who runs the cftc?
WASHINGTON (Reuters) - A leadership vacuum at the top U.S. derivatives regulator could weigh down the Commodity Futures Trading Commission’s efforts to police financial markets using vast new powers Congress gave it after the financial crisis, lobbyists and people inside the regulator said.
The White House has yet to nominate a candidate to replace CFTC Chairman Gary Gensler, who will end his five-year term at the end of the year.
That leaves three options for President Barack Obama. He could come up with a last-minute name, ask Gensler to stay on for another term or let the seat remain empty, in which case the commission would elect an acting chairman from its midst.
A chairman elected by the commissioners would not be as powerful as a presidential appointee. This could hinder the CFTC’s attempt to implement crucial elements of new rules written to make complex financial instruments less opaque and prevent another credit market meltdown like the one in 2007-09.
The CFTC also faces crucial negotiations with Europe and other regions about how to apply its rules abroad and a court battle with banks about commodity speculation. The regulator also is stepping up the number of high-profile probes into financial benchmarks.
“The White House hasn’t paid enough attention to it so far ... really, they haven’t turned up with an appropriate candidate,” one person said.
The White House, the CFTC, and the Senate Agriculture Committee, which oversees the CFTC, declined to comment on who the next chief might be.
Reuters and other media outlets reported in March that Obama had asked Gensler to serve a second term. Gensler never commented on the reports, and it was widely thought at the time that he hoped for a more prominent position.
The CFTC, once a sleepy agency overseeing agriculture futures, saw its clout vastly increased after the financial crisis. The Dodd-Frank reform law gave it power over the $630 trillion swaps market, dominated by Wall Street’s banks.
The lobbyists and people in the agency Reuters spoke to, asked not to be named because they were not authorized to speak to the press, or so that they could speak more freely.
The latest name to come up as a possible successor to Gensler is Elizabeth Ritter, who works for Democratic Commissioner Bart Chilton at the CFTC.
Ritter, also a professor in derivatives law, is a CFTC veteran who has worked for a long list of commissioners, as well as in the office of the general counsel. She declined to comment through a spokesman.
Ritter was widely praised as an expert by the people Reuters spoke to, who described her as “smart”, with extensive knowledge of laws that constitute the CFTC. They said she also offers Obama a chance to appoint a high-profile woman.
But she has never headed a department at the CFTC, and some of the people doubted whether she had enough support to lead the agency in what is expected to be an uphill struggle with bank lobbyists and their allies in Congress.
As late as July, Amanda Renteria, a former chief of staff for Senator Debbie Stabenow, who heads the Senate Agriculture Committee, withdrew her candidacy from the race to head the CFTC, saying she was returning to California.
In June, Washington policy-watchers widely assumed that Renteria would get the job, but last-minute questions about her perceived lack of experience got in the way, the people said.
Similar doubts about Ritter’s ability to run the CFTC could get in the way of her nomination as the next chair, the people said, though she could in that case still be a candidate to take over from her current boss Chilton.
If there is no White House nominee, it would be traditional for the most senior Commissioner to be voted in as acting chairman. This would make Democratic commissioner Bart Chilton the CFTC chief when Gensler leaves in December.
But the process is outside the White House’s control. Mark Wetjen, a Democrat once mooted as the agency’s next head, might vote for himself, the people said, leaving the casting vote in the hands of Scott O’Malia, a Republican.
The White House has nominated Chris Giancarlo, a manager at New York based derivatives broker GFI Group Inc to fill another open spot for a Republican Commissioner, news first reported by Reuters.
The White House ordinarily presents such positions to the Senate for confirmation in pairs of one Democrat and one Republican, meaning that Giancarlo’s first day at the agency is on hold as long as there is no new chairman.
With a lack of a clear candidate, a growing chorus of people says Gensler may get renominated, something long deemed improbable because he has few political friends who are not critics of Wall Street.
If it looks like Gensler would not be approved by the Senate, Obama could reappoint him when Congress is in recess in December. Such a step would generate controversy, but would leave the CFTC with a fully empowered chairman.
