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The FY 2012 Budget for the Office of the General Counsel is $22,876,000 and 70 FTE, of which $6,499,000 and 20 FTE relate to Dodd-Frank.

Title VII of the Dodd-Frank Act establishes a comprehensive new regulatory framework for swaps. It will reduce risk, increase transparency, and promote market integrity within the financial system by, among other things: 1) providing for the comprehensive regulation of swap dealers and major swap participants; 2) imposing clearing and trade execution requirements on standard products; 3) creating robust record-keeping and real-time reporting regimes; and 4) enhancing the Commission’s rulemaking and enforcement authorities for, among others, all registered entities and intermediaries subject to the Commission’s oversight.

In terms of increased demands for legal services from OGC, the Dodd-Frank Act will require 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 development and application of rules to implement this broad statutory scheme. More specifically, the Dodd-Frank Act, in its implications for OGC:

• Requires the adaptation of existing regulatory structures to new markets and platforms. Although some swaps are voluntarily cleared under existing law, the legislation requires a substantial expansion of the Commission’s regulatory program for DCOs since standard swaps will have to be centrally cleared (unless they qualify for a statutory exception based on the nature of the counterparties). Further, existing exchanges established to trade futures may now expand to trade swaps as well, and a new breed of swap execution facilities (referred to as “SEFs,” which are akin to, but different from, existing exchanges) may provide a platform for institutional swap trading. Legal issues will arise as rules and practices developed for a different model are expanded to accommodate these new clearing and trading regimes. Legal services required of OGC will grow markedly, both in terms of assuring the legal sufficiency of new regulatory actions proposed to carry out the clearing and trading mandates of the legislation, as well as financial integrity and RERs on an ongoing basis to evaluate the stability of the clearing system and the fairness and integrity of the markets.
• Includes provisions for new categories of market participants that do not exist under current law─ swap dealers and major swap participants─ all of which will 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 will arise as the Commission applies these programs on a going forward basis. Legal support from OGC will 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 traders that trade them. This is particularly true with respect to the new class of “major swap participants,” which are essentially large traders–since registration and compliance with financial and business conduct standards have never been required of large traders in futures or commodity options.
• Clarifies the Commission’s ability to adopt rules in administering the Core Principles applicable to contract markets, clearinghouses, SEFs, and SDRs. The legislation also provides for advance Commission review of new and amended rules 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 position limits for futures and options on physical commodities traded on contract markets, as well as aggregate position limits also covering contracts traded on FBOTs and swaps. The imposition of these intricate position limits – in compliance with other statutory directives to simultaneously establish limits for economically equivalent swaps, while also striving to ensure that any limits imposed by the Commission will not cause price discovery in the commodity to shift to trading on FBOTs–will require extensive legal review.
• Includes a comprehensive real-time public reporting mandate and a new registration regime for SDRs, which will require additional legal services to assure compliance with CEA provisions mandating confidentiality of certain trade information.
• Expands 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 the CFTC Reauthorization Act of 2008 (CRA) for retail foreign currency transactions to all other retail commodity contracts as well. Additional Commission enforcement authorities granted in the legislation include, but are not limited to, the following: additional anti-manipulation authority; additional prohibited trading practices; insider trading authority with respect to futures on security indexes and misappropriated government information; and whistleblower awards. OGC reviews all enforcement recommendations concerning the filing and settlement of 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. The significantly expanded enforcement authority provided for in the Dodd-Frank Act will yield increased numbers of case filings, settlements, and appeals, all requiring additional legal resources in OGC to fully protect the Commission’s interests.
• In Title VIII, grants enhanced authority to the Commission with respect to DCOs that are designated as systemically important. Further, Title VIII also provides certain authorities to the Federal Reserve Board with respect to such clearinghouses, and thus requires a closer degree of coordination between the agencies. Legal support from OGC will be necessary for the Commission to properly navigate the interplay between Titles VII and VIII, to exercise its new authorities consistently with Congressional intent, and to assure through its working relationship with the Federal Reserve that each acts according to the parameters of its respective statutory remit.
• Requires focused attention on statutes of government-wide applicability – such as the Administrative Procedure Act, the Regulatory Flexibility Act, and the Paperwork Reduction Act – that will play a critical role in the development of the extensive rulemakings necessary to properly implement the regulatory program established by Congress. OGC has created a General Law Team, dedicated solely to the analysis and resolution of legal issues arising under these and related statutes, to assure that the Commission’s rulemaking efforts comply with all legal requirements.
• Necessitates resources to respond to close scrutiny by Congressional oversight committees, and Congressional requests for information to the Commission, that are anticipated in the course of monitoring the Commission’s implementation of this landmark legislation over the next several years.

The Commission’s development of rulemakings, its regulatory initiatives undertaken to implement those rules, and its enforcement actions against those alleged to have violated those rules, must pass legal muster. The Commission cannot suffer the fate of moving so aggressively to implement new authorities granted to it by Congress that legal limitations embedded in the Dodd-Frank Act itself, or contained in other statutes applicable to the activities of government agencies, are given insufficient analysis. The Commission will only be considered to have successfully implemented its new mandate in the Dodd-Frank Act if its rules, regulatory actions, and enforcement proceedings are able to withstand legal challenge and judicial review.

