Finance Industry Should Fund Swaps Oversight, CFTC’s Bowen Says

Wall Street banks and other financial firms should pay new fees to bankroll their own government oversight, according to a member of the top U.S. derivatives regulator.

Sharon Y. Bowen, a Democrat on the Commodity Futures Trading Commission, said Congress should let the agency set fees on banks and other companies that trade derivatives. Fees on firms that register with the CFTC and on specific trades would help the agency -- which says its $250 million budget is inadequate -- respond faster to industry requests, she said in testimony for a House Agriculture subcommittee hearing Tuesday.

“Such a funding rubric would have the added benefit of no longer asking American taxpayers to directly foot the bill of setting regulations on the swaps and futures markets,” Bowen said. “Our lack of resources is hampering our ability to function.”

CFTC Chairman Timothy Massad, Bowen and Commissioner Mark Wetjen, a fellow Democrat, have said the agency needs more money to handle new oversight duties granted after the 2008 financial crisis. While President Barack Obama’s administration has backed fees to finance the agency, Congress has yet to take up legislation and any effort would face stiff opposition from Republicans and the financial industry.

Terrence Duffy, executive chairman of CME Group Inc., told the agriculture committee last month that fees on the industry would raise trading costs and encourage business to go overseas.

“User-fee transaction taxes are the most penny-wise, dollar-foolish things you could ever have on an industry such as ours,” Duffy said at a March 25 hearing on the CFTC.

Swap-Execution Facilities

Bowen is set to testify Tuesday alongside Wetjen and Republican Commissioner J. Christopher Giancarlo as lawmakers consider legislation determining the scope of the CFTC’s powers.

Wetjen used his testimony to call for agency policies that encourage trading on new swap-execution facilities. He backed the agency moving forward on a policy designed to have hedge funds such as D.E. Shaw & Co. and Citadel LLC trade on the same platforms as banks without revealing their identities. Banks currently have an advantage by knowing not only the price of a trade but who’s behind it, the asset managers have said.

Giancarlo, a former executive at a swaps brokerage, said the agency’s trading regulations are too restrictive and inhibit use of the platforms. Calling the regulations “flawed,” Giancarlo said the rules should be made more flexible for the industry.

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