The Commission’s new responsibilities under Dodd-Frank significantly increase its workload. By the end of Fiscal Year 2011, if under a year-long Continuing Resolution, the Commission will use approximately 667 FTEs, which is 78 below the 745 FTE required to carry out our pre-Dodd-Frank authorities. To fully implement the Dodd-Frank reforms, the Commission will require an additional 238 FTE in FY 2012 and 160 FTE in FY 2013.
The 398 FTE will permit the Commission to implement reforms that, among other changes, require: 1) swap dealers and major swap participants to register and come under comprehensive regulation ─ including capital and margin requirements, business conduct standards and record-keeping and reporting requirements; 2) ensure that dealers and major swap participants bring their clearable swaps into central clearinghouses; 3) require dealers and major swap participants to use transparent trading venues for their clearable swaps; and 4) provide the CFTC with authority to impose position limits in the swaps markets.
Establishing and Staffing a New Swap Dealer and Intermediary Oversight Program. The Dodd-Frank Act creates two new categories of registrants: “swap dealer” and “major swap participant.” Staff will be needed to register these entities as well as regulate them for capital and margin requirements, robust business conduct standards and record-keeping and reporting requirements. To effectively oversee swap dealers and major swap participants, the CFTC will create a new oversight program for these registrants and all other intermediaries that are currently required to be registered with the CFTC. These include FCMs, introducing brokers (IBs), retail foreign exchange dealers (RFEDs), commodity pool operators (CPOs), commodity trading advisors (CTAs) and their associated persons (APs).
Initial estimates are that there could be approximately 300 entities – compared to 127 FCMs that are currently registered with the Commission (though other intermediaries are registered with the Commission, such as CTAs and CPOs, the Commission only reviews FCMs due to resource constraints) – that will seek to register as swap dealers, FCMs or RFEDs. This includes:
A total increase of 60 FTE is requested for the new Swap Dealer and Intermediary Oversight Program, consisting of increases of 30 FTE in FY 2012 and 30 FTE in FY 2013. When fully staffed in FY 2013, the Commission will have 142 FTE allocated for this oversight program. The requested FTE resources will be essential to fulfill significant responsibilities related to registrants.
Clearing of Standardized Swaps through CFTC registered Derivatives Clearing Organizations. The Dodd-Frank Act requires that standardized swaps be cleared through CFTC registered DCOs. Clearing has lowered risk in the futures marketplace since the 1890s. A total increase of 70 FTE is requested for clearing oversight and risk surveillance, consisting of increases of 30 FTE in FY 2012 and 40 FTE in FY 2013. When fully staffed in FY 2013, the Commission will have 110 FTE allocated to the Clearing Policy and Risk Surveillance subprogram, including overseeing the clearing of standardized swaps through registered DCOs. As of September 30, 2010, the Commission has 48 FTE allocated to clearing oversight and the risk surveillance. The requested FTE resources will be essential to fulfill responsibilities related to clearing.
Oversight of Swap Execution Facilities and Swaps Trading on Designated Contract Markets. The Commission will need additional staff to implement many new provisions related to the oversight of swaps trading activity. These include procedures for the review and oversight of an entirely new regulated market category, SEFs. Staff in the Market and Product Review and Market Compliance units must establish and implement procedures for the review of new SEF applications and for the annual examination of the operations of SEFs. The Commission is requesting a total of 62 FTE to fulfill its pre- Dodd-Frank responsibilities. A total of 56 FTE are requested to implement new Dodd-Frank Authorities. This includes an additional 38 FTE for FY 2012 and an additional 18 FTE for FY 2013.
Market Surveillance, Position Limits and Swap Data Repositories. The Dodd-Frank Act substantially expanded the responsibilities of the CFTC’s Market Surveillance Unit in a number of critical ways. The Commission requests a total increase of 49 FTE to implement these new authorities. This includes an increase of 42 FTE in FY 2012 and seven (7) FTE in FY 2013. The Commission is also requesting 105 FTE to carry out its pre- Dodd-Frank authorities in the areas of market surveillance, trade practice surveillance, and data management and analysis responsibilities.
Regulating Foreign Boards of Trade. Currently, the Chief Counsel’s Office in the Commission’s Division of Market Oversight has a single FTE dedicated to the processing of no-action requests from foreign boards of trade (FBOTs) seeking to permit direct access to their trading platforms by members based in the United States. The Dodd-Frank Act’s establishment of the new category of registered FBOTs requires an increase of four (4) FTE dedicated to FBOT matters to raise the total FTE to five (5) FTE. This includes an increase of two (2) FTE in FY 2012 and two (2) FTE in FY 2013. The Dodd-Frank Act’s creation of a new registered FBOT category will obviate the need for the current FBOT no-action letter program, but the substantive requirements that will be imposed on Registered FBOTs will likely be more robust than the requirements imposed under the no-action regime. Currently, 20 FBOTs operate in the United States based upon no-action letters dating back to 1999. The Commission expects at least that number of FBOTs will apply to register upon the implementation of the Registered FBOT regulations, plus an additional six (6) to 10 FBOTs who have recently expressed an interest in becoming registered.
