Concern grows over inadequate funding of commodities trading regulator

By Jeremy Grant
Financial Times, London
Sunday, March 11, 2007

http://www.ft.com/cms/s/2b51ab1c-cfdc-11db-94cb-000b5df10621.html

WASHINGTON -- Concern that US regulators may be too financially stretched to continue adequately to oversee the booming futures markets was thrown into focus on Friday when a top Democrat promised to investigate the issue.

Richard Durbin, senate majority whip, said he was concerned that a request by the White House to raise the budget of the Commodity Futures Trading Commission (CFTC) to $116m in fiscal 2008, from a current $98m, may not be enough to allow the regulator to continue being "the cop on the beat."

"I'm worried that this budget will not give you this capability and we'll take a close look," Mr Durbin said at an inaugural hearing of a new senate finance appropriations sub-committee that he chairs.

The futures regulator has struggled to maintain its enforcement and market surveillance functions as the volume of US futures trading has tripled in the last six years.

The CFTC's staff has fallen by 10 per cent since 1976, shortly after it was formed and is now at its lowest level ever, at 458.

By contrast, staff levels at the Securities and Exchange Commission, which oversees stock and options markets, grew by 73 per cent over the same period. Its staff is around 3,550.

Mr Durbin said: "When I see the staffing levels that you are struggling with in comparison to other agencies with similar responsibilities, and the problems that you face in developing the technology and capability to keep up with market changes I'm very concerned."

Reuben Jeffery, CFTC chairman, said that staff were "stretched" due to the complexity of the markets and a hiring freeze in place since late 2005.

At the time the CFTC was founded, agricultural futures accounted for the bulk of futures traded. But since then an array of complex financial futures has been developed, mostly in Chicago, with such instruments accounting for 82 per cent of all US futures traded.

Mr Durbin said such figures made "a compelling case" as to whether or not the CFTC was "prepared to really meet this vast increase in volume and sophistication in the trading mechanisms uses to trade these instruments."

Mr Jeffery said that of the $17 million increase requested by the administration, $15 million would be needed "simply to maintain current levels of operating activity" -- such as paying for built-in salary increases and building rental.

"Were Congress to appropriate $116 million this year that helps us maintain current levels, modestly increase our capabilities in certain areas but it should be viewed as a beginning not an end in addressing what has been a steady erosion in our capabilities over the course of the past several years," Mr Jeffery said.

Mr Durbin recently shifted senate appropriations for the CFTC to his new committee from a senate agriculture committee. The Illinois senator has close ties with the Chicago Mercantile Exchange and Chicago Board of Trade, both of which are large donors to the Illinois congressional delegation.

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