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The FY 2012 Budget for the Office of the International Affairs is $4,043,000 and 13 FTE, of which $975,000 and three (3) FTE relate to Dodd-Frank.

The Dodd-Frank Act, 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 OTC derivatives. For example, the registration and regulation of 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 FBOTs 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.

The work-streams that have been initiated within international bodies such as IOSCO and the FSB to address the financial crisis, as well as the need to coordinate with the European Commission and regulators in other major jurisdictions with regard to the transnational implications of the Commission’s exercise of its expanded financial market powers, have already strained the resources of OIA. Not only has OIA been staffing these various working groups, but also is working through IOSCO to try and coordinate these international response. This need to staff both working groups and the IOSCO coordinating group supervisory” is reaching the limits of OIA’s resources. Once the new legislative authorities are in place, additional demands for OIA’s participation in due diligence examinations and the development of information sharing and coordination MOUs are expected to arise from requests by foreign entities (such as clearing organizations and foreign boards of trade) for regulated status under the CEA. We additionally anticipate increasing calls on the CFTC to participate in Treasury-organized dialogues with commercially important jurisdictions such as India and China.

To date, OIA has been able, within the limits of its staff resources, to provide international coordination, representation and technical assistance at acceptable levels as approved by the Chairman. Although we anticipate for the near term that these demands can be met by the additional staff resources that were allocated to OIA for FY 2009-2010, the failure to fund these additional resources and provide positions to OIA in further years will make it difficult for OIA to staff the international work-streams referred to above and to provide the staffing that is necessary in order to ensure a coordinated and disciplined messaging internationally and to ensure that Commission resources are appropriately utilized.

OIA coordinates the Commission’s non-enforcement related international activities, represents the Commission in international organizations, such as IOSCO, coordinates Commission policy as it relates to U.S. Treasury global initiatives and provides technical assistance to foreign market authorities. These activities have as a common goal the promotion of internationally accepted standards of best practice, the development of supervisory cooperation arrangements in order to strengthen customer and market protections and the improvement of the quality and timeliness of international information sharing.

OIA’s work increasingly has focused on international initiatives that respond to the financial crisis and to volatility in energy and agricultural commodity markets. OIA represents the Commission in its capacity as co-chair of IOSCO’s Task Force on Commodity Futures Markets, which recently has been re-tasked by IOSCO to carry work forward on promoting practical ways to enhance the transparency of futures, cash and OTC physical commodity markets in energy and agricultural markets. Achieving greater transparency across all commodity markets will provide regulators with the data needed to understand better the composition and pricing mechanisms in these strategically important markets. OIA also has focused on strengthening the Commission’s ability to detect abusive trading practices, such as working closely with the U.K. regulatory authorities to enhance their supervision of linked oil contracts.

In FY 2012, the Office of International Affairs requests a total of 13 FTE, an increase of four FTE over FY 2011.

The financial crisis and volatility in global energy and agricultural commodity markets make clear that no one regulator alone can address successfully the impact of global activities on its national markets. As a result, the Commission must continue to participate fully in a variety of international forums to seek cooperative and coordinated solutions to these global market concerns.

For example, cooperative discussions with the U.K’s Financial Services Authority resulted in an agreement on steps to strengthen cross border supervision of energy markets. However, implementation of this agreement will require ongoing involvement by staff. The Commission intends to continue to work for greater commodity market transparency and global cooperation in surveillance and enforcement by co-chairing the IOSCO Task Force on Commodity Futures Markets, participating in a newly created IOSCO Task Force on Surveillance and in four IOSCO Technical Committee working groups that develop international standards of best practice.

Similarly, resources are needed to allow the Commission to participate in a broad range of regulatory development activities within IOSCO and the G20 structure that respond to issues revealed by the financial crisis, such as: cooperation and coordination in the areas of OTC regulation, central counterparty clearing standards, the monitoring and control of systemic risk, the protection of customer funds, and mechanisms to share systemically important information internationally. It is critical for the Commission to participate in this work, which effectively is creating international standards of best practice.

The Commission’s international agenda also includes responding to requests by the U.S. Treasury to participate in international dialogues (e.g., U.S.─ China dialogue), providing technical assistance to developing market jurisdictions, and engaging in bilateral negotiations with foreign regulators to resolve cross-border issues. The need to participate in U.S. Treasury initiatives, many of which address critical issues addressing the financial crisis, has resulted in additional staffing needs. We expect these demands to increase. Finally, the Commission also is focusing on strengthening its supervision of registered entities such as clearing organizations and markets that are registered by both the Commission and a foreign regulator, and on ensuring that the recipients of regulatory exemptions remain in compliance with applicable requirements. Achieving this goal of greater due diligence and ongoing compliance monitoring will require the Commission to coordinate closely with foreign regulators.

Any diminution in resources would require the Commission to reduce its international program, thereby making it less able to advocate for international regulatory policies that help to ensure that commodity markets remain free from fraud, manipulation and other market abuses and reduce the possibility for regulatory arbitrage among jurisdictions. Cutbacks in resources would also greatly inhibit the Commission’s ability to address the need for enhanced supervision of cross-border activities.

International Affairs Request by Subprogram
($ in thousands)

Subprogram	FY 2011		FY 2012		Change
	Budget	FTE	Budget Request	FTE	Budget	FTE
International Affairs	$2,268	9.00	$4,043	13.00	$1,775	4.00
TOTAL	$2,268	9.00	$4,043	13.00	$1,775	4.00

Dodd-Frank Included Above in International Affairs Request
($ in thousands)

Program Activity	FY 2011		FY 2012		Change
	Budget	FTE	Budget Request	FTE	Budget	FTE
Dodd-Frank	$0	0.00	$975	3.00	$975	3.00
TOTAL	$0	0.00	$975	3.00	$975	3.00

International Affairs 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.
None
GOAL TWO: Protect market users and the public.
None
GOAL THREE: Foster open, competitive, and financially sound markets.
3.1 Clearing organizations and firms holding customer funds have sound financial practices.	$0	0	$0	0	$0	0.00
3.2 Commodity futures, options and swaps markets are effectively regulated.	0	0	0	0	0	0.00
3.3 Markets are free of trade practice abuses.	0	0	0	0	0	0.00
3.4 Regulatory environment is responsive to evolving market conditions.	2,268	9.00	4,043	13.00	$1,775	4.00
Subtotal Goal Three	$2,268	9.00	$4,043	13.00	$1,775	4.00
TOTAL	$2,268	9.00	$4,043	13.00	$1,775	4.00

 

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