Enforcement – Mission Activity Description

The Commission is responsible for protecting market participants and other members of the public from fraud, manipulation and other abusive practices in the futures and swaps markets. Its cases range from quick strike actions against Ponzi enterprises that victimize investors across the country, to actions concerning sophisticated manipulative and disruptive trading schemes in markets the Commission regulates, including financial instruments, oil, gas, precious metals and agricultural goods.

Enforcement – Justification of CFTC Request by Function

Enforcement

The Commission will utilize the requested resources to maintain a robust enforcement program, which is necessary to protect both customers and the integrity of the markets. With the Commission’s new authority and responsibility granted by Congress in the Dodd-Frank Act, and in light of the continued growth in the markets it oversees, the Commission must maintain and expand its enforcement program in order to fulfill its mandate. These vital resources enable the Commission to, among other things: 1) shut down fraudulent schemes and seek to immediately preserve customer assets through asset freezes and receivership orders; 2) uncover and stop manipulative and disruptive trading; 3) ensure that markets, firms and participants subject to the Commission’s oversight meet their obligations, including their financial integrity and reporting obligations, as applicable; 4) ban defendants from trading and being registered in its markets; and 5) obtain orders requiring defendants to pay restitution, disgorgement and civil monetary penalties.

With the increasing complexity and interconnectivity of the financial markets, these resources are also necessary for the Commission to maintain the force multiplying benefit of the enforcement program’s cooperative enforcement work with domestic, state and Federal, and international regulatory and criminal authorities.

Impact if Not Funded at Requested Level of Resources. The Commission is committed to making good use of its resources, responding in a timely manner to market events and acting swiftly where customers are at risk. If the requested funding level is not received, the decrease in resources will make it increasingly difficult for the Commission to quickly investigate and prosecute wrong-doers. This vulnerability could significantly sap confidence in the markets and undermine the Commission’s regulatory oversight.

For example, new forms of manipulation, such as spoofing, are complicated and constantly evolving. Moreover, trading in our markets today is largely automated. As a result, analyzing trading patterns involves looking at massive quantities of data, which requires sophisticated IT capabilities and unique expertise.

In addition, the integrity of benchmark rates, which are used by individuals and firms across the globe, remains a priority for the Commission. Over the last two years, we imposed penalties of $4.6 billion in the investigation of manipulation of global benchmark rates, $1.8 billion in penalties on six banks for misconduct relating to foreign exchange benchmarks, and over $2.7 billion for misconduct relating to ISDAFIX, LIBOR, Euribor, and other interest rate benchmarks. A decrease in resources would compromise the Commission’s ability to maintain its oversight on the thousands of contracts used in the markets and also limit the enforcement program’s capacity to investigate these matters.

Anti-fraud enforcement also remains a core commitment of the CFTC’s enforcement program. During the past year, the Commission prosecuted wrongdoers for a wide range of fraudulent schemes, including Ponzi schemes that preyed upon the retail public’s hopes to participate in forex trading, precious metals speculation, and commodity pools. The Commission’s experience with fraudsters is that they gravitate towards, and flourish in, financial markets that are not “policed.” Therefore, the Commission must continue to devote significant resources to “walk the beat” of the financial markets within its jurisdiction and protect the retail public that wants to participate in them. A decrease in resources allocated to the enforcement program would encourage further misconduct and abuse of individual investors.

In protecting the markets and market participants, the Commission engages in investigations and takes enforcement action, when necessary, to make sure that firms maintain their financial integrity and that markets, firms and significant market participants fulfill their regulatory obligations, including reporting obligations. Commission registered firms are required to meet standards for their capitalization and handling of funds, which standards are intended to safeguard against market disruption and abuse from imprudent practices or intentional misconduct and to protect customers. The reporting requirements for markets, firms and significant market participants, which include obligations related to swaps transactions, are essential to the CFTC’s ability to conduct effective surveillance of the markets that it regulates. With the Dodd-Frank Act’s expansion of the Commission’s responsibility, the Commission will need to expend additional resources to ensure that the markets, firms and significant market participants in the trillion dollar swaps marketplace uphold these essential obligations. A decrease in resources would jeopardize the Commission’s ability to ensure that persons who are subject to regulatory requirements meet those obligations and thus would place at risk the Commission’s ability to ensure the integrity of the markets.

Data and Technology

Continuing to enhance eLaw technology and support (e.g., case assessment and management, document review, eDiscovery, forensics, searching, audio analytics, and data analytics) will help address rising case volumes, complex enforcement actions, and keep pace with extensive use of technology by opposing counsel. Providing enforcement staff with sufficient resources for technical support increases their ability to focus on investigation and litigation.

Robust enforcement is critical in protecting the public. The eLaw technology system is an integral part of that effort. Several components of this system will continue to be enhanced in FY 2017. Data storage capacity will be increased, to support ever-growing volumes of digital evidence and analytic support databases. Computer forensics will be enhanced, to examine new types of digital evidence. Technical support services for staff will be increased, to ensure that technical and logistical activities minimally constrain the critical timelines of enforcement actions.

Impact If Not Funded at Requested Level of Resources. Without the requested resources, we will be unable to continue to keep forensics, investigation, and litigation support tools current and provide staff with sufficient legal technology services. This will constrain the number of investigations and enforcement actions the Commission is able to conduct.

Breakout of Enforcement Request⁶

Breakout of Enforcement Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
Enforcement	207	$61,874	$0	$61,874
Data and Technology	5	$1,254	$5,592	$6,846
Total	212	$63,128	$5,592	$68,720

Column totals may not add due to rounding

⁶ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Surveillance – Mission Activity Description

The Commission monitors trading and positions of market participants on a daily and ongoing basis. Surveillance of complex markets and sophisticated trading instruments requires a depth of practical industry knowledge in the commercial use of the physical, futures and derivative products by industry. New surveillance requirements stemming from Dodd-Frank Act have altered the basic characteristic of the work executed by Commission staff. Years ago, CFTC staff were primarily concerned with physical commodities and the squeezing commodity futures contracts, detecting customer abuse by floor traders and the reporting of fundamentals to the Commission. Today, the Commission is focused on analyzing, aggregating and monitoring diverse data sources, which help uncover market abuses and non-compliance with Commission rules and regulations.

Market Surveillance. The Commission monitors trading and positions of market participants on an ongoing basis. Commission staff screen for potential market manipulations and disruptive trading practices, as well as trade practice violations.

In addition to its traditional markets, the CFTC also needs to monitor swap markets for both compliance and manipulation abuses. The Commission has extended surveillance to small exchanges, (non-core) products or newly traded products. It monitors futures options markets for fraud. And it provides “deep dive” analysis and reviews of a market participants or traders’ portfolio of positions and transactions in physical and financial products for potential manipulations and lesser potential violations.

Surveillance staff are frequently called upon as subject matter experts to provide an understanding of commercial practices, analyze market events and recapitulate fundamentals. This often goes beyond the confines of briefing agency personnel or Commissioners. Surveillance staff are often asked to provide briefings to other departments and agencies throughout the United States, as well as to international agencies across the globe.

Market surveillance monitoring is conducted to further understand structural market changes and support new regulatory requirements. Surveillance systems and tools will incorporate innovative surveillance approaches developed by staff into scheduled, regularly-run monitoring processes.

Financial and Risk Surveillance. Staff conducts risk and financial surveillance of derivatives clearing organizations, clearing futures, futures commission merchants, and other market participants, such as swap dealers, major swap participants, and large traders, that may pose a risk to the clearing process.

Staff look at market risk, liquidity risk, credit risk and concentration risk. The Commission has extensive daily margin and position reporting requirements that enable it to engage in daily risk surveillance. Our program includes daily review of the positions of clearing members and large traders. Staff engage in analysis of margin models, stress testing of positions, back testing of margin coverage, and in-depth compliance examinations. Staff seek to identify who is at risk, the magnitude of that risk, and how that risk compares to available financial resources. Staff also require clearinghouses to oversee the risk management policies and practices of their members.

Staff routinely detects traders with risk that appears to be potentially excessive, and may take a range of different actions. The Commission may seek account statements or other financial documentation. If concerns remain, staff often interviews clearing member or trader staff. These interviews focus on the trader’s financial resources, trading strategy, trading techniques, and trading experience.

The Commission has conducted on-site risk reviews with traders ranging from the largest hedge fund operators to individuals. It routinely discusses risk practices with clearing members. Staff also produces a number of internal reports to track industry trends affecting clearing members. Some daily reports track which clearing members had large variation margin payments across clearinghouses, or strings of consecutive days with variation margin losses. Other reports show which clearing members’ risks are increasing at particular clearinghouse or across clearinghouses and which clearing members’ risks are decreasing.

Staff has also been conducting FCM compliance reviews regarding Regulation 1.73, which requires registered FCMs to conduct screening of orders, to stress test customer and proprietary positions, to evaluate their ability to meet initial margin requirements and make variation margin payments, and to evaluate their ability to liquidate positions quickly.

In addition, over the next ten months, staff plan to accelerate its efforts to integrate uncleared swaps more fully into its risk surveillance program. In the past, the Commission focused primarily, but not exclusively, on cleared products.

Developing and implementing this aspect of the program will help to address one of the most important risks that the Commission currently faces. The goal is to develop tools and procedures that will enable staff to analyze positions across cleared and uncleared markets in order to obtain a picture of the risks posed by large market participants to one another, and to the financial system.

Achieving this goal, however, will be challenging and it will require an increase in resources beyond its current base level of funding. The major challenges can be broadly categorized as follows: 1) developing and refining tools to sort and to filter the enormous amount of swap data in appropriate ways; 2) developing and refining tools to stress test swap positions in order to quantify potential risks; and 3) integrating uncleared swaps into the cleared program, and comparing data and analysis from surveillance of cleared products with data and analysis from surveillance of uncleared products in order to evaluate systemic risk across derivatives clearing organizations and across cleared and uncleared markets.

Business Analytics. CFTC also maintains a business analytics platform that supports market surveillance and financial and risk surveillance. Platforms allow staff analyzing regulatory reporting and industry data to keep pace with the continuing growth in data volume and complexity and rapidly evaluate data, build specific work products for unique market and participant conditions, and develop innovative approaches to ongoing market and financial and risk monitoring.

