Obama proposal for CFTC fees draws cheers, brickbats

As Republicans seek major cuts in Commodity Futures Trading Commission, plan to dun users to pay for regulation pleases consumer groups but not industry.

With Republicans pushing to cut appropriations for the Commodity Futures Trading Commission, the proposal in President Obama's fiscal 2012 budget to help fund the agency by imposing new fees on regulated entities is drawing mixed reviews.

Under the fiscal 2011 spending bill that the House passed early Saturday morning, CFTC's budget would be cut by nearly a third from fiscal 2010 levels, to $112 million.

Obama's budget proposes new legislation to allow CFTC to collect $117 million in user fees, which would significantly offset the cost of his proposed funding increase of $140 million over the agency's 2010 level.

The funding boost would help CFTC take on new regulatory responsibilities given it under the Wall Street Reform and Consumer Protection Act, the budget documents said. Specifically, CFTC is expected to implement new regulations overseeing the complicated swap market, which specialists say is seven times larger than the futures market CFTC already oversees.

Chairman Gary Gensler in the detailed CFTC budget warned legislators that unless the agency's funding increases, it will be unable to effectively fulfill its missions. "To take on the challenges of our expanded mission, we will need significantly more staff resources and -- very importantly -- significantly more resources for technology," he said in testimony on Feb. 15 to the House Financial Services Committee. Under the president's budget, CFTC's staff would grow nearly 50 percent, from 605 in fiscal 2010 to 983 employees.

Since Obama's budget was released on Feb. 14, however, financial groups have come out against the new fees, saying they would add more costs to an industry already dealing with new rules enacted under the financial reform law.

The fees would "place additional costs on market participants, which will inevitably filter down to customers," said Andrew DeSouza, a spokesman for the Securities Industry and Financial Markets Association. "Additional funding should be sought through the appropriations process."

Michael Shore, associate director of communications at CME Group, owner of the world's largest derivatives market, called the fees a "transaction tax" that would push the derivatives industry to relocate overseas.

But some consumer advocacy groups are supporting the bill in part because the fees would provide potentially stable funding for CFTC.

Tracy Stewart, executive director of the Shareowner Education Network, an advocacy group for retail investors, said, "We hope the fact that user fees don't impact the budget deficit would also insulate them somewhat from cuts such as those we are seeing now."

Senate Banking, Housing and Urban Affairs Committee Chairman Tim Johnson, D-S.D., declined to comment on the fee proposal, but said in a statement: "The success of the Wall Street reform law will depend on vigilant oversight and enforcement, which means adequate funding for agencies like the [Securities and Exchange Commission] and the CFTC. As the budget process moves forward, I will continue to do all I can to ensure that these agencies get the funding they need -- and that investors and consumers get the protections they deserve.