[Senate Hearing 112-]
[From the U.S. Government Publishing Office]


 
  FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL 
                               YEAR 2013 

                              ----------                              


                       WEDNESDAY, MARCH 21, 2012

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:54 p.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Richard J. Durbin (chairman) 
presiding.
    Present: Senators Durbin, Lautenberg, and Moran.

                  COMMODITY FUTURES TRADING COMMISSION

STATEMENT OF HON. GARY GENSLER, CHAIRMAN

             OPENING STATEMENT OF SENATOR RICHARD J. DURBIN

    Senator Durbin. Good afternoon. I am pleased to convene 
this kick-off hearing of the Senate Appropriations Subcommittee 
on Financial Services and General Government.
    Let me extend my apology to my colleagues first, the 
chairman, and those in attendance. This is an historic day in 
the United States Senate. Senator Barbara A. Mikulski surpasses 
the length of service in the Senate of any woman before her.
    And tributes are being given on the floor, and I joined in 
those. It took a little longer than I thought it might, and I 
hope you understand, this doesn't happen often. But we are 
honored to serve with her and joined on the floor on a 
bipartisan basis to say so. So that's the reason I'm late.
    Today, we're going to be focusing on the resource needs of 
Commodity Futures Trading Commission (CFTC). I welcome Senator 
Jerry Moran, my distinguished Ranking Member, Senator 
Lautenberg, and those others who may join us.
    Honorable Gary Gensler, Chairman of the CFTC, is joining us 
today. I've asked him to share how his agency is investing the 
$205 million in resources this fiscal year, and the challenges 
he faces in years to come.

                           PREPARED STATEMENT

    I'm going to ask consent that my opening statement be made 
part of the record, and I'm going to turn at this point to 
Senator Moran, and see if he has an opening statement.
    [The statement follows:]
            Prepared Statement of Senator Richard J. Durbin
    Good afternoon. I am pleased to convene this kick-off hearing as we 
evaluate the fiscal year 2013 funding requests of the agencies within 
the jurisdiction of the appropriations Subcommittee on Financial 
Services and General Government. Today, we will be focusing on the 
resource needs of the Commodity Futures Trading Commission (CFTC).
    I welcome my distinguished ranking member, Senator Jerry Moran, and 
other colleagues who have joined me on the dais today, and others who 
may arrive during the course of these proceedings.
    Joining us today is the Honorable Gary Gensler, Chairman of the 
CFTC. I have invited him to share how the agency is investing the $205 
million in resources provided in fiscal year 2012 and the challenges 
CFTC faces in handling its tremendously expanded responsibilities under 
tight budgetary circumstances. Chairman Gensler will also explain the 
details and rationale for CFTC's $308 million funding request for 
fiscal year 2013.
    CFTC occupies a pivotal position at the forefront of stimulating 
and sustaining economic growth and prosperity in our country--while 
protecting the marketplace from fraud and manipulation.
    CFTC carries out market surveillance, compliance, and enforcement 
programs in the futures arena. CFTC detects, deters, and punishes 
abusive trading activity and manipulation of commodity prices, which 
could have negative impacts on consumers and the economy.
    Futures market users (farmers, ranchers, and producers), financial 
investors, and the U.S. economy rely on vigilant oversight by CFTC in 
today's rapid-paced, evolving, and often volatile global marketplace.
    Adding to the challenge of CFTC's mission is a significantly 
transformed, globalized, round-the-clock, and highly diversified 
marketplace. Rapid, electronic, algorithmic trading platforms are 
replacing the traditional open-outcry trading floors.
    And with the enactment of Dodd-Frank Act financial regulatory 
reform nearly 2 years ago, CFTC's mission was substantially expanded to 
embrace oversight of the swaps marketplace--the vast ``once-in-the-
shadows'' world of over-the-counter (OTC) derivatives.
    To grasp the vast scope of CFTC's oversight responsibilities, it is 
useful to consider that the long-regulated U.S. futures marketplace 
historically policed by CFTC has a notional value of approximately $37 
trillion. That's enormous, by anyone's calculation.
    But it pales in comparison to the more complex and unregulated OTC 
swaps marketplace now coming under CFTC's purview--with a notional 
value estimated at $300 trillion--eight times the notional amount of 
the regulated futures markets.
    I am pleased that over the past several years, even with reduced 
allocations, this subcommittee has been able to substantially boost the 
funding approved for CFTC to help address pressing resource needs.
    In terms of resources in recent years, funding for CFTC has 
increased from $97.981 million in 2007 to the $205.3 million enacted 
level for fiscal year 2012. That growth represents a 110 percent hike 
in funding over 5 years. Despite the funding boosts, I acknowledge that 
this year has been particularly challenging for the CFTC, given the 
demands and timetable of Dodd-Frank Act implementation.
    Looking ahead, for fiscal year 2013, the President seeks funding of 
$308 million, an increase of nearly $103 million, or a 50 percent hike, 
more than the current year funding. This increase will support 1,015 
full-time equivalents (FTE), an additional 305 FTE, or a 43 percent 
increase in staffing, compared to the 710 current FTE level.
    I commend CFTC's initiative to organize and present its budgetary 
justification materials for fiscal year 2013 by mission activity. This 
helpful display provides a clearer window into how additional resources 
that may be made available will build upon foundational baselines of 
current spending by function. It also allows for a better assessment of 
how the performance of various activities conducted by CFTC--from exams 
to product and rules reviews, from economic analysis to registrations--
may be enhanced with the infusion of additional budget authority.
    Oversight of agencies and programs through the appropriations 
process, including public hearings like this, are an opportunity for an 
annual check-up and review of operations and spending.
    I look forward to hearing more about what CFTC has accomplished 
since our hearing last May, what resource gaps remain to be filled so 
CFTC may be a more robust and responsive regulator, and how we can help 
CFTC better perform its mission amid growing deficits and spending cut 
sentiments.
    And before turning to Senator Moran for his remarks, I would ask 
that the record reflect that, like other cyclical rites of spring--
pitchers and catchers reporting, the March Madness basketball 
tournament, and the scent of cherry blossoms in the air--we are again 
experiencing escalating gasoline prices.
    Yes, gas prices are rising. In Illinois, prices are more than $4.40 
per gallon in some areas. It's the same story every year: right before 
the summer, gas prices skyrocket. However, this year, high gas prices 
may harm our economic recovery as families needing to spend more of 
their incomes on gas have less to spend on other necessities.
    I support the President's energy policy to reduce our reliance on 
foreign sources of energy, including oil. But what can we do to ensure 
excessive speculation is not contributing to the high cost of gas in 
the short-term?
    In October 2011, CFTC adopted a rule on position limits for 28 
commodities including oil that will go into effect 60 days after CFTC 
and the Securities and Exchange Commission define the term ``swap''--an 
action CFTC expects to take in April--and after 1 year of data 
collection which should be completed in August.
    However, August is near the end of summer, so I will appreciate 
hearing about other actions CFTC can take in its oversight role of the 
oil futures market to ensure that excessive speculation is not harming 
families at the gas pump.

                    STATEMENT OF SENATOR JERRY MORAN

    Senator Moran. Mr. Chairman, I very much appreciate you 
conducting this hearing. I look forward to the Chairman's 
testimony, and I'll submit mine for purposes of speeding up the 
process, I'll submit my opening statement for the record.
    [The statement follows:]
               Prepared Statement of Senator Jerry Moran
    Chairman Durbin, thank you for calling this hearing to consider the 
fiscal year 2013 budget request for the Commodity Futures Trading 
Commission (CFTC). Welcome Chairman Gensler.
    As we review the budget submission for CFTC, I look forward to 
hearing the details of your request, your plan to carry out your core 
mission, and your efforts to implement the Dodd-Frank Act.
    Chairman Gensler, as you have said, derivative markets and 
effective oversight of those markets matter to corporations, farmers, 
homeowners, and small businesses. We all benefit from effective 
oversight that promotes fair and orderly derivative markets.
    However, to create the rules of the road necessary to the 
efficiency of such markets and to assist the businesses that are 
dependent upon them, we must also have an orderly and transparent 
process which outlines how they should work. While the financial crisis 
highlighted the need for better regulation of our financial markets, we 
must ensure that the significant cost and complexity of regulations you 
and other regulators are crafting, don't have the unintended effect of 
hampering the ability of market participants to hedge risk in a cost-
effective manner and ultimately drive capital and jobs away from the 
United States to overseas markets.
    We continue to hear concerns about the inadequacy of the cost-
benefit analysis in proposed and final rulemakings. The cost-benefit 
and application of rules must be carefully considered. Speed should not 
be valued over deliberation.
    Given the significant impact these rules will have across the 
financial industry and our economy, the rules must be justified and 
workable. Lack of sound cost-benefit analysis may also result in legal 
challenge which will lead to further uncertainty.
    The need for transparency and accountability in our financial 
markets also extends to those who regulate them. There is still a need 
for more clarity in the sequencing of the rules. Without a clearly 
understood roadmap for implementation, rather than a random mosaic of 
rules, it will be more difficult for us to be on path to a fair and 
orderly marketplace and difficult to establish appropriation 
priorities.
    This call for a roadmap is intended to foster transparency and 
broaden understanding. For any new regulatory framework to be 
effective, everyone involved must have a clear appreciation of their 
roles and responsibilities in the new system and how these changes will 
evolve in a logical sequence.
    The credibility of any regulatory framework is also critical to 
ensuring its success. I continue to be concerned by the lack of answers 
from government regulators and from MF Global about how the shortfall 
in customer funds occurred and when Kansas farmers and ranchers will be 
able to recover all of their money. There is a crisis of confidence now 
and I will continue to do what I can to ensure that the bankruptcy 
process moves as fairly and expeditiously as possible so that Kansans 
receive both answers and their money.
    Chairman Gensler, I understand that CFTC is faced with significant 
challenges in carrying out its core mission and implementing the Dodd-
Frank Act. Innovations in the financial services arena present 
regulators with increasingly complex markets to regulate. Technological 
solutions will continue to be necessary to drive cost savings and keep 
up with trading platforms and systems that operate at a record-breaking 
pace.
    However, at a time when our national debt stands at more than $15 
trillion, we cannot afford to ignore our country's fiscal reality by 
failing to make difficult decisions to address our debt and deficit 
problem. We cannot continue to address our problems by instituting new 
taxes, increasing spending, and increasing our already record debt.
    As Members of Congress, and particularly as members of the Senate 
Appropriations Committee, we have a responsibility to work to get our 
fiscal house in order. This requires us to balance important needs and 
priorities across the Government--from investing in critical medical 
research that not only saves lives but also helps create thousands of 
jobs and drives economic growth--to protecting investors, who turn to 
markets to help secure their retirements, pay for homes, and send their 
children to college.
    In accordance with the Budget Control Act signed into law last 
year, these priorities must be considered in the context of statutory 
caps on discretionary spending.
    In this environment, all Federal agencies must redouble efforts to 
achieve cost savings, work more efficiently, and make careful and 
prudent decisions based on demonstrated need as to how to best allocate 
scarce resources.
    Staffing must be managed to prevent growth to unsustainable levels. 
Agencies must make decisions on resource allocations based on CFTC's 
mission responsibilities, but also grounded in budget reality. Simply 
increasing funding does not ensure that an agency can successfully 
achieve its mission and frankly is not a realistic option given current 
fiscal constraints.
    Mr. Chairman, thank you again for calling this hearing. I look 
forward to working with you as we consider the fiscal year 2013 budget 
request of CFTC and other agencies within this subcommittee's 
jurisdiction.

