June 23, 2017

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CFTC Acting Chairman Makes Budget Request

On June 8, 2017, Acting Chair J. Christopher Giancarlo of the Commodity Futures Trading Commission (“CFTC”) made his request for the CFTC’s budget for fiscal year 2018 (“FY 2018”) to the House Appropriations Committee Subcommittee on Agriculture, Rural Development and Related Agencies (“Subcommittee”).  Acting Chair Giancarlo is seeking an increase in the CFTC’s budget from $250 million in FY 2017 to $281.5 million in FY 2018.

According to Acting Chair Giancarlo, the budget request is based on his experience “as a former senior executive as a publicly traded company.”  To that end, Acting Chair Giancarlo assured the Subcommittee that, in crafting the budget, he did not simply “take last year’s budget and add a percentage increase.”  Rather, he emphasized that the budget baseline was zero, and it was built from the ground up to ensure that “each requested dollar…serve a purpose.”

Acting Chair Giancarlo then noted that he had “identified several areas in which the agency can run more efficiently and save taxpayer dollars.”  As an example, he informed the Subcommittee that he intends to institute a “central-services organization model that is a best practice in the private sector.”  Also noting that the “era of Dodd-Frank implementation” is nearing a close, Acting Chair Giancarlo then highlighted several efforts undertaken to resume “normalized operations and practices,” including establishing the KISS initiative to simplify regulations, increasing cooperative efforts with other agencies and self-regulatory organizations, and refocusing the CFTC’s enforcement efforts.

Acting Chair Giancarlo then addressed three areas in which the CFTC needs greater investment.  The first area involved increased resources for economic analysis.  According to Acting Chair Giancarlo, these additional resources would increase the CFTC’s ability to analyze and monitor systemic risk in the derivatives market, particularly with regard to central counterparty clearinghouses, and would enable the CFTC to apply more sophisticated econometric analysis when evaluating the costs and benefits of rules.  The second area involved resources for examinations of derivatives clearing organizations (“DCOs”).  Acting Chair Giancarlo noted the “explosive growth in the number and value of swaps cleared by” DCO and the increasing complexity of products cleared, warrant the need for “additional resources to enable it to continue to fulfill its responsibilities relating to systemic risk.”  The third area Acting Chair Giancarlo highlighted for increased investment was financial technology, which is the focus of the CFTC’s recently announced LabCFTC initiative.

Acting Chair Giancarlo, again cited his business experience, then reassured the Subcommittee that he would “maximize how limited resources are used,” citing current efforts to streamline the CFTC’s business management functions and to improve its administration of leases.  While Acting Chair Giancarlo’s emphasis on utilizing business principles in crafting the CFTC’s budget request, as well as his emphasis on reducing regulatory burden and encouraging innovation, should resonate with Republicans and a Trump Administration that has emphasized those goals, Republicans indicated they intended to remain steadfast in refusing to increase funding for the CFTC.  Vice-Chariman David G. Valadao flatly stated that there was “no guarantee that providing the CFTC an increase would further your major priorities such as improving economic analysis or the financial technology sector.”  Thus, it remains to be seen whether Acting Chair Giancarlo’s appeal will outweigh the desire of Congressional Republicans and the Trump Administration to seek drastic funding cuts across the government.

© 2017 Covington & Burling LLP

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About this Author

Jason Grimes, Financial Services Attorney, Covington Burling, Law Firm
Associate

Jason Grimes is an associate in the firm’s financial institutions and futures and derivatives practice groups. He advises clients on a wide range of regulatory matters, including compliance with various state and federal banking laws, and compliance with the Commodity Exchange Act.

Representative Matters

  • Advised a CFTC-registered swap dealer on compliance issues related to trading on swap execution facilities
  • Advised a major financial institution in connection with the treatment of non...
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