OGC will be instrumental to assuring that success. An insufficiently staffed OGC may result in the Commission receiving legal advice on Dodd-Frank Act issues that is not thoroughly grounded in statutory construction and rigorous legal analysis. If stretched thin, OGC’s legal services to the Commission – and its legal work product to outside stakeholders such as Congress and the courts – may not be sufficiently timely or thorough. In short, the consequence of not providing 20 additional FTE to OGC is that the Commission will be placed at risk of failure in the implementation of the new regulatory regime ushered in by the Dodd-Frank Act.

OGC provides legal services and support to the Commission and all its programs. These services include: 1) engaging in defensive, appellate, and amicus curiae litigation; 2) assisting the Commission in the performance of its adjudicatory functions; 3) providing legal advice and support for Commission programs; 4) drafting and assisting other program areas in preparing Commission regulations; 5) interpreting the CEA; and 6) providing advice on legislative and regulatory issues. In FY 2012, the OGC requests a total of 50 FTE to continue current operations.

As the Legal Advisor to the Commission, OGC:

• Reviews for legal sufficiency all substantive regulatory, enforcement, legislative, and administrative matters presented to the Commission;
• Advises the Commission on the application and interpretation of the CEA, all other statutes to which the Commission is subject or that are relevant to the Commission's regulatory mission, and other pertinent administrative and legislative issues;
• Assists the Commission in performing its adjudicatory functions through its Opinions and Review Program;
• Represents the Commission in appellate litigation, including participation as amicus curiae; certain trial-level cases, including bankruptcy cases involving futures industry professionals; and certain kinds of administrative litigation;
• Provides legal support to the Commission to assure compliance with laws of government-wide applicability such as the Administrative Procedure, Privacy, Government in the Sunshine, Regulatory Flexibility, Paperwork Reduction, and Federal Advisory Committee Acts;
• Advises the Commission with respect to all matters related to the Freedom of Information Act, and responds to requests for non-public Commission records, as well as handling appeals from initial determinations regarding requests for records;
• Advises the Commission and its staff with respect to all matters related to the Commission’s ethics standards and compliance with its Code of Conduct, as well as with government-wide ethics regulations promulgated by the Office of Government Ethics;
• Advises the Commission on personnel, labor, contract, and employment law matters, including cases arising under Title VII of the Civil Rights Act of 1964 and other antidiscrimination statutes, and Merit Systems Protection Board cases arising under the Civil Service Reform Act of 1978;
• Monitors, reviews, and comments on proposed legislation affecting the Commission or the futures industry, and prepares technical assistance regarding draft legislation as requested by members of Congress or their staff;
• Analyzes jurisdictional issues and provides liaison with other Federal regulators as necessary to address specific matters implicating the jurisdiction of multiple agencies;
• Provides written interpretations of Commission statutory and regulatory authority and, where appropriate, provides exemptive, interpretive, and no-action letters to regulatees and potential regulatees of the Commission; and
• Counsels other Commission staff on legal aspects of various issues arising during the course of Commission business.

OGC’s activities, programs, and support contribute to all of the outcomes and functions of the Commission and have a direct and significant impact on the ability of the Commission to perform its mission.

Although the Dodd-Frank Act has been enacted, OGC expects to continue to be called upon to provide technical assistance to members of Congress and their staff with respect to ongoing legislative proposals affecting futures and swap markets. As one example, legislative proposals that include new carbon markets may again require technical analysis and assistance.

In addition, OGC is heavily involved in advising the Commission on the use of its existing authorities to ensure the fair and orderly trading of derivatives contracts. In particular, OGC is assisting the Commission regarding the implementation of its authority, granted as part of the CRA, to register and regulate the activities of those involved in selling off-exchange foreign currency contracts to retail customers. Other complex matters before OGC include legal counsel regarding efforts to harmonize the CFTC's and SEC's respective regulatory structures. Increasing innovation in the futures and capital markets in recent years has yielded a growing number of novel derivative products that contain elements of both futures contracts and securities. Pursuant to the MOU between the CFTC and SEC, the agencies cooperate to improve efficiency in the approval and regulation of such novel derivative products in order to speed their access to the marketplace. The continuing development of these hybrid instruments (and the enactment in the Dodd-Frank Act of a formal process to address any resulting jurisdictional issues) creates an increased need for legal analysis of products, statutory jurisdiction, and judicial precedents by OGC attorneys. Finally, ongoing initiatives by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), coupled with the MOU that the CFTC has entered into with FinCEN, are expected to increase the need for OGC resources addressing anti-money laundering and counter-terrorism financing issues.