    Senator Durbin. Thank you, Senator Moran. Senator 
Lautenberg, I understand you would like to make a few remarks.

                STATEMENT OF SENATOR FRANK R. LAUTENBERG

    Senator Lautenberg. Thank you, I will submit my statement 
for the record.
    [The statement follows:]
           Prepared Statement of Senator Frank R. Lautenberg
    Mr. Chairman, each week brings another reminder that our country is 
slowly--but steadily--recovering from the worst economic downturn since 
the Great Depression.
    Letting Wall Street regulate itself helped trigger this crisis, 
sending millions of Americans to the unemployment line and causing 
their retirement accounts to shrink.
    Under President Obama's leadership, we're rebuilding the economy 
from the ground up--laying a foundation that will make our country 
stronger and better prepared for the future.
    A cornerstone of this effort is the Wall Street reform law, which 
includes critical safeguards to protect the economy from another 
meltdown.
    This new law reins in the recklessness of the big banks and creates 
a watchdog to look out for consumers and make sure financial 
institutions follow the rules.
    In addition, these reforms ensure that ordinary investors get the 
information they need to make sound decisions. The law also brings the 
derivatives market out of the shadows and into the sunlight.
    Unfortunately, big Wall Street banks have again persuaded some in 
the Congress that the financial industry can regulate itself.
    And now they are trying to stop Wall Street reform by gutting 
funding for the new law.
    Make no mistake: without these new reforms and the funding to carry 
them out, Wall Street will return to its reckless ways, which will 
threaten our economic recovery and undermine our ability to create 
jobs.
    As a former CEO, I understand the need for a strong financial 
sector.
    But our top priority must be making sure our economy is never again 
threatened by the risky bets of Wall Street gamblers.
    So I look forward to hearing from Chairman Gensler about how we can 
make sure the reform law works the way it was designed and protects the 
American economy and the American people.

    Senator Durbin. Thank you, Senator Lautenberg. Chairman 
Gensler, please proceed with your testimony.

                   SUMMARY STATEMENT OF GARY GENSLER

    Mr. Gensler. Thank you, Chairman Durbin, Ranking Member 
Moran, and Senator Lautenberg.
    I'm honored to be at this hearing today that my 
distinguished Senator--Barbara A. Mikulski--is the chairman of. 
She's my Senator from Maryland and she's a terrific Senator.
    I thank you for letting me chat about CFTC's funding for 
2013. CFTC is a good investment of taxpayer dollars because it 
supports the farmers, ranchers, producers, and commercial 
companies in each of your States that rely on the futures and 
swaps markets to lock in a price and lower their risk.
    Senator Lautenberg asked as we were just about to convene, 
what is a derivative? It's basically that. It allows a 
commercial company to lock in a price so they can focus on 
something else. It used to be the locking in of the price of 
corn and wheat many, many years ago, but now it's much more 
complex, and it's locking in the interest rate.
    And as these commercial end-users in the real economy, the 
nonfinancial side, provide 94 percent of the private sector 
jobs, it's all that more important that these markets work for 
them.
    The futures and swaps markets are where commercial end-
users meet financial firms and speculators. But the producers 
and merchants that rely on these products generally make up a 
small slice of the market.
    In the oil markets, for instance, they only make up 15 to 
20 percent of the market. In the corn and wheat markets, it's 
closer to 30 percent of the market. But the other part of the 
market, the 70 to 85 percent of the market, are financial 
actors and speculators in the market.
    Same is true in the swaps market, except even more 
exaggerated. In the swaps market, worldwide statistics hold 
that about 10 percent of the market is with what we call end-
users and the other 90 percent is financial actors and the 
like.
    CFTC's role is to ensure that these markets are transparent 
and competitive and work for all market participants, but most 
importantly, it's about making sure it works for that 10, 15, 
or 30 percent which are the producers and merchants and the 
folks that are investing in our economy.
    These markets are important to another group of your 
constituents, the Americans who rely on pension funds and 
mutual funds, and community banks, and insurance companies. Why 
is this? Because of all of those use swaps and futures to hedge 
a risk or enhance an investment return in that mutual fund or 
pension fund, and the like.
    So it's crucial that CFTC is well-funded to ensure that 
Wall Street doesn't have an information advantage over the 
farmers, ranchers, and producers and other companies in your 
communities.
    I think it's also crucial that we're well-funded to lower 
the risk that Wall Street's problems will travel to your States 
and become your constituents' problems as we unfortunately 
clearly saw in 2008.
    I also think it's important that CFTC is well-funded though 
we're not a price-setting agency, and I find I'm saying that 
more often recently. Rising energy prices, once again, remind 
us of why it's crucial that there's an effective cop on the 
beat to protect against fraud, manipulation, and other abuses.
    Let me just put our funding request in context. We 
currently oversee a $37 trillion futures market. And, yet, our 
staff is just about 10 percent larger than we were in the 
1990s. The Congress has asked us to now also oversee a $300 
trillion swaps marketplace, or eight times the size of our 
futures market.
    And, if I can use an analogy of the National Football 
League (NFL), imagine if the NFL were expanded eight times. And 
there were not the number of games that we have today, but 100 
games every weekend.
    I could have used basketball, Senator Moran, but there are 
only three referees in basketball, so bear with me with a 
football analogy. If the seven referees all of a sudden didn't 
have to just referee one football game, but they had to cover 
eight football games, you can imagine what would happen on the 
field of play.
    The referees on the field do more than just call penalties 
and watch out for violations, they really protect the players, 
promote fair competition, and ultimately ensure the integrity 
of the game.
    That's very similar to what CFTC is about, in a sense. 
We're not requesting eight times the referees, but just to put 
some startling numbers in front of you. The clearinghouses, 
trading platforms, and data platforms that we currently 
oversee, total about 32. One of them, the Kansas City Board of 
Trade, we've talked about in the past.
    That total, we estimate, will grow to about 100, or three-
fold. We currently oversee about 130 to 140 futures commission 
merchants. And something called retail foreign exchange 
dealers, we envision that they'll be somewhat in that vicinity, 
swap dealers, that will come in.
    So, we're doubling the number of intermediaries. We're 
probably tripling the number of trading platforms, and the 
like.
    So our request of $308 million, a 50 percent increase, 
represents about 56 percent for technology increase, and 43 
percent for staff. So we're trying to make the balancing right. 
And, I know this $103 million increase might seem bold, but I 
believe it's really not so bold in comparison to the 8 million 
jobs that were lost as a result of the financial crisis.
    And, if I could use the football analogy one more time, if 
the football games were expanded eight-fold, leaving just one 
referee per game, and in some cases, no referees, and if it was 
basketball, then five of the games wouldn't have anybody, 
imagine the mayhem on the field, the resulting injuries to the 
players, and the loss of confidence in the game itself.

