Tag: Congress

Massad Says CFTC Hampered by Budget Constraints

Recently appointed CFTC Chairman Tim Massad announced last week that there were “a lot of things” he would like to do to continue the CFTC’s goal of regulating financial markets, but that he is held back by strict congressional budget constraints. Referring to the CFTC’s role in promulgating regulations under Dodd-Frank, Massad pointed out, “Our budget hasn’t really increased very much, and yet we were given vastly expanded responsibilities in terms of the markets we cover.” Pointing to a shortfall in staff necessary to carry out the CFTC’s mandate, Massad stated that the CFTC was forced to “rely heavily on the [financial] industry to regulate itself.”

The CFTC’s budget woes have been exacerbated by House Republicans, who will not approve funding requests by the agency and by the White House, even while House Democrats claim that their congressional counterparties are trying to scuttle Dodd-Frank. The CFTC’s current budget is $215 and is unlikely to increase in the next fiscal year.

Massad, who had previously overseen the Troubled Asset Relief Program (TARP) assured that he would be able to improve staff morale at the CFTC. Quoting Theodore Roosevelt, Massad said that he tells staff, “We’re going to do what we can with what we have.”

Congresswoman Urges Review of Bank Guarantees of Offshore Affiliates

Maxine Waters, ranking member of the House Financial Services Committee, urged the CFTC this week to begin investigating the offshore actions of Wall Street banks in avoiding certain mandates set forth in the Dodd-Frank Act. In a letter to Timothy Massad, the CFTC’s recently-confirmed chairman, Representative Waters criticized the removal by banks of parent guarantees from overseas affiliates, which allows banks to trade in the interdealer market while skirting Dodd-Frank restrictions aimed at increasing price competition and transparency. By cutting off these guarantees, banks are able to trade in the United States through swap execution facilities established under Dodd-Frank, while their non-guaranteed subsidiaries are subject only to local laws of foreign jurisdictions.

Rep. Waters also sent letters to the Federal Reserve, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation. In these correspondences, Rep. Waters reiterated that the CFTC should take a more aggressive stance in reviewing changes to the guarantees.

Obama Pushing for CFTC Budget Increase

President Obama has stated that he will be pushing for a CFTC budget increase to $280 million dollars this year.

While this will be a sizable increase to the CFTC budget, up 30 percent from the current $215 million, this new budget increase falls short from last year’s request of $315 million.

Though this is $35 million short of what the CFTC was looking for, it seems that anything at all will be welcome relief to the heavily underfunded Commission.

The CFTC’s budget and staff has seen very little increase over the past few years, even though it is now in charge of policing the $600 trillion dollar derivatives market after the 2008 financial crisis. Members of the Commission have stated on several occasions that they are in dire need of a budget increase, as they don’t currently have enough staff or the right technology to properly monitor the market.

The lack of funding is causing some unrest within the Commission, as many of its higher ranking members have left, citing low pay as one of the main reasons.

Yet the agency and Obama have struggled to get any sort of increase to the budget passed, as congress has blocked increases in an attempt to rein in budget deficits as well as to curb commission overreach.

With a shrunken request, and the Commission’s newfound leniency under acting chairman Mark Wetjen, it seems possible that a CFTC budget increase may just be a possibility.

Gensler’s assessment of the CFTC: A Summary

Chairman of the Commodity Futures Trading Commission (CFTC) Gary Gensler seemed to be overall satisfied with the CFTC’s current progress and future plans as he spoke in front of the International Group of Treasury Associations and the U.S. Chamber of Commerce recently.
Beginning his speech, Chairman Gensler recalls the state of the U.S. economy in 2008, putting the majority of the blame for the financial crisis on the swaps market.
Gensler feels that since President Obama and Congress placed the responsibility of reforming the swaps market onto the CFTC in 2009, many of the initiatives they sought to put in place to create more transparency in the marketplace are being implemented. According to Gensler, these initiatives will create a safer marketplace for investors and consumers, as well as allowing companies unburdened from risk to focus on innovation, productions, and the creation of job. Gensler is aware that this shift will not be seamless, and promises to work with marketplace participants to ease into these changes, just as they have done in the past.
Again recounting the crises of 2008, Gensler discussed the lack of swaps regulation between the U.S. and other countries, and cites the downfall of several large institutions as the result of this unregulated trading.
According to Gensler, since the CFTC began its regulation of the swaps market, 82 swap dealers have been registered, including the 16 largest financial institutions, known as the G 16 dealers. Gensler says that this regulation not only protects the public as well as job providers, but also lowers risk, and gives the market integrity.
Currently, The US, Europe, Japan, and Canada are all moving forward with coordinating international market reform, and the CFTC has completed its guidance on international application of the Dodd-Frank Act. Gensler feels this reform will protect U.S. companies from failures in swap dealers’ offshore affiliates.
Gensler also pointed to the recent and continued manipulation of the LIBOR interest rate as obvious reason for future reform, and stated that U.S. and foreign regulators are in the beginning stages of finding and implementing alternative options.
Ending his speech, Gensler noted that, even with all the CFTC has done, the organization is very much underfunded. Stating that the current budget is not sustainable, and that without proper funding, the CFTC will be unable to perform all the duties necessary to protect customers and businesses from future crises.
A full transcription of Chairman Gensler’s speech can be found at CFTC.gov.

