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Commodities regulator lays out case for agency funding bump

U.S. CFTC Acting Chairman J. Christopher Giancarlo told House appropriators on June 8 that his agency needs a $31.5 million increase in funding, exceeding the White House request, to bolster clearinghouse oversight, improve economic analysis and update financial technology.

While the White House budget asked Congress for flat funding of $250 million, Giancarlo used authority under the Commodity Exchange Act to submit the agency's own request: $281.5 million and 739 full-time equivalent employee positions. The request was also backed by the Democrat on the commission, he said.

"The $31.5 million in additional funds is not an ad hoc number but a careful assessment of what the CFTC needs to execute its mission in fiscal year 2018," Giancarlo said in testimony before the House Appropriations subcommittee on agriculture. "We do not take lightly the use of bypass authority to present the budget directly to Congress."

Rather than starting with last year's spending level and tacking on a percentage increase, Giancarlo said he borrowed the approach from his business experience of sitting down with each unit and building the budget from the ground up based on what was needed.

In one area of need, he said, the Office of Chief Economist lacks resources to meet the challenges of a rapidly changing global derivatives market, with more high-frequency trading creating unknown effects, and he would like to recruit some of the best economists to the agency.

A financial technology overhaul is needed, he added, to avoid being a 20th century, analog agency.

His pitch for an increase was greeted coolly, however, by the panel's Republican leaders, who said the subcommittee would start their work based on the president's flat funding request. The higher number "will be considered as your annual 'passback' submission to the Office of Management and Budget and nothing more," subcommittee Vice Chairman Rep. David Valadao of California said in a statement on behalf of the chairman.

Valadao separately accused the Obama administration of using the budget as a tool to paint Republicans as in the tank for Wall Street, and complained of prior use of CFTC labor union negotiations to coerce Congress to raise funding.

"There is no guarantee that providing the CFTC an increase would further your major priorities such as improving economic analysis of the financial sector without addressing the inclusion of salaries and benefits in collective bargaining negotiations," he said.

Giancarlo: 'I'm not a foe of regulation'

In question on his stance on financial rules, Giancarlo steered clear of embracing a rollback of Dodd-Frank Act regulations of derivatives, saying he was "not a foe of regulation" and believed in Title VII of the act, "Congress got it right."

"I feel the reg reform that came out of the financial crisis, I would call it almost like software 1.0, and I think it's now time to go to version 2.0," he said.

Instead, he cast his approach as "making our rules the best," not the least or the most restrictive, to attract global capital to U.S. markets. The agency has an effort under way dubbed "Project KISS," as in "keep it simple stupid," to review existing rules to ensure they are applied in a straightforward way that is least burdensome on the economy, he said.

Giancarlo took some heat from Democrats and public interest groups for his statement that "overly prescriptive regulation of American derivative markets is part and parcel of the over-regulation that thwarts the revival of the American economy." Rep Rosa DeLauro, D-Conn., said she cannot find evidence to support that broad claim.

As one illustration of his case, Giancarlo pointed to the decline in the number of futures brokers serving smaller participants, from about 157 in 2007 to about 50 or so, with several banks on Wall Street now serving the lion's share of those players.

DeLauro also called it "startling" that the CFTC in its budget states it has a duty to protect and serve derivative market participants. "To suggest a coziness with industry, that's frankly disturbing to me," she said, suggesting that left out the duty to protect users and consumers.

To that Giancarlo replied that he considered such protection to apply to all market participants, large and small.

'We're at an impasse' on de miminis threshold

Some lawmakers pressed the CFTC head to remove an automatic, scheduled drop in the de minimis threshold of annual business dealing that is used to determine which companies will be regulated as swap dealers and face a host of regulation.

Giancarlo agreed, saying he worried that lowering the level would drive companies other than Wall Street firms, such as power companies, out of the market, lowering derivative market liquidity as they restrain their trading levels to avoid the regulations that go with the swap dealer designation.

But he said Commissioner Sharon Bowen, a Democrat, feels it should be lowered and he respected her view. While rulemaking would "not take long at all," with only two commissioners now seated at the commission, "we're at an impasse," he said.

Maya Weber is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.