                           PREPARED STATEMENT

    So, in 2012, CFTC will finish implementing the Dodd-Frank 
Act rules. The fiscal year 2013 request not about implementing 
the rules or not, it's about trying to avert another financial 
crisis. It's about helping producers, merchants, farmers, and 
commercial companies in your States to use these futures and 
swaps so they can grow their businesses, hire people and invest 
in our country.
    I thank you.
    [The statement follows:]
                   Prepared Statement of Gary Gensler
    Good afternoon Chairman Durbin, Ranking Member Moran, and members 
of the subcommittee. Thank you for inviting me to today's hearing on 
the Commodity Futures Trading Commission's (CFTC) fiscal year 2013 
budget request.
    It is critical that the derivatives markets--both futures and 
swaps--work for hedgers, farmers, ranchers, producers, and commercial 
companies in the real economy. Futures and swaps markets allow them to 
lock in a price and focus on what they do best--servicing customers, 
producing products, and investing in our country's future. As it's the 
hedgers in the real economy--the nonfinancial side--that provide 94 
percent of private sector jobs, it's all the more important that these 
markets work for America's job providers.
    The derivatives markets that CFTC oversees are where hedgers across 
the country meet financial firms, and others--generally called 
speculators. Over time, the makeup of these markets has shifted 
dramatically. Financial firms and speculators now make up the vast 
majority of these markets. For instance, producers, merchants, 
processors, and other end-users make up approximately 15 percent of the 
crude oil futures market. Swap dealers, managed money accounts, and 
other financial actors make up the remaining 85 percent. In Chicago 
Board of Trade wheat contracts, end-users make up 9 percent of the long 
and 29 percent of the short positions, meaning that more than 70 
percent of this market consists of financial interests.
    CFTC is not a price-setting agency. Our critical mission is to 
ensure that derivatives markets are transparent and free of fraud, 
manipulation, and other abuses. Our mission is particularly important 
considering hedgers--America's job creators--use these markets to lock 
in a price and make their investments. Given the dominance of financial 
actors and speculators in these markets, it's that much more crucial 
that CFTC is well funded so that we can ensure these markets work for 
hedgers. The need for adequate funding is highlighted by rising gas 
prices at the pump.
    In 2008, the financial system and the financial regulatory system 
failed America. The unregulated swaps market helped concentrate risk in 
the financial system that spilled over to the real economy, leading to 
8 million jobs lost, millions of families losing their homes, and 
thousands of small businesses closing their doors. In 2010, the 
Congress and the President came together to pass the historic Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). 
Beyond swaps market reform, the Congress benefited commercial hedgers 
by closing gaps in the CFTC's oversight, including the so-called 
``Enron Loophole'' and ``London Loophole'', as well as strengthening 
the agency's anti-manipulation authorities. But effectively overseeing 
these markets depends on adequate funding for the agency's expanded 
mission.
    At its fiscal year 2012 staffing level of 710 full-time equivalents 
(FTEs), the agency is but 10 percent larger than our peak in the 1990s. 
But since then the futures market has grown to approximately $37 
trillion notional, and the Congress added oversight of the $300 
trillion swaps market, which is far more complex than the futures 
market. This growth is highlighted on pages 148-149 of CFTC's budget 
submission.
    It is as if all of a sudden the National Football League (NFL) 
expanded eight times to play more than 100 games in a weekend. I think 
we'd all agree that the same number of referees could not monitor all 
those games. And referees on the field do more than call penalties and 
watch for violations of the rules. They also protect the players, 
promote fair competition, and ultimately ensure the integrity of the 
game.
    Thus, just as in my NFL analogy, CFTC needs more referees. CFTC is 
requesting significantly more resources to oversee a much expanded 
field of play. The request is for an appropriation of $308 million and 
1,015 FTEs. CFTC's budget request strikes a balance between important 
investments in technology and human capital, both of which are 
essential to carrying out the agency's mandate. This approximately 50 
percent increase in funding includes a 56 percent increase in IT 
services, but only a 43 percent increase in staff.
    Though these percentages might seem striking, let me use the 
football analogy--we're being asked to oversee the swaps markets, which 
is eight times the size of the futures markets. And we need more 
referees to protect the players, promote fair competition, and 
ultimately ensure the integrity of the markets.
    CFTC is dedicated to using taxpayer dollars efficiently--nearly 
one-fourth of our overall budget request--$70 million--is for outside 
information technology (IT) services. When the CFTC's dedicated IT 
staff is included, we're requesting $96.2 million for IT, or nearly 
one-third of the overall budget.
    But it still takes human beings to watch for market manipulation 
and abuses that affect hedgers, farmers, ranchers, producers and 
commercial companies, as well as the public buying gas at the pump.
    In the context of a constrained budget environment and the agency's 
dramatically expanded mission, CFTC took three significant steps in the 
past year to prepare for implementation of financial reform. First, we 
developed a new strategic plan for fiscal years 2011-2015. This plan 
raises the bar on the agency's performance measures to more accurately 
evaluate our progress. But the agency's performance is affected by the 
challenges of limited resources. CFTC's first performance report said 
the agency was only able to meet 57 percent of its performance targets. 
For example, CFTC examined fewer derivatives clearing organizations 
(DCOs) than called for in the strategic plan. In addition, fewer staff 
members were available to review new contracts for susceptibility to 
market manipulation, resulting in a backlog in such reviews.
    Second, CFTC put in place an organizational restructuring that went 
into effect in October 2011, which aligned the agency with our expanded 
mission. It created the Division of Swap Dealer and Intermediary 
Oversight and the Office of Data and Technology, as well as reorganized 
a number of other divisions. And third, the agency began presenting its 
budget request by the agency's mission activities, a change from our 
presentation approach in years past, which was by agency divisions. It 
offers the Congress and the public a much clearer picture of what CFTC 
does for the American people. In the chart attached to this testimony, 
you can see each of our missions and the associated funding request.
    In my remaining testimony, I will review the five areas that make 
up more than 90 percent of our requested budgeted staff increase:
  --registrations;
  --examinations;
  --surveillance and data;
  --enforcement; and
  --economics and legal analysis.
                    registration and product reviews
    A significant task before us in fiscal year 2013 will be the 
registration of an unprecedented number of new market participants, as 
well as reviews of new products for both the clearing mandate and the 
trading mandate.
    We want to consider registration applications in a thoughtful and 
timely manner, be efficient in reviewing submissions, and be responsive 
to market participant inquiries, but this will require sufficient 
funding. We are seeking $36.8 million and 142 FTEs for these two 
mission areas, an increase of $18.2 million and 70 FTEs.
    The more than 200 entities that may seek CFTC registration within 
the next year is a dramatic increase over any registration effort the 
agency has overseen in the past. CFTC needs staff to facilitate the 
registration of the following market participants:
      Clearinghouses.--Entities that lower risk to the public by 
        guaranteeing the obligations of both parties in a transaction. 
        We are working with four new entities seeking to register as 
        DCOs and have inquiries from others. These entities will join 
        the 16 we currently oversee.
      Designated Contract Markets (DCMs).--U.S. trading platforms that 
        list futures and options and likely will start listing swaps. 
        CFTC currently oversees 16 DCMs, and by 2013, staff expects 
        another 5 to seek registration.
      Foreign Board of Trade (FBOTs).--Regulated trading platforms in 
        other countries that are generally equivalent to DCMs. Since 
        the FBOT rule became effective in February, two have filed 
        formal applications to be registered with CFTC.
      Another 20 FBOTs currently operate under staff no-action letters. 
        By 2013, staff expects a total of 28 FBOTs to seek registration 
        with CFTC.
      Swap Data Repositories (SDRs).--Recordkeeping facilities created 
        by the Dodd-Frank Act to bring transparency to the swaps 
        market. Four have already filed with CFTC, and by 2013, an 
        additional two SDRs are expected to seek registration.
      Swap Dealers.--Under the Dodd-Frank Act, CFTC is working to 
        comprehensively regulate swap dealers to lower their risk to 
        the economy. A rule finalized in January requires them to 
        register with the National Futures Association (NFA). For 
        planning purposes, CFTC staff currently estimates somewhere 
        between 100 and 150 swap dealers may request registration with 
        the NFA, and we'll be overseeing their registration and related 
        questions.
      Swap Execution Facilities (SEFs).--The new trading platform for 
        swaps.
    CFTC staff estimates that 20-30 entities may request to become 
SEFs.
    While we will have a system for provisional registration in place, 
market participants will want the certainty of final registration. CFTC 
also is taking on a new resource-intensive responsibility of reviewing 
which swaps will be subject to the clearing mandate. Full funding for 
the agency means that we will be best prepared to review the dramatic 
increase in requested registrations and to review swaps for the 
clearing mandate. A partial increase in funding means market 
participants will see a backlog in registrations, responses to their 
inquiries, and product review because we won't have personnel 
sufficient to review their submissions in a timely and complete manner. 
Flat funding will mean market participants will wait even longer. There 
will be significant backlogs for participants seeking to register with 
CFTC, as well as for review of swaps for mandatory clearing.
Examinations
    Another critical mission for fiscal year 2013 will be more regular 
and more in-depth examinations of the major market participants CFTC 
oversees. Examinations are CFTC's tool to check for compliance with 
laws that protect the public. The agency is seeking $35 million and 161 
FTEs for examinations, an increase of $19 million and 72 FTEs. CFTC is 
asking for nearly double our resources for this mission because the 
number of entities we examine is expected to more than double.
    This is an area where the agency fell short of our goals in the 
2011 performance report.
    CFTC directly reviews clearinghouses and trading platforms and will 
review SDRs. But while the agency reviews them directly, we don't have 
the resources to have full-time staff on site, unlike other regulatory 
agencies that do have on-the-ground staff at the significant firms they 
oversee. CFTC also doesn't do annual reviews. Clearinghouses, for 
instance, currently are examined on a 3-year cycle. For intermediaries 
such as futures commission merchants (FCMs) and swap dealers, the 
CFTC's funding situation requires us to rely on what are known as self-
regulatory organizations (SROs) to be the primary examiners. Given our 
lack of resources, we're only able to double check the SRO's work on a 
limited number of FCMs each year, and the agency can spend little time 
onsite at the firms.
    On top of the current lack of staff for examinations, our 
responsibilities in 2013 will expand to include reviews of many new 
market participants. For instance, there are currently 123 FCMs, and 
staff estimates a similar number of swap dealers will ultimately 
register. More frequent and in-depth examinations are necessary to 
assure the public that firms have adequate capital, as well as systems 
and procedures in place to protect customer money. The number of 
clearinghouses, trading platforms, and data platforms is expected to 
triple. Reviews of these entities are critical to ensuring the 
financial soundness of clearinghouses, and ensuring transparency and 
competition in the trading markets.
    Fully funding the increase for examinations means CFTC can move 
toward annual reviews of all significant clearinghouses and trading 
platforms and adequate reviews of other market participants. A partial 
increase for examinations means cutting back our monitoring plans for 
new market participants and more in-depth risk reviews. Flat funding 
means we will continue lacking the ability to assure the public that 
CFTC's registrants are financially sound and in compliance with 
regulatory protections.
Surveillance and Data
    Effective market surveillance is dependent on CFTC's ability to 
acquire and analyze extremely large volumes of data to identify trends 
and events that warrant further investigation.
    CFTC is seeking $65.6 million and 205 FTEs for surveillance, data 
acquisition, and analytics, an increase of $22.2 million and 65 FTEs. 
Of the $65.6 million request, 55 percent would be directed toward 
information technology.
    The Dodd-Frank swaps market transparency rules mean a major 
increase in the amount of incoming data for CFTC to aggregate and 
analyze. The agency is taking on the challenge of establishing 
connections with SDRs and aggregating the newly available swaps data 
with futures market data. This will require high-performance hardware 
and software and the development of analytical alerts. But it also 
requires the corresponding personnel to manage this technology 
effectively for surveillance and enforcement.
    In fiscal year 2013, CFTC also anticipates receiving ownership and 
control information for trading accounts. This means CFTC will have 
data to better detect intra-day position limit violations and analyze 
high-frequency trading. CFTC also will be monitoring for compliance 
with rules on aggregate position limits for both futures and swaps in 
energy and other physical commodities.
    A full increase for surveillance means CFTC will have the ability 
to analyze futures and swaps data to protect market participants and 
the public. A partial increase would limit the agency's investments in 
analysis-based surveillance tools. And flat funding will limit our 
capacity to effectively utilize and aggregate the new data we are 
beginning to receive.
Enforcement
    CFTC's enforcement arm protects market participants and other 
members of the public from fraud, manipulation, and other abusive 
practices in the futures and swaps markets.
    Our efforts range from pursuing Ponzi schemers who defraud 
individuals across the country out of life savings; to abuses that 
threaten customer funds; to false reporting of prices; to schemes to 
manipulate prices, including of goods, such as oil, gas and 
agricultural products. CFTC has opened more than 900 investigations in 
the past 2 fiscal years, with a record number of new investigations in 
fiscal year 2011. CFTC is seeking $60.4 million and 225 FTEs for 
enforcement, an increase of $16.1 million and 50 FTEs.
    In 2002, we had 154 people devoted to enforcement, and that number 
has grown just slightly to our current staff of 170. This staff has 
been called upon to enforce laws and rules that are new to our arsenal. 
The Dodd-Frank Act mandate closed a significant gap in the agency's 
enforcement authorities by extending the enforcement reach to swaps and 
prohibiting the reckless use of manipulative or deceptive schemes. In 
addition, CFTC will be overseeing a host of new market participants.
    A full increase for enforcement means more investigations and cases 
that the agency can pursue to protect the public. A less than full 
increase means that CFTC will be faced with difficult choices. We could 
maintain the current volume and types of cases, but we would have to 
shift resources from futures cases to swaps cases or not cover all of 
the swaps market. Flat funding means not only that CFTC's enforcement 
volume likely would shrink, but parts of the markets would be left with 
little enforcement oversight.
Economics and Legal Analysis
    For fiscal year 2013, CFTC is seeking $27.8 million and 88 FTEs to 
invest in robust economic analysis teams and Commission-wide legal 
analysis, an increase of $6.8 million and 24 FTEs. CFTC's economists 
support all of the Commission's divisions, including surveillance and 
complex enforcement cases. They are currently working with Dodd-Frank 
Act rule teams to carefully consider the costs and benefits of each 
rule. In 2013, CFTC's economists will be integral in developing tools 
to analyze automated surveillance data and determining whether new 
products are eligible for clearing. The economists also will be 
assessing the effect of position limits on futures and swaps markets. 
Flat funding or a partial increase means a strained ability to analyze 
the market and detect problems that could be negative for the economy.
    CFTC's legal analysis requirements will increase in 2013 as a 
result of new market participant registrations, as well as new product 
reviews and the clearing mandate.
    A less than whole funding increase means a more limited ability to 
give market participants timely responses to their questions and timely 
processing of their applications. Flat funding means CFTC's legal 
analysis team will be spread extremely thin, aggravating the delays in 
responding to market participants and processing applications and 
straining the support of enforcement efforts.
                               conclusion
    Market participants depend on the credibility and transparency of 
well-regulated U.S. futures and swaps markets. Without sufficient 
funding for CFTC, their businesses--and the Nation--cannot be assured 
that the agency can adequately oversee these markets.
    Funding this requested budget increase for CFTC is about ensuring 
hedgers in the real economy, the farmers, ranchers, producers, 
commercial companies, and other end-users that use derivatives markets, 
can lock in a price and lower their risk.
    We've been asked to oversee the swaps market, which is eight times 
the size of the futures market. Just as if the current number of NFL 
referees were called upon to monitor more than 100 games in a weekend, 
we need the resources to protect the players, promote fair competition 
and ultimately ensure the integrity of the markets for the American 
people.

