Gary Gensler, chairman of the U.S. Commodity Futures Trading
Commission, warned that without sufficient funding, his agency
would struggle to employ new market-surveillance tools to target
inappropriate activity.

“Given the dominance of financial actors and speculators in
these markets, it’s that much more crucial that the CFTC is well
funded so that we can ensure these markets work for hedgers,”
Gensler told a Senate Appropriations subcommittee.

Gensler said he fills up his car “a lot” to handle frequent
trips between Washington and Baltimore, where he has family.

“The need for adequate funding is highlighted by rising gas
prices at the pump,” he said, noting the CFTC is responsible for
ensuring the market is transparent and free of illegal activity,
but that it is not a price-setting agency.

U.S. gasoline prices have jumped nearly 30 cents in the past
month, pushing the national average to $3.87 a gallon, according
to the Energy Information Administration. With elections
scheduled for November, the price surge has led to
finger-pointing between Republicans and Democrats in Congress.

Gensler’s call for funding comes the same day that five
Democratic senators and one independent accused the chairman of
not moving fast enough on efforts to curb excessive speculation.

The six senators, in an effort to lower skyrocketing fuel
prices, unveiled legislation that would require the CFTC to use
its emergency powers to impose position limits in oil futures
markets within 14 days of the measure becoming law.

“I think that Chairman Gensler doesn’t understand the
urgency of the moment and the pain that millions of people are
feeling right now at the gas pump,” said Senator Bernie Sanders,
the independent member of the group.

Gensler told lawmakers on the Senate panel he had asked the
CFTC’s general counsel to brief the agency’s commissioners on
its emergency power authority and how that was used four times
in the late 1970s. He said he did not believe Congress had the
authority to force the CFTC to use its emergency power.

But when pressed on whether the CFTC could or should use the
emergency authority on rising gas prices, Gensler was careful
not to tip the agency’s hand, frustrating lawmakers.

“I understand the nature of your answer but I think you are
carefully avoiding saying where there has been specific factual
inquiry,” said Senator Richard Durbin, chairman of the
subcommittee.

The White House last month proposed a big budget boost for
the CFTC, which is months behind in implementing Dodd-Frank
financial reforms. The regulator would receive a 50 percent
spending jump to $308 million from $205 million in fiscal 2012
under its 2013 budget.

However, the chances of the CFTC getting the full budget
hike are slim, due to congressional resistance.

Position limits were part of the 2010 Dodd-Frank law,
designed to bring tough oversight to Wall Street, including
limiting excessive speculation.

The CFTC narrowly passed a position-limits rule in October
2011, but the agency must first define a swap and collect market
data before the regulation can go into effect. The rule also has
been challenged in the court system by the financial industry,
which said the measure went too far.

The regulator faces a daunting to-do list, including
implementing the new responsibilities it received from
Dodd-Frank, and the investigation into the collapse of futures
trading firm MF Global that has been ongoing since late October.

The Commodity Futures Trading Commission’s measures,
approved 4-1 by the agency’s five commissioners, detail the
documentation for customer clearing, requirements for processing
of their positions and risk-management procedures that must be
followed by clearing members.

The rules are expected to go into effect by Oct. 1.

“I have listened to and met with some who seem to think this
rule … is going too far. But I don’t agree,” said Bart
Chilton, a Democratic CFTC commissioner.

“What we are doing in this instance is a necessary step in
the transition to safe and more efficient and effective
markets,” he said.

Credit default swaps, a type of over-the-counter derivative,
were blamed for amplifying market distress in 2008 as the world
slipped into economic recession.

Congress in 2010 passed the Dodd-Frank law, which
established a framework for regulators to boost oversight of the
previously opaque $700 trillion OTC swaps market.

The law requires swaps dealers and large participants to
trade swaps on exchanges or platforms known as swap execution
facilities, and use clearinghouses to reduce market risk.

Swap data repositories would act as a warehouse to collect
the information.

The CFTC rules passed on Tuesday establish documentation
requirements that protect a customer by banning so-called
tri-party agreements among customers, swap dealers and futures
commission merchants (FCMs) that are clearing members, and
clearinghouses.

