTC) has again emphasised it is cash-starved.
The US derivatives watchdog has had its plate full ever since the Dodd-Frank Act was passed three years ago, with a swamp of new OTC derivatives rules that have slowly been implemented.
But reviewing, interpreting and implementing legislation is only one part of the job. The CFTC has to now monitor the markets to ensure everyone is complying with the new – and old – rules. Unlike market participants in Europe, for example, US counterparts have already started reporting trades covered by the new rules since January – and the CFTC is having difficulty dissecting the pool of inconsistent data.
In a speech yesterday, CFTC chairman Gary Gensler said the regulator’s success so far should not be mistaken for having sufficient people and technology to oversee the markets.
“One of the greatest threats to well-functioning, open, and competitive swaps and futures markets is that the agency tasked with overseeing them is not sized to the task at hand,” he said at the 5th Annual Financial Regulatory Reform Symposium.
At 674 people, the CFTC is significantly smaller than the Securities and Exchange Commission, which has about 1,200 officials and this year has been operating with US$195 million. “We are only slightly larger than we were 20 years ago. Since then though, Congress gave us the job of overseeing the US$400 trillion swaps market, which is more than 10 times the size of the futures market we oversaw just four years ago.”
Gensler said the CFTC needs more money to enable it to supervise clearing houses, trading platforms, clearing members and dealers. It also needs funds for staff to go through new data sent to swap data repositories, and lawyers and analysts to answer the hundreds of questions from market participants.
“We need sufficient funding to ensure this agency can closely monitor for the protection of customer funds,” he said. “And we need more enforcement staff to ensure this vast market actually comes into compliance, and to go after bad actors in the futures and swaps markets.”
On this side of the Atlantic, the European Securities and Market Authority (ESMA) hasn’t been vocal about cash constraints, but there have been concerns over its resources.
In talks I’ve had with market participants, the number of ESMA staff working on the European market infrastructure regulation (EMIR) technical standards has been a topic of conjecture and concern. When approached, ESMA confirmed the number of staff was eight.
Reporting rule delays have also been linked to lack of resources, but ESMA has since hit back at critics, suggesting delays were due to incomplete applications by trade repositories.
It appears the main concern, in both Europe and the US, is that there has been a long list of new regulation introduced, forcing market participants to adapt and invest – and everyone wants to make sure it’s all been worthwhile.
Banks have at least found the budget to hire people and introduce systems, whereas the regulators appear to be a bit constrained.
There has been a lot of attention on Dodd-Frank and EMIR, but let’s not forget Reg NMS, which needs reform in the US, MiFID II in Europe and numerous other directives such as the central securities depository regulation, the Market Abuse Directive and the Alternative Investment Fund Managers Directive. Then, we have emerging scandals like Libor to worry about.
In the end, there is little option but to keep calm and carry on.