                                              SUMMARY OF REQUESTED INCREASES OF $102.7 MILLION BY ACTIVITY
                                                                 [Dollars in thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Fiscal year 2012 base         Fiscal year 2013 request        Fiscal year 2013 increase
                                             ------------------------------------------------------------------------------------------------ Percentage
                                                                 Full-time                       Full-time                       Full-time        of
                                                  Amount        equivalents       Amount        equivalents       Amount        equivalents    increase
--------------------------------------------------------------------------------------------------------------------------------------------------------
Registration and registration compliance....         $11,073              34         $19,188              63          $8,115              29           8
Reviews of products and rules of operation..           7,540              38          17,585              79          10,045              41          10
Data acquisition, analytics, and                      43,399             140          65,614             205          22,215              65          22
 surveillance...............................
Examinations................................          15,937              89          34,907             161          18,970              72          18
Enforcement.................................          44,293             175          60,394             225          16,101              50          16
Commission-wide economic and legal analysis.          20,947              64          27,787              88           6,840              24           7
Commission-wide international policy                   3,553              10           5,023              16           1,470               6           1
 coordination...............................
Commission-wide data infrastructure.........          31,214              41          48,449              52          17,235              11          17
Commission-wide management and                        26,204             114          27,674             120           1,470               6           1
 administrative support.....................
Inspector General...........................           1,134               5           1,379               6             245               1  ..........
                                             -----------------------------------------------------------------------------------------------------------
      Total, all CFTC activities............         205,294             710         308,000           1,015         102,706             305         100
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                                              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                                                                                                                              

         Figure 1. $102.7 million budget increase by activity.

    Senator Durbin. Thank you, Chairman Gensler.
    Because they waited patiently for me, I'm going to yield 
the opening round of questions to my colleague, Senator 
Lautenberg. And, then, turn to Senator Moran.

                         BUSINESS CONDUCT RULES

    Senator Lautenberg. Thanks, Mr. Chairman. Thank you, Mr. 
Gensler.
    The growth in your responsibility commensurate with the 
growth in the industry, of course, is quite a change over the 
years. And a lack of regulation in derivatives helped cause the 
financial crisis that we underwent.
    CFTC requesting a significant budget increase, which some 
oppose. Is it fair to say that if the Congress fails to provide 
this funding increase, derivatives will remain largely 
unregulated?
    Mr. Gensler. I think, Senator, we will be successful in 
implementing the rules that you all have asked us to do, but I 
do think, just as in my basketball or football analogy if I 
stretch it, there wouldn't be folks to oversee the markets.
    So it would be regulation by rule--we wouldn't be able to 
really do what's necessary to answer people's questions, to 
have effective cops on the beat, and, very importantly, I 
think, protect the American public.
    Senator Lautenberg. An op-ed piece written recently by a 
departing Goldman Sachs employee got a lot of attention, and it 
suggested that the firm may not always deal with its clients in 
good faith.
    The Wall Street Reform Law introduced new business conduct 
standards for swap dealers like Goldman Sachs. What's CFTC 
doing to enforce these standards and ensure fair dealing?
    Mr. Gensler. Well, I'm pleased to say that we were able to 
finalize the rules in sales practices and business conduct just 
this past January. I think that as you noted, the financial 
industry is often a counterparty, is often on the other side of 
the table, from the commercial companies in your States.
    And so that's why it's so important, I think, not only to 
finalize the rule, but then also to have the funding so that we 
can respond to inquiries, whistleblowers, and actually ensure 
that those sales practices are met.

                            POSITION LIMITS

    Senator Lautenberg. There is obviously a real good, big 
vote of thanks, in terms of the President's request for a 
budget for your department.
    And when we see what is involved, position limits, help 
ensure that unscrupulous traders can't manipulate, or will not 
be able to manipulate, oil and gas prices.
    CFTC completed its work on position limits for energy 
derivatives last year, but they're not yet in effect, correct?
    Mr. Gensler. That's correct.
    Senator Lautenberg. Gas prices continue to rise. Why are 
these limits still not in place?
    Mr. Gensler. We were able to finalize our rule writing on 
position limits last October, but there were two additional 
pieces that needed to be done.
    One was that although the Congress laid out a pretty 
detailed definition of ``swap'', the Congress mandated that we 
work with the Securities and Exchange Commission (SEC) to 
``further define the word `swap'.''
    We wanted to, I think, and the Congress wanted to, make 
sure that we didn't inadvertently bring people in who were 
using the cash markets--transactions called ``forwards''. I've 
had a lot of conversations with Senator Moran about this.
    I think we'll finalize that rule this spring. We need to 
finalize that, and then spot-month limits will go into effect. 
Second, we also needed some additional data. The way we 
finalized the rule in October was to provide that we needed to 
get at least one-more year's data to put in place the second 
part of the limits.

                               USER FEES

    Senator Lautenberg. There's strong funding for the CFTC 
oversight is essential to preventing another financial 
meltdown. But the industry should have to pay its fair share.
    CFTC is the only financial regulator that does not offset a 
portion of its costs through industry user fees. Would 
collecting user fees instead of depending exclusively on 
taxpayer funding be consistent with CFTC's ability to 
accomplish its mission?
    Mr. Gensler. Senator, I look forward to working with the 
Congress in any way you think is most appropriate to help 
ensure the public has a well-funded CFTC.
    I know that President Obama has suggested, I think other 
Presidents in the past of both parties have suggested, possibly 
having fees. My view is whatever the Congress wants to do I 
would work with the authorizers and the appropriators to ensure 
full funding of the CFTC.
    Senator Lautenberg. Thank you, Mr. Gensler. Senator Moran, 
your turn. And it's not just because you're the remaining 
member. It's that we recognize the quality of information.

                            CORE PRINCIPLES

    Senator Moran. You are so kind, Senator. Thank you.
    Mr. Chairman, let's talk about a couple of issues that we 
seem to talk about regularly. I want to talk about position 
limits and core principles.
    In regard to core principles, what I often hear from the 
futures industry is that they are overwhelmed by the volume, 
frequency, and speed at which CFTC is issuing new regulations. 
And, regardless, of your efforts to entertain meetings and 
round tables, there's a sense out there that while you're 
willing to sit down, you're not quite as welling to listen.
    Most observers, I think, would reach the conclusion that 
during the difficulties our country experienced in 2008, 
regulated exchanges functioned well, in large part, due to the 
core-principle regime.
    Instead of seizing on the strengths of the core-principle 
regime, CFTC under your leadership has systematically converted 
the core-principle regime to one of a prescriptive rule-based 
regime.
    Why, Mr. Chairman, after the core principles served so well 
during the financial crisis are you still pursuing these rigid 
regulations that effectively dismantle core principles?
    Mr. Gensler. I, Senator, actually think that what we're 
doing is building upon what has worked well, as I think we both 
see in the futures world, and extending it to this swaps world.
    Core principles are there for designated contract markets 
like the Kansas City Board of Trade. It's also there for the 
clearinghouses. In the clearinghouse context, we thought it's 
really critical that they do have robust risk management.
    We finalized those rules last October, and we thought 
guidance, frankly, would not be enough because of the 
significant amount of risk being moved into, particularly, in 
the swaps area.
    We have not yet finalized the ones on the exchanges, and 
we're still taking, even though officially our comment period 
closed a long time ago, we're still taking very much our time 
on this, taking more input on this.
    And I would hope we could actually have additional 
meetings. If there are things in that area that you 
particularly want us to focus on, I'd like to know about that.
    Because what we're trying to do there is really just make 
sure that it's extended to swaps, and that we're embodying in 
the final rules for designated contract markets, the best 
practices that the designated contract markets currently use in 
the futures market.