The measure prevents certain documentation that would
disclose the identity of a customer’s original executing
counterparty, limit the number of counterparties with which a
customer may enter into a trade, or restrict the size of the
position a customer can take with any individual counterparty.

SLOW THE RULEMAKING

Scott O’Malia, a Republican CFTC commissioner, voted against
the rules. He said the agency had failed to develop a schedule
that integrated them with other regulations and that there had
been an insufficient review of the rules’ costs versus benefits.

“I know the commission is capable of much more. The question
remains, however, if we will ever slow down our rulemaking
machine to do the actual work,” O’Malia said. “We can’t ignore
and not look because it’s hard.”

The rules also include procedures to be followed when trades
are submitted for clearing.

The regulations require a clearing member, or the
clearinghouse, to accept or reject each trade submitted for
clearing as quickly as “technologically practicable”, but
usually between milliseconds to at most a few minutes.

A swap dealer, swap execution facility, designated contract
market, and FCM also would have a limited time to submit swaps
to a clearinghouse.

In addition, the CFTC would require swap dealers and FCMs
that act as clearing members to follow risk-management rules.

Clearing members would have to establish certain procedures,
including setting limits for their customers, monitor accounts
for adherence to those limits and conduct stress tests of their
positions.

The futures regulator has competed about 30 Dodd-Frank rules
and has 20 more to go, including swap and swap dealer
definitions and measures outlining capital and margin
requirements – factors that will highlight who will have to
comply with the potentially costly and onerous measures.

The Commodity Futures Trading Commission measures being
finalized detail the documentation for customer clearing,
requirements for processing of their positions and risk
management procedures that must be followed by clearing members.

Credit default swaps, a type of over-the-counter derivative,
were blamed for amplifying market distress in 2008 as the world
slipped into economic recession.

Congress passed the Dodd-Frank law in 2010, which
established a framework for regulators to use to boost oversight
of the previously opaque $700 trillion OTC swaps market.

The law requires swaps dealers and large participants to
trade swaps on exchanges or platforms known as swap execution
facilities, and use clearinghouses that guarantee the trades to
lower risk.

Swap data repositories would act as a warehouse to collect
the information.

The CFTC rules establish documentation requirements that
protect a customer by banning so-called tri-party agreements
between customers; swap dealers and FCMs that are clearing
members; and clearinghouses.

The measure prevents certain documentation that would
disclose the identity of a customer’s original executing
counterparty, limit the number of counterparties that a customer
may enter into a trade with, or restrict the size of the
position a customer can take with any individual counterparty.

The rules also include procedures to be followed when trades
are submitted for clearing.

The regulations require a clearing member, or the
clearinghouse, to accept or reject each trade submitted for
clearing as quickly as “technologically practicable,” but
usually between milliseconds to at most a few minutes.

A swap dealer, swap execution facility, designated contract
market, and FCM also would have a limited time to submit swaps
to a clearinghouse.

In addition, the CFTC would require swap dealers and FCMs
that act as clearing members to follow risk management rules.

Clearing members would have to establish certain procedures,
including establishing limits for their customers, monitor
accounts for adherence to those limits and conduct stress tests
of their positions.

The futures regulator has competed about 30 Dodd-Frank
rules and has 20 more to go, including swap and swap dealer
definitions and measures outlining capital and margin
requirements – factors that will highlight who will have to
comply with the potentially costly and onerous measures.

Trading firms, exchange operators and other industry players
have made a political calculation that even if Republicans make
a clean sweep in November elections, they will not rip up
reforms sold as a way to guard against a repeat of the 2007-2009
financial crisis.

Besides the presidential race, the election season will
include pivotal races in both chambers of Congress, especially
in the Senate, where a third of its 100 seats are up for grabs.

Even if the Senate, where Democrats now hold a narrow
six-vote majority, goes Republican, lawmakers could be afraid to
overhaul the controversial 2010 Dodd-Frank only to get blamed if
another market collapse occurs.