“The longer you wait the fewer options there are,” the first person said. “Don’t bet against Gary Gensler ... if he wants to come back, he probably will come back.”
DMO is responsible for overseeing the health and market structure of the derivatives markets regulated by the CFTC, as well as the exchanges and facilities on which those derivatives trade. One of DMO’s primary functions is rulemaking, through which DMO develops and implements Commission regulations to promote fair, efficient, vibrant markets, and sound market structure, and to ensure that the agency’s regulations keep pace with rapidly-changing markets. DMO also analyzes global commodity and financial market developments to identify emerging risks and trends in order to support the Commission in developing sound policy.
DMO is organized into five branches:
The Chief Counsel Branch advises DMO on all law and policy issues affecting the Division, including the Division’s oversight of the commodity futures, options and swaps markets. The Chief Counsel branch supports all DMO rulemaking and staff action documents as well as develops complex rulemakings and staff actions on a wide range of topics affecting DMO. The branch suggests enhancements to policy to account for changes in market structure, innovation and other market developments.
The Compliance Branch is responsible for examining and assessing the adequacy of exchange and trading platforms’ self-regulatory and rule enforcement programs covering both exchange rules and Commission regulations. These exchange trading platforms are known as Designated Contract Markets (DCMs) and Swap Execution Facilities (SEFs). The branch also includes a market continuity program, which conducts oversight of DCM, SEF, and swap data repository (SDR) compliance with the cybersecurity and system safeguards requirements of the Commodity Exchange Act (CEA) and Commission regulations.
The Market Intelligence Branch is responsible monitoring the health and the market structure of U.S. futures, options and swap markets, highlighting emerging trends and identifying structural or potential systemic risks. The branch also leads critical studies in these markets and provides advice on policy, risk management, and oversight matters to the Commission, as well as shares information with various stakeholders such as Congress and the public, as appropriate. The branch is also responsible for producing various regular CFTC reports, such as the Commitments of Traders report.
The Market Review Branch is responsible for reviewing and making recommendations to the Commission regarding applications for registration or designation of SEFs, DCMs, SDRs, and foreign boards of trade (FBOTs). The branch also oversees the continued compliance of DCMs and SEFs with the CEA and Commission regulations through the review of trading rules filed by DCMs and SEFs for certification and/or approval. The branch also contributes to related rulemaking.
The Product Review Branch reviews new and existing exchange-traded derivatives, including amendments to the terms and conditions of existing contracts, for compliance with the CEA and Commission regulations, including to ensure that products are not susceptible to manipulation. The branch does so by performing economic analysis of product terms and underlying cash markets. The branch also provides technical assistance to other divisions and groups in order to advance the CFTC’s mission.
Vincent McGonagle, Director
Nora Flood, Chief Counsel, Chief Counsel Branch
Rachel Berdansky, Deputy Director, Compliance & Examination Branch
Staff:
David Gillers
Chief of Staff
Laura Gardy
Deputy Chief of Staff
John Dunfee
Chief Counsel
Alicia L. Lewis
Special Counsel
Abigail Knauff
Special Counsel
David Felsenthal Special Counsel
Jason Somensatto FinTech Policy and Technology Advisor
Kiayana Davis
Executive Assistant to the Chairman
Kyndra Burke
The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options.
The Commodity Exchange Act (CEA), 7 U.S.C. § 1 et seq., prohibits fraudulent conduct in the trading of futures, swaps, and other derivatives. The stated mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. After the financial crisis of 2007–08 and since 2010 with the Dodd–Frank Wall Street Reform and Consumer Protection Act, the CFTC has been transitioning to bring more transparency and sound regulation to the multitrillion dollar swaps market.
Futures contracts for agricultural commodities have been traded in the U.S. for more than 150 years and have been under federal regulation since the 1920s. The Grain Futures Act of 1922 set the basic authority and was changed by the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.).
Since the 1970s, trading in futures contracts has rapidly expanded beyond traditional physical and agricultural commodities into a vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and foreign stock indices.