                             IMPLEMENTATION

    Senator Moran. We may have to have those conversations. And 
you've been kind to make that offer in the past, and I welcome 
that opportunity again.
    It strikes me that we may be about to engage in the same 
back and forth that we had a year ago. But the implementation 
for discretionary rulemaking has grown since we talked a year 
ago. What I would call a haphazard nature of rulemaking.
    Since your last appearance before the subcommittee, one of 
your rulemakings has been challenged in court. Published 
remarks by the judge in that court case indicated that it's 
highly likely that the rule implementing position limits will 
be struck down.
    What will your response be should that rule be rejected by 
the courts? Are you and CFTC staff planning for that 
possibility?
    Mr. Gensler. In terms of implementation phasing, I think 
that we very much took your advice and guidance last year. 
Around spring, we actually put out for public response and 
comment 13 concepts around implementation phasing.
    Senator Moran. So I'm now responsible for the mosaic.
    Mr. Gensler. No. I think your advice was about seeking 
public input on implementation phasing.
    Senator Moran. Okay.
    Mr. Gensler. The word ``mosaic'' was something I've used. 
And I will try not to use it again.
    We got a 60-day public comment period and 2 full days of 
round tables: they were very beneficial. We've not finalized 
our rules in the 1 year since the passage of the Dodd-Frank 
Act. Here we're almost 2 years out, and we've not finalized.
    We're not trying to do this against a clock--I know when I 
first said that, people didn't believe me--but here we are 
almost 2 years, and we're maybe halfway through the final 
rules. We've got a lot still to do, and we're still not trying 
to do this against a clock. We're trying to do it in a balanced 
way.
    And in terms of phasing, we've even put out some specific 
rules for comment in the fall, in September, about the phasing 
of the clearing mandate and the trading mandate and the like. 
And that has been very beneficial to get that public input. We 
then phase in each of our individual rules. Sometimes we give a 
year to get something in place, 6 months and the like.

                            POSITION LIMITS

    On position limits more specifically, Senator, the first 
thing I would do is turn to our attorneys and probably 
personally read whatever opinion comes out of the judge to see 
what they've said.
    It's part of our democratic process that anything that we 
do, somebody could move into a court. I believe that what we 
did in October, in finalizing the position limits rules, was 
consistent with the congressional mandate, the strong mandate 
that we move forward and implement position limits, not only 
for futures, but also for swaps.
    But, of course, if a judge has a different view on that, 
then we'll take a very close look at what he says.
    Senator Moran. When do you expect that decision?
    Mr. Gensler. Well, right now, I think we're just awaiting, 
the litigants had a preliminary injunctive motion, and we're 
waiting to see what the judge says on that.
    I'm told, I'm not a lawyer, but I'm told that's generally, 
a relatively short process. So near term what I'm told that 
we'd hear from is just on that preliminary injunctive motion.
    Senator Moran. Have you had discussions about what if the 
rule is struck down? What does CFTC do next? I mean, you 
indicated you are going to read the decision by the court, but 
are you planning at this point if there is an adverse decision, 
what CFTC should do?
    Mr. Gensler. I don't have a plan yet because it would 
depend on wholly on what does the judge says.
    We think, and I will say this personally too, we've 
followed the clear congressional direction on these limits. And 
what the limits are really it's to ensure that there's not 
concentration. We're not a price-setting agency. Some folks 
have maybe suggested otherwise.
    We're really an agency to ensure that the markets are 
transparent, open and competitive, and that these exchanges 
work well, that the clearinghouses are safe.
    Through the position limits, it's about ensuring that no 
one speculator has a sort of large footprint in that 
marketplace. They've been in place in the agricultural markets 
since the 1940s. Actually, working with the exchanges, they 
were in place in the energy markets in the 1980s and 1990s.
    And I think the Congress really suggested that we sort of 
bring them back, but also extend them to the swaps marketplace. 
The reason we said we needed a delay is to get more 
information. So even in a swaps marketplace, we need that 1 
year of data to use a percentage of the market formula that had 
existed when limits applied only to futures.
    I think we first used this percentage of the market formula 
about 1980 or so. But, of course, if a judge says that he 
thinks we should do something different, we'd have to look 
obviously at what they said, and whether to appeal that and so 
forth.
    Senator Moran. Thank you, Mr. Chairman.

                        MARKET IMPACT ON PRICES

    Senator Durbin. Thank you very much, Senator Moran.
    Chairman Gensler, in your opening remarks you said, and I 
quote, ``CFTC is not a price-setting agency, but rising fuel 
prices make it clear why we need to have cops on the beat.''
    I'm trying to reconcile, if I wrote that down properly. I'm 
trying to reconcile that statement. You seem to suggest at the 
outset that what you do has no impact on price, but then go on 
to say, but because prices are going up, we have to do a better 
job.
    Mr. Gensler. Well, I think, Mr. Chairman, I thank you for 
that question. Because what we do as an agency, whether prices 
are low or high, is ensure the American public that those 
prices are arrived at where buyers and sellers meet in a 
transparent marketplace, free of fraud and manipulation.
    Position limits assure that no one has sort of a large 
footprint, no speculator, has too large a concentration. I 
think, in times when the public is asking this question, it 
reminds us why we have to, I believe, have a well-funded agency 
to ensure that these markets are free of fraud and manipulation 
and they're as transparent as possible.
    And that buyers and sellers come into that marketplace on a 
fair field of play.
    Senator Durbin. So, let me try to get down to some basics 
here so I can understand from a layman's point of view how I 
would explain this to people.
    Let's assume for a moment we're talking about a futures 
market relative to plywood, which I think at one point was on 
the Chicago Board of Trade. And let's assume there are ten 
people interested who understand that they are talking about 
the future price of plywood and may have to take delivery of 
what they are buying.
    I would assume that market would be less active, all things 
being equal, than a market with 100 people interested in the 
same issue. Is that a fair conclusion?
    Mr. Gensler. I think so.
    Senator Durbin. Now, let's take it to the next step. Let's 
assume it's not 100 people interested in the future price of 
plywood, but a thousand. And of those 1,000, 900 have no 
interest in plywood. They'd just as soon be dealing with apples 
at the Pip's next door.
    They don't want to ever take delivery. They're never really 
interested in reaching that point in the transaction. Does that 
change the trade, the volatility of trading, perhaps, the price 
of plywood?
    Mr. Gensler. There's been a lot of studies and surveys on 
the role of speculation in these markets. I'm taking that to be 
the 900 that aren't taking delivery, and we actually reviewed 
them in this position limit rule last October. There were about 
50 studies that were commenters sent in.
    I suspect you'd probably not be surprised, about one-half 
of them said that the role of speculators had an influence on 
some of the things you said, price, and volatility. About half 
said, no.
    I mean, and so you have the St. Louis Federal Reserve, and 
you have some very esteemed economists on one side saying, yes. 
And you have some other surveys and studies on the other side, 
suggesting, no.
    So, we've summarized all that, and all five of the 
commissioners, you know, have the benefit of a very good chief 
economist in the office that has helped us with this.
    Senator Durbin. So, if there is a split opinion as to 
whether or not the number of trades, the number of traders, the 
interest in taking possession has any impact on price, let me 
ask you what the empirical evidence is.
    If you're dealing with a commodity that really, and there 
are some, doesn't engage people as much as some other 
commodity, what is the nature of that market compared to the 
more active market in the next, no longer Pip's probably, but 
in the next trading theater?
    Mr. Gensler. Well, I think that there are two features. If 
the less-active market doesn't have a lot of fundamental 
research around and a lot of transparency around it, that 
market actually sometimes can be more easily manipulated, if 
there aren't people coming in and out.
    But, the second feature, I think to the core of your 
question, is if the market as many of our markets are now 80 to 
85 percent financial actors and speculators, and, you know, a 
smaller percent are the producers and merchants, I think that's 
part of the reason why we want a well-funded CFTC because the 
nature of the market is so heavily toward the financial actors 
and so heavily toward the speculators, that it's that much more 
critical that we're watching over these markets to prevent 
manipulation.
    And, second, that we do use position limits that no one 
speculator has such a large position that they start to be sort 
of the trend setter. They start and others sort of follow that 
lead in a pack.
    Senator Durbin. I have some more questions, but I'm going 
to yield to my colleague.

          LEGAL SEGREGATION WITH OPERATIONAL COMINGLING (LSOC)

    Senator Moran. Mr. Chairman, thank you.
    Mr. Chairman, it's my understanding that CFTC recently held 
a roundtable meeting to discuss the possibility of subjecting 
futures to a LSOC model. This sort of regulation, I think, at 
least appears to me, is discretionary as the Dodd-Frank Act 
only requires that you apply the LSOC model to cleared swaps.
    Given that the LSOC for swaps will not come on-line until 
November of this year, will you comment--I'm sorry--will you 
commit to this subcommittee that you will hold off on pursuing 
the LSOC model for the futures market until the cost-benefit 
analysis for the LSOC for swaps has been fully evaluated over 
the course of the next few years?
    Mr. Gensler. I want to say we're in complete agreement. It 
is discretionary. It is something that came up actually in 
January as we were completing the new segregation for cleared 
swaps that a number of my fellow commissioners said, this is 
different than what we're doing for the futures world and have 
for some time.
    And so I committed to my fellow commissioners, let's have a 
round table, and let the public tell us. And I think it was 
very beneficial.
    It was also at this round table that people commented on 
greater enhancements to customer protection and different 
models. Staff's evaluating the comments and to the extent that 
staff puts forward a proposal whether it's this legal 
segregation for futures or other recommendations, all five of 
the Commissioners are weighing in.
    We have a pretty active and busy agenda this spring and 
summer on the Dodd-Frank Act initiatives. So it might be 
disappointing for some that want LSOC for futures early.
    I think it's just inevitable, if nothing else, for capacity 
reasons, that it will wait. And I think you're right, Senator, 
that because we're doing legal segregation for the swaps 
markets by November 8, we'll learn a lot from that as well.
    Senator Moran. So I think what you're telling me is we 
would not expect the LSOC for swaps to occur, if it does at 
all, until after the LSOC for futures?
    Mr. Gensler. I think that's just absolutely correct because 
we have a very significant agenda that the Congress has 
mandated for us.
    We have enhancements to customer protection that I think 
are getting some very good input from the futures industry and 
from the exchanges. If there is a true consensus, on LSOC for 
futures, there is not that consensus at this stage.
    Senator Moran. Thank you for clarifying my misstatement, 
and I appreciate that sentiment, because one of the 
conversations that you and I've had on an ongoing basis is my 
belief that you ought to focus on the things required by the 
Dodd-Frank Act that are mandatory as compared to the 
discretionary opportunities that the Dodd-Frank Act has given 
CFTC and prioritize.
    And I think your answer to my question suggests that in 
this case, that's what you're doing.
    Mr. Gensler. Yes. I think, generally, that's the case. 
There are some things that are discretionary that we're taking 
up, I hope, soon to put out a proposed rule on getting more 
data about who owns accounts.
    This is because of all this high-frequency trading, and so 
forth. I mean, so there are probably, I'm going to say, three 
or four things, I don't have the right count in my head, that 
we do anticipate in 2012 to do to enhance our oversight of the 
markets given high-frequency trading. That's actually maybe 
three.
    And then there may be some things that come out of really 
thoughtful presentations from the futures industry and others 
on how to better enhance customer protection around segregated 
funds. And I think that's a critical part of our 2012 agenda.