Republican presidential candidates Mitt Romney, Rick
Santorum and Newt Gingrich have vowed to repeal Dodd-Frank.

Industry insiders, though, aren’t buying into the campaign
promises.

“If the Republicans controlled everything I think they would
be very hesitant to just gut the whole thing. Maybe you’d see
some changes in some of the details of things but my sense is
that the gist of stuff will go forward as planned,” said Donald
Wilson Jr, chief executive of Chicago-based DRW Trading Group.

Rewriting it “would be a very risky thing for people to do.
If you then got another AIG blowup it would be easy to point the
finger at the guy who gutted Dodd-Frank,” he said.

Widespread ignorance of the swaps exposures of troubled
investment firms such as Lehman Brothers and mega-insurer AIG
greatly aggravated the 2007-2009 crisis that led to
taxpayer bailouts of Wall Street.

In response, Congress passed the Dodd-Frank law, which in
part established a framework for regulators to boost oversight
of the previously opaque $700 trillion OTC swaps market.

Wall Street banks are anxiously waiting for the U.S.
Commodity Futures Trading Commission to finalize a series of
rules such as definition of a swap dealer, what is an end-user
and capital and margin requirements — factors that will
highlight who will have to comply with new, onerous and
potentially costly measures.

Gary Gensler, CFTC chairman, has hinted the upcoming
election will not dictate the pace of rule-writing or how the
final measures look. The regulator will craft its rules in “a
thoughtful, balanced way to get them right — not against a
clock”, he told the industry on Wednesday.

At IntercontinentalExchange Inc, the exchange and
clearinghouse operator is preparing for the rules passed by the
CFTC to go into effect and does not expect “material” changes to
the financial reform law, said Charles Vice, ICE president.

“For there to be any meaningful change it would require
presumably a filibuster-proof Republican Senate, which no one is
predicting,” Vice told Reuters at the annual FIA meeting in Boca
Raton, Florida.

REFORMING THE REFORMS

Market players do expect some tweaks to Dodd-Frank, even if
they are skeptical of an overhaul.

Vice said one regulation that could change under a
Republican White House is the Volcker rule that prevents banks
which receive government backstops such as deposit insurance
from making risky trades with their own funds.

Republicans who now control the House of Representatives
have already tried to throw up roadblocks to some pieces of
Dodd-Frank and have voiced concern about what they call an
“irrational” rule-making process used by regulators.

They have introduced bills to overturn parts of Dodd-Frank
that would narrow the scope of which entities the CFTC may
designate as swap dealers and another to prevent regulators from
subjecting most farm credit institutions and community banks to
capital, margin and other expensive new regulations.

Lawmakers also have opposed funding boosts for regulatory
agencies such as the CFTC and the Securities and Exchange
Commission to put the brakes on implementation of the law.

Michael Dunn, a former CFTC commissioner who left the agency
in October before joining the Washington D.C.-based law and
lobbying firm Patton Boggs as a senior policy adviser, said he
doubted Republicans could get enough support in the Senate to
overhaul the rules even if they become the majority.

“I don’t know if all the members of one party or the other
are opposed to Dodd-Frank,” Dunn said. “I think there are issues
that they think might have gone too far or they think there
needs to be a clarification. I don’t think anyone in Congress
wants to have another financial services meltdown.”

The CFTC has finalized about 30 Dodd-Frank rules and has
about 20 more to go. The futures regulator holds its next
rule-making meeting on March 20.

The CFTC complaint alleges that Joseph Welsh, while working for the firm, used a manipulative scheme commonly known as “banging the close” between at least June 2006 through May 2008 on no fewer than 12 separate occasions to alter prices.

Banging the close occurs when a trader acquires a substantial position leading up to the closing period, and then offsets the position before the end of trading to try to manipulate closing prices.

“We have some new manipulation authority” under the Dodd-Frank financial reform law enacted in 2010, said Bart Chilton, a Democratic CFTC commissioner, speaking at the Futures Industry Association annual meeting in Boca Raton.

“We’re looking at all our authorities, including our new manipulation authority, and we’re going to use them as aggressively as we can,” continued Chilton, who was not speaking directly about this case.