Surveillance – Justification of CFTC Request by Function

Market Oversight

Market oversight and surveillance activities are dependent on the ability to receive and analyze large trade volumes of data. As such, the continuing development of sophisticated systems to analyze that data and respond to outlying events or help identify trading or positions that warrant further inquiry is essential for robust surveillance. Currently, staff conduct limited forensic analysis involving data sent to the Commission to uncover potential market abuses and to protect market integrity by participants. In addition, in real-time, Surveillance staff enter into dialogues with market participants and with the exchanges, about market participant activities in all phases of trading as commodity situations of interest arise.

Through collection of shared data sets, including swaps data that is maintained at swap data repositories, the Commission has the unique and essential ability to aggregate data received from all market participants by continuously improving data ingest, warehousing, and analytics systems and tools and implementing new systems and tools as needed or as innovative technology is adopted by industry participants. This ultimate aggregation will give the Commission a more encompassing view of futures, options and swaps transactions, which will, in turn, allow the Commission to conduct participant level surveillance for violations and abuses across markets. This capability is particularly important with the expansion of the Commission’s mandate in the disaggregated swaps markets, as market participants may have swaps data residing in multiple swap data repositories, and multiple derivatives clearing organizations. The increased complexity of swap instruments (versus futures and options) as well as the increased velocity of trading across these various instruments and trading venues makes it essential that the Commission have sufficient tools and resources to view data across the industry landscape in order to detect and deter market manipulation and disruptive trading practices.

Impact if Not Funded at Requested Level of Resources. Without adequate funding, the Commission will be significantly impaired in its ability to analyze both traditional and new sources of market data, and as a result, will be unable to analyze market anomalies or detect and analyze potential market abuses sufficiently, or develop and implement analysis-based tools. The impact to the core activity of market surveillance is compromising to the Commission’s mission of protecting market integrity and detecting and deterring market abuses. Market manipulation, price distortion and compliance violations detection will be hampered and abuses will escape discovery without the requested funding. The lack of a comprehensive understanding of market events and participant trading behaviors will significantly increase the likelihood that major market risks or illegal activities will go undetected. Additionally, the Commission would have to abandon forensic evaluations, postpone surveillance tool development, and provide surface-only examination of swaps data for potential abuses, thereby significantly increasing the costs to be borne by other market participants and the broader U.S. economy. Examples of other deficiencies would include, but are not limited to: 1) an inability to aggregate various data used to oversee reporting requirements; 2) a decreased ability to detect and deter market manipulation and trade practice concerns; 3) an inability to invest in and deploy automated trading violation and surveillance alerts; 4) a deteriorated comprehension of market structure changes; and, 5) a limited ability to develop and implement sophisticated analysis-based surveillance tools.

Clearing and Risk

Risk surveillance is a technology-intensive task. Commission use internally developed applications and commercially available software. Since implementation of the Dodd-Frank rulemakings, RSB has been analyzing a huge amount of data from a variety of sources. The Commission’s ability to continue to function effectively is dependent on its ability to process this data.

Enhancing CFTC’s financial analysis tools is critical, as the Commission will be the only financial regulator that will be able to aggregate and evaluate risk across all derivatives clearing organizations. Each derivative clearing organization’s view of risk is limited to market participants clearing at that particular organization. Many market participants will have positions at multiple clearinghouses in more than one asset class. The Commission is enhancing its futures-specific risk surveillance program to include the ability to stress test positions in swaps for market participants and derivatives clearing organizations. These financial analysis tools, coupled with analysis of the swaps data maintained at swap data repositories, will also be used as part of oversight and reviews of futures commission merchants and swaps dealers’ risk management controls.

For futures, the only variables are the price, delivery month, and identity as a buyer or a seller. For an interest rate swap, there may be many more variables that can be customized. These include, among others, the notional amount, the currency, the fixed rate, the index to which the floating rate is tied, and the maturity. As a result, derivatives clearing organizations clear many more swap products than futures. For example, the CME currently lists approximately 105 individual interest rate futures; by contrast, LCH currently carries cleared positions in over 900,000 individual interest rate swaps.

Moreover, for uncleared swaps, substantial work is still needed to ensure that the data is complete and accurate. Currently, much of the data from swap data repositories are is incomplete or contain inaccurate values in key fields. This limits staff’s ability to calculate the value of positions and to conduct stress testing. In addition, many swaps are not properly terminated, which may result in double-counting of positions.

Once data validation is completed, further work is then needed to develop tools to sort and to filter the data in a variety of appropriate ways. For example, work is needed to sort by beneficial owner, by affiliate group, and by clearing member, if applicable.

Complex analysis is necessary to determine the extent to which a trader’s positions across multiple products, trading venues, and derivatives clearing organizations have risks that are offsetting or compounding. Even more complex analysis is necessary to quantify such risk. Having quantified risk, one must then assess whether the relevant parties (traders, clearing members, derivatives clearing organizations) are taking appropriate steps to manage the risk. The complexity of the interconnections increases when uncleared products are included.

In addition, resources are needed to review new derivatives clearing organization margin models and changes to existing margin models. Many derivatives clearing organizations clear the same asset class, but each uses its own margin model to calculate margin requirements. In some instances the requirements for the same positions will not be the same at multiple derivatives clearing organizations. The Commission must compare and contrast these models in order to analyze differences and to ensure appropriate coverage.

Moreover, resources are also needed to review swap dealer models for margining uncleared swaps, to address this, the Commission is working to establish a specialized activity to assess capital and margin models, both on an initial and ongoing basis, as part of the Dodd-Frank Act’s requirement to establish and implement margin and capital requirements for swap dealers and major swap participants.

The Commission would seek to leverage to the extent practicable, reviews and assessments performed by the prudential regulators, the SEC, and foreign regulators, and would include coordinating efforts with self-regulatory organizations.

Impact if Not Funded at Requested Level of Resources. If the Commission is not funded at the requested level it would not have the resources to further evaluate risk across derivatives clearing organizations. The Commission also will not have the resources to incorporate uncleared swaps into its risk surveillance. This function is critical to risk management oversight of derivatives clearing organizations, and the Commission is the only entity with the data and capabilities to perform this function. Additionally, the Commission will be unable to develop the proactive swap evaluation as planned. Given the increasing concentration in the industry, it is crucial that the Commission have the ability to identify and to address risks at an early stage in order to prevent extreme market disruption or the loss of customer funds.

For all aspects of surveillance activities, receipt of accurate comprehensive data is important. The CFTC will be receiving data from new market participants and for new, complex derivatives such as IRS swaptions. Without the requested level of funding, the CFTC will have great difficulty integrating this data into its risk surveillance program.

Data and Technology

CFTC’s data management is crucial to effective oversight of an increasingly complex and diverse electronic marketplace. Commission systems work to ensure data harmonization, integration, and quality. Commission staff have established an agency-wide data governance group that reviews agency-wide data needs and steers data strategy.

• The CFTC is enforcing common data standards and services among the swap data repositories to ensure data interchange and interoperability. The CFTC is also establishing a unified set of master data and reference data using legal entity identifiers as a linchpin. The Commission is increasing the use of data feeds from industry and government system-based data services in order to reduce the latency between market events and staff ability to analyze correlated data from diverse sources.
• The Commission will increase analytics support to assist staff with the manipulation of large and complex data sets, data analysis, data validation, and data aggregation. The Commission will continue to build capabilities for staff to access these large and complex data sets seamlessly, regardless of the source of market data reported to the Commission or to the data repositories such as swap data repositories.
• Commission staff are proactively engaged in the developing and adopting harmonized standards for swaps data. This harmonization exercise is both international and domestic. The Commission will continue to make progress to harmonize the form, manner and content of the swaps data by engaging with standard-setters, industry and international regulatory organizations to ensure that swaps data is ever more usable in monitoring a global market.

CFTC also maintains business analytics platforms for performing data analysis. Platforms allow staff analyzing industry data to keep pace with the continuing growth in industry data volume and complexity.

The Commission must conduct market, financial, risk and economic analysis based on the most current data. Business analytics platforms empower staff to quickly evaluate data and build specific work products for unique business situations.

The Commission will continue to implement new processes and analytics focused on swaps data collection and aggregation. Currently, the Commission receives approximately 300 million data records per day from clearing organizations, exchanges, and large trading organizations. Over 50 automated processes are performed daily to gather and organize the data for use by analytical tools and applications that support surveillance, investigation and analysis efforts. The unique sources of data required to perform our mission have increased by over 150 percent since 2013; we expect continued growth in the amount of data required to understand increasingly complex markets and products. Additional efforts are required to ensure that new sources of information are of high quality, and that the Commission’s systems are capable of handling large amounts of data. Investments in “Big Data” technologies will improve the Commission’s ability to conduct surveillance, investigations, and economic analysis. Additional computing power is required when performing activities such as market reconstructions and simulation, complex swap valuation, risk analysis, and analyzing high frequency and algorithmic trading using large data sets. These improvements will allow staff to quickly gather subsets of enterprise data for analysis, optimize the analytics performance, and reduce extraction, transformation and loading times for very data sets.

The Commission will continue to support risk management technology by providing a platform, which allows analysts to assess the inherent risk in existing large trader positions using real time prices. Continued support of this software will enable staff to help market participants proactively mitigate portfolio risk by expanding pricing to the entirety of derivatives clearing organizations.

Statistical analysis and high-performance computing platforms will be integrated, expanded, and enhanced. Resources will be used to develop flexible dashboards to increase dynamic visibility into key sets of data, allowing surveillance staff to quickly identify key areas for investigation. Data aggregation methods will be established and refined. CFTC data storage will be expanded to handle the continuing growth of analytical data.

Impact if Not Funded at Requested Level of Resources. Lack of resources constrains the execution of the Commission’s data strategy and affects the harmonization, integrity, and quality of data available to staff. Constrained resources also limit the Commission’s ability to implement advanced analytical tools and data aggregation. Without improved analytical tools, the CFTC will not be able to keep pace with expanding data analysis requirements to effectively oversee expanded digital and globally-connected markets. Without sufficient resources, the Commission’s ability to provide open data for public transparency will be significantly constrained.

Breakout of Surveillance Request⁷

Breakout of Surveillance Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
Market Oversight	83	$21,254	$0	$21,254
Clearing and Risk	29	$7,755	$0	$7,755
Data and Technology	48	$12,039	$21,772	$33,811
Total	160	$41,047	$21,772	$62,819

Column totals may not add due to rounding

⁷ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Examinations – Mission Activity Description

Examinations are formal, structured reviews of regulated entities’ operations or oversight programs to assess ongoing compliance with statutory and regulatory mandates. Regular examinations, in concert with the Commission’s surveillance and other activities, are a highly effective method for ensuring that entities are complying with the CEA and Commission’s regulations. This mission activity covers both direct examinations performed by Commission staff and oversight of the examinations conducted by designated self-regulatory organizations. The CEA requires examinations of market structures such as designated contract markets, derivatives clearing organizations, swap execution facilities, and swap data repositories, as well as intermediaries like futures commission merchants, commodity pool operators, commodity trading advisors, introducing brokers, swap dealers, and major swap participants. It also requires oversight of the examinations and functions performed by the self-regulatory organizations.