                           AGRICULTURAL SWAPS

    Senator Moran. Mr. Chairman, let me raise a recent decision 
by CFTC to prevent clearing houses from self-certifying 
agricultural swaps for clearing.
    As I understand it, rule 35 requires CFTC to treat 
agricultural swaps as they would all other swaps for purposes 
of self-certification.
    Can you explain why you've chosen, it appears to circumvent 
rule 35, and treat agricultural swaps differently than other 
forms of swaps?
    Mr. Gensler. The Congress gave us authority in the Dodd-
Frank Act to treat agricultural swaps differently. Then, we 
went through a lot of public comment to say we would treat them 
the same. That's where we ended up sometime last year after I 
think three public notices.
    I don't know that we're treating them any differently, but 
one challenge for the whole swaps marketplace, not just 
agricultural swaps, is that we haven't completed our rules. It 
may well be that what you're referring to is that we haven't 
finalized some of the general clearing rules.
    Senator Moran. So, this process dealing with agricultural 
swaps and nonagricultural swaps, did it slow down the process 
of finalizing the rule?
    Mr. Gensler. We implemented 29 Dodd-Frank Act rules. We 
have about 20 to go, roughly. So, you know, maybe we'll finish 
this sometime this summer or fall, but again, it's not against 
a clock.
    In the terms of agricultural swaps, they're to be treated 
identical to all the other swaps. There's a little bit of a 
legacy issue in that before the Dodd-Frank Act, agricultural 
swaps could not be cleared unless we did something called a--I 
think it's called a 4D order, but I apologize if I have the 
wrong letters.
    And so, it's a little bit of this legacy issue of, I think, 
somebody has filed a petition in the last month or two, and 
there's a question, do they use this 4D order or do they use 
this new self-certification.
    And I was briefed on it in the last day or two in 
anticipation of this hearing, but I might have just exhausted 
my knowledge on it.
    Senator Moran. Let me try one more time, not because you've 
exhausted your knowledge, but because I've been inarticulate in 
asking the question.
    I think what I'm interested in knowing is the timeline of 
the ability to implement self-certification for agricultural 
swaps.
    Mr. Gensler. I know that it would most definitely come if 
we finalized a handful of new rules sometime this spring or 
summer. The other issue that I was briefed on in the last day 
was, is there some way to shorten the time?
    And all I know is that our staff's looking at that to see 
if there's a way to do it.
    Senator Moran. Thank you for working your way through that 
question.
    Mr. Gensler. Okay.

                        SPECULATION AND PRICING

    Senator Durbin. Chairman Gensler, I'd like to address, as 
we started talking about at the outset, the connection between 
speculation and pricing.
    And you said that the jury is split on that based on what 
you have read. I would say that for at least 20 of my 
colleagues, they have come down on the side that speculation is 
linked to higher prices.
    And these colleagues sent you a letter, on March 5 of this 
year, calling on you to enact strong position limits to 
eliminate excessive oil speculation. I won't read the whole 
letter. You've received it.
    For the record, I'll put it in the record here.
    [The information follows:]
             Letter From the Congress of the United States
                                                     March 5, 2012.
Hon. Gary Gensler, Chairman,
Commodity Futures Trading Commission, Washington, DC.
Hon. Mark Wetjen, Commissioner,
Commodity Futures Trading Commission, Washington, DC.
Hon. Scott Walla, Commissioner,
Commodity Futures Trading Commission, Washington, DC.
Hon. Bart Chilton, Commissioner,
Commodity Futures Trading Commission, Washington, DC.
Hon. Jill Sommers, Commissioner,
Commodity Futures Trading Commission, Washington, DC.
    Dear Chairman Gensler, and Commissioners Chilton, Wetjen, Sommers, 
and O'Malia: We are writing to urge you to immediately enact strong 
position limits to eliminate excessive oil speculation as required by 
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 
As you know, the Dodd-Frank Act mandated that your agency promulgate 
and enforce such limits no later than January 17, 2011. We are 
disappointed that, more than a year later, the Commission has not 
fulfilled this important regulatory duty.
    Congress determined that speculative position limits are an 
effective and critically important tool to address excessive 
speculation in America's oil and gasoline markets. It is one of your 
primary duties--indeed, perhaps your most important--to ensure that the 
prices Americans pay for gasoline and heating oil are fair, and that 
the markets in which prices are discovered operate free from fraud, 
abuse, and manipulation.
    There has been a major debate over the last several years as to 
whether spikes in oil prices are caused entirely by the fundamentals of 
supply and demand or whether excessive speculation in the oil futures 
market is playing a major role. It is clear to us that debate has 
ended. Exxon Mobil, Goldman Sachs, the Saudi Arabian government, the 
American Trucking Association, Delta Airlines, the Petroleum Marketers 
Association of America, and even a report last year from the St. Louis 
Federal Reserve have all indicated that excessive oil speculation 
significantly increases oil and gasoline prices. According to a 
February 27, 2012 article in Forbes, excessive oil speculation 
``translates out into a premium for gasoline at the pump of $.56 a 
gallon'' based on a recent report from Goldman Sachs.
    The facts bear this out. According to the Energy Information 
Administration, the supply of oil and gasoline is higher today than it 
was 3 years ago, when the national average price for a gallon of 
gasoline was just $1.90. And, while the national average price of 
gasoline is now over $3.70 a gallon, the demand for oil in the U.S. is 
at its lowest level since April of 1997. Nor is the global supply of 
oil at issue. According to the International Energy Agency, in the last 
quarter of 2011 the world oil supply rose by 1.3 million barrels per 
day while demand only increased by 0.7 million barrels per day. Yet, 
during this same period, the price of Texas light sweet crude rose by 
over 12 percent. Meanwhile, oil speculators now control over 80 percent 
of the energy futures market, a figure that has more than doubled over 
the past decade.
    As the cost for American people to fill their gas tanks continues 
to skyrocket, the CFTC continues to drag its feet on imposing strict 
speculation limits to eliminate, prevent, or diminish excessive oil 
speculation as required by the Dodd-Frank Act. Although the CFTC has 
adopted initial position limits, they are not strong enough and not yet 
in force owing to industry opposition, delays in swaps oversight and 
data collection. This is simply unacceptable and must change.
    We urge you to take immediate action to impose strong and 
meaningful position limits, and to utilize all authorities available to 
you to make sure that the price of oil and gasoline reflects the 
fundamentals of supply and demand. This could entail promulgation of 
rules only with regard to the currently regulated exchange markets. 
Swaps rules should also be implemented immediately, but even so, 
waiting for swaps rules to trigger all position limits is simply not 
adequate to protect consumers. We urge you to develop alternative 
methods of moving forward and to do so as swiftly and expeditiously as 
possible.
    We have a responsibility to ensure that the price of oil is no 
longer allowed to be driven up by the same Wall Street speculators who 
caused the devastating recession that working families are now 
experiencing. That means that the CFTC must do what the law mandates 
and end excessive oil speculation once and for all.
    Thank you for your attention to this important matter. We look 
forward to receiving your response.
            Sincerely,
                    Daniel K. Akaka; Mark Begich; Barbara Boxer; 
                            Richard Blumenthal; Benjamin L. Cardin; 
                            Sherrod Brown; Robert P. Casey, Jr.; Al 
                            Franken; John F. Kerry; Amy Klobuchar; 
                            Patrick J. Leahy; Carl Levin; Joe Manchin, 
                            III; Robert Menendez; Jeff Merkley; Barbara 
                            A. Mikulski; Bill Nelson; Mark L. Pryor; 
                            Jack Reed; John D. Rockefeller, IV; Bernard 
                            Sanders; Tom Udall; Jim Webb; Sheldon 
                            Whitehouse; Ron Wyden.
                    Gary L. Ackerman; Tammy Baldwin; Timothy H. Bishop; 
                            Suzanne Bonamici; Leonard L. Boswell; Bruce 
                            L. Braley; David N. Cicilline; Gerald E. 
                            ``Gerry'' Connolly; John Conyers, Jr.; Rosa 
                            L. DeLauro; Peter A. DeFazio; Lloyd 
                            Doggett; Joe Donnelly; Anna G. Eshoo; Bob 
                            Filner; Marcia L. Fudge;
                    Raul M. Grijalva; Brian Higgins; Maurice D. 
                            Hinchey; Michael M. Honda; Mazie K. Hirono; 
                            Henry C. ``Hank'' Johnson, Jr.; Marcy 
                            Kaptur; Dale E. Kildee; Dennis J. Kucinich; 
                            Barabara Lee; Sander M. Levin; John Lewis; 
                            Zoe Lofgren; Jim McDermott.
                    Michael H. Michaud; Eleanor Holmes Norton; John W. 
                            Olver; Bill Pascrell, Jr.; Chellie Pingree; 
                            Mike Quigley; Nick J. Rahall, II; Lucille 
                            Roybal-Allard; Bobby L. Rush; Tim Ryan; 
                            Janice D. Schakowsky; Louise McIntosh 
                            Slaughter; Jackie Speier; Fortney Pete 
                            Stark; John F. Tierney; Paul Tonko; Peter 
                            Welch.

