U.S. Commodities Futures Trading Commission Chairman Gary Gensler said his agency isn’t fully prepared to cope with demands imposed by the Dodd-Frank Act and that he needs more resources to handle the rulemaking burden and broader surveillance after the May 6 stock-market crash.
“The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded role,” Gensler said today in testimony prepared for a Senate hearing in Washington where he testified along with Mary Schapiro, chairman of the Securities and Exchange Commission.
Senators Jack Reed of Rhode Island and Carl Levin of Michigan, both Democrats, called the joint subcommittee hearing to examine steps the regulators have taken in leading the U.S. response to the May 6 plunge that briefly erased $862 billion of stock value in less than 20 minutes before markets recovered.
Lawmakers want to “examine what tools and resources regulators need to keep up with an increasingly complex and high-speed marketplace that includes high-frequency trading and other computerized trading strategies,” said Reed, chairman of the Senate Banking Committee’s capital markets panel, in a statement released yesterday.
The CFTC doesn’t have enough money or staff to expand its safeguards against market disruptions while writing the new rules dictated by the financial-regulation overhaul enacted in July, Gensler said in his statement. Full implementation of Dodd-Frank requirements will require 400 additional staff members, he said.
Schapiro said the SEC is similarly hampered in its efforts to keep up with modern markets increasingly dominated by high- speed traders.
“The commission’s tools for collecting data and surveilling our markets do not incorporate the technology currently used by those we regulate,” Schapiro said in her prepared remarks.
Reed’s banking panel and Levin’s Permanent Subcommittee on Investigations are holding the hearing seven months after the May 6 crash, in which the Dow Jones Industrial Average fell 9.2 percent before recovering most of the loss by the end of trading. Schapiro and Gensler appeared at a House Financial Services Committee hearing on May 11, pledging to implement “circuit breakers” to shut down trading in periods of market stress.
In addition to a circuit-breaker pilot program, regulators have restricted use of “stub quotes” -- placeholder trades at prices far outside of current prices that aren’t intended to be completed.
Reed and Levin said they are weighing additional measures, including cross-market and cross-product circuit breakers, deeper disclosure of transactions and consolidating trading data from multiple venues.
“It is urgent that we introduce additional safeguards as well as strengthen oversight of our fractured markets to restore investor confidence,” Levin said in a statement.
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