Examinations – Justification of CFTC Request by Function

Swap Dealer and Intermediary Oversight

The Commission conducts certain direct examinations of certain registrants with respect to key issues and oversees the delegated intermediary examination activities of the self-regulatory organizations. Core missions funded through this activity include:

• Direct Examinations. Although direct routine examinations of intermediaries like futures commission merchants, commodity pool operators and commodity trading advisers are typically performed by NFA, the CFTC is responsible for examinations in certain areas. For example, the Commission engages in certain targeted reviews and horizontal reviews of certain activities. These reviews include examinations in certain areas, such as cybersecurity. Examinations staff are also critical during times of crisis. They help determine whether customer assets are protected, and whether an affected firm is complying with CFTC regulations, particularly with respect to capital and customer assets. In addition, the Commission is working with the other banking agencies and SEC to determine responsibilities for those entities that are part of banking organizations and subject to the Volcker Rule. Certain banking affiliates are registered as futures commission merchants and swap dealers. Some futures commission merchants and swap dealer entities are also registered as broker-dealers and subject to SEC oversight. The challenge is determining which of these registrants are within the CFTC’s scope as primary regulator, and therefore subject to direct CFTC examination.
• Monitoring. The Commission must also engage in regular monitoring of various registrants. Audit software tools and analytical techniques are used to monitor and oversee the financial and other activities of registrants, as well as regulatory notices filed with the Commission. In FY 2017, the Commission will continue efforts to integrate data software tools and sources to include additional financial and business data points from a variety of sources to enhance the effectiveness of its reviews.
• Self-Regulatory Organizations Oversight. The CFTC provides oversight to designated self-regulatory organizations to determine whether they are executing their delegated examination functions in compliance with the CEA and Commission regulations. The Commission’s self-regulatory organization examination reviews cover a range of areas, including business conduct, capital, margin and segregation requirements, and applicable risk management standards. The CFTC is also working closely with the NFA to establish base examinations for swap dealers and major swap participants that, while similar in many respects to the examinations of futures commission merchants, will be specifically tailored to address the requirements of these new registrants.

Impact if Not Funded at Requested Level of Resources. If examinations are not funded at the requested level, it would directly impact the Commission’s ability to conduct the necessary examinations and oversee self-regulatory organizations properly. A gap in the Commission’s examinations capability could, in turn, adversely affect the agency’s ability to detect potential threats to customer funds and to conduct the more specialized and varied examinations (e.g., cybersecurity, risk management, etc.).

Clearing and Risk

The Commission projects the number of derivatives clearing organizations will expand in FY 2017, as it is currently reviewing new applications. This illustrates that new market participants are entering the marketplace and clearing new business. As these numbers increase, so too will the complexity of the counterparty risk management oversight program and liquidity risk management procedures of the derivatives clearing organizations. The Examinations staff must proportionally increase its expertise in these areas in order to evaluate compliance with established regulations.

The Commission’s examination expertise will need to be expanded to provide adequate manpower to examine derivatives clearing organizations’ compliance with emerging risks in information security. As discussed, this is particularly the case in the area of cybersecurity, as highlighted by recent attacks aimed at the financial sector. In addition, the number of staff with this expertise will need to be increased to perform examinations of the derivatives clearing organizations’ compliance with the system safeguards requirements during each examination. Examinations of derivatives clearing organizations’ compliance with the core principles and implementing regulations will necessitate new automated tools to assist in the evaluation of compliance with these new regulations.

Impact if Not Funded at Requested Level of Resources. Without sufficient resources, the Commission is hampered in its ability to fulfill its derivatives clearing organization oversight responsibilities in a comprehensive and thorough a manner as would be optimal. Each derivatives clearing organization should be subject to an in-depth, targeted examination on a regular basis.

The Commission is required to examine systemically important designated contract markets at least annually as required under Section 807(a) of the Dodd-Frank Act.

Examinations of derivatives clearing organizations aid the Commission in identifying issues that may impact a derivatives clearing organization’s ability to control and monitor its risks. Currently, the Commission examines two systemically important derivatives clearing organizations on an annual basis; other derivatives clearing organizations are examined based on resource availability. Insufficient resources will mean the Commission will continue to identify those derivatives clearing organizations who rank the highest on a risk assessment to examine for compliance. In addition, the Commission must determine the scope of the examination based upon the highest priority risk. If additional resources were available, additional risks would be included in the examination plan. For those derivatives clearing organizations that are not selected for an examination, the Commission will rely on reviews of derivatives clearing organization rule changes, daily risk surveillance, analysis of periodic financial reports, and derivatives clearing organization self-reporting, to identify instances of possible non-compliance.

Due to the increase in swaps business at derivatives clearing organizations, the amount of collateral on deposit is growing. For example, the four largest derivatives clearing organizations held approximately $310 billion in clearing member collateral. There is considerable public benefit from increased vigilance in this area to determine whether customer funds are handled appropriately. Additionally, newly registered derivatives clearing organizations, who are just starting to clear customer business, need to be examined for compliance with customer segregation rules promptly. For these reasons, it is important to examine the derivatives clearing organization’s policies, procedures, and reconciliations regarding how the collateral of customers and clearing members are handled during all examinations. Current resource levels do not allow the Commission to measure compliance in this area as often as we would like.

If the CFTC is unable to perform an annual examination of a derivatives clearing organization, this could jeopardize the derivatives clearing organization’s ability to qualify as a qualified central counterparty. If the derivatives clearing organization is not able to be a qualified central counterparty, there will be a significant increase in capital charges for bank clearing members, thus making it much more costly to do business in the United States.

All examinations determine compliance with the CEA and implementing regulations for activities performed by, and delegated to, the derivatives clearing organizations. In order for the Examination teams to be effective, staff must possess the expertise and skills to evaluate compliance with published regulations. Adequate resources to appropriately staff the examinations teams allow the CFTC to execute its oversight activities with due diligence during these examinations. For example, lack of resources could cause the CFTC to fail to meet its systemically important derivatives clearing organizations examinations responsibilities imposed by Section 807(a) of Title VIII of the Dodd-Frank Act.

Market Oversight

The Commission uses formal structured reviews of regulated entities’ trade platform operations or oversight procedures as a highly effective method for ensuring that entities are complying with the core principles established in the CEA and published regulations. In the face of extensive change in the markets, the Commission must provide robust oversight and system safeguards over designated contract markets, swap execution facilities and swap data repositories. Additionally, swaps data maintained and available to regulators provides for systemic risk mitigation, transparency, and market supervision oversight. The reliability and accuracy of this data reduces systemic risk for the nation’s financial sector as a whole revealing system safeguard rules, business continuity and disaster recovery procedures and adherence to various obligations, duties and core principles by the market participants. Investing in automation of procedures and data to allow integration between market and trade practice surveillance, financial and risk surveillance, examination, and enforcement activities will result in reusable data sources, improve workflow, increase information sharing, and increase the ability of staff to correlate data and events.

Impact if Not Funded at Requested Level of Resources. Without the requested funding, the number of examinations conducted will be decreased, as will the number of subject areas reviewed and the number of newly registered platforms. The Commission’s ability to produce more specialized and varied market oversight tools necessary to comprehensively address systemic risks and other potential threats to the market at large will be impacted if this request is not fully funded. Without the resources to conduct system safeguard examinations and rule enforcement reviews on all tiers of designated contract markets, swap execution facilities, and swap data repositories, these examinations will lose their value as a tool for promoting effective self-regulation and market integrity. Not funding the request for this function will also delay the dissemination of regulatory interpretations and industry best practices for designated contract market, swap execution facility, and swap data repository compliance programs.

Without these resources, the Commission will not meet minimum expectations for effective oversight of cyber threats to the financial sector. By increasing the interconnectedness of the financial sector, it impacts the cybersecurity of market participants, counterparties, third party technology providers, and supply chain providers. In addition, there will be a limited capacity to maintain readily accessible, centralized, and high-quality swap data sets. In fact, the work of all the swaps data users across the agency will be impacted, resulting from reduced resources available to build data analysis tools and engines that allow regular monitoring of swap data reporting for compliance and regulatory reporting to swap data repositories. The ability to conduct oversight of swap data repository registrants through a timely review of regularly disseminated operational reports, exception reports, heat maps, and updates to reporting templates will also be affected.

Data and Technology

The Commission will leverage the CFTC Portal to standardize and improve the way in which regulated entities submit data for examinations. Additional tools will be developed to improve records management, automate processes, and improve staff ability to collaborate. For example, CFTC will leverage the Portal to provide two-way, secure electronic communication with regulated entities to support examination documentation requests and responses.

Examinations dashboards will integrate registration and review, market and trade practice surveillance, financial and risk surveillance, examination, and enforcement data. This will result in reusable data sources, improved workflow, increased re-use of information, improved situational awareness and coordination, and increased ability of staff to correlate data and events.

Impact if Not Funded at Requested Levels of Resources. Lack of sufficient resources will adversely impact the Commission’s ability to develop robust automation and standardization tools. As a result, the future ability to automate the process and correlate data across the enterprise is directly impacted. The segregated data will continue to require manual coordination, which drains the Commission of additional time and resources.

Breakout of Examinations Request⁸

Breakout of Examinations Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
Swap Dealer and Intermediary Oversight	56	$14,930	$0	$14,930
Clearing and Risk	47	$12,270	$0	$12,270
Market Oversight	25	$6,739	$0	$6,739
Data and Technology	0	$0	$277	$277
Total	128	$33,939	$277	$34,216

Column totals may not add due to rounding

⁸ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Product Reviews – Mission Activity Description

The Commission reviews new product filings by exchanges as well as no-action letters related to such product issues. The CFTC’s scope of work includes reviewing new futures, options and swap contract filings, reviewing contract amendment submissions, reviewing foreign stock index futures, and developing new rules and policies to accommodate innovations in the industry. The focus is primarily on verifying that derivatives contracts are not readily susceptible to manipulation or other price distortions, and that contracts are subject to appropriate position limits or position accountability standards. A procedure was implemented assigning greater review priority to contracts that have achieved certain thresholds of trading volume and open interest.

