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From Securities Regulation Daily, April 12, 2013

House Panel Holds Hearing on CFTC Budget against Backdrop of President’s Call for Increase in FY 2014 Budget

The President’s FY 2014 budget calls for $1.6 billion for the SEC, about $350 million more than the agency’s current funding level, and a budget of $315 million for the CFTC, about $100 million more than the agency’s current funding level. The House Subcommittee on Agriculture and Related Agencies of the House Appropriations Committee held a hearing on the CFTC proposed budget. CFTC Chair Gary Gensler testified that, while the percentage increase of 52 percent in the Commission’s budget seems high, the dollar amount is not that high because the CFTC is a relatively small agency.

Subcommittee Chair Robert Aderholt (R-ALA) expressed concern that Congress has in the past few years ring-fenced funds for technology improvements at the Commission and the CFTC has used part of those funds for staff and other purposes. Rep. Sam Farr (D-CA) said that Congress will have to meet the CFTC’s budget request since there is too much at stake, adding that effectively regulating the financial markets is part of national security.

A number of subcommittee members took the opportunity to question the CFTC officials about the Commission’s approach to cross-border regulation of OTC derivatives and a perceived failure to act in coordination with the SEC. Rep. Sanford Bishop (D-GA) asked why the CFTC and SEC have not issued joint regulations on cross-border derivatives instead of acting separately.

Chairman Gensler replied that the cross-order application of derivatives regulations is critical because risk knows no geographic boundaries. He said that to do joint rulemaking with the SEC in this area would be saying that the CFTC will not be covering all offshore jurisdictions. In addition, he pointed out that Dodd-Frank provisions dealing with swaps and the extraterritorial reach of regulation are different from those dealing with security-based swaps. Chairman Gensler said that the CFTC has had tremendous coordination with the SEC on cross-border derivatives issues, participating together through IOSCO, but that there will be some differences because the markets are different and the law is different.

The CFTC has issued proposed guidance on cross-border derivatives regulation, while the SEC said that it will proceed through the formal rulemaking process. Rep. Kevin Yoder (R-KN) questioned why the CFTC used guidance as opposed to rulemaking for cross-border derivatives.

Chairman Gensler also testified that market participants asked the CFTC to issue guidance on the application of cross-border derivatives regulation. The Commission decided to put the guidance out to public comment and got an enormous response. The CFTC did not have to seek public comment on the guidance, noted Chairman Gensler, adding that the Commission is using the Administrative Procedure Act in doing this guidance.

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