Congress created the CFTC in 1974 as an independent federal regulatory agency. The Commodity Futures Trading Commission Act of 1974 (P.L. 93-463) created the CFTC to replace the U.S. Department of Agriculture's Commodity Exchange Authority. The Act made extensive changes to the Commodity Exchange Act (CEA) of 1936, which itself amended the original Grain Futures Act of 1922. (7 U.S.C. 1 et seq.). In 1975, the first members were selected, and also its first chairman.
The CFTC's mandate was renewed and expanded in December 2000 when Congress passed the Commodity Futures Modernization Act of 2000, which instructed the Securities and Exchange Commission (SEC) and the CFTC to develop a joint regulatory regime for single-stock futures, the products of which began trading in November 2002.
In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act expanded the CFTC's regulatory authority into the swaps markets. The swaps markets currently have a notional value of more than $400 trillion.
The CFTC oversees the derivatives markets by encouraging their competitiveness and efficiency, ensuring their integrity, protecting market participants against manipulation, abusive trading practices, fraud, and ensuring the financial integrity of the clearing process. The CFTC generally does not directly regulate the safety and soundness of individual firms, with the exception of newly regulated swap dealers and major swap participants, for whom it sets capital standards pursuant to Dodd–Frank. Through oversight, the CFTC enables the derivatives markets to serve the function of price discovery and offsetting price risk.
As of 2014 the CFTC oversees 'designated contract markets' (DCMs) or exchanges, swap execution facilities (SEFs), derivatives clearing organizations, swap data repositories (SDRs), swap dealers, futures commission merchants, commodity pool operators and other intermediaries. The CFTC coordinates its work with foreign regulators, such as its UK counterpart, the Financial Conduct Authority, which supervises the London Metal Exchange.
In 1998 CFTC chairperson Brooksley E. Born lobbied Congress and the President to give the CFTC oversight of 'off-exchange markets' for over-the-counter (OTC) derivatives in addition to its existing oversight of exchange-traded derivatives, but her warnings were opposed by other regulators.
Two actions by the CFTC in 1998 led some market participants to express concerns that the CFTC might modify the "Swap Exemption" and attempt to impose new regulations on the swaps market. First, in a February 1998 comment letter addressing the SEC's "broker-dealer lite" proposal, the CFTC stated that the SEC's proposal would create the potential for conflict with the Commodity Exchange Act (CEA) to the extent that certain OTC derivative instruments fall within the ambit of the CEA and are subject to the exclusive statutory authority of the CFTC.
In May 1998 the CFTC issued a 'concept release' requesting comment on whether regulation of OTC derivatives markets was appropriate and, if so, what form such regulation should take. Legislation enacted in 1999 at the request of the US Treasury, the Federal Reserve Board, and the SEC limited the CFTC's rulemaking authority with respect to swaps and hybrid instruments until March 30, 1999, and froze the pre-existing legal status of swap agreements and hybrid instruments entered into in reliance on the 'Swap Exemption', the 'Hybrid Instrument Rule', the 'Swap Policy Statement, or the 'Hybrid Interpretation'. The text of that act read: "...the Commission may not propose or issue any rule or regulation, or issue any interpretation or policy statement, that restricts or regulates activity in a qualifying hybrid instrument or swap agreement". Shortly after Congress had passed this legislation prohibiting CFTC from regulating derivatives, Born resigned. She later commented the failure of Long-Term Capital Management and the subsequent bailout as being indicative what she had been trying to prevent.
In March 2014 the CFTC acknowledged it was considering the regulation of Bitcoin. The CFTC has since taken the position that Bitcoin is a commodity under the CEA. In October 2019, former CFTC Chairman Heath Tarbert, now Chief Legal Officer of Citadel Securities, declared that ether was also a commodity under the CEA.
In 2015, the CFTC ruled that for purposes of trading, cryptocurrencies were legally classified as commodities. However, in view of market volatility and other factors, the CFTC noted several risks associated with trading virtual currencies. In 2017, the CFTC cited the US SEC's warning against digital token sales and initial coin offerings (ICOs) that can "improperly entice investors with promises of high returns". In recent years, the CFTC has expanded its efforts to civilly prosecute fraud and misappropriation in the digital asset markets.