CFTC staff have the responsibility to review aggregate position limits for physical commodity derivatives and establish uniform position limits and related requirements for all economically-equivalent derivatives across trading venues. Thus, in accordance with the Dodd-Frank Act, the Commission proposes rules to establish Federal position limits for specified core commodities and reviews periodically those Federal limits.

The Commission also evaluates transaction and pricing data collected by swap data repositories to determine appropriate block trade and large notional swap threshold levels that registered swap execution facilities, designated contract markets, and market participants may use to delay public reporting of swap transaction data. Market data and contract characteristics are evaluated to determine whether a swap contract should be subject to mandatory clearing and whether it is listed on a designated contract market or swap execution facility and been “made available to trade” (MAT). Transactions in contracts that are MAT must be conducted on a designated contract market or swap execution facility.

Additionally, the Commission reviews whether these new products are suitable for clearing by derivatives clearing organizations and, with respect to swap contracts, whether they should be mandated for clearing.

Product Reviews – Justification of CFTC Request by Function

Market Oversight

The Commission reviews new product filings by exchanges as a part of product review function. During FY 2015, the Commission received 861 new product filings from designated contract markets and swap execution facilities. It was able to close out 649 reviews of product filings, many of which were carryovers of products filed in previous years. Thus, the backlog of reviews grew by at least 212 products. The proliferation of greater numbers of products by industry participants, and the inherently greater complexity of swap contracts, requires the Commission to keep pace with industry’s innovations. The Commission anticipates ongoing oversight in the marketplace as new contracts are created, including analysis of swap data, the level of risk transfer, the potential movement of institutions to new financial products, and the potential for implied systemic risk.

Position Limits. The Commission anticipates that within FY 2016, it will have adopted speculative position limit rules pertaining to certain physical swap and futures contracts across designated contract markets and swap execution facilities that are linked to 28 core referenced futures contracts. In adopting position limits, the Commission will take a phased approach, generally beginning with those commodities having the largest notional value of open interest within their commodity classes. In FY 2017, additional personnel resources would be used to assist current staff with beginning the process of establishing, monitoring and reporting violations of positions limits for futures and swaps contracts that are linked to other physical commodities. Position limits will not apply to bona fide hedges.

These new rules represent new responsibilities for the Commission. Additional resources are required to perform the review of block sizes in a timely fashion.

Certifications. The Commission is responsible for reviewing certification of new futures, options and swap contract filings by designated contract markets and swap execution facilities primarily to verify that contracts are not readily susceptible to manipulation or other price distortions, and that they are subject to appropriate position limits or position accountability standards.

Over the past seven fiscal years the Commission has received the following number of contract certifications:

Contract Certifications Received by the Commission for Fiscal Years 2009 - 2015

Fiscal Year	Derivative Clearing Organizations	Swap Execution Facilities
FY 2009	1,083	0
FY 2010	700	0
FY 2011	1,718	0
FY 2012	894	0
FY 2013	428	359
FY 2014	423	664
FY 2015	607	254

Staff conduct an initial review of each submission to ascertain whether the contract contains any terms, conditions or features that raise a first order concern that the contract may not meet a core principle requirement or otherwise not comply with CFTC rules. During FY 2015, the Commission completed reviews for 579 contracts on designated contract markets, the vast majority of which were for security futures products and 70 reviews for swap execution facilities. Staff are extremely limited given the number of contract filings that are made each year, and the tremendous backlog that has grown since Dodd-Frank was enacted.

Generally, the Commission selects contracts to review based on trading volume and open interest. In essence, the designated contract market or swap execution facility is responsible for designing contracts that meet Core Principle 3, 5, or 6. We rely further on the broader market to assess the usefulness and design acceptability of those contracts. Contracts that do not trade are typically not reviewed.

In addition, the Commission completed reviews of 154 rule amendments submitted by designated contract markets. However, it was unable to complete any for swap execution facilities due to resource limitations.

Cash Market Studies. Staff also conduct broad studies of cash markets for physical commodities to ascertain the current state of cash market practices as they relate to derivatives contracts. Such studies are used to expedite the review of newly listed contracts and support other areas of the Commission that rely on information regarding the nature of the underlying cash markets.

Contract Performance Assessments. Currently the terms and conditions of contracts are reviewed when a contract is certified for listing or submitted to the Commission for approval. With additional staff requests in FY 2017, the Commission can develop procedures to identify contracts that may require updated reviews of their terms and conditions. This would assist when the terms and conditions of a contract do not keep up with changes in the underlying cash market, potentially increasing the risk of manipulation.

Impact if Not Funded at Requested Level of Resources. Given the number of contracts filed by designated contract markets and swap execution facilities each year, if this request for additional resources is not funded, many contracts, even those with market significance, will not be reviewed in a timely manner to ensure compliance with the CEA. Lack of staffing would likely require prioritizing potential violations to consider only the most egregious violations. Market participants will bear the burden of delays, or inability to complete, reviews of new products for clearing or trading, and new margin methodologies will take longer to be evaluated. Furthermore, additional resources would be devoted to the study of cash market practices, which will allow staff to be more efficient and prompt in reviewing the terms and conditions of newly listed contracts and to assess the performance of currently traded contracts. Without such resources, the review of contracts with respect to core principle compliance will be less efficient, requiring staff to limit full reviews to higher activity contracts, potentially leaving a significant number of actively traded contracts to trade without such review.

Clearing and Risk

All registered and exempt derivatives clearing organizations are required to submit all swaps that they offer for clearing to the Commission for consideration as swaps that must be cleared. Reviewing these submissions and making clearing requirement determinations under the CEA requires significant staff time and resources.

The Commission promulgated the first rules associated with the required clearing of swaps in December 2012. The Commission anticipates ongoing product reviews during FY 2017 and beyond, as new swaps and other contracts are created in response to changing market needs.

Relying on new data from derivatives clearing organizations, swap data repositories, swap execution facilities, and other market infrastructures, the Commission anticipates that it will continue to analyze, by asset class, the percentage and volume of cleared and uncleared swaps, the level of risk transfer among market participants, the market dynamics with respect to new products, and the implied overall credit and market risk in FY 2017. This ensures that the Commission’s regulations reflect an appropriate understanding of the market segments most prone to market failure. The Commission will also review data to monitor market participants, including swap dealers, for compliance with the clearing requirement and its exceptions and exemptions.

Impact if Not Funded at Requested Level of Resources. If the CFTC does not have the resources available to review product and margin methodology innovations at derivatives clearing organizations, market participants will bear the burden of products being ineligible for clearing and new improved margin methodologies taking longer to be evaluated. Market participants will see increased margin and capital charges as a result of the absence of clearing or the continued use of capital-inefficient margin methodologies. Systemic risk that might otherwise have been minimized through clearing could increase as an untended consequence.

Without sufficient resources, staff will be severely limited in their ability to review new product submissions from derivatives clearing organizations and to respond to requests for new or revised clearing requirements from derivatives clearing organizations, market participants, or foreign jurisdictions seeking to harmonize their own clearing mandates with those of the CFTC. In addition, without sufficient resources, the Commission will be unable to adequately monitor market developments with regard to cleared and uncleared swaps and other products, and to respond to requests from market participants for new regulatory exceptions and exemptions from the clearing requirement.

Data and Technology

The FY 2017 request will support current initiatives and enhance the Commission’s capabilities related to products review and assessment of product-related rules, enabling the Commission to address problems that it has been unable to resolve due to limited funding.

Impact if Not Funded at Requested Level of Resources. The Commission continues to see a significant increase in the number of contracts filed by designated contract markets and swap execution facilities. If this request is not funded, the Commission will not be able to fully automate all product submissions and the review process. Therefore, many contracts, even those that exhibit market significance, will not be reviewed in a timely manner. Moreover, the Commission will be unable to fulfill its responsibilities to establish appropriate position limits for certain physical commodities, determine appropriate large notional/block sizes for swaps, or properly evaluate whether certain swaps should be subject to mandatory clearing on a derivatives clearing organization and mandatory trading on a designated contract market or SEF.

To the extent that resources are unavailable to review product innovations and their related impact on margin methodology at derivatives clearing organizations, market participants will be adversely impacted by delays or the inability to complete reviews of new products for clearing or trading. Moreover, new margin methodologies will take longer to be evaluated.

Breakout of Product Reviews Request¹⁰

Breakout of Product Reviews Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
Market Oversight	16	$4,107	$0	$4,107
Clearing and Risk	6	$1,691	$0	$1,691
Data and Technology	0	$0	$551	$551
Total	22	$5,798	$551	$6,349

Column totals may not add due to rounding

¹⁰ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Data and Technology Support – Mission Activity Description

Information technology costs, including IT investments (e.g., hardware, software, and contractor services), FTE, and indirect costs, are directly attributed to the benefiting mission activity wherever possible. Any IT costs that are not directly attributed to another mission activity are captured in the Data and Technology Support mission activity as described below. A full breakout of the Commission’s IT Portfolio, which includes IT costs relating to other mission activities, is located in Appendix 2.

The Commission’s IT program uses a service-oriented approach to provide technology infrastructure and services. It allows staff Commission-wide to work effectively and increase the integration of data and technology into the Commission operating model. The Office of Data and Technology ensures that Commission staff have secure and appropriate access to highly available communication, processing, and storage infrastructure capabilities. The Commission supports the following priorities:

• Providing available, flexible, reliable, scalable, and high performance infrastructure and base services. The CFTC IT infrastructure includes hardware, software and telecommunication equipment, as well as base services that empower staff to fulfill the CFTC mission. The Commission will scale and enhance communication, processing, storage, and platform infrastructure to meet mission requirements.
• Facilitating data understanding and ingestion. Because CFTC has a unique imperative to aggregate various types of data from multiple industry sources across multiple market segments both domestic and international, data access, data transfer, data ingest, data warehousing, data standards, and data quality activities are essential.
• Providing CFTC market, financial, legal, and economic analysts with the ability to rapidly adjust their analytic activities and approaches. Staff must be provided with platforms and tools that enable them to innovatively analyze data while minimizing time, process, and resource constraints.
• Offering automation services and solutions that address and support a diversity of roles and activities and increase data re-use across the Commission. Enterprise-wide solutions are preferable to narrowly focused systems and allow CFTC to leverage limited resources.

Data and Technology Support – Justification of CFTC Request by Function

Data and Technology

As the focus of the CFTC has shifted to the implementation of the Dodd Frank Act, data infrastructure and technology must support additional data ingest, management, and automated processes.