Further, OGC's responsibility to review for legal sufficiency all substantive regulatory, enforcement and administrative matters presented to the Commission has increased as a consequence of heightened activity by other Divisions within the Commission. The Commission continues to vigorously prosecute manipulative and fraudulent activities in, among other areas, energy commodities and collective investment vehicles (such as commodity pools and hedge funds, including unregistered pool operators perpetrating Ponzi schemes) that now play an expanding role in nearly every market that impacts the Commission’s mission. Moreover, exchange-traded contracts continue to experience marked growth and, as a consequence of the increased activity in these markets, the Commission's surveillance and enforcement resources are increasingly stressed. This heightened deployment of Commission resources, in turn, spurs demand for readily available legal services from experienced legal talent in OGC. The Commission’s increasingly active involvement in international initiatives with its counterparts overseas also requires heightened OGC review for consistency with statutory and regulatory mandates.

The CEA provides that the Commission “shall have a General Counsel [who] shall report directly to the Commission and serve as its legal advisor.” In order to continue to effectively and efficiently perform that statutory role, OGC must maintain a current service level of 50. As described above, the volume and complexity of OGC's workload has grown exponentially, while OGC has only recently recovered from a dramatic depletion of staff. A combination of staff attrition through retirements and resignations, and the lingering effects of prior hiring freezes, left OGC with only 18 staff attorneys in early 2008. The easing of restrictions on hiring, plus new positions previously authorized, have enabled OGC to rebuild its ranks since that low. Given the substantial regulatory and enforcement activity underway at the Commission, and the stakes that attach to OGC’s analysis of such initiatives, maintenance of a staffing level of 50 for OGC’s legal program is an imperative.

All proposed new rules and rule amendments, enforcement actions, exchange and clearinghouse application approvals, and international undertakings, among other initiatives, that are recommended to the Commission are reviewed by OGC both to ensure their legal sufficiency and to make certain that the Commission is appropriately apprised of all facts and potential risks relevant to its decision whether to approve the recommended action. Failure in this regard could expose the Commission to a finding of having acted in an arbitrary and capricious manner in violation of the Administrative Procedure Act in the regulatory context, and to liability for a litigation opponent’s attorney fees pursuant to the Equal Access to Justice Act in the enforcement context.

The consequences of not receiving the current services level will leave OGC unable to fulfill its statutory role effectively and may result in the Commission's receiving and acting on legal advice that is either not timely or that lacks the requisite depth and rigor. Absent sufficient OGC staff to fulfill its advise-and-review function, OGC may be unable to provide the Commission with timely legal advice on pending matters. Separately, in addition to serving the Commission, OGC must respond to outside “stakeholders” whose requirements are not within the Commission’s control, such as Congress and the courts. An understaffed OGC risks leaving the Commission’s legal interests in these critical forums less than fully protected.

General Counsel Request
($ in thousands)

Subprogram	FY 2011		FY 2012		Change
	Budget	FTE	Budget Request	FTE	Budget	FTE
General Counsel	$13,663	50.00	$22,876	70.00	$9,213	20.00
TOTAL	$13,663	50.00	$22,876	70.00	$9,213	20.00

Dodd-Frank Included Above in General Counsel Request
($ in thousands)

Program Activity	FY 2011		FY 2012		Change
	Budget	FTE	Budget Request	FTE	Budget	FTE
Dodd-Frank	$0	0.00	$6,499	20.00	$6,499	20.00
TOTAL	$0	0.00	$6,499	20.00	$6,499	20.00

General Counsel Request by Goal
($ in thousands)

Outcomes	FY 2011		FY 2012		Change
	Budget	FTE	Budget Request	FTE	Budget	FTE
GOAL ONE: Protect the economic functions of the commodity futures, options and swaps markets.
1.1 Futures, options and swaps markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity.	$2,615	9.57	$5,117	15.66	$2,502	6.09
1.2 Markets that can be monitored to ensure early warning of potential problems or issues that could adversely affect their economic vitality.	183	0.67	556	1.70	373	1.03
Subtotal Goal One	$2,798	10.24	$5,673	17.36	$2,875	7.12
GOAL TWO: Protect market users and the public.
2.1 Violations of Federal commodities and swaps laws are detected and prevented.	$4,118	15.07	$6,883	21.06	$2,765	5.99
2.2 Commodity professionals meet high standards.	803	2.94	2,993	9.16	2,190	6.22
2.3 Customer complaints against persons or firms falling within the jurisdiction of the Commodity Exchange Act are handled effectively and expeditiously.	2,014	7.37	2,366	7.24	352	-0.13
Subtotal Goal Two	$6,935	25.38	$12,242	37.46	$5,307	12.08
GOAL THREE: Foster open, competitive, and financially sound markets.
3.1 Clearing organizations and firms holding customer funds have sound financial practices.	$820	3.00	$964	2.95	$144	-0.05
3.2 Commodity futures, options and swaps markets are effectively regulated.	367	1.34	772	2.36	405	1.02
3.3 Markets are free of trade practice abuses.	786	2.88	928	2.84	142	-0.04
3.4 Regulatory environment is responsive to evolving market conditions.	1,957	7.16	2,297	7.03	340	-0.13
Subtotal Goal Three	$3,930	14.38	$4,961	15.18	$1,031	0.08
TOTAL	$13,663	50.00	$22,876	70.00	$9,213	20.00

General Counsel FY 2012 Budget by Goal

Goal	Percentage
Goal One	25%
Goal Two	53%
Goal Three	22%

 

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