FTE: 119 (238 annualized in FY 2012)
Program allocation and justification summarized below:
Market Oversight: 41 FTE
The Administration’s legislative proposal:
Establishes significant new requirements on market participants and significant new authorities that the Commission would be responsible for administering. A substantial number of these requirements and authorities fall within the primary responsibility of the Market Oversight program.
Requires the Commission to publicly report aggregated swap position data (without disclosing the positions of individual market participants) that it derives from transaction data provided by (i) clearing organizations, (ii) swaps repositories and (iii) parties otherwise required to report directly to the Commission; this data must be collected, assembled, analyzed and reported. The volume of transaction data is expected exponentially to exceed the current volume of data the Commission collects, assembles, analyzes and reports.
Requires the Commission oversight of an entirely new category of regulatee – Swap Repositories. Swap Repositories would responsible for (i) collecting data as to all executed swaps, (ii) make that data available to the Commission, and (iii) publish the data in some aggregated form to the general public, without revealing the positions of any particular market participant. Market and Product Review subprogram (with consultation with the Surveillance subprogram), will have substantial responsibility for formulating the rules applicable to, and the regulatory framework within which Swap Repositories will be required to operate. Once the rules and regulatory framework are established, the Market and Product Review subprogram will have responsibility for the oversight activities, along with the Compliance subprogram that will initiate RERs to evaluate ongoing compliance.
Establishes a “mandatory” trading requirement for standardized swaps either on a Designated Contract Market (DCM) or an Alternative Swap Execution Facility (ASEF) – another entirely new category of regulatee. The Market and Product Review subprogram (with consultation with the Surveillance program) will have substantial responsibility for formulating the rules applicable to, and the regulatory framework within which ASEFs will be required to operate. Once the rules and regulatory framework are established, the Market and Product Review subprogram will have responsibility for the oversight activities, along with the Compliance subprogram that will initiate RERs to evaluate ongoing compliance with extensive self-regulatory obligations.
Expands significantly the self-regulatory obligations of DCMs with three new or significantly modified Core Principles in the areas of competitive trading, exchange finances, and operational security. The Compliance subprogram will have substantial responsibility to initiate RERs to evaluate ongoing compliance with the new Core Principles.
Expands the Commission’s position limit-setting authority beyond DCMs, to reach ASEFs that list contracts that perform a significant price discovery function. In addition, the proposal directs the Commission to, for the first time, establish cross-exchange aggregate position limits. The Surveillance subprogram would have substantial responsibility for establishing the regulatory frame work for expanded position limits on DCMs, for position limits on ASEFs, and for aggregating those position limits across markets.
Alters significantly the Commission’s contract and rule review process for exchanges and clearing organizations alike by establishing a ten-day review process (rather than the immediate effectiveness feature of the current rule submission process) and would give the Commission discretion to stay the effectiveness of contracts and rules that raise novel or complex issues or that are inadequately explained. The Market and Product Review subprogram would have substantial authority to administer this new contract and rule review process, which would require immediate attention to all submission to evaluate the product and rule submissions within 10 days.
Establishes a new registration category for foreign boards of trade and sets forth various substantive requirements to be imposed on such entities when they choose to list contracts that link to contracts listed on designated contract markets. The Chief Counsel’s Office would have primary responsibility for administering this registration category.
Clearing and Intermediary Oversight: 30 FTE
The Administration’s legislative proposal:
Requires, for the first time Commission regulation of the OTC derivative markets. Generally, the legislation requires the clearing of many OTC swaps, the registration of clearing entities and participants engaged in transacting over-the-counter swaps, and the imposition of various prudential and conduct standards upon these entities. Additionally, to the extent swaps would not be cleared, the legislative proposal would require that information regarding the transactions be reported to repositories that would be Commission registrants subject to Commission oversight.
Requires the Commission to undertake extensive rulemaking (and/or joint rulemaking with SEC and others) in the following areas:
Definitions of relevant terms, including “swaps,” “standardized,” “swap dealer,” and “major swap participant”;
Rules governing persons to be registered as DCOs for swaps;
Rules governing persons that are to be registered as swap repositories;
Rules providing for the registration of swap dealers and major swap participants;
Rules imposing capital and margin requirements on swap dealers and major swap participants;
Rules governing reporting and recordkeeping for swap dealers and major swap participants;
Rules governing daily trading records for swap dealers and major swap participants;
Rules governing business conduct standards for swap dealers and major swap participants (i.e., fraud, supervision, position limits, etc.);
Rules governing back office standards for swap dealers and major swap participants; and
Rules requiring that futures commission merchants and introducing brokers implement conflict-of-interest systems and procedures
Establishes multiple new on-going responsibilities following the drafting, publication, and finalizing of rules:
For example, the imposition of financial requirements would require the development and implementation of a routine financial surveillance function, which would include the periodic audit of swap dealers and major swap participants, and the review of interim and annual financial reports submitted by swap dealers and swap participants.