Activists Rally for Financial Speculation Tax

Occupy Wall Street is back, and this time their target is high frequency trading. On the second anniversary of the Occupy Wall Street movement, protesters will be gathering in New York City to demand Congress pass the “Robin Hood Tax.” The Robin Hood Tax, also known as the Financial Speculation (or Transactions) Tax, is an excise tax on the transfer of ownership of certain financial instruments, including bonds, stock, derivatives, and foreign currency exchange. With the proposed tax in place, each time a financial product is traded, a small percentage (less than half of one percent) of the value of the trade is collected in tax.

On April 16, 2013, Minnesota Democrat Keith Ellison introduced the Inclusive Prosperity Act (H.R. 1579), which proposes the excise tax to strengthen our financial security, reduce market volatility, expand opportunity, and to prevent the shrinking of the middle class. The tax is expected to generate as much as $350 billion. Supporters of the tax include Warren Buffet, David Stockman, Bill Gates, Nancy Pelosi, George Soros, and Paul Volcker.

Over a dozen countries have already implemented a system of financial transaction taxation, including many of the world’s largest economies.  At least eleven European countries have either implemented or will soon implement an FTT.  Additionally, leading Asian financial markets, including China and Singapore, also charge an FTT like tax. As of September 17, the Inclusive Prosperity Act has been referred to the House Committee on Ways and Means.

Elizabeth Warren Chides Commissioners Slowing Cross-Border Swap Regulations

With Gary Gensler’s term expired in April, 2013 and a re-appointment being as soon as July, Elizabeth Warren is decrying commissioners for what she sees as stalling regulation.

Certain policies that the Commodity Futures Trading Commission has been working on include a deal with cross-border swaps. One of the policies would require any domestic bank with a foreign branch carrying out more than eight billion dollars of swaps with a domestic entity, to register with the CFTC. This has prompted some concern from abroad about the US intruding in foreign jurisdictions with regulatory policies that conflict domestically. Banks in the United States, in the meantime, postulate that this could hurt American businesses.

Democratic Senator Elizabeth Warren says that she will be watching the CFTC if they try to further slow down policy making. If they stall beyond the current deadline of finalizing regulation, which is July 12th, 2013, then there is a chance that Gary Gensler will no longer be chairman of the CFTC. As she said in an interview on June 20th with The Hill, “It would be a real mistake for commissioners to think they can run out the clock and just hold tight until Gary Gensler’s term expires. I will certainly still be here and watching this process very closely”

In addition to the commissioners Warren is addressing, there are other branches of the US government interested in slowing down the CFTC’s policy decisions, perhaps to put it out of Gensler’s reach. The House Financial Services committee recently passed a bipartisan bill in support of exempting foreign banks from these regulations as long as they deem their regulatory bodies to be of equal purport.

CFTC Commissioner Chilton’s Address to Hedge Fund Conference Covers HFT, Global Markets

On Tuesday, June 18th 2013, CFTC Commissioner Bart Chilton gave the keynote address in the conference Hedge Fund Industry in 2013, which was held in Chicago, Illinois. In the address, he gives some insight into the working parts behind the Commodities Futures Trading Commission, and why they see some aspects of the financial industry as potential threats to the stability of the market.

Chilton, who has been a CFTC Commissioner since August, 2007, gave a speech that he prefaced by saying that “while this is a talk about trouble, I assure you it isn’t a lecture about trouble.” His speech seemed lighthearted and relaxed, and he even made a quip about Dodd-Frank; “And so, in 2010 Congress and President Obama put in place a new law: Dodd-Frank. I’m sure you guys have your own euphemism for it, but let’s keep this PG.” However, the rest of his speech was less humorous.

In discussing the development of High Frequency Trading (HFT), which he referred to as cheetahs, he mentioned that given the right circumstances, HFT was beneficial.

Look, these cats have some true attributes and they shouldn’t become an endangered species. At the same time, they are impacting markets in ways we barely understand, and it ain’t all good all the time. If we don’t have some rules and transparency about their activities, we run a market risk that some cheetah-related event that harms markets, could put them on an endangered list, and rapidly.

