Congress has reauthorized the Commodity Futures Trading Commission seven times since its creation in 1974. While reauthorization has been the focus of past political debate, particularly the Commodity Futures Modernization Act of 2000, extending the CFTC’s governing laws has never been more important than right now.
Commodity Exchange Act reauthorization removes a source of uncertainty and instability and allows the commission and its staff to focus more squarely on carrying out its mission: to protect market participants and the public from fraud, manipulation, abusive practices and systemic risk, and to foster transparent, open, competitive and financially sound markets in the futures, options and swap markets under its jurisdiction.
Reauthorization is important because the CFTC is in a state of transition. In the last year, the CFTC has witnessed the departure of its chairman and three other commissioners. In June, a new chairman and two commissioners were confirmed by the Senate. At the same time, after several years of being overworked and understaffed, many key senior staff have retired or transitioned to the private sector.
The CFTC’s regulatory reach extends further than ever before. With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC’s jurisdiction now extends beyond futures and options markets and now includes swaps markets, one of the sources of the 2008 financial crisis.
Uncertain Congressional support of the CEA compromises the CFTC’s confidence in effectively overseeing the complex, systemically important derivatives markets and their participants. Market participants depend on regulators to provide certainty. Legislative inaction introduces uncertainty at a time when significant resources are being deployed to ensure regulatory compliance.
Further, the commission finds itself in the middle of a Congressional budget battle. The House and Senate have different views on how to fund the agency, which has recently operated on a budget of just over $200 million. This debate is not just about how much money is needed, but also how to spend it. Issues related to the allocation of resources, particularly technology, are being debated as the CFTC increases its capabilities to monitor swaps activity and track high frequency trading.
Finally, Congress should recognize that financial regulation is a global effort, reflecting the interconnected nature of financial markets. The CFTC has moved quickly to implement the Pittsburgh G20 resolutions. As other jurisdictions adopt their rules, reauthorization enhances the CFTC’s leadership to ensure harmonized international regulation.
The CFTC must be perceived to have a full complement of authorities to carry out its many responsibilities. Congressional action ensures that American companies have access to well-regulated, competitive, transparent, and stable U.S. financial markets. Congress, through reauthorization, sends a bipartisan message that it recognizes the importance of these markets and supports the CFTC’s critical oversight role.
Dunn is former CFTC acting chairman and commissioner. Shilts is former director, CFTC Division of Market Oversight. They are both senior policy advisers at Squire Patton Boggs. Kulkin is senior associate at Squire Patton Boggs.