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From Securities Regulation Daily, March 13, 2013

CFTC Chairman Gensler Says Agency Self-Funding Not Necessary

By Lene Powell, J.D.

In an address at an annual Futures Industry Association (FIA) conference in Boca Raton, Florida, CFTC Chairman Gary Gensler said that although the CFTC was "not right-sized," he was "fine" with the current appropriations process and wants to continue working with legislators on both sides of the aisle, adding, "[t]hat's the American way."

The CFTC receives funding from Congress through a reauthorization process every five years. It does not retain any fees collected in enforcement cases, but instead must turn them over to the General Fund. Under a self-funding regime, as recently proposed to some controversy by former CFTC Chair Brooksley Born, the agency would be able to keep enforcement fees.

Chairman Gensler's remarks were in response to a question from John Damgard, former president of the FIA.

Although the chairman was not in favor of self-funding for the CFTC, he noted the agency is having resource difficulties. According to Mr. Gensler, the CFTC has 684 staff members as of last Friday, fewer than one year ago.

In response to a question asking how resource limitations would limit the agency's activities, Chairman Gensler said the agency would like to do examinations once a year and is currently unable to do so. Further, processing registration applications would suffer, as well as the staff's ability to answer hundreds of questions from industry. Finally, enforcement would be constrained, with a current staff of 158.

Dodd-Frank progress. Chairman Gensler said that, as the CFTC moves from rulewriting to implementation, regulation is now a reality. Seventy-three swap dealers are now registered, as well as two major swap participants. Required clearing of swaps transactions began two days ago, and, in that short time, over a half trillion of swaps were cleared. Still upcoming are swap dealer business conduct standards and capital and margin requirements.

Agency priorities.The agency has a number of priorities as implementation is phased in, said the chairman. First, rules must be written regarding certain pre-trade transparency initiatives, including rules for Swap Execution Facilities (SEFs) and block trade rules for swaps. Pre-trade transparency will lower costs and increase liquidity and competition, Chairman Gensler said.

Another priority is to complete cross-border guidance, the chairman said. The CFTC granted time-limited relief regarding the definition of "U.S. person" that will expire in July. In addition, the agency is working on customer protection rules and has received 125 comments on proposed rules.

LIBOR. The chairman said that, with the rate-rigging of LIBOR and related interest rate benchmarks, continuing to reference LIBOR is "unsustainable in the long run." Due to structural shifts in interbank lending, the benchmark is no longer based on observable transactions. The rate was "readily and pervasively rigged," resulting in total penalties to just three banks of $2.5 billion.

The chairman noted that LIBOR is "remarkably much more stable" than other rates, with much less volatility. During one period, on 85 percent of trading days, banks did not change their submission rate. One bank went 180 straight days without changing its rate.

Chairman Gensler said that ongoing work on principles may do little to address the basic problem of a lack of underlying transactions. There are alternatives to LIBOR, and transition plans should be put in place, he said.

TopStory: CommodityFutures Derivatives

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