The FY 2017 request supports the Commission’s activities related to the support of its data infrastructure. This includes technology refreshment in key areas, several new initiatives, support for staff in identifying and meeting new requirements, and the ability to recover from previously low funding levels. This is a sustainable level that also supports improvements to the current mission and management objectives.

Commission staff will be provided with IT infrastructure that is available and expandable enough to keep pace with the ever-increasing demands on processing and storage. The hardware, software, and other components that provide communications, processing, and storage will be updated to maintain acceptable performance and provide cost-effective and secure operation and scalability. The Commission continues to enhance productivity and mobility products and services for staff. After-hours technical support will be increased, to improve the productivity of investigators, auditors, and international affairs staff by ensuring availability of portal support, anytime and anywhere.

The Commission’s FY 2017 request includes funding to fully deploy a National Archives and Records Administration (NARA)-compliant electronic record and document management system that will improve information management and security, support process automation, improve internal controls, and improve staff productivity. In addition, the IT program will embed division-specific information management support to leverage the new electronic records system.

The Commission must protect the sensitive information assets it uses to oversee derivatives markets. Participation in the U.S. Department of Homeland Security Continuous Diagnostics and Mitigation (CDM) program started in FY 2015 will continue into FY 2017. The Commission will upgrade cybersecurity sensors, implement additional shared services for cybersecurity monitoring, and deploy integrated cybersecurity risk dashboards. In addition to participating in CDM, the Commission will increase investment in cybersecurity in order to sustain its ability to secure new systems and services and increase resources for monitoring for advanced persistent threats and responding to incidents.

The Commission will increase its use of automated products and services from the shared-service provider, National Finance Center (NFC), in order to automate administrative and procurement processes. This will also improve the consistency and availability of financial, and real-time human resource information. And it will allow financial and human resources staff to become more efficient and effectively manage the Commission resources.

Impact if Not Funded at Requested Level of Resources. If the Commission does not receive funding requested, or if it remains at baseline funding for another year, it will not be able to use technology to expand the scope and depth of its oversight. The Commission will not deploy mission systems that analyze orders and trades for trade practice violations. More comprehensive financial and systemic risk modelling tools will not be implemented. The Commission will be unable to upgrade enforcement forensics and litigation tools to enhance the capabilities of lawyers and investigators. Straight-through processing for all regulatory processes will not be completed. Analytics platforms and tools will not be enhanced and more support staff to help them use those platforms and tools more effectively will not be provided. Only very critical infrastructure technology refreshments will be accomplished, and staff productivity may be degraded. Ongoing investments in cybersecurity technology will be reduced. Improvements will be curtailed for data management processes that are necessary to allow proactive and strategic management of the influx of new data to the Commission. Planned automation affecting regulatory efforts, industry participants and other business processes will also be curtailed. There will be no enhancements to position limits monitoring systems. The use of high-performance computing platforms for data analytics will not be expanded. The iterative, agile development of enhancements to market, financial, and intermediary oversight systems and services will be severely curtailed. Without sufficient funding, the Commission will not be able to keep pace with the growth of new data, expanded mission requirements, or industry-related technological and data innovations that affect CFTC regulatory functions and ultimately the market.

The Commission will be unable to fulfill on its highest priority mission support activities. Expertise in organizational and operational management, financial management, and human resources are needed at the requested levels in order for the agency to provide the systems, data protections, performance management and analysis needed to keep pace with the technology-driven innovative environment it is charged with overseeing and regulating.

Breakout of Data and Technology Support Request¹¹

Breakout of Data and Technology Support Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
Data and Technology	60	$15,049	$46,087	$61,136
Total	60	$15,049	$46,087	$61,136

¹¹ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Economic and Legal Analysis – Mission Activity Description

The legal activities of the Commission include: 1) regulatory issues; 2) engaging in defensive, appellate, and amicus curiae litigation; 3) providing general legal advice and support; 4) assisting the Commission in the performance of its adjudicatory functions; and 5) providing advice on legislative and other intergovernmental affairs issues. In addition to providing support on new and evolving issues, the Commission is responsible for providing ongoing analysis under government ethics, personnel, procurement, and recordkeeping rules and under statutes such as the Federal Government in the Sunshine Act, Federal Advisory Committee Act (FECA), Federal Information Security Management Act (FISMA), the Freedom of Information Act (FOIA), and other statutes applicable to the Commission.

Economic analysis is critical in supporting the regulatory activities in a wide range of areas, including:

• Economic and quantitative analysis, including cost-benefit considerations utilized in designing and implementing the Commission’s rulemaking;
• Determining the requirements for reporting and data rules;
• Analyzing the quality, integrity, and usefulness of the market data reported to the Commission;
• Developing analytical tools and methods in support of the Commission’s automated surveillance initiatives, especially as they pertain to swap execution facilities and the connections between swap execution facilities and designated contract markets;
• Determining whether certain products/contracts are eligible for clearing and the levels for capital and margin;
• Providing the technical expertise to evaluate and report on risk models, stress tests, and other stability-related evaluations necessary for oversight; and
• Developing analytical tools and methods in support of the Commission’s enforcement activities, including economic and statistical analysis or expert testimony to promote compliance with and deter violations of the CEA.

The Commission supports a focused research group that analyzes innovations in trading technology, developments in trading instruments, and market structure, and interactions of various market participants in the futures and swaps markets. These specialized economists collaborate with staff across the Commission’s divisions and offices. The Commission also publishes various periodic reports including the Commitment of Traders Report, and the weekly, semi-annual and annual Swaps Reports.

Economic and Legal Analysis – Justification of CFTC Request by Function

General Counsel

The Commission must ensure that it is consistent in its interpretation and application of the CEA. Reviews must be conducted for legal sufficiency and administrative regularity of proposed and final rules, enforcement and regulatory actions, and various forms of staff action.

The Commission must also interpret and apply the requirements of a variety of government-wide statutes, such as the FACA, the FISMA, and the FOIA. Reviews of domestic and international memoranda of understanding and other agreements are increasing as the Commission looks to enhance inter-agency and international cooperation and coordination, and assure that Commission information is protected appropriately and consistently with the CEA. Commission leadership requires assurances of the legal sufficiency of the Commission’s actions concerning personnel laws, procurement laws and regulations, Federal records requirements, and other applicable laws.

The Commission must have adequate representation when required to appear in the U.S. courts of appeals, U.S. district courts and other administrative proceedings in challenges to the Commission’s regulations, appeals in enforcement actions and other matters including bankruptcy, personnel litigation, labor disputes, and FOIA.

Impact if Not Funded at Requested Level of Resources. If not funded, the Commission will struggle to meet an ever-increasing workload as it continues to grow in responsibilities. Commission staff are already handling two areas of increased workload:

• A major increase in labor relations matters with the arrival of the union at the Commission. The Commission must be capable of supporting an influx of labor work including unfair labor practice claims; and
• An increase in enforcement-related work, including appeals, which has arisen as the Commission is employing its increased authority under the Dodd-Frank Act.

Without the funding requested, it will be more difficult to execute its current workload and efficiently address new matters. In particular, level-funding will likely hamper the Commission’s ability to improve its response time. In addition, as the Commission continues to implement its new regulatory structure and authority, an increased advisory workload and additional legal challenges are expected. All of these important functions would be compromised by not funding this request.

Chief Economist

This request seeks to address the multitude of economic and data analyses requirements necessary for the Commission to effectively carry out its mission in this arena. The Commission needs additional resources to provide insightful economic analysis on the broad range of issues required to support the Commission’s responsibilities and requested as part of congressional inquiries. The focus up to this point in time has been mainly on considering the costs and benefits of Commission’s rules, maintaining the production of the Weekly Swaps Reports (limited to rates and credit only), and producing required research reports. Dodd-Frank Act-related rules now provide the Commission with access to data from the swaps markets. The expectation of the Commission, members of Congress, and the public is that the Commission will leverage this data to improve its understanding of these markets, inform policy and rulemaking, and monitor risks to the various aspects of the derivatives markets. The Commission economists play a key role in fulfilling these expectations. Many of these markets, especially the commodity swaps markets, are highly complex. Lacking adequate staffing with requisite experience and knowledge in the subject matter means they are analyzed in a highly ad hoc manner.

At the requested level, the capacity to perform robust, quantitative, economic analyses of data from both the futures and swaps markets will be possible. Additional support will be devoted to developing the analytical capability to integrate activity across these markets, and between cleared and uncleared swaps, and among the different categories of market participants.

Providing this level of funding will allow the Commission to collaborate with academia and experts from other regulatory agencies in a meaningful manner. This in turn will help produce cutting edge research into critical issues in the derivatives markets.

Impact if Not Funded at Requested Level of Resources. Without the requested additional resources, the Commission will continue to address ad hoc research requests but will not be able to develop tools to analyze the regulatory environment or invest in building a comprehensive research agenda. Without the requested funding, analysis and production of insightful reports on swaps and futures markets will be limited or deferred. This includes enhancing the Weekly Swaps Report to include all asset classes, producing reports on liquidity metrics, and participant classification for futures and swaps.

Swap Dealer and Intermediary Oversight

The activity funds mission critical legal support for swap dealer and intermediary oversight programs to include the following:

• Providing draft rulemakings, interpretations, and opines on questions of statutory and regulatory authority relevant to market intermediaries and legal advice for all substantive Commission actions relevant to intermediaries, including registration and futures association rule submission review, regulations, and exemptions.
• Drafting and administering the applicable capital, margin, segregation and financial reporting requirements for market intermediaries and swap dealers and major swap participants. This includes drafting related rulemakings, no-action letters, interpretations and exemptions.
• Responding to less formal requests for guidance received from market participants and the public.
• Coordinating capital, margin, and financial reporting requirements with the SEC and Prudential Regulators regarding swap dealers and major swap participants.
• The activity also funds mission critical examinations and oversight as previously described in the document.

Impact if Not Funded at Requested Level of Resources. The Commission continues to rely heavily on its legal, examinations, and regulatory function given the significant increase in registered entities since the passage of the Dodd-Frank Act (e.g., swap dealers, commodity pool operators, etc.). Without the requested resources, the Commission would need to prioritize open issues, which would result in either an inability to respond or substantial delays in addressing a full range of market participant questions and requests for no-action, exemptive or interpretive relief. It would further impact its examinations capabilities as described earlier in the document. The capacity to develop and propose rulemakings to address priority and emerging regulatory matters as well as examinations and oversight of examinations would also be impacted at a particularly critical juncture in the implementation of the swap dealer oversight in accordance with the Dodd-Frank Act.

