A former top financial regulator who served under President Obama has warned that there is “a massive amount of misconduct” that goes unpunished in derivatives markets.
Ex-Commodity Futures Trading Commission enforcement chief Aitan Goelman told Reuters on Friday that the body lacks the means to ferret out malfeasance, in the era of computerized trading.
“We could do a lot more manipulation cases. We have all these new enforcement tools and this vastly expanded jurisdiction and data,” Goelman said. “But you have to be acutely conscious about the limited resources.”
Goelman served as CFTC enforcement head for three years. He left the position last month, not long after President Trump’s inauguration.
Insider trading, price manipulation, pyramid schemes and front-running are all types of illicit activity going unpunished, Goelman said. “Front-running” is when traders personally profit off an impending order from institutional investors.
Goelman said the CFTC’s enforcement team declines to pursue two-thirds of tips, in part, due to a lack of resources.
The CFTC’s budget is $250 million “with just over 20 percent designated for enforcement,” as the wire service noted. By comparison, the Securities and Exchange Commission was given $1.6 billion this fiscal year, with one-third of that earmarked for enforcement.
Reuters noted that the US swaps market is estimated to be worth $300 trillion. Futures and options markets are worth about $50 trillion.
In 2008, the year of the last global financial collapse, Congress allotted $111 million to the CFTC.
Last decade’s crisis was caused, in part, by derivatives—essentially insurance contracts designed to hedge risk by triggering payments in the event of asset depreciation.
Goelman is not the first CFTC official—current or former—to warn that the body lacks crucial enforcement resources. Last April, then-CFTC Chair Timothy Massad said the agency couldn’t keep pace with the volume of data produced by computerized traders.
“Ten years ago, you could engage in surveillance in our markets by watching floor traders in trading pits,” Massad said. “That isn’t the case anymore.”
“We don’t have the resources to keep up,” he added.