Enhanced Enforcement Authority. The Commission’s Enforcement program is operating with a projected FTE count of 167 for the fiscal year ending September 30, 2011. This is 99 FTE less than the 266 positions required to fully and effectively implement the Commission’s Dodd-Frank enforcement authorities and 33 fewer than needed to optimally execute mission-critical, pre-Dodd Frank enforcement activities. As indicated earlier in this summary, the reforms of the Dodd-Frank Act significantly enhance and expand the Commission’s powers and responsibility to police the markets for fraud, manipulation and other abuses, and will result in a substantial increase in the Commission’s workload. Of the 99 additional FTE required by the Enforcement program in order to meet pre-Dodd Frank performance goals as well as implement the new authorities of the Dodd-Frank Act, the Commission is requesting 68 FTE in FY 2012, and will defer its request for the 31 FTE balance until FY 2013.
Modernization of Information Technology. The Commission’s $66 million budget request allocates $25 million for Dodd-Frank implementation. This request builds upon the FY 2011 appropriation of $20 million for information technology; no funds were provided for Dodd-Frank implementation in the FY 2011 Continuing Resolution appropriation. For pre-Dodd-Frank information technology requirements, the Commission’s FY 2012 information technology budget request includes a $21 million increase, from $20 million in FY 2011 to $41 million in FY 2012. This increase allows the Commission to continue its focus on enhancing the Commission’s technology to keep pace with the futures marketplace by implementing:
The Dodd-Frank Act for the first time sets up a new registration category for SDRs. The bill requires registrants─ including swap dealers, major swap participants, SEF and DCMs─ to have robust record-keeping and reporting, including an audit trail, for swaps. The CFTC anticipates rules in this area to require SDRs to perform their core function of collecting and maintaining swaps data and making it directly and electronically available to regulators. The resources requested will ensure that the Commission is able to integrate its systems with swap repositories that are being established in the United States and internationally. The Commission’s capacity to study and respond to ordinary trading practices or technological trading innovations will be greatly enhanced. Specific technological objectives include:
To meet these needs, the agency is requesting an increase of 37 information technology FTE, which is an increase of 31 FTE in FY 2012 and six (6) FTE in FY 2013.
The CFTC, for the first time in its history, will need the technological capability to aggregate position and trading data across swaps and futures markets. The Commission also will need to be able to aggregate the position, trading, and other information stored in SDRs as there may be more than one SDR per asset class. The Dodd-Frank Act does not mandate any registered repository or data warehouse for such data aggregation purposes. However, the CFTC and other regulators will need a comprehensive view of the entire derivatives market, including combined futures and swaps data, to execute their mission. These aggregate capabilities include the ability to collect, store, readily access and analyze data for market surveillance, risk surveillance, enforcement, and position limit purposes.
Administrative Management and Support. The Commission is acting to enhance and restructure its management, planning and operational support to effectively service a substantially larger workforce with a broader mission. The CFTC is dedicated to improving Commission management through process standardization and optimization, which is currently underway throughout the agency. To meet these needs, the agency is requesting an increase of 31 non-technology administrative and support staff, an increase of nine (9) FTE in FY 2012 and 22 FTE in FY 2013. Although this is an increase, it represents a shrinking percentage of the agency total workforce. In FY 2010, non-IT administrative support represented 10.6 percent of FTE. The 73 administrative staff members requested for FY 2012 represents only 7.4 percent of the total workforce. The administrative support resources request responds to several needs:
Enhancing Legal Analysis. As novel and complex legal and economic issues arise in the development and application of rules to implement the Dodd-Frank Act, the Office of General Counsel will need 20 additional FTE for legal expertise in FY 2012 to support all of its programs. No increase is requested for FY 2013 over an FY 2012 level of 70.
Ensuring U.S. Interests in the Global Marketplace. The Office of International Affairs needs six (6) additional professional staff to address the increasing global reach of the futures and swaps markets. The Dodd-Frank Act specifically mandates that the Commission consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation of swaps and futures. Of the six (6) positions four (4) positions are requested for FY 2012 and two (2) for FY 2013.
Broadening Economic Analyses. Swaps vary substantially in terms of economic structure and will require expanded economic analyses. Commission staff will be challenged to meet those demands while continuing to maintain current oversight responsibilities. The Office of the Chief Economist requires seven (7) additional staff to expand the use of econometric and analytic techniques to the swaps marketplace to gauge the effects of market activities and the regulation of those activities. Of the seven (7) positions, six (6) are requested for FY 2012 and one (1) for FY 2013.
Inspector General. The Office of the Inspector General will require one (1) additional investigatory FTE in FY 2013 as a result of the increase in jurisdiction and staffing resulting from the enactment the Dodd-Frank Act. No increase is requested for FY 2012.
Continuing Current Service Level. The CFTC requires additional resources to provide a continuation of the FY 2011 service levels into FY 2012 for pre-Dodd-Frank authorities, which include: