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Justification of Increase: Data Acquisition, Analytics and Surveillance

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Data Acquisition, Analytics and Surveillance (65 FTE, $22.215 million)

Swap data acquisition and analytics for oversight and surveillance

This activity, coupled with any follow-on enforcement actions, represents the core of the Commission’s expanded mandate.  The Commission has identified a need for 25 FTE to oversee the recordkeeping and reporting requirements applied to swap market participants and the management and analysis of swaps data that would be reported to swap data repositories.  These staff will conduct information analysis; use economic analysis to develop requirements and data rules; develop and maintain CFTC summaries and aggregation of swap repository data; report on findings; define business data and process requirements; audit data submission quality; and assess reporting compliance.  They will also review and update data reporting standards; govern information policies and standards; manage data taxonomies, dictionaries and inventories; manage information quality and confidentiality; direct external information requests and data rulemaking; steward master data and reference data; manage Commission dashboards and views of swap repository data; and provide data mining and analysis support.  And they will deploy and maintain data systems and data analytics tools; implement and maintain direct access, data transfer, and data loading between the Commission and data repositories; and deploy information quality and confidentiality controls.

It is anticipated that the Commission will leverage existing repositories wherever possible. The standardized data sets that will be submitted to CFTC are expected to represent only the subset of data required for internal analysis and aggregation purposes. In FY 2012, the Commission will be implementing direct access to external swap data repositories for the purposes of market oversight activities, but to also further define data submission requirements for standardized data feeds. The Commission anticipates defining the data standards across multiple data categories including: position data, transaction data, and reference data. Once defined, the Commission will work with industry participants on the application and testing of those standards to their data submission processes. Similarly, the Commission will be developing software to load swaps data into a Commission data warehouse for use by CFTC staff for market surveillance, risk monitoring, enforcement, and economic analysis. The Commission anticipates that it will conduct data analysis, working with industry to define data standards, and develop data loading software to support Commission systems for swaps data.

The CFTC has looked for efficiencies in carrying out its surveillance obligations. In that regard, the market surveillance (monitoring of positions) and trade practice surveillance (monitoring of trading activity) have been consolidated into a single branch.  Combining these functions will achieve synergies that will make the CFTC’s surveillance efforts more effective with available staff. Staff will be better able to address violations that blur the distinction between market and trade practice surveillance and staff can readily be shifted to evaluation of emerging issues, to work on reviews of potential violations, and to work with enforcement staff in the prosecution of violations.

Additional capabilities will also be required to support swaps position and transaction surveillance, enhancing surveillance systems to collect and incorporate that data into analyses covering both swaps and futures markets. The Commission anticipates developing automated surveillance capabilities by building new models to generate alerts, thereby facilitating market and financial surveillance. The Commission also anticipates needing to modify its large trader reporting and financial and risk surveillance systems to support new swaps data analysis, internal reporting requirements, and transparency reporting on the website. (25 FTE, $9.435 million)

Aggregate Position Limits

The Commission is requesting additional staffing to monitor aggregate position limits adopted by the Commission; manage the hedge exemption process and evaluate the effectiveness of limits adopted and consider whether any modifications are warranted.  The Commission will begin collecting commodity swap positions in future equivalent standards in FY 2012.  Once data is collected, modifications will need to be made to the existing surveillance reports and new or modified surveillance processes will need to be developed.  In addition, alerts will be written to notify staff when position limits have been violated and incorporated into the business process for surveillance.  The CFTC will seek to acquire or develop a system that will support the analysis and monitoring of position limits and hedge exemptions, aggregating futures positions with enumerated commodity swap positions, and develop surveillance processes that combine swaps, futures and options for intra-day and end-of-day position limits surveillance. (15 FTE, $4.715 million)

Order message data

In the support of market surveillance in the futures industry, a project to define order message standards and data loading procedures is anticipated by the Commission. Order message data is needed in order to analyze for disruptive trading activities, such as when a market participant places multiple orders into the market that are not filled but impact market prices. Without order message data, the Commission is not able to conduct such pre-trade market analyses on a routine or automated basis. The ability to conduct additional automated market surveillance activities, such as identifying withheld orders, is impaired by this lack of data. Access to order message data will improve the quality and scope of economic analysis for surveillance, compliance, and enforcement activities by providing transparency into the entire lifecycle of trades. The Commission will define the data requirements for order messages and begin developing data loading software in FY 2012. We anticipate phasing the receipt of data by industry participant and also phasing by subset of data based on surveillance priorities. (2 FTE; $2.980 million)

Electronic Forms

The CFTC needs to develop the capability to receive electronic forms from traders, reporting firms, and exchanges.  Currently, the process is managed by the receipt of paper forms that require a significant manual process to ingest into CFTC systems.  It is anticipated that automating this process through the receipt of electronic forms will improve data quality while decreasing the cost of ingesting the information.  Electronic implementations of CFTC Form 102 and Form 40, which collect account and trader identification data, will be initiated in FY 2012. CFTC anticipates continuing the phased deployment of these and other electronic forms on the website in FY 2013 to allow direct submission of forms data to facilitate straight-through processing into internal Commission systems. (3 FTE, -$0.275 million).  This transition will include an increase in FTE and a small offset in overall funding.

Risk Surveillance of futures, options and cleared swaps

The CFTC will have to conduct risk surveillance of futures and options and cleared swaps.  It is estimated that the notional value of cleared swaps that will require surveillance is about seven times that of futures and options.  This responsibility will be discharged through the use of automated surveillance systems and applications and other risk assessment tools to assess, evaluate and report financial and market risk and risk management procedures at DCOs, clearing futures commission merchants, non-futures commission merchant clearing participants, and other market participants that may pose a risk to the clearing process, including swap dealers, major swap participants, and large traders. Current financial and risk surveillance systems will be modified to monitor volatility, variation margin, and increased financial reporting. The Commission anticipates that it will require six teams to discharge this responsibility in a comprehensive manner. Risk surveillance will approximately be divided by asset class, e.g., interest rates (eight FTE), equity index products (four FTE), foreign currencies (four FTE), broad-based index CDs (eight FTE), agricultural products (two FTE), energy products (six FTE), and metals products (two FTE).   The Commission currently has 23 FTE performing this function and seeks an additional 10 FTE in FY 2013.

The Commission’s current financial and risk surveillance applications were designed to address futures and options on futures products.  Unlike futures margin setting where each DCO uses the same application to margin positions, each DCO margining swaps positions will be using a unique margin methodology and a unique way to stress test positions. Futures and swaps risk management software will be implemented to enable the CFTC to analyze margin requirements; determine price impact on portfolios; conduct margin trend analyses and back testing; and stress test swaps positions - including interest rate swaps, energy swaps and credit default swaps. To support this expansion of capabilities, the Commission requires an additional three FTE and a technology investment of an estimated $0.460 million (13 FTE, $3.645 million)

Capital, Margin and Segregation requirements for intermediaries

The capital, margin, and segregation level of effort is currently eight FTE.  The staff is responsible for responding to requests for guidance or informal interpretation of the Commission’s capital, segregation, and financial reporting regulations.  In addition, staff also provide guidance and interpretation on the financial reporting and capital requirements for retail foreign exchange dealers, and provide guidance on the financial reporting requirements imposed upon commodity pool operators.  The staff also provides guidance on the applicability of generally accepted accounting principles to the regulatory accounting requirements of futures commission merchants, introducing brokers and commodity pool annual reports.  Staff further provides assistance and technical support in the analysis of potential regulatory violations and other issues.

The Commission requests an additional seven FTE in FY 2013 to respond to requests for clarification, guidance, and interpretation promptly and completely.  The Commission further anticipates that revised or new regulations will be necessary after the implementation of the proposed regulations to address issues that were not foreseen in the original rule proposals.  Finally, additional FTE are necessary for the Commission to respond to the anticipated requests of numerous major swap participants and swap dealers to compute both initial margin and market risk and credit risk capital charges using proprietary mathematical models.  After the initial review and assessment of such models, staff will be required to perform periodic reviews of such models to assess their performance.

While of limited scope in FY 2013, the Commission anticipates a major effort in 2014 to review bank entities that are registered with the Commission to assess their compliance with certain restrictions or limitations on proprietary trading and investments in hedge funds (i.e., the Volcker Rule). (7 FTE, $1.715 million)


Organizationally, the Commission’s increases related to data acquisition, analytics, and surveillance will support the requirements of five program areas:

Data Acquisition, Analytics, and Surveillance Increases by Program
($ in thousands)
Program FTE Pay
Chief Economist 4.00 $980 $0 $980
Clearing and Risk 10.00 2,450 0 2,450
Data and Technology 19.00 4,655 6,290 10,945
Market Oversight 26.00 6,370 0 6,370
Swap Dealer and Intermediary Oversight 6.00 1,470 0 1,470
Total 65.00 $15,925 $6,290 $22,215

Data Acquisition, Analytics, and Surveillance Increases by Program
Program Percentage
Chief Economist 4%
Clearing and Risk 11%
Data and Technology 49%
Market Oversight 29%
Swap Dealer and Intermediary Oversight 7%


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