House appropriators Thursday will weigh the U.S. futures commission's request to increase its budget to fund more than 300 new staffers and implement last year's financial reform act.
The Commodity Futures Trading Commission has requested $308 million for fiscal 2012, a $139 million increase over the fiscal 2011 continuing resolution. That money is "necessary funding" to hire 238 full-time employees to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act and 78 staffers for work not related to financial reform, the futures commission chairman wrote in a letter included with the request.
"The challenge before the agency is significant, but manageable, provided we are sufficiently resourced," Chairman Gary Gensler wrote on Feb. 14.
On Thursday, Gensler will defend his commission's request in front of the House Agriculture, Rural Development, FDA and Related Agencies Appropriations Subcommittee.
The futures commission is considering rules to regulate 30 topic areas set out in Dodd-Frank. The rules would bring restrictions to the previously unregulated over-the-counter derivatives market and would set limits on excessive speculation in energy and other commodities. The latter has been at least partly blamed for the $4-a-gallon gas prices in the summer of 2008.
In Title VII of Dodd-Frank, the futures commission is required to set regulations on over-the-counter derivatives, commonly known as swaps. Dodd-Frank calls for these agreements, which are based on expected futures prices, to be traded on exchanges and guaranteed by clearinghouses to reduce settlement risks.
CFTC estimates that the swaps market could be as big as $300 trillion in the United States alone and that regulation would require approximately 300 entities to register as swap dealers.
The rules would affect crude oil contracts, which are commonly traded as swaps, and some of the largest integrated oil and gas companies, which are major swap dealers. CFTC's proposal has utilities worried that the Dodd-Frank rules won't exempt commercial end-user hedgers from margin requirements, or deposits to cover risks (E&E Daily, Feb. 11).
Those concerns came up at recent congressional hearings before the budget was released, along with concerns about CFTC being able to put together the resources needed to implement financial reform in time to meet the statute's deadlines.
"Staff will be required to oversee swap dealers, the clearing of swaps and the trading of swaps on exchanges. ... These new responsibilities are in addition to the agency's existing mission of policing the futures marketplace," Gensler wrote in defense of the requested increase.
The new staffing would bring the commission up to 983 staff-years. The commission says in its budget request that it will need to grow to 1,143 by the end of fiscal 2013 "to perform its mission and to fulfill its regulatory responsibilities."
Sen. Bill Nelson (D-Fla.) on Thursday also urged the commission to do more under Dodd-Frank to end excessive speculation in a letter he circulated to colleagues in Congress.
He asked the commission to impose an increase in the margin levels for speculative oil futures contracts, citing the turmoil in North Africa and the Middle East that has led to an increase in speculative betting on future oil price increases. Legitimate hedgers, meanwhile, have reduced their holdings of oil futures by more than 20 percent.
Speculators continue to buy $100 worth of oil futures with just $6 down, Nelson wrote.
"I believe the commission already has an extremely effective tool at its disposal it could use to discourage excessive energy speculation and bring down gas prices -- the authority to impose higher margin requirements for oil futures contracts," Nelson wrote. "The current system -- in which ordinary investors put down 50 percent to buy stock, while speculators have to post only six percent to buy a futures contract in oil and other commodities -- clearly is skewed."
Schedule: The hearing is Thursday, March 17, at 10 a.m. in 2362A Rayburn.
Witness: Gary Gensler, chairman, U.S. Commodity Futures Trading Commission.