The CFTC said in a statement it is seeking civil monetary penalties, trading and registration bans and a permanent injunction to stop further violations of the federal commodities laws against Welsh.

The complaint charges the former MF Global trader with directly attempting to manipulate the palladium and platinum futures prices and with aiding and abetting the attempted manipulations of Christopher L. Pia, a former portfolio manager of Moore Capital Management, LLC.

The CFTC has previously filed and settled charges against Pia and Moore Capital.

MF Global filed for bankruptcy on October 31 after investors and customers became rattled over the firm’s $6.3 billion bet on European sovereign debt. Investigators are still trying to find more than $1.6 billion in missing customer money.

(Reporting by Christopher Doering; Editing by Alden Bentley)

The CFTC’s Office of the Inspector General conducted a
preliminary investigation into allegations last year that the
leader of the team writing the position limits rule was
undermining the effort by removing senior employees and trying
to push an unworkable rule.

The complaints revealed internal strife at the agency that
is crafting dozens of reforms included in the 2010 Dodd-Frank
financial reform law.

The position limits rule, which curbs excessive speculation
in the commodity markets, has been among the most politicized.
Regulators are under immense pressure to try to keep down fuel
prices ahead of the November elections.

“We found no evidence to sustain a preliminary finding of
wrongdoing by any individual connected with the position limits
and large swaps trader reporting rulemakings,” the inspector
general’s report said.

“No witness presented evidence of corruption or violations
of law in connection with the drafting of the position limits
rule by the team lead or any other person who worked on the
rule.”

The allegations, filed in August of last year, said the
agency’s team leader for position limits “sneakily” got himself
appointed to the role, and soon after removed more experienced
members in order keep newer members who could be more easily
manipulated.

The anonymous sources also asserted the team leader engaged
in improper communications with outside sources, and crafted a
rule that would not work because it was not compatible with
another CFTC measure on large swaps trader reporting.

In its 35-page report, the inspector general’s office said
it found no evidence to support these allegations. The
investigation involved interviews with CFTC officials, including
Gary Gensler, the chairman of the agency. (PDF of report: r.reuters.com/keb96s)

“Due to the uniform quality of information received from
CFTC employees and management, we did not take steps to refer
this matter for further investigation,” the report found.

The CFTC’s groundbreaking position limits rule, contested in
courts by the financial industry, aims to restrict the number of
contracts a trader can hold in 28 commodities including oil. The
measure was narrowly approved by the agency’s five commissioners
on Oct. 18 by a vote of 3-2.

(Reporting by Christopher Doering; Editing by Lisa Shumaker)

The CFTC’s Office of the Inspector General conducted a
preliminary investigation into allegations last year that the
leader of the team writing the position limits rule was
undermining the effort by removing senior employees and trying
to push an unworkable rule.

The complaints revealed internal strife at the agency that
is crafting dozens of reforms included in the 2010 Dodd-Frank
financial reform law.

The position limits rule, which curbs excessive speculation
in the commodity markets, has been among the most politicized.
Regulators are under immense pressure to try to keep down fuel
prices ahead of the November elections.

“We found no evidence to sustain a preliminary finding of
wrongdoing by any individual connected with the position limits
and large swaps trader reporting rulemakings,” the inspector
general’s report said.

“No witness presented evidence of corruption or violations
of law in connection with the drafting of the position limits
rule by the team lead or any other person who worked on the
rule.”

The allegations, filed in August of last year, said the
agency’s team leader for position limits “sneakily” got himself
appointed to the role, and soon after removed more experienced
members in order keep newer members who could be more easily
manipulated.

The anonymous sources also asserted the team leader engaged
in improper communications with outside sources, and crafted a
rule that would not work because it was not compatible with
another CFTC measure on large swaps trader reporting.

In its 35-page report, the inspector general’s office said
it found no evidence to support these allegations. The
investigation involved interviews with CFTC officials, including
Gary Gensler, the chairman of the agency. (PDF of report: r.reuters.com/keb96s)

“Due to the uniform quality of information received from
CFTC employees and management, we did not take steps to refer
this matter for further investigation,” the report found.

