The Commodity Futures Trading Commission (CFTC) is constructing a new plan to address the unmanageable flood of poor quality trading data that hamstrings its ability to properly monitor market risk. The Commission will release a draft of its plan next week, which seeks to improve the quality of this data, said Commissioner Scott O’Malia on Thursday.
The CFTC has struggled in its regulatory mission since the Dodd-Frank Act expanded the Commission’s role following the 2008 financial crisis. Notably, the Act charged the CFTC with reforming the over $400 trillion swaps market, which was previously unregulated. Since reporting requirements kicked in a year ago, the resulting data has swamped the Commission’s computers.
Inadequate funding is also to blame for the CFTC’s struggles. The Commission, which is responsible for policing the futures, commodities, and $700 trillion over-the-counter derivatives markets, must survive on a paltry $215 million budget this year. Moreover, although President Obama requested that Congress increase the CFTC’s budget to $280 million in 2015, this number still falls short of last year’s funding request.
The recent collapses of futures brokers Peregrine Financial Group and MF Global highlight the Commission’s current inability to introduce full transparency or adequately regulate these markets. According to Mark Wetjen, acting head of the CFTC, greater funding would have given the Commission a “much better chance at catching” these sort of problems, as it could only afford to employ a “handful of people” to review the complex reporting data.
As the end of Dodd Frank’s phase-in period for swap market regulation looms, devising a workable plan for reporting data has become increasingly vital. Currently, only financial institutions whose swap dealing volume exceeds $8 billion per year are subject to the new reporting requirements. However, within the next few years this threshold will drop to $3 billion, applying further pressure on the CFTC to manage an even greater flow of data.