The registration of new DCOs engaged in the clearing of swaps would require the examination of new entrants for compliance with core principles as well as the routine auditing of such DCOs once registered. DCIO staff will need to review a wide range of OTC swaps and other derivatives instruments to determine their suitability for clearing.
Enforcement: 18 FTE
The Administration’s legislative proposal:
Establishes Commission fraud and manipulation authority over OTC trading More specifically, the proposed legislation amends several provisions of the Commodity Exchange Act (CEA) to include ‘swaps’ where the CFTC has enforcement authority under the CEA and further amends the CEA to grant the CFTC exclusive authority to enforce the provisions of title I of the OTCDMA against any person.
Addresses, directly, “Retail Commodity Transactions” and supports the extension of the forex fraud authority, which was granted under the Farm Bill, to all other commodities.
Office of General Counsel: 8 FTE
The Administration’s legislative proposal, in effect:
Requires OGC to perform new and substantial services on behalf of the Commission and to provide legal counsel and support to all other programs within the Commission as they address novel and complex legal issues arising in the implementation of this broad statutory scheme. (The legislation would establish a comprehensive regulatory regime for virtually all over-the-counter swaps – reducing systemic risk in the financial system by bringing most swaps into centralized clearing, enhancing transparency by bringing most swaps onto trading venues, and assuring accountability by establishing a new registration program for swap dealers and major swap participants. Although some swaps are voluntarily cleared under existing law, the Administration’s proposed legislation would require a substantial expansion of the Commission’s regulatory program for derivatives clearing organizations since all standardized swaps would have to be centrally cleared. Legal services required of OGC would grow markedly, both in terms of assuring the legal sufficiency of both new regulatory actions proposed to carry out the clearing mandate of the legislation, as well as financial integrity and rule enforcement reviews on an ongoing basis to evaluate the stability of the clearing system.)
Includes provisions for new categories of registered entities and market participants that do not exist under current law. These include alternative swap execution facilities, swap repositories, swap dealers, and major swap participants – all of which would be registered and supervised by the Commission. Legal services will be required of OGC in developing new regulatory programs to govern these new categories of registrants, and addressing novel legal issues that inevitably would arise as the Commission applies these programs on a going forward basis. While there are some parallels under the existing regulatory structures for exempt commercial markets and market intermediaries trading futures and commodity options, legal support from OGC would be necessary to evaluate compliance with the intent of Congress as to the extent to which current models are to be carried over to swaps regulation, and how best to adapt those models to inherent differences in the nature of these instruments and the platforms and traders that trade them.
Clarifies the Commission’s ability to adopt rules in administering the Core Principles applicable to contract markets and clearinghouses, and also would provide for advance Commission review of new and amended rules and products proposed by these entities that does not occur under existing law. Legal support is critical to the successful exercise of both of these authorities.
Requires the Commission to set aggregate position limits covering contracts traded on designated contract markets, foreign boards of trade, and new trading platforms for swaps where there is a significant price discovery function. The imposition of these intricate position limits will require extensive legal review to assess compliance with congressional intent.
Requires extending the current Commitments of Traders reporting to include public reporting of swap data will require additional legal services to assure compliance with CEA provisions mandating confidentiality of certain trade information.
Expanding substantially the Commission’s enforcement authority—both with respect to manipulation and fraud involving swaps, and also pursuant to a provision that would extend the fraud enforcement authority that Congress granted to the Commission in 2008 for retail foreign currency transactions to all other retail commodity contracts as well. OGC reviews all enforcement recommendations concerning filing and settling charges for legal sufficiency and consistency with the CEA and Commission rules, policies, and precedents. It also handles appeals of enforcement cases to the U.S. Courts of Appeals. Expanded enforcement authority would yield increased numbers of case filings, settlements, and appeals, all requiring additional legal resources in OGC to fully protect the Commission’s interests.
Office of Chief Economist: 1 FTE
The Administration’s legislative proposal, in effect:
Requires Office of the Chief Economist to provide assistance to the Commission staff responsible for developing regulations mandated by legislation. These regulations will entail development of new measures for activity and positions as well as integration of these measures into current measurement scales. In addition, the proposed regulation alters incentives which, in turn, necessitate analyses to obtain expectations for the effects stemming from various regulatory alternatives.
Conduct analyses of the impact stemming from new regulation to ensure that legislative goals are being met.
Office of International Affairs: 1 FTE
The Administration’s legislative proposal, in effect:
Creates a greater demand to communicate with major jurisdictions such as the European Union, Canada and Japan to explain the details of that legislation and to provide assistance to other jurisdictions interested in developing their own OTC policies. In order to avoid gaps in OTC regulation and “regulatory arbitrage” additional international engagement will be needed in order to coordinate policies and rule development with those of major jurisdictions such as the European Union.