Market Oversight

The Commission develops, interprets and applies rulemakings and other legal requirements on a variety of government-wide statutes to assure the legal sufficiency of all Commission actions. It also drafts and reviews domestic and international memoranda of understanding and other agreements as discussed previously in the document. Currently the increased level and complexity of market activity requires more inter-agency cooperation to analyze emerging risks, as well as increased international cooperation with foreign regulators and multilateral regulatory groups. These increases affect work significantly and create the need for increased resources. Rulemakings being contemplated for 2016 include, for example: 1) refinements to SEF regulations; 2) system safeguard requirements for designated contract markets and swap execution facilities, 3) position limits and related requirements for all economically-equivalent derivatives across trading venues; 4) revisions to the existing MAT process for swaps; 5) modifications to fine-tune Part 43, 45 and 49 regulations for swap reporting data standards; 6) automated trading; and, 7) new regulations to exempt non-U.S. swap execution facilities from full swap execution facility registration.

Impact if Not Funded at Requested Level of Resources. Without requested funding, the Commission generally would not be able to ensure that its market regulatory scheme remains adequate to address ongoing market developments. It would impact the thoroughness, speed and quality of several outstanding rulemakings. Inadequate resources also would make it harder for the Commission to move forward with currently pending rulemakings to enhance cybersecurity protections or deal with the risks that automated trading may pose, for example. It would also limit the Commission’s ability to respond to the concerns of market participants, such as requests for changes to rules, interpretation or guidance on product and rule submissions, registration approval requests, and requests for relief through exemptive orders and staff no-action letters.

In addition, limited resources would constrain the Commission’s ability to revisit various Dodd-Frank-initiated rulemakings to fine-tune them. This includes, for example, efforts to ensure they are achieving their objectives without creating undue burdens, particularly for commercial end-users. Rules include those pertaining to swap execution facilities, swap data repositories, and real-time reporting of swaps. Inability to fine-tune rules or respond to market concerns is costly to market participants, as they must deal with the issue of either complying with ambiguous and inefficient rules or not engaging in certain activities because of legal uncertainties. In either case, the robustness of derivatives trading on regulated markets would suffer.

Clearing and Risk

The FY 2017 request for resources will allow the Commission to remain focused on ensuring regulations and standards governing derivatives clearing organizations appropriately minimize systemic risk, promote rigorous risk management, avoid duplicative and conflicting regulation of derivatives clearing organizations and market participants, and prevent gaps in regulation. Additionally, this allows simultaneous support of registration and continuing compliance oversight concerning the intersection of clearing, settlement, margining, and bankruptcy.

Impact if Not Funded at Requested Level of Resources. If not funded at the requested level, the Commission may not be able to fulfill its statutory obligations to minimize systemic risk and promote rigorous risk management, safety, and soundness as a Supervisory Agency under Title VIII of the Dodd-Frank Act.

Enforcement

The FY 2017 request will support and expand the Commission’s activities related to economic and legal analysis in support of enforcement activities.

As innovation in the futures and swaps market continues, the ability of the Commission to conduct thorough economic and legal analysis of manipulation, disruptive trading and other unlawful trade-based conduct with the limited resources is increasingly challenging. With the requested level of resources, the Commission will be able to effectively evaluate and advise whether trading activity is manipulative, disruptive or otherwise unlawful in violation of the CEA and Commission regulations. The Commission anticipates that a large number of the new cases will require more economic data collection, legal analysis and interpretation of data to identify suspicious activities, patterns or trends through various databases, surveillance systems or other sources. The growth in the number of products we investigate requires complex analysis and research to ascertain if the activity or conduct warrants further investigation and/or prosecution by the Commission.

Impact if Not Funded at Requested Level of Resources. If the Commission does not receive the requested level of resources it will not be able to perform the economic and legal analysis of the financial market products, trading and instruments necessary to meet our obligations to investigate and prosecute wrongdoing in the markets the CFTC regulates. Adequate resources are critical to the Commission’s ability to respond appropriately and timely to market events that might be caused by unlawful trading, such as manipulation or disruptive trading. The Commission anticipates that the proliferation of economically-equivalent instruments trading in multiple trading venues will continue to trend upwards. Algorithmic and high-frequency trading are norms in the market now and bring with them increased complexity in trading and impact on the markets. Without adequate and sustained resources, the Commission cannot expeditiously conduct the economic and legal analysis necessary to ensure the Commission meets its mandate to police the markets and ensure the integrity of the markets and protection of customers. The Commission’s ability to keep its regulatory policies in line with the new developments in the industry also will be undermined, which could impede innovation, lead to systemic risk in the financial markets, and adversely affect the economic functioning of the markets.

In addition to performing the complex analysis, the Commission’s lack of sufficient resources to manage and parse through the huge amounts of trade data at the macro and micro level (both transaction data and order book data) is increasingly inhibiting the Commission’s ability to move forward on new investigations while performing economic and legal analysis on the current matters that are nearing the conclusion of the investigation or are in litigation.

Data and Technology

The FY 2017 request will support current IT service components for legal activities such as, general counsel litigation, general law, proceedings and adjudication, ethics and records management. They will also support economic analysis activities for data acquisition and the creation of data analytics tools.

Impact if Not Funded at Requested Level of Resources. Without sufficient resources, business process automation will be limited and analytic support will be adversely impacted.

Breakout of Economic and Legal Analysis Request¹²

Breakout of Economic and Legal Analysis Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
General Counsel	58	$17,295	$0	$17,295
Chief Economist	18	$5,334	$0	$5,334
Swap Dealer and Intermediary Oversight	12	$3,199	$0	$3,199
Market Oversight	5	$1,301	$0	$1,301
Clearing and Risk	3	$787	$0	$787
Enforcement	7	$2,171	$0	$2,171
Data and Technology	0	$0	$1,336	$1,336
Total	103	$30,087	$1,336	$31,423

Column totals may not add due to rounding

¹² The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs) The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

International Policy – Mission Activity Description

The global nature of the futures and swaps markets makes it imperative that the United States consult and coordinate with international authorities. The Commission is actively engaged internationally to avoid conflicting requirements and to enhance in international cooperative efforts wherever possible. For example, the Commission has engaged in bilateral discussions regarding draft rule proposals or amendments to rules with international regulators and authorities, including the European Commission, the European Central Bank, the Bank of England, the European Securities and Markets Authority, and the Japanese Financial Services Agency.

The Commission participates in numerous international working groups regarding derivatives, including numerous IOSCO committees and task forces, as well as projects with the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures, and the Financial Stability Board. Over the past four years, the CFTC, SEC, European Commission, European Securities Market Authority, and market regulators from around the globe have been meeting to discuss and resolve issues related to financial reform through various technical working groups.

The Commission also is consulting with many other jurisdictions such as Australia, Hong Kong, Singapore, Japan, Switzerland, and Canada. Discussions have focused on the details of the Dodd-Frank Act and implementing rules, including mandatory clearing, mandatory trade execution, reporting swap transactions to trade repositories, and regulation of swap dealers and derivatives market intermediaries. The Commission’s international outreach efforts directly support global consistency in the oversight of the derivatives markets.

In addition, the Commission has been engaged in ongoing international work and policy coordination in the development of data and reporting standards under Dodd-Frank Act rules. Data standards and common identifiers provide easier, less expensive data sharing and transfer by providing regulators and diverse industry participants with consistent terms, format, and quality measures. Legal entity identifiers (LEIs) are part of a unique identification system for parties to financial transactions. LEIs are being adopted by financial markets globally and will allow regulators to cost-effectively determine the controlling and benefitting party to every derivatives transaction. Unique product identifiers (UPIs) for standardized derivatives and unique transaction identifiers (UTIs) will allow regulators to cost-effectively determine the characteristics of most derivatives transactions.

Finally, the Commission has entered into and is negotiating cooperative supervisory arrangements for regulated cross-border entities and market participants.

International Policy – Justification of CFTC Request by Function

International Affairs

The FY 2017 request will allow CFTC to consult and coordinate more effectively with international authorities. The global nature of the futures and swaps markets makes it imperative that the United States engage foreign regulators and international standards setting bodies to promote high-quality derivatives regulation worldwide.

The FY 2017 budget reflects the Commission’s continued outreach with authorities responsible for the regulation of derivatives markets in major jurisdictions, to support the adoption and enforcement of consistent standards in and across jurisdictions that are in line with the G-20 Leaders’ commitments.

The Commission will continue its active engagement with international regulators to work toward consistent regulatory requirements imposed on derivatives clearing organizations. The importance of central clearing to the derivatives markets makes it critical that the Commission ensures the strength and resiliency of clearinghouses. The Commission will continue to coordinate meetings with EU authorities, as well as with other foreign regulators (e.g., Australia, Canada, Hong Kong, Japan, and Singapore) for similar purposes.

The CFTC will increase its efforts to work toward consistent trading platforms rules with those of Europe. In late 2015, the European Securities and Markets Authority (ESMA) published regulatory technical standards and implementing technical standards to put into effect the EU Markets in Financial Instruments Regulation (MiFIR) and Markets in Financial Instruments Directive II (MiFID II). The CFTC will work with EU authorities to minimize differences, to the extent necessary, between EU trading venues and U.S. swap execution facilities and designated contract markets prior to the effective date of the EU regime in early 2018.

The Commission is committed to taking a strong role in international fora and standard-setting bodies. In 2016, the Commission is chair of the over-the-counter Derivatives Regulators Group (ODRG), which is made up of authorities with responsibility for the regulation of over-the-counter derivatives markets in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Quebec, Singapore, Switzerland, and the United States. Consistent with a request from the G-20 Leaders, the CFTC and other ODRG members have been working on practical aspects of deference in the area of central counterparties, by drawing out themes and identifying approaches. The ODRG is working on monitoring of substituted compliance and equivalence assessments and is looking at furthering its co-operation on the clearing obligation mandate, among other issues. The ODRG’s work program will continue in 2017, and the CFTC is expected to continue to play a major role in that effort.

The CFTC will participate in the Financial Stability Board (FSB) Resolution Steering Group (ReSG), and the work of the FMI Cross-Border Crisis Management Group. The FSB ReSG will continue its work on central counterparty resolution regimes and resolution planning in FSB member jurisdictions (including the United States). In addition, the Commission will continue to participate in an international study group created in 2015 to identify, quantify and analyze interdependencies between central counterparties, major clearing members, and other significant participants in the financial system, and any resulting systemic implications. The study group will map key interconnections between these market participants in the financial system globally—both in terms of memberships and multiple service provisions (such as reliance on particular banks for lines of credit, etc.).

The CFTC also will participate in the FSB working group that is proposing the global governance framework for the UTI and UPI.

The CFTC is a member of the Board of the IOSCO and is co-chair of the IOSCO Committee on Commodity Derivatives Markets (Committee 7). As co-chair of the IOSCO Task Force on over-the-counter derivatives, the Commission will continue to work on international initiatives in the CDS market including research of information regarding the functioning of the ISDA Credit Determinations Committee and CDS auction processes. The Commission will also participate in a newly created IOSCO Task Force on Market Conduct which is collecting information on the regulatory tools IOSCO members have to regulate conduct in the wholesale Fixed Income, Currency and Commodities (FICC) markets. In addition, the CFTC remains committed to its participation in IOSCO’s Task Force on Financial Benchmarks, as well as various IOSCO policy committees. These include the Assessment Committee, the Committee on Regulation of Secondary Markets, the Committee on Regulation of Intermediaries, the Committee on Enforcement and the Exchange of Information and the Multilateral Memorandum of Understanding Screening Group, the Committee on Emerging Risks, the Committee on Investor Protection, and the Inter-American Regional Committee. All of these activities relate collectively to the development of standards of best practices and guidance in derivatives regulation.

The Commission expects to continue its co-leadership role on the Committee on Payments and Market Infrastructure (CPMI-IOSCO) Policy Standing Group (PSG). The PSG is expected to develop guidance on the building blocks for increased central counterparty resiliency, in particular, stress testing, margin, recovery, the adequacy of financial resource standards, and “skin-in-the-game.” The CPMI-IOSCO Implementation Monitoring Standing Group (IMSG) (in which the Commission also participates) will continue its assessment of 10 globally and regionally active central counterparties of the implementation of the risk management standards under the CPMI-IOSCO Principles for Financial Market Infrastructures. The Commission also anticipates the PSG, in coordination with the IMSG, will assess the need for, and develop, guidance on these issues. The CFTC will continue to coordinate with foreign regulatory authorities to evaluate compliance with the CPMI-IOSCO Principles for Financial Market Infrastructures.

With respect to data reporting issues, CFTC staff will continue to lead the efforts of the CPMI and IOSCO regarding the potential global aggregation of over-the-counter derivatives trade repository data by continuing to co-chair the CPMI-IOSCO Working Group for harmonization of key over-the-counter derivatives data elements with staff of the European Central Bank.

The CFTC will continue to participate in U.S. Treasury-organized financial regulatory dialogues with Europe, China, India, Canada, and Mexico, other FSB projects, and multilateral initiatives as they arise.

CFTC will continue its work with the Financial Stability Oversight Council’s Designations Committee to monitor both designated financial market infrastructures (for continued systemic importance) and non-designated financial market utilities (to consider them for designation).

The Commission will coordinate supervision of global entities with foreign authorities and negotiate cooperative arrangements regarding the supervision of regulated cross-border entities and market participants. The CFTC will continue to plan and coordinate the Commission’s annual trading seminar for foreign market authorities, the Commission’s annual hosting of an international conference for foreign regulators, visits to the Commission requested by foreign regulators, and technical assistance to foreign market authorities on a staff-available basis.

Impact if Not Funded at Requested Level of Resources. The failure to provide requested resources will diminish the Commission’s ability to ensure that its regulatory policies are consistent with the 2009 G-20 Leaders’ commitments to reform the global swaps market. Central clearing and the regulation of clearinghouses will be a critical focus of regulators all over the world for the next several years. The CFTC must continue its important role in the global regulation of clearinghouses involving a mix of global authorities: market regulators, prudential regulators, and central banks. As Europe begins to plan for implementation of its important post-crisis regimes in 2018, the CFTC must understand the differences in its respective rules on swaps trading and look at ways to harmonize rules and achieve appropriate regulatory deference. Harmonization of clearing and trading regimes worldwide is essential to ensure consistent high levels of global regulation, as well as access by U.S. trading platforms and clearing organizations to foreign jurisdictions. Although some of this work can be achieved through electronic communication, in many instances it is critical that CFTC staff attend in-person meetings to advocate for its policy positions. Accordingly, the CFTC must have the funds to ensure its ability to participate in the crucial cross-border dialogues and resolve regulatory differences in a cooperative manner. Any reduction in resources would require the Commission to reduce its global presence, thereby eliminating opportunities to advocate for harmonization of international regulatory policies, and to resolve potentially conflicting rules.

Clearing and Risk

Within the limited capability, this request will allow the division to continue to support the Commission’s participation in the international bodies setting standards for central counterparties. The additional funding requested will enable greater participation in the key international groups.

Commission staff actively participate in, and in some cases lead, international groups such as CPMI-IOSCO and the Financial Stability Board’s Resolution Steering Group.

Impact if Not Funded at Requested Level of Resources. If not funded at the requested level, the Commission would need to cease or drastically reduce participation in these key international groups, which increases the risk that conflicting, ineffective, or unduly burdensome standards will be established. Such standards may have significant negative effects on, among other things, the competiveness of U.S. derivatives clearing organizations.

Enforcement

Foreign regulatory authorities are increasingly requesting support in their enforcement cases, and the Commission’s need for assistance from foreign regulatory authorities for its own investigations has similarly increased. The Commission is requesting resources to ensure prompt, well-reasoned and accurate responses are provided to foreign regulatory authorities, as well as to ensure that the Commission is able to adequately pursue information located abroad that is relevant to its own enforcement investigations. Also, because the complexity of international requests are commensurate with the increasing complexity of the investigations that they support, the process of responding to such requests is more time-consuming than it was previously.

Impact if Not Funded at Requested Level of Resources. If the Commission does not receive the requested level of resources, the result will negatively impact the Commission’s ability to properly pursue information located abroad in connection with its enforcement investigations. The increasingly cross-border nature of enforcement cases means that the Commission increasingly requires evidence and testimony located in foreign jurisdictions, which must be obtained either in person, by formal arrangements (such as the IOSCO Multilateral Memorandum of Understanding, other memorandum of understanding or mutual legal assistance treaties), or informal arrangements. Inadequate resources will also inhibit the Commission from providing timely, adequate responses to international requests for assistance from foreign regulatory authorities in keeping with the Commission’s obligations to provide reciprocal assistance under its formal and informal arrangements. This, in turn, could impact the assistance the Commission is able to obtain from foreign regulatory authorities. The additional resources are needed for investigations and litigations to meet the increased demand for coordination between domestic and international civil and criminal authorities. Moreover, without resources requested, the Commission will be unable to undertake measures to ensure that it maintains high visibility and engagement on cross-border enforcement issues within the international community and a leading role in the development of international financial policy affecting the derivatives markets.

Agency Direction

Of the funding allocated to this mission activity, $25,000 is used to support international meetings as prescribed in the Commission’s appropriation language.

Breakout of International Policy Request¹³

Breakout of International Policy Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
International Affairs	12	$3,509	$0	$3,509
Clearing and Risk	3	$797	0	$797
Agency Direction	0	$25	0	$25
Enforcement	3	$895	0	$895
Total	18	$5,226	$0	$5,226

Column totals may not add due to rounding

¹³ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Agency Direction and Management – Mission Activity Description

The Commission’s ability to achieve its mission is driven by well-informed and reasoned executive direction, strong and focused management, and an efficiently-resourced, dedicated, and productive workforce. This is a top-to-bottom requirement. To ensure the Commission’s continued success, continuity of operations, and adaptation to the ever-changing markets it regulates, it must empower strong, enterprise-focused leaders; maintain a high-performing, diverse and engaged workforce; promote transparent and clear communication; and develop, train and equip leaders at all levels of the organization. The Commission must manage its resources effectively through effective internal controls, governance and planning processes, and ensure its workforce has the leadership, knowledge, data and technology, and other tools to work effectively.

The Commission is committed to operationalizing its expanded regulatory scope and to maintaining its strong presence in its traditional markets. This requires unambiguous and timely direction, and the right quantity and quality of staff, aligned in an optimal operating structure supported by the necessary training, development, tools, resources and working environment.

The Commission utilized shared services provided by other agencies for its financial management and human resources systems, as well as services provided by commercial providers to many Federal agencies (e.g., travel and hiring systems). The Commission also maintains administrative services that are unique to the Commission (e.g., performance management, pay adjustment, and ethics compliance). To reduce data redundancy, rework, and support cost-effective automation, administrative data and systems must continue to be centralized, replacing point solutions and eliminating redundant data stores.

Agency Direction and Management – Justification of CFTC Request by Function

Agency Direction

The FY 2017 request will support the Commission’s leadership function, which includes the Offices of the Chairman and the Commissioners, as well as Public Affairs, Legislative Affairs and the Office of Minority and Women Inclusion (OMWI). Under Agency Direction, the Chairman’s Office supports efforts to evaluate mandated reforms and focus on transparency and market integrity. It also provides responsive, articulate products for a variety of domestic and international venues. In addition, the request also includes funding for official reception and representation, as well as for the Commission’s Advisory Committees. The increase in staffing and the associated personnel costs reflects funding the minimally required staff for each commissioner. Given the funding provided in FY 2016, the Commission must carefully manage the cost of agency FTE.

Impact if Not Funded at Requested Level of Resources. The Commission will be unable to meet the leadership challenge of ensuring that markets are functioning openly, fairly, and efficiently now that the new regulatory framework is in place. The Commission requires a fully staffed executive function to develop and adopt policy that implements and enforces the CEA. Furthermore, failure to provide funding could jeopardize CFTC’s compliance regarding the implementation of Equal Employment Opportunity and diversity programs. The current staffing and funding for OMWI maintains the current level of functions and services, which represents a fraction of the functions required by 29 Code of Federal Regulations 1614 and Management Directive--715.

Administrative Management and Support

The FY 2017 request builds upon the Commission’s foundation of focused planning and governance, efficient execution of resources and a trained and productive workforce, which is articulated in the Strategic Plan FY 2014-2018. In FY 2017, CFTC will draw upon the Strategic Plan and implement initiatives that move the agency successfully through the challenges ahead.

The Commission will ensure that CFTC resources are protected against waste, fraud, and abuse. Efforts will be made to obtain unmodified audit opinions on the agency-wide financial audit and the Consumer Protection Fund audit, as well as ensuring no material weaknesses or significant deficiencies exist within the CFTC’s internal controls. In pursuit of responsible stewardship of resources, the Commission will judiciously negotiate approximately 600 contract actions and seek estimated savings over their life.