Another one of the subjects he covered was global markets, which is very topical. He explained that balancing domestic and international regulatory policy was difficult, because trading and other financial transactions are globally linked. He went onto explain several global transitions that regulatory policy will influence, and said “we need to give the market a reasonable amount of time to adjust to global derivatives market regulation. The markets will need time to adapt to a new interpretation of the term ‘U.S. person.’ In many instances we’ll have a pretty good idea when the first set of foreign rules come online. In Europe, trade repository reporting is likely to begin in November. We should be cognizant of that as we assign CFTC phased-in compliance.”

Chilton summed up the address by saying that these markets don’t just effect the key players like regulators or traders, but also the everyday consumer, and put the regulations into the context of risk management.

Banks Receive Extension on Risky Swaps Rule

The Wall Street Journal reports that seven banks have received extensions on complying with the rule that would require them to “move risky swap activities into separate affiliates.”

The Office of the Comptroller of the Currency granted the two year extensions to Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co., HSBC Holdings PLC, Morgan Stanley and U.S. Bancorp.

The rule, which required banks to move their risky swaps trades to affiliates that were not covered under the “federal deposit insurance and the Fed’s discount window,” was devised by Blanche Lincoln, the previous Senate Agriculture Chairman.

The extension has faced criticism from some proponents of the Dodd-Frank Act. Senator Sherrod Brown (D-OH) stated, “Three years ago, the Congress made a decision that Wall Street should not gamble with taxpayer money…  We shouldn’t have to wait for another financial crisis for regulators to finish the job.”

Representatives from the industry have said that the extensions would allow other regulators to finalize their Dodd-Frank rules regarding swaps. These banks’ confusion on rules would have made the task of creating or moving swaps into new entities difficult.

Banks Oppose CFTC Proposal for Strict Controls of Overseas Derivatives

Wall street bankers and some of the top finance ministers in the world are engaged in an intense battle with the Commodity Futures Trading Commission, as they attempt to stop the agency from extending their regulatory powers abroad.

The bankers and ministers are attempting to block a CFTC proposal, aimed to be instituted in mid-July, that would require overseas offices of American-based banks, foreign institutions and hedge funds to turn over data on foreign trades if they involve U.S. customers, or are guaranteed by a financial institution with American ties, according to the New York Times. Their complaint with this proposal is that it is both “redundant and excessive.”

The struggle between the two sides has caused a rift between Democrats in Congress and has also led to claims from industry officials that Gensler is overreaching his authority.

However, Gensler has maintained his position, arguing that countless bad bets in the global derivatives market that threaten markets in the U.S. can be traced to overseas location.

“It would be letting down the American public if we said, we are just about to complete the task but now, let’s retreat,” Gensler said in a New York Times quote. “If we don’t do this right, we will blow a hole in the bottom of the boat of reform.”

Detractors of Gensler’s proposal feel that the cross-border regulations will create strife with foreign regulators that may push trading away from Wall Street banks to overseas competitors.

Mary L. Shapiro, the former chairwoman of the Securities and Exchange Commission, has stated that she admires Gensler’s perseverance. However, she added, “he believes very strongly in the positions he takes — that does not always lend itself to compromise quickly.”

Other advocates of Gensler have cited the former investment banker’s career at Goldman Sachs as a proponent for his methods.

Dennis M. Kelleher, a former Capitol Hill staff aide, told the New York Times, “He uses the knowledge he gained working inside at a high level in a Wall Street bank to regulate Wall Street in a way that they can’t evade.”


Bart Chilton to Propose Derivative Transaction Fee

Bart Chilton, Commissioner of the Commodity Futures Trading Commission (CFTC), plans to propose a transaction fee for derivative markets to help fund his agency and tighten regulation.

The idea of a transaction fee has been tossed around for many years, but it has never really gained any steam. Chilton, one of three Democrats appointed to CFTC’s panel, discussed this issue in an appearance on CNBC Squawk Box on Wednesday Morning

“On the transaction fee, this is a thing that’s been proposed by four different administrations, republicans and democrats alike,” Chilton said. “Yet nobody has every really put pen to paper in the executive branch and sent something serious forward to congress. All the other federal regulators are funded by a transaction fee.”

According to the Wall Street Journal, President Obama proposed a user fee to fund the CFTC in his latest budget. The user-fee idea, which was also proposed by the Bush administration, has met resistance from both Republicans and industry groups who argue that it is an industry tax that would harm investors.

Chilton’s plan is charge a fee of $0.0006 per transaction. The commissioner feels that the fee would really help the CFTC, stating, “We could fund $300 million a year, which is what our agency needs.”

He also emphasized that the fee would only impact “speculative trading, not the end user, not for the folks that have skin in the game.”

“There are so many trades going on at lightning speed. They’re scooping up micro-dollars in milliseconds,” Chilton said. Maybe will make them a little more thoughtful about the trades that they’re making.”