    Senator Durbin. Based on statements made from financial 
interest experts in the field and so forth, the belief is that 
speculation has driven up the price of a gallon of gasoline in 
America as much as 56 cents a gallon. That's what I believe 
Goldman Sachs reported in one of their recent reports, February 
27 of this year.
    So there's a bill that's also been filed; are you familiar 
with it? A bill that was filed today in the Senate?
    Mr. Gensler. As I was coming to this, I was briefed on it, 
but just briefed on it, just in the last 2 hours.
    Senator Durbin. Well, I have not seen it myself, so I can't 
tell you exactly what's in the bill.
    But I do believe that it calls on you to use your emergency 
powers to establish these position limits when it comes to 
trading in terms of oil futures. And I'd like to ask you a few 
questions about that.

                          EMERGENCY AUTHORITY

    First, would you tell me what you believe to be your 
authority under those emergency powers, or CFTC's authority I 
should say, when it comes to making that kind of a decision?
    Mr. Gensler. I think with only roughly 15 percent of the 
positions in the oil market or natural gas futures markets 
being the producers, merchants, and end users, and 80 to 85 
percent being financial actors and speculators, it's kind of 
unarguable that financial actors and speculators aren't 
affecting prices. They are.
    Studies are split on whether at any given time it's higher 
or lower and things like that. That's what they split on. But I 
think it's hard to say that 80 to 85 percent of the market 
don't influence price. They do. And they're part of it.
    In terms of the emergency authorities, as I understand it, 
we've used it a handful of times, maybe four times, in the 
1970s and early 1980s. There was even a court case at the time 
that I have not yet read the case, but I need to read it, where 
somebody challenged our use of it at the time.
    It is about disruption of the forces of supply and demand 
in a particular marketplace, and the statute specifically 
refers to things about governmental actions or foreign 
governmental actions. So it was used, for instance, at that 
time, during the grain embargo.
    Senator Durbin. I'd like to interrupt you for just a 
second. This isn't a test on the final, so I want to make sure 
that we share the language.
    The law defines emergency as market manipulation, an act of 
the U.S. or foreign government affecting a commodity, or any 
major market disturbance which prevents the market from 
accurately reflecting the forces of supply and demand for a 
commodity.
    Proceed. I'm not correcting you. I just wanted to enter 
that into the record.
    Mr. Gensler. No, you're helping me. You're helping me. As I 
recall it that fits the four times we brought emergency 
actions.
    There was a supply disruption in the one case because of 
the grain embargo related to the Soviet invasion of 
Afghanistan. There were one or two other instances where a 
crop--potatoes--literally were, had a problem, and so there was 
a situation in your example where you couldn't deliver the 
plywood.
    Back to your plywood example. The plywood couldn't be 
delivered. In that case, it was potatoes, that couldn't be 
delivered.
    It's those types of circumstances. I've asked our general 
counsel, because I know this is a very important matter to many 
members of this body, to brief us at CFTC level, to brief us 
all on the legislative history and the legal, what really is 
the contour of the limits of that emergency authority.
    Senator Durbin. So, is that authority given to you as 
chairman, or to CFTC?
    Mr. Gensler. To the Commission, Sir.
    Senator Durbin. And so any designation or use of the 
emergency authority would require CFTC action, right?
    Mr. Gensler. That's correct.
    Senator Durbin. A majority vote by CFTC?
    Mr. Gensler. That's correct.
    Senator Durbin. All right. And, to your knowledge, does the 
Congress have any authority to order you to exercise that 
emergency power?
    Mr. Gensler. Not as I understand the statute, but, of 
course, you could change our laws.

                           EMERGENCY ACTIONS

    Senator Durbin. I guess the obvious question that follows 
once we understand the process under the law and the history of 
the law is whether or not you and the commissioners believe 
that we are facing 1 of the 3 options that would lead to 
emergency action.
    And let's just suggest that, I guess, market manipulation, 
could be discussed, or more likely, any major market 
disturbance which prevents the market from accurately 
reflecting the forces of supply and demand for a commodity.
    So, are those things, those elements, 2 of the 3 in the 
law, have they been spelled out as it relates to gasoline 
prices or oil futures, to your satisfaction, at this point?
    What I'm asking is, whether or not there's been an analysis 
done by your CFTC staff as to whether or not the current 
gasoline pricing and the oil price future trading would put you 
in a circumstance where you could logically consider one of 
these options for emergency authority, exercise of emergency 
authority?
    Mr. Gensler. I've actually asked for some advice as to what 
that provision means, how we've used it, what that court case 
in 1979 said about it, so that we can be best informed as to 
how narrow or broad that authority is.
    As I understand it, we have used it in a very narrow sense 
when there was actual manipulation.
    We've brought 30-plus manipulation cases in the history of 
our agency, and we've only gone and won in court once. I mean, 
our manipulation authority was very narrow, and now the Dodd-
Frank Act has broadened it.
    But those previous emergency actions were pre-targeted 
narrow provisions, but I've asked our general counsel's office 
working with others at the agency to best inform the five 
commissioners on that provision of the statute.
    Senator Durbin. I'm asking two questions, and I want to 
make sure that they're clear each.
    The first, I think you've answered. That you have asked the 
appropriate legal authorities, people with background on the 
history of the agency, to talk about your authority under the 
law, and how it has been exercised in the past.
    What I'm asking more specifically is whether or not you 
have asked whether or not the current situation with our rising 
gasoline prices and the speculation in the area of oil futures 
would apply to any of these three possible reasons to exercise 
your authority?
    Mr. Gensler. And I think I can best answer the first, but 
I'm limited in answering the second because I'm trying to 
understand the contours from our general counsel and our 
hardworking, dedicated folks at CFTC, how wide or narrow that 
is, the first before trying to answer the second.
    But, I will say, historically, it's been used only in a 
very targeted way.
    Senator Durbin. So, have you at least started the factual 
inquiry about possible market disruption related to gasoline 
prices?

                   SURVEILLANCE TO DETECT EMERGENCIES

    Mr. Gensler. We meet as a Commission in a closed-door 
meeting every Friday, and we have for 30-plus years, and we put 
it in the Federal Register, people know we do this, to do 
surveillance on markets, from the grain markets to the interest 
rate markets to the energy markets.
    And we have about 50 to 55 people in a surveillance unit 
that bring information to us in these closed-door sessions 
every Friday. The energy markets come up, as you would think, 
as a regular basis, as the grains do and the financials.
    The staff is always tasked to come and bring to us matters, 
if they see issues, in these marketplaces. I mean I'm trying 
to----
    Senator Durbin. I understand the nature of your answer. I 
think you are carefully avoiding saying whether there's been 
any specific factual inquiry on anything until you have 
satisfied the first question.
    Don't let me put words in your mouth, stop me at any point 
here. First question, about your authority, historic 
precedence, before you go to the next question, which will be 
raised by this bill and by the letter from the Senators, as to 
whether or not your authority can or should be exercised when 
it comes to gasoline prices.

                         SURVEILLANCE MEETINGS

    Mr. Gensler. But I want to assure you and the American 
public, our staff, even though it's, I believe, underfunded, 
our staff every day and every week is bringing to the 
Commission concerns if they think they see manipulation in 
these markets, if they think they see something about position 
limit violations and the like.
    We're not waiting for anybody to say what the limits of 
emergency authority are. I mean, our agency, again, not a 
pricing agency, it is to ensure transparent markets, free of 
fraud and manipulation, and the people are following the rules 
of the road.
    Senator Durbin. Now, I'm going to ask a question. I already 
know the answer.
    Can you tell me if your staff has produced any information 
for CFTC to consider at these weekly meetings relative to 
rising gasoline prices and the impact of speculation on oil 
futures?
    Mr. Gensler. We look at the statistics on a pretty regular 
basis. We actually publish to the market every Friday the size 
and scope of the nonproducer merchant side, the speculative 
side, of the markets.
    So we're looking at that, in the natural gas markets, in 
the heating oil markets, the oil markets, on a very regular 
basis.
    Senator Durbin. Are these Commission meetings public?
    Mr. Gensler. They're closed-door meetings under the 
Sunshine Act, but we publish, we put in the Federal Register 
every week, that we have these Friday meetings.
    Senator Durbin. You announce the meetings are taking place?
    Mr. Gensler. Yes. Oh, absolutely.
    Senator Durbin. But not the substance of your discussions?
    Mr. Gensler. That's correct, because we're talking about 
confidential information that the Congress has actually 
directed us under Commodity Exchange Act section 8 not to 
disclose material, about individuals and their transactions.

                            POSITION LIMITS

    Senator Durbin. I've gone way over my time. I'm going to 
yield back to Senator Moran for another round of questions, if 
he has them.
    But the last thing I want to say is, CFTC has adopted a 
rule to implement position limits on 28 commodities including 
oil contracts as soon as the joint rule between CFTC and SEC 
defining swap is adopted, the rule-implementing position limits 
will go into effect?
    Mr. Gensler. For the spot month limits, that is correct.
    Senator Durbin. And, can you give me any indication of how 
soon that will occur?
    Mr. Gensler. We stand ready at CFTC to move forward 
whenever the SEC gives us the full document.
    Senator Durbin. Well, since we fund SEC, we'll tell them, 
at least, I'll tell them, to hurry along. I'm not sure if my 
colleague agrees with that position.
    But I want to do it right. And I understand their work has 
been challenged in court, as yours has been, and most other 
agencies have faced. I want them to do it right, but I want 
them to do it in a timely way.
    Senator Moran.