The CFTC’s groundbreaking position limits rule, contested in
courts by the financial industry, aims to restrict the number of
contracts a trader can hold in 28 commodities including oil. The
measure was narrowly approved by the agency’s five commissioners
on Oct. 18 by a vote of 3-2.

(Reporting by Christopher Doering; Editing by Lisa Shumaker)

In a letter to the U.S. Commodity Futures Trading
Commission, 23 senators and 45 members of the House of
Representatives called on the agency to stop “dragging its feet”
on implementing new regulations to stop Wall Street from
dominating the oil market.

Meanwhile, gasoline prices are soaring, despite plenty of
supply and low demand, the lawmakers charge.

“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,” the members of Congress
told the commissioners in a letter.

“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.”

The letter was signed by Senators Barbara Boxer, Bernie
Sanders and John Rockefeller and Representatives Rosa DeLauro,
among others. All the signers were Democrats except for Sanders,
who is an independent.

U.S. gasoline prices have jumped nearly 30 cents over the
past month and now average $3.77 a gallon, according to data
from the American Automobile Association.

Some analysts argue that there is little evidence of
excessive speculation in oil markets and that prices are moving
over concerns in the Middle East and strong demand from
developing countries such as China and India.

“Congress is rightfully concerned about the economic
difficulty that today’s high oil prices present to American
consumers, but targeting financial speculators simply won’t fix
the problem that policymakers are trying to solve,” said Blake
Clayton, an energy and national security fellow at the Council
on Foreign Relations in New York.

Concern over Iran sanctions could drive oil prices higher
yet and push American gasoline prices above the psychological
barrier of $4 a gallon in the coming months.

SELF CORRECTING

Such lofty prices could spell trouble for President Barack
Obama as he gears up for the November elections. Obama has been
talking up the issue in campaign-style stops in recent days,
saying there was no quick fix to the problem. Last week in New
Hampshire, he called for an end to tax breaks for the country’s
prosperous oil and gas companies.

Kevin Book, an analyst at ClearView Energy Partners in
Washington, said Obama’s promises to protect consumers in the
weeks ahead could refer to the formation of a new CFTC rule
among other things. But there’s little a new rule could do to
hurt speculators as high gasoline prices eventually correct
themselves.

Republicans, eager to blame the Obama Administration for the
rising fuel costs, say the country is paying for the decisions
by the White House to limit offshore oil drilling and delaying
approval of the Keystone Canada-to-Texas oil pipeline.

Democrats are also urging the administration to tap the
country’s strategic oil reserves, something the White House has
said it was considering.

The CFTC’s groundbreaking position limits rule, contested
in courts by the financial industry, aims to restrict the number
of contracts a trader can hold in 28 commodities including oil.
It was narrowly approved by the agency’s five commissioners last
October.

The measure was part of the 2010 Dodd-Frank law that was
designed to bring tough new oversight to Wall Street, including
limiting excessive speculation.

The futures regulator, straining with a huge workload
drafting the new rules, has said it could implement limits for
the spot month by June, but it must first finish its swaps
definition.

The final limits for all contract months can only be set a
few months after the agency has collected a year’s worth of
swaps data, a process that is expected to end in August.

The financial industry sued the CFTC in December, arguing
the agency overstepped its bounds by imposing a rule that was
riddled with flaws and had the potential to irreparably harm its
members and the public.

Jill Sommers, a Republican commissioner at the CFTC who
voted against the position limits, told reporters at
a bankers conference that an imposition of limits may have
little effect on the market because only about six participants
would be affected.

“Is that really going to change the price?” she said after
speaking at the conference. “I think we’ve all cautioned against
making the leap that just because we haven’t imposed the limits
yet that means that when we impose them there will be some
significant effect on price.”

(Additional reporting by Timothy Gardner; Editing by Russell
Blinch, Lisa Shumaker and Jim Marshall)

In a letter to the U.S. Commodity Futures Trading
Commission, 23 senators and 45 members of the House of
Representatives called on the agency to stop “dragging its feet”
on implementing new regulations to stop Wall Street from
dominating the oil market.

