The chief regulator overseeing Wall Street speculators warned that his agency doesn’t have the money to properly analyze increasingly-computerized financial markets.
Commodity Futures Trading Commission Chair Timothy Massad told a Senate subcommittee on Tuesday that “we don’t have the resources to keep up,” when asked by Sen. Chris Coons (D-Del.) about high-frequency traders.
“This really illustrates the problem,” he said. “Ten years ago, you could engage in surveillance in our markets by watching floor traders in trading pits. That isn’t the case anymore.” Massad then said that because “almost all the trading in our markets is electronic and 70 percent is automated,” the commission is flooded with data that it can’t adequately process.
“We have to to be able to store that data, we have to be able to analyze it,” he explained. “We have to write our own programs and software to analyze it the way we want. Plus, we have to have sophisticated professionals who understand these markets.”
Last fall, the CFTC proposed rules on computerized trading. The commission moved to crackdown on the practice in response to seemingly inexplicable wild fluctuations in US Treasury bond yields on a single day in October 2014. Federal regulators from multiple agencies later concluded that the instability was caused, in part, by high-frequency traders–Wall Street firms using powerful computers to execute transactions. US officials had been concerned because Treasury bonds are seen around the world as safe investments.
As Massad noted in October, the proposal was offered without attempting “to define high-frequency trading specifically,” but rather to tackle the problem of “malfunctioning algorithms.” On Tuesday, he said rules on computerized trading would likely be finalized “later this year.”
But as Massad told Sen. Coons on Tuesday, the commission’s inability to keep tabs on an increasingly high-tech and complex market hangs over its efforts to generally regulate.
Massad noted in his written testimony that the Obama administration is attempting to make up for these shortcomings. It proposed nearly doubling the CFTC’s annual “surveillance” budget for fiscal year 2017—to $62.8 million from $37.1 million.
Overall, the administration is seeking to up the CFTC’s budget by a sizable 32 percent—to $330 million from $250 million. When the proposed increase was reported in February, Bloomberg noted that Republicans “already have said they’ll reject most of Obama’s budget plan.”