                              SPECULATION

    Senator Moran. Chairman, again, thank you.
    Chairman Gensler, this conversation about speculation in 
the oil market, you indicate that about 85 percent of the crude 
oil futures market is made up of speculators.
    Mr. Gensler. Well, financial actors and speculators.
    Senator Moran. And the difference between financial actors 
and speculators?
    Mr. Gensler. Well, people, colloquially, use the word, but 
some swap dealers are part of that 85 percent, and they are 
helping others hedge. They have producers and merchants on the 
other side.
    So the 80 to 85 percent are swap dealers, hedge funds, 
money managers, even pension funds sometimes are investing. And 
hedgers and speculators meet in a marketplace, but some 
financial actors would prefer not to be called speculators.
    Senator Moran. And I think your testimony was an indication 
that with that magnitude of speculation, there is a consequence 
to the price, either up or down, that's what you were 
indicating in the studies is what the consequence is, but there 
is a consequence to that level of speculation?
    Mr. Gensler. Well, I think that every participant in a 
marketplace can influence a price. Again, we're not a price-
setting agency, but it's critical I think that we have an 
agency that brings a bright sunshine to that market, that it's 
transparent, free of fraud and manipulation.
    We use the position limits to help limit any one sort of 
speculative party's footprint in the market place.
    Senator Moran. I just would indicate that when we use the 
word ``speculation'', it seems to have developed a negative 
connotation.
    Mr. Gensler. Not to me.
    Senator Moran. And you did differentiate between different, 
within that 85 percent, there's different actors.
    Mr. Gensler. That's correct.
    Senator Moran. And I think there's always a suggestion out 
there in today's media world, that speculation is something 
that causes bad things to happen.
    But you just indicated that's not your belief. In fact, 
speculation, what benefits arise from those who speculate in 
markets, in the oil market.

                         GENESIS OF THE MARKET

    Mr. Gensler. I'd be glad to answer that.
    I think that going back to the genesis of this market, and 
it happened in Senator Durbin's State, in Chicago, in the 
1860s, when a wheat farmer or somebody growing corn, they 
needed to lock in a price at harvest time.
    And they wanted to lock in that price so they could focus 
on what they really did well, and tilling the field, and so 
forth. And so they needed somebody on the other side, and the 
party on the other side is what we call a speculator.
    So there's the hedger, the natural hedger, meeting the 
speculator in the marketplace, probably since Roman times. In 
the 1920s, the Congress said we need to regulate so that it's 
transparent.
    And so we were founded inside the Department of 
Agriculture, and then by the 1970s, we became a Commission and 
you know the history.
    But it's still a marketplace where hedgers and speculators 
meet. That the natural hedgers need to meet somebody on the 
other side. But what's critical is that we have clear rules of 
the road against manipulation.
    I believe that the position limit authority is that no one 
speculator sort of has this big footprint, and that we have 
great transparency in the marketplace.
    Senator Moran. Speculation is useful to the economy 
including in establishing a market for oil and gasoline. And I 
guess the point you make is that you want to be careful about 
the magnitude of any one individual's position within that 
market.
    Mr. Gensler. That's right. That's right.
    Senator Moran. Thank you, Mr. Chairman. Mr. Chairman, I 
need to go to the Department of Homeland Security 
Appropriations Subcommittee hearing.

                FUNDING NEEDED FOR NEW RESPONSIBILITIES

    Senator Durbin. Thank you very much, Senator Moran. You've 
been very patient. I thank you for that.
    I want to kind of move into another area here and probably 
make a statement and ask you a question along the way.
    Your current-year appropriation is in the range of $205 
million.
    Mr. Gensler. Yes.
    Senator Durbin. The President had requested close to $300 
million, I believe, for this current fiscal year.
    Mr. Gensler. Right. Correct, $308 million.
    Senator Durbin. And so what you were given is dramatically 
less than the President's budget and less than what the Senate 
had suggested.
    And my feeling is that your agency, based on your testimony 
and the clear evidence we have, needs more resources to deal 
with the challenges that you are facing and that we've given 
you by law, passed by the Congress, signed by the President.
    It isn't as if you're dreaming up new assignments. We're 
sending them your way in volume as we move you from the well-
known marketplaces like Chicago, which I'm very proud to 
represent, to a new world of swaps and over-the-counter (OTC) 
trading, that is dramatically larger in volume.
    For the record, what is the difference if we can speculate, 
I guess we can do that here, if we can speculate, the 
difference in size between that regulated marketplace that we 
can see on the street in Chicago and what is going on over the 
counter?
    What's the difference in size?
    Mr. Gensler. It's about eight times the size in terms of 
the aggregate dollar amounts. There's $300 trillion notional in 
swaps, which is $20 for every $1 of goods and services produced 
by America.
    Senator Durbin. That is an indication of new assignments 
coming your way, to deal with that market, and to try to have 
appropriate oversight.
    And so when the President asks for more resources, it's 
because you have a new and large responsibility coming.
    Mr. Gensler. That's right.
    Senator Durbin. Now, I have said to my friends in the 
industry, the Chicago Mercantile Exchange (CME), and others, 
that I have felt their position since I have been a Congressman 
and Senator, has been very clear and concise.
    They believe that their strength in the marketplace is the 
fact that they do follow the rule of law. They are subject to 
oversight. There is transparency, and it is rare, I wouldn't 
say never, but it is rare that an embarrassing situation 
arises.
    And that marketplace becomes a magnet for people all around 
the world because of those features. And that all depends on 
appropriate regulation from my point of view. And I think from 
theirs too. I don't want to put words in their mouth.
    Now, there are people who argue that if the Congress does 
not give you the resources to do your job, appropriate 
regulation of not only the existing marketplace, but new market 
responsibilities like OTC, that the alternative should be a 
user fee, a transaction tax, mirroring the example of SEC, 
which generates its annual budget through fees collected.
    And now is linked up more closely to the collection to the 
actual budget that they have to spend. And I, for one, have had 
misgivings about that because I question what will that do to 
the competitiveness of the American marketplace or CME, for 
example, against other countries with marketplaces that don't 
charge the same user fee or transaction tax.
    Does it create a competitive disadvantage for the United 
States in what has become a global industry? For the record, 
would you like to tell me your position or your belief about 
this issue?
    Mr. Gensler. My position is I would like to work with the 
Congress on whatever helps get the funding, and so, I don't 
have a philosophic bias on this.
    I believe that just as in the securities field, the 
transaction volume is so significant that it would end up being 
a very small fee if the Congress wanted to move forward on it.
    Senator Durbin. Well, let me take a step beyond where 
conversations have been in the past, and ask you, if you 
included the OTC market in this user fee, transaction tax, 
whatever you want to characterize it, what you've said to me is 
that it is dramatically larger than the marketplaces that we're 
aware of, the exchanges we're aware of.
    And that, do you include that in, when you say it would be 
a very small fee?
    Mr. Gensler. Oh, absolutely. I think that if the Congress 
were to work on this, that it would be appropriate, it would be 
spread across the swaps marketplace if it included futures.
    In this $300 trillion swaps marketplace that we're supposed 
to oversee, we have a $300 million budget, so just the 
arithmetic, that's $1 of budget request, $1 of budget for every 
$1 million in the swaps market, just to give a sense of the 
scaling.
    Senator Durbin. What I've said to my colleagues on both 
sides of the Rotunda is that if we do not adequately finance 
your agency to keep up with the responsibilities that have been 
sent your way, and the dramatic increase in the volume of 
trading in the traditional markets, that there will be growing 
pressure for some other funding source.
    And I hope that we rise to the occasion. I hope that we 
find the financing and appropriations to meet the President's 
request in the next fiscal year.

                             FEAR OF GROWTH

    The last question is this: There is always a fear, I've 
served on the appropriation committees in the House and the 
Senate that we're giving an agency too much money too fast. And 
that the net result of it will be waste and bad decisions.
    To take your budget of $200 million and increase it by 50 
percent in a 12-month period of time is a pretty daunting 
assignment. Now, you've said, most of it will go to technology, 
and I'll let you say for the record, how much of that is 
scheduled, that you can see, it's going to happen.
    We are just moving along a path we had already created to 
create the technology that we need. But 40-percent-plus will be 
in new hires, and that too, is a challenge, to come up with the 
talent you need in your agency. I have visited your office in 
Chicago. I have met with your people.
    You have some extraordinarily talented people. The folks 
who would like to get on the floor and kick around Federal 
employees ought to sit down for 5-minutes with your staffers in 
Chicago and tell me that they can even comprehend what they do 
for a living, let alone dismiss it as wasteful bureaucracy.
    So tell me about increasing your budget by 50 percent in 1 
year, and whether this can be spent in a way that a year later 
you could come before us and say we saw it coming. We're ready, 
and will spend it well.
    Mr. Gensler. I thank you for those comments, and I'll pass 
them on to the staff, particularly in Chicago.
    I'm very proud of what they've been able to do. I think we 
can, but just as you worked with us last year, I think you had 
been conscious of that and I think it's called 2-year money, as 
a term of art is not incorrect, but I think that we could work 
with you.
    And, you know, how to ensure that we just didn't waste any 
taxpayer dollars. I mean, we're not going to put money to work 
if we can't hire the right people. So to hire 300 people in a 
year is a significant endeavor.
    The sooner we would know it, obviously, the better, if we 
end up in a process where this is after October and then 
continuing resolutions, then we have to be realistic that it 
would probably be best that it's put off into 2013 and 2014.
    But I think the sooner we'd know it, we would work with you 
to make sure we would never waste any taxpayer money
    Senator Durbin. Thank you, and thanks for your patience. I 
apologize again for being late, and I know we'll continue to 
work with you as we prepare the appropriations bills.
    We have a deeming resolution that has been filed this week 
in the Senate by Senator Conrad of the Senate Budget Committee 
which reflects the statutory bipartisan agreement on spending 
levels.
    There is some difference of opinion between the House and 
the Senate now as to whether that is going to be the guiding 
rule or some other effort will be intervening, but I think the 
Senate is likely to proceed based on this bipartisan law signed 
by the President.
    And I'm hoping that we can move on it on a timely basis to 
meet your last observation. The later in the process you are 
given notice, the less time you have to make it work right.
    And for your agency, for all those regulated by it, and for 
the taxpayers of this country, we ought to do our best to avoid 
that problem. Thank you very much for being here.
    Mr. Gensler. Thank you, Mr. Chairman.

                          SUBCOMMITTEE RECESS

    Senator Durbin. I'm going to have the subcommittee stand 
recessed. You may get some written questions. It's infrequent, 
but if you do, and could reply in a timely way, I'd appreciate 
it.
    Mr. Gensler. Thank you.
    Senator Durbin. Thanks.
    [Whereupon, at 3:53 p.m., Wednesday, March 21, the hearing 
was concluded, and the subcommittee recessed, to reconvene 
subject to the call of the Chair.]
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