Creates additional demands for cross-border coordination to result from any new legislation granting the Commission authority over over-the-counter (OTC) derivatives. For example, the registration and regulation of major swap dealers and major swap participants will involve entities and persons who are globally active. It is likely that dealers required to register with the Commission will be required to register in other jurisdictions that are contemplating similar enhanced OTC regulation, such as the European Union and Japan. We anticipate the need to develop cooperative arrangements to share relevant regulatory information not only with regard to the safety and soundness of dealers but also with regard to the fitness and financial exposures of large internationally active clients.
Contemplates the development of trade repositories which will require close coordination with foreign regulators, particularly with those in the European Union, to ensure a consistent approach that minimizes duplicative efforts, ensures a comparable level of regulation and, most importantly, the sharing of information needed for market and financial integrity purposes.
Favors an increase in the standardization, electronic facility/exchange trading and clearing of OTC contracts. Given the cross-border nature of OTC trading, each of those three objectives will require the CFTC to coordinate the development of global policies to avoid gaps and to coordinate the development of effective cooperative arrangements to ensure access to information, access to relevant regulated entities and on-going general cooperation. Many of these objectives have begun to be addressed within the international community, such as IOSCO, G20 initiatives, the European Commission and, bilaterally, with the UK FSA, which necessitates increased staff representation.
Establishes enhanced requirements that will apply to position limits on U.S. exchanges and will also extend to foreign boards of trade that trade contracts that are linked to U.S. futures contracts. These new requirements will likely necessitate the development of enhanced information sharing and cooperative surveillance arrangements with relevant foreign boards of trade.
Will attract the attention of international regulators, some of whom have already indicated that they would appreciate technical assistance in developing OTC policies. Providing such assistance is appropriate as it promotes a harmonized, high level of regulation.
Office of the Executive Director: 5 FTE
The Administration’s legislative proposal, in effect:
Requires an appropriate level of overhead support to manage a substantially enlarged workforce. For example, the Office of Human Resources and the offices of Management Operations will be directly affected by the substantial growth in staff required to carry—out resulting for the new regulatory authorities. OHR is providing services at a ratio of about one HR Specialist to every 60 employees. While this ratio might improve slightly - through, economies of scale, and /or better use of automation – the more desirable ratio would not be less than 1 to 100. Therefore, for the projected additional employees would require an additional two Human Resources Specialists. Likewise, the Office of Management Operations will require three additional support staff to meet the space management, asset management, security and physical infrastructure needs of the Commission. This need will become more critical as the Commission expands the size of the already underserved regional offices in Chicago, Kansas City and New York City.
Office of the Information Technology Services: 15 FTE
The Administration’s legislative proposal, in effect:
Requires collaborating with program staff in developing robust mission-oriented systems for the new regulatory framework. IT support will be mandatory for implementing the automated surveillance and comprehensive analysis solutions that are essential to meet the transparency objectives of the new authorities.
Partnering with program staff as they draft and implement rules, researching and assessing industry data and systems. With a focus on efficient deployment of IT systems to support rule adoption and implementation, IT staff will analyze evolving business requirements, plan integration with and expansion of existing systems, and develop new systems.
Assisting program staff in the identification and adoption of industry data standards to increase the reliability, accuracy, and transparency of collected information. The CFTC anticipates major systems development to address voluminous transaction processing, data storage, and data analysis requirements. New IT systems development projects will be managed effectively and will require extensive business and industry analysis. The complexity, diversity, and volume of instruments to be newly regulated will also demand extensive data analysis. Newly developed systems will be more complex than current systems and will require thorough integration with current systems, leading to an increase in solutions development not only for new systems but also for existing systems.
Responding to the substantial staff increase by providing additional personal computers and communications devices as well as increases in supporting infrastructure like secure mobile storage devices, software licenses, and service usage fees. The CFTC also anticipates a substantial increase in teleconferencing and webcasting to support the collaboration required to implement the new authorities.
Assessing and possibly acquiring new sources of commercially-developed information as part of the strategy to support CFTC resources in rule adoption and implementation. Additional IT resources will be required to support an increase in desktop and mobile computing equipment, communication capacity and bandwidth increases, data storage, server computing capacity, and staff to support additional general IT services. Estimates for increases in data to be submitted to the CFTC range as high as forty times over current levels. This will require substantial increases in all facets of CFTC infrastructure, including communications circuits, circuit capacity, cabling and connection, switches, routers, the server processer farm, and data storage and backup. Given the increased volume and frequency of data submitted, CFTC may have to supplement current data storage area network (SAN) infrastructure with large scale data warehousing and analytical appliances.