March 1, 2011
Good afternoon. Thank you Commissioner O’Malia for chairing today’s meeting of the Technology Advisory Committee. I also thank Commissioner O’Malia and my fellow Commissioners, as well as the dedicated staff of the Commodity Futures Trading Commission (CFTC) for their hard work to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Lastly, I want to thank the members of the Technology Advisory Committee for participating at today’s meeting. Specifically, thank you to the Pre-Trade Functionality Subcommittee for their work in preparing the report that we will discuss today.
As I mentioned at the Joint CFTC-SEC Advisory Committee meeting on February 18, one thing that we can be quite sure of at the CFTC is that the markets we regulate will continue to advance technologically. We witnessed this with the introduction of the ticker tape in the 19th century and the first use of telephones in the early 20th century as a central quote system where market participants could get instantaneous bid and ask prices. We now regulate a futures market that has become approximately 90 percent electronically traded.
Two weeks ago, the Joint Advisory Committee delivered important recommendations to both the CFTC and the Securities Exchange Commission on ways to improve our regulatory oversight. Those recommendations related to cross-market circuit breakers, pre-trade risk safeguards, effective testing of risk management controls and supervisory requirements regarding algorithmic trading.
I look forward to today’s discussion and the report from the Pre-Trade Functionality Subcommittee. In particular, I look forward to the discussion of recommendations for trading firms, clearinghouses and exchanges to have pre-trade risk safeguards. This includes quantity limits, price collars, throttles and intraday position limits. We will post the Subcommittee’s report to our website and make it available for public comment.
Before I close, I would like to briefly mention the CFTC’s resource needs. To fulfill our statutory responsibilities to continue overseeing these markets, as well as to take on oversight of the swaps markets, the CFTC requires adequate funding. Now is the time to invest in oversight of the derivatives markets for our key commodities, including agricultural, energy and metal commodities, as well as financial products.
The futures market that the CFTC regulates has grown more than fivefold since the late 1990s to a notional value of about $40 trillion. The swaps market that the Dodd-Frank Act tasks the CFTC with regulating has a notional value of close to $300 trillion. At current funding levels of $169 million, the agency is small compared to the industry it regulates.
The CFTC’s resources are used primarily on staff and technology. We currently have 676 thoughtful, experienced and hardworking staff who are dedicated to the agency’s mission. Last year, we used about 18 percent of our budget on technology initiatives. The CFTC needs to make further investment in technology to efficiently oversee both the futures and swaps markets. Only through investment in the CFTC will we be able to adequately oversee the commodity futures and swaps markets and protect the American public.
In fiscal year 2011, faced with a continuing resolution, we have not been adding to our staff, and we’ve unfortunately had to cut back on technology. Effective oversight of the markets, though, requires that we invest in both. We need technology to pursue automated surveillance to oversee the markets. But we also need staff to process registration applications, conduct surveillance and rule enforcement reviews, investigate fraud and manipulation and perform many other functions that computers alone cannot.
The President’s fiscal year 2011 budget request had envisioned a significant increase in technology funding as well as an increase in staff. His fiscal year 2012 budget request of $308 million includes a doubling of the CFTC’s technology budget, coupled with a 45 percent increase in staff, so that we can best police the markets. I am hopeful that the CFTC will be adequately funded at the level requested by the President so that we can fulfill our mission to promote transparent, open and competitive markets. The CFTC is a cop on the beat that ensures markets in commodities and derivatives are protected from fraud, manipulation and other abuses.
Again, I’d like to thank my fellow Commissioners and the Technology Advisory Committee members for participating in today’s meeting, and specifically Commissioner O’Malia for chairing.
Last Updated: March 1, 2011