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Justification of Increase: Reviews of Products and Rules of Operation

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Reviews of Products and Rules of Operation (41 FTE, $10.045 million)

Products and rules introduced by designated contract markets, swap execution facilities and swap data repositories

As indicated above, the Commission anticipates a surge in requests for new product approvals with the expansion of authority under the Dodd-Frank Act.  An estimated 26 FTE are required to support the increased volume of work associated with new product approval requests and certifications implementing the Core Principle 9 provisions, and reviewing novel products raising SEC and CFTC jurisdictional issues.  Staff also will be deployed to evaluate block trade threshold levels in addition to "made available for trade" determinations for swaps.

Furthermore, consistent with its current experience, the Commission anticipates numerous rule filings from registered entities that must be reviewed.  Under the Dodd-Frank Act, the rule review process will be more resource-intensive due to the more rigorous 10/90-day review track for rule submission, the increased number of registered entities, and the new or amended core principles.  Reviews to evaluate the effectiveness of rules adopted and consider whether any modifications are warranted will be on-going. Staff increases will support product reviews, reviews of new rules and rule amendments, event contracts, quarterly reports on financial resources, and rule effectiveness. Moreover, the Commission expects to evaluate event contracts under a special review process to determine if they involve prohibited activities and other DCM contracts to determine whether a sufficient proportion of trades occur on the centralized marketplace in compliance with the Core Principle 9 requirement that the price discovery process of listed contract be protected.  (26 FTE, $6.370 million)

Mandatory clearing determination

DFA imposes a new requirement on the CFTC to review, evaluate, and make a determination concerning a swap as to whether the swap should be cleared — i.e., a mandatory clearing determination — as well as evaluate the continuing qualification of the DCO to clear such a swap. As noted above, data from the Bank for International Settlements indicates that the total notional amount of over-the-counter derivatives outstanding as of the end of December 2010 is $415 trillion for interest rates; $29 trillion for credit default swaps and $2 trillion for commodities.  The Commission will deploy seven current FTE to this high-priority activity that will require the review of data relating to pricing, outstanding notional exposures, and trading liquidity. In addition, the Commission requests an additional ten FTE to support this effort. (10 FTE, $2.450 million)

Registration of derivatives clearing organizations, rules review, applications for portfolio margining

CFTC will be required to review, evaluate and make recommendations to the Commission in response to applications for registration as DCOs and in response to rule submissions submitted by them.  As noted earlier, the Commission is anticipating an increase in the number of DCOs, from 17 to 18 for the beginning of FY 2013.  Further, the Dodd-Frank Act amended the CEA to permit, pursuant to an exemption, rule or regulation, futures and options on futures to be held in a portfolio margining account that is carried as securities account and approved by the Securities and Exchange Commission, and added a reciprocal provision to the Securities Exchange Act of 1934.  The Commission also will be required to process portfolio margining applications in accordance with rules that will implement these statutory provisions. On average, these applications take about six months to one year to process. (5 FTE; $1.225 million)


Organizationally, the Commission’s increases related to reviews of products and rules of  operation will support the requirements of four program areas:

Review of Products and Rules of Operation Increases by Program
($ in thousands)
Program FTE Pay
Chief Economist 1.00 $245 $0 $245
Clearing and Risk 12.00 2,940 0 2,940
General Counsel 5.00 1,225 0 1,225
Market Oversight 23.00 5,635 0 5,635
Total 41.00 $10,045 $0 $10,045

Review of Products and Rules of Operation Increases by Program
Program Percentage
Chief Economist 3%
Clearing and Risk 29%
General Counsel 12%
Market Oversight 56%


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