Michael V. Dunn
Today we consider the next set of proposed rules that come before the Commission pursuant to the Dodd-Frank Act. As with other proposed rules, today’s set of rules offers a glimpse into the resource intensive re-engineering the CFTC will be going through to provide the regulatory framework to implement the many new responsibilities under Dodd-Frank. As I have previously stated, I am very concerned about the CFTC’s budget situation and possible attempts to thwart implementation of Dodd-Frank by cutting off funding for this agency. Without the requisite level of funding, I see the possibility of several unfortunate outcomes coming to fruition:
– First, without the necessary human capital to review new SEF, DCM and DCO applications, I can envision long waiting periods for potential registrants before their applications are approved to conduct business in the markets we regulate. This inability to quickly and efficiently process applications, through no fault of the CFTC, would undoubtedly prevent the immediate creation of a competitive market environment, at least in the OTC space, and may lead to greater systemic risk as positions become concentrated in the small group of SEFs, DCMs and DCOs that are the first to navigate the registration process.
– Similarly, the lack of adequate resources would undoubtedly affect the agency’s ability to approve new products for trading. If the CFTC does not have the people to review new product applications to ensure that they are not violative of the act and are not readily susceptible to manipulation, the new products cannot be listed for trading. Again, I fear that a long queue will develop for new products waiting approval, and that the inability to get new products approved will prevent innovation and competition in our markets.
– Without adequate funding, the CFTC may need to delegate a substantial portion of its duties under Dodd-Frank to the industry’s established SROs. If we cannot be the frontline regulator, it is incumbent upon the Commission to find someone who will be. Delegation of these oversight duties to the existing SROs will obviously be very costly, but necessary, for the industry. My hope is that the cost of doing business in the United States, due to inadequate funding of the CFTC, does not push trading into less expensive global markets.
– Lastly, a principles-based regulatory regime only works if the regulator has the staff necessary to ensure that its regulatees are adhering to the principals. Without sufficient staff to conduct proper oversight, the CFTC may need to write more prescriptive rules that rely more heavily on burdensome reporting requirements. Again, this will undoubtedly be very costly for the industry and market users.
It is my hope that the CFTC will receive the funding it needs through the congressional appropriations process and be able to provide quality regulatory oversight to the derivative markets. This oversight, following a principles-based approach, in my opinion, fosters an environment of compliance, competition and innovation.
I again want to thank the Chairman for his leadership and the hard work of the dedicated employees of the CFTC in preparing these and future proposals.