The Commission will identify, procure and host approximately 100 training courses to enable staff to enhance and retain critical skills that support each mission activity. Training will include courses related to the oversight of the options, futures, and swaps financial marketplace, the development of executive and leadership skills, and the deployment of a focused mentorship program. The Commission will also continue to enhance and expand its customized, peer-to-peer, knowledge sharing program, known as the “Commission’s Learning Circles,” growing the program from 18 sessions in FY 2016 to approximately 30 unique events in FY 2017. The Commission will continue its vigilance in providing a secure work environment by, among other things, conducting workplace and domestic violence prevention and intervention briefings and maintaining requirements for secure workspaces. The Commission will also build upon and refine its performance metrics as part of continuous process improvement.

The Commission will refine policies and procedures for enterprise-wide incident response planning and strengthen data-loss prevention technologies, as it did with the testing and procurement of a data-loss prevention tool in 2015. The Commission will continue to enhance continuity of operations, security, and contingency planning operations. The Commission will also address privacy and records issues that arise with critical mission activities, including enforcement and market oversight utilizing international data, enforcement of the privacy and security provisions of the Gramm-Leach-Bliley Act, and identifying and managing controlled unclassified data. The Commission has a proven record of accomplishment with these issues. In 2015, the Commission addressed concerns regarding the Data Protection and Privacy Agreement with the European Commission, the proposed General Data Protection Regulation and Criminal Justice Directive, and the outline of the proposed data protection law in Japan. The Commission will continue its participation in the International Conference of Data Protection and Privacy Commissioners, where it was granted observer status in 2015, and continue to raise concerns and advocate proposed data privacy legislation in the European Union (EU).

The Commission will also continue to administer agency-wide contracts in an efficient and effective manner.

Impact if Not Funded at Requested Level of Resources. The Commission is at a critical juncture in its ability to meet the emerging needs of its mission. Administrative requirements continue to increase as technology is deployed throughout the Commission and across the Federal government. Moreover, the CFTC’s new and expanding legislative and regulatory requirements means the complexity of financial management, strategic planning, human capital management, and privacy and records issues continue to escalate. The Commission has often opted to invest in mission activities over administrative functions, resulting in many outdated and inefficient processes that have been replaced by technological innovations at other agencies. The Commission recognizes the need to keep overhead costs as low as possible, and has taken steps to become more efficient and innovative. Given the efforts previously made, maintaining the current level of administrative management and support functions will increase risk to internal controls, human capital development, and the inhibit the Commission’s ability to engage in sound and prudent privacy and records management decisions. Furthermore, failure to meet critical training needs will result in skill gaps that render employees unprepared to protect market participants and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives. If adequate funding is not received, the Commission’s efforts to effectively administer agency-wide contracts, such as paralegal services, administrative services, travel services, and facilities management will be compromised.

Data and Technology

The Commission will increase its use of automated products and services from the shared-service provider, the NFC, in order to automate administrative processes and improve the consistency and availability of real-time human resource information. This will allow administrative support staff to allocate more time to operational planning and execute human capital strategy more effectively.

Impact if Not Funded at Requested Level of Resources. The Commission will be unable to expand and improve on its highest priority mission support activities. Expertise in organizational and operational management, financial management, and human resources are needed at the requested levels in order for the agency to provide the systems, data protections, performance management and analysis needed to keep pace with the technology-driven innovative environment it is charged with overseeing.

Inspector General

This funding request includes those required to support the OIG, as required by the Inspector General Act of 1978. Appendix 3 contains a detailed display of the OIG request. FY 2017 reflects an additional position for the Office of the Inspector General to perform their numerous evaluative responsibilities.

Breakout of Agency Direction and Management Request¹⁴

Breakout of Agency Direction and Management Request by Division
Dollars in Thousands

	FTE	Salaries and Expenses	IT	Total
Agency Management and Support	84	$20,802	$0	$20,802
Agency Direction	37	$10,050	$0	$10,050
Data and Technology	0	$6,092	$1,730	$7,822
Inspector General	11	$3,462	$0	$3,462
Total	132	$40,405	$1,730	$42,135

Column totals may not add due to rounding

¹⁴ The Commission considers the Salary and Expenses, Information Technology, and Office of the Inspector General programs to be its sole programs, projects, and activities (PPAs). The budget displays by mission activity are for informational purposes only, and do not represent a PPA. (back to text)

Appendix 2. Management of the IT Portfolio in FY 2017

The Commission requests $79.0 million for the Information Technology Program and $34.4 million for the Salaries and Expenses Program, in support of the following IT priorities:

Surveillance:

• Data Standards
  • Sustain ongoing efforts with domestic and international regulators, as well as industry to harmonize and refine data standards and improve data quality.
  • Implement master reference data management.
  • Enhance data governance policy and implement revised procedures.
  • Automate data quality management activities and increase data analysis and analytics support activities.
  • Support harmonizing of data standards and data access services for all swap data repository data.
• Swaps Data Management
  • Provide data loading support for all new data submissions.
  • Implement data aggregation mechanisms for cross- swap data repository data analysis.
  • Collaborate on integration of NFA systems and data with CFTC systems and ingest of NFA data into CFTC systems.
  • Continue integrating futures, swaps, and master and reference data in an enterprise data environment.
  • Enhance the CFTC data warehouse to facilitate rapid access to large volumes of market data.
• Position and Transaction Surveillance
  • Adapt large trader reporting systems to support new swaps data analysis, internal reporting requirements, and transparency reporting.
  • Deploy systems that analyze orders as well as trades for trade practice violations.
  • Enhance position monitoring systems.
  • Improve existing account ownership and control information systems.
• Over-the-Counter Risk Management
  • Intensify capability to stress test positions in swaps for market participants and derivatives clearing organizations.
  • Amplify systems to identify and aggregate data for related market participants across derivatives clearing organizations.
  • Improve tools used in back testing and evaluation of sufficiency of all material product and portfolio margin requirements.
  • Upgrade monitoring capabilities of firm level variation and initial margin requirements across derivatives clearing organizations.
  • Expand existing tools utilized in the evaluation of risk to market participants positions held at multiple futures commission merchants or derivatives clearing organizations.
  • Enhance tools to combine cleared and bilateral positions to obtain a more complete picture of a clearing firm’s risk.
  • Modify existing financial analysis tools which support reviews of futures commission merchants and swaps dealers risk management controls.
• Market and Data Analytics
  • Continue enhancing data availability and analytics tools that allow staff to prototype new surveillance and risk and compliance monitoring methods.
  • Adjust production analytics to use high-performance computing platforms.
  • Support additional public transparency reporting.

Other Mission Support:

• Registration and Compliance, Product Review and Assessment.
  • Automate regulatory mission and key activity processes.
• Examinations
  • Automate regulatory mission and key activity processes.
• Legal and Economic Analysis
  • Automate regulatory mission and key activity processes.

Enforcement:

• Enhance eLaw and forensics program technology and increase litigation technical support services.

Data Infrastructure:

• Increase storage, processing, and communications infrastructure to meet demand.
• Refresh desktop computing technology.
• Reduce business continuity risk and increase availability during non-business hours: decommission the server room at the DC Headquarters location; supplement the Commission’s ACF with a second, geographically co-located ACF; and adjust system architectures to further automate recovery and reconstitution processes and reduce the need for outages for planned maintenance.
• Implement information security continuous diagnostics and mitigation (CDM).
• Refresh end-of-life cycle desktop computing resources and complete the deployment of a virtual desktop environment.
• Increase customer support for industry participants using the CFTC portal.
• Implement an electronic records and document management system and enterprise search.
• Provide support for the Commission-wide collaboration site and division collaboration sites.

Management and Administrative Support:

• Enhance video production capabilities to support electronic learning and improved communications.

Appendix 2. Summary of Information Technology Budget by Cost Type

Summary of Information Technology Budget by Cost Type
Dollars in Thousands

	FY 2015 Actual	FY 2016 Enacted	FY 2017 Request
Development, Modernization, and Enhancement (DME)	14,229	18,795	21,781
Operations and Maintenance (O&M)	54,005	50,738	80,631
S&E (Non-DME/O&M)	9,894	4,302	6,092
Indirect Overhead	5,101	4,770	4,930
Total IT Portfolio	$83,229	$78,605	$113,433
Information Technology Services	50,621	50,000	79,000
Information Technology Personnel	17,613	19,533	23,412
S&E (Non-DME/O&M)	9,894	4,302	6,092
Indirect Overhead	5,101	4,770	4,930
Total IT Portfolio	$83,229	$78,605	$113,433

Column totals may not add due to rounding

Detail of Information Technology Budget by Cost Type
Dollars in Thousands

	FY 2015 Actual	FY 2016 Enacted	FY 2017 Request
Surveillance	22,135	16,543	31,716
DME	8,227	7,511	12,249
Services	7,909	4,838	11,627
Personnel	317	2,673	622
O&M	13,908	9,032	19,468
Services	6,768	5,125	10,144
Personnel	7,140	3,907	9,323
Enforcement Activities	4,310	6,416	6,628
DME	48	949	108
Services	48	744	108
Personnel	–	206	–
O&M	4,262	5,466	6,520
Services	3,469	4,233	5,484
Personnel	793	1,234	1,036
Other Mission Support	2,513	2,927	3,819
DME	1,088	881	1,604
Services	1,088	675	1,604
Personnel	–	206	–
O&M	1,425	2,046	2,214
Services	1,425	1,430	2,214
Personnel	–	617	–
Agency Direction and Management	11,008	6,405	7,822
S&E	9,894	4,302	6,092
Services	9,894	4,302	6,092
DME	–	450	–
Services	–	450	–
Personnel	–	–	–
O&M	1,114	1,653	1,730
Services	1,114	1,036	1,730
Personnel	–	617	–
Data and Technology Support	38,163	41,544	58,518
DME	4,866	9,004	7,819
Services	4,549	6,947	7,405
Personnel	317	2,056	414
O&M	33,297	32,541	50,699
Services	24,252	24,522	38,682
Personnel	9,045	8,019	12,017
Indirect Overhead	5,101	4,770	4,930
Total IT Portfolio	$83,229	$78,605	$113,433

Column totals may not add due to rounding

Table Key

Category	Description
DME	Costs related to the development, modernization, and enhancement of technology.
O&M	Costs related to the operations and maintenance of technology.
S&E	Costs related to the Salaries and Expenses Program.
PERSONNEL	Costs of government personnel for salary and benefits only.
SERVICES	Hardware, software, and contracted data and technology services and contracted labor.
INDIRECT	Overhead related to leases and other centrally funded costs.