Derivatives Would Face Transaction Fees Under Obama Proposal

Derivatives would face new transaction fees to pay for the U.S. Commodity Futures Trading Commission budget under a proposal President Barack Obama’s administration submitted to Congress.

The CFTC, starting in the 2014 fiscal year, would set a fee for futures, options on commodities, and swaps to fund the agency, according to the proposal that Democratic CFTC member Bart Chilton said the Office of Management and Budget sent yesterday to House and Senate lawmakers. Firms using the derivatives to hedge business risks would be exempt from the charges under the plan. Congress would need to pass legislation setting a fee before it could take effect.

The fee is necessary to ensure the CFTC has adequate resources to oversee derivatives markets, Chilton said yesterday in a letter to Congress supporting the proposal. “A targeted transaction fee (one exempting end-users) can remedy these dire circumstances,” Chilton said in the letter.

Terrence Duffy, executive chairman of CME Group Inc., operator of the world’s largest futures exchange, has opposed setting a fee on transactions to fund the agency.

“Imposing this new tax would also increase the cost of business for all customers, even those the administration wants to exempt, because it would reduce liquidity, increase volatility, and impair the efficient use of U.S. futures markets,” Duffy said in July 17 testimony at the Senate Agriculture Committee.

The CFTC is implementing Dodd-Frank Act requirements that are designed to reduce risk and increase transparency in the swaps market after largely unregulated trades helped fuel the 2008 credit crisis. The agency’s budget is currently $195 million, Gensler said in testimony in July. Obama has requested an increase in the budget to $315 million for fiscal year 2014.

OMB spokesmen didn’t immediately respond to a request for comment.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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