Meanwhile, gasoline prices are soaring, despite plenty of
supply and low demand, the lawmakers charge.

“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,” the members of Congress
told the commissioners in a letter.

“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.”

The letter was signed by Senators Barbara Boxer, Bernie
Sanders and John Rockefeller and Representatives Rosa DeLauro,
among others. All the signers were Democrats except for Sanders,
an independent.

U.S. gasoline prices have jumped nearly 30 cents over the
past month and now average $3.77 a gallon, according to data
from the American Automobile Association.

Some analysts argue that there is little evidence of
excessive speculation in oil markets and that prices are moving
over concerns in the Middle East and strong demand from
developing countries such as China and India.

Concern over Iran sanctions could drive oil prices higher
yet and push American gasoline prices above the psychological
barrier of $4 a gallon in the coming months.

Such lofty prices could spell trouble for President Barack
Obama as he gears up for the November elections. Obama has been
talking up the issue in campaign-style stops in recent days,
saying there was no quick fix to the problem. Last week in New
Hampshire, he called for an end to tax breaks for the country’s
prosperous oil and gas companies.

Republicans, eager to blame the Obama Administration for the
rising fuel costs, say the country is paying for the decisions
by the White House to limit offshore oil drilling and delaying
approval of the Keystone Canada-to-Texas oil pipeline.

Democrats are also urging the administration to tap the
country’s strategic reserves, something the White House has said
it was considering.

The CFTC’s groundbreaking position limits rule, contested
in courts by the financial industry, aims to restrict the number
of contracts a trader can hold in 28 commodities including oil,
was narrowly approved by the agency’s five commissioners last
October.

The measure was part of the 2010 Dodd-Frank law that was
designed to bring tough new oversight to Wall Street, including
limiting excessive speculation.

The futures regulator, straining with a huge workload
drafting the new rules, has said it could implement limits for
the spot month by June, but the regulator must first finish its
swaps definition before it can do so.

The final limits for all contract months can only be set a
few months after the agency has collected a year’s worth of
swaps data, a process that is expected to end in August.

The financial industry sued the CFTC in December, arguing
the agency overstepped its bounds by imposing a rule that was
riddled with flaws and had the potential to irreparably harm
their members and the public.

(Editing by Russell Blinch and Lisa Shumaker)

The $3 billion cut-off, based on the notional value of a company’s annual swaps trade, will determine which market participants are deemed swap dealers, saddling them with more onerous capital requirements and higher hedging costs.

The Commodity Futures Trading Commission has been steadily increasing the proposed de minimis exemption since it first proposed a level of $100 million in December 2010, and the regulations have proven some of the most complicated of the agency’s large Dodd-Frank reforms agenda.

Credit default swaps, a type of over-the-counter derivative, were blamed for amplifying market distress in 2008 as the world slipped into economic recession.

Several months ago the agency was considering $1 billion, then it moved up to $2 billion in recent weeks, sources have said. The moving target has caused repeated delays in the rule, which is being crafted with the Securities and Exchange Commission.

Now, the cut-off appears set to rise again after officials grew concerned that even a $2 billion limit would unfairly capture legitimate hedgers in the agriculture or energy markets – players that don’t create systemic risk or problems to the marketplace. Big banks have long expected to be swap dealers.

“I think as a general rule we’re reaching a pretty good balance,” said the CFTC official with knowledge of the regulation, adding it is inevitable that some people will say they are unfairly being defined as a swap dealer.

“It’s not as constrictive as our proposal, but it also doesn’t include legitimate hedgers, who given the normal financial hedging operations, aren’t a risk to the system and don’t necessarily need to be on our radar to the extent that larger players do.”

Even the $3 billion level could change again before regulators vote on the final rule, expected sometime this month.

The CFTC and other financial regulators are struggling to craft a new regulatory framework to boost oversight for the previously opaque $700 trillion over-the-counter derivatives market required under the 2010 Dodd-Frank law.

(Reporting by Christopher Doering; Editing by Lisa Shumaker)