Based in Washington, D.C., the CFTC maintains regional offices in Chicago, New York and Kansas City, Missouri. The Commission consists of five Commissioners appointed by the President of the United States to serve staggered five-year terms. The President, with the consent of the United States Senate, designates one of the commissioners to serve as chairman. No more than three commissioners at any one time may be from the same political party.
The Division of Enforcement (DOE) investigates and prosecutes alleged violations of the Commodity Exchange Act and CFTC regulations. Violations may involve commodity futures or option trading on domestic commodity exchanges, or the improper marketing of commodity investments. The Division may, at the direction of the Commission, file complaints before the agency's administrative law judges or in the U.S. District Courts. Alleged criminal violations of the Commodity Exchange Act or violations of other Federal laws which involve commodity futures trading may be referred to the Justice Department for prosecution. The Division also provides expert help and technical assistance with case development and trials to U.S. Attorneys' Offices, other Federal and state regulators, and international authorities.
The Division of Market Oversight (DMO) has regulatory responsibility for initial recognition and continuing oversight of trade execution facilities, including new registered futures exchanges, swap execution facilities, and swap data repositories. The regulatory functions of the Division include, among other things, rule enforcement reviews, reviews of new products and product- and market-related rule amendments, and associated product and market-related studies. The Division was previously responsible for market and trade practice surveillance.
Formerly known as the Division of Swap Dealer and Intermediary Oversight, the Market Participants Division (MPD) primarily oversees derivatives market intermediaries, including commodity pool operators, commodity trading advisors, futures commission merchants, introducing brokers, major swap participants, retail foreign exchange dealers, and swap dealers, as well as designated self-regulatory organizations. MPD conducts the registration, compliance, and business conduct standards of intermediaries, swap dealers and major swap participants. The division also oversees the agency's customer education initiatives.
The Division of Clearing and Risk (DCR) oversees derivatives clearing organizations (DCOs) and other market participants in the clearing process. These include futures commission merchants, swap dealers, major swap participants, and large traders. DCR monitors the clearing of futures, options on futures, and swaps by DCOs, assesses DCO compliance with Commission regulations, and conducts risk assessment and surveillance. DCR also makes recommendations on DCO applications and eligibility, rule submissions, and which types of swaps should be cleared. As of 2019, Clark Hutchison serves as Director of the Division of Clearing and Risk.
Unlike the other four main financial regulators, the CFTC does not have self-funding. A transaction fee has been "requested" for several years but Congress has not taken any legislative action. During the government shut down in October 2013, SEC and Federal Reserve stayed open, but "futures and most swaps markets were left with essentially no cop on the beat".
In 2007, the CFTC's budget was $98 million and it had 437 full-time equivalent employees (FTEs). After 2008, funding increased by 80% to $205 million and 687 FTEs for fiscal year (FY) 2012, but was cut to $180.4 million and 682 FTEs for FY 2013. In 2013 CFTC's performance was severely affected by limited resources and had to delay cases. The current, FY 2014 funding of $215 M did not keep up with CFTC's increasing swaps market oversight and regulation, equivalent to tens of trillions of dollars in formerly dark market trading, according to outgoing Commissioner Bart Chilton in his last speech. The Obama administration's latest budget proposal for FY 2015 requested $280 M, which is $35 M less than the request for the previous year, and would fund "100 less employees than we need" per Chilton, who called the budget "woefully insufficient" for CFTC's more than 40-fold increased purview. In February 2014, Commissioner Scott D. O'Malia dissented from the FY 2014 spending plan saying that it did not allocate enough funding to new technology investments, but allocated too much to swap dealer oversight, duplicating the work of the self-regulatory National Futures Association. In March he dissented from the FY 2015 budget request stating CFTC "makes an unrealistic request for new staff and funding in this budget request without a firm understanding of its mission priorities, specific goals, and corresponding personnel and technology needs."
In December 2019, the CFTC secured funding of $284 million for FY2020, an increase of nearly 6 percent from the $268 million appropriated for FY2019. Chairman Tarbert commented that this "fully matched" the CFTC's request, the first time that had happened in "nearly a decade."
