Nearly a year after launching ambitious reform plans, the top cop for U.S. futures markets, Gary Gensler, is beset by dissent from inside his agency and political attacks from outside it.
In the last two months, signs of friction within the U.S. Commodity Futures Trading Commission have spilled into public view: internal complaints by whistleblowers, and the surprise release last Thursday of a key position-limit rule by Reuters. The leak of confidential trading data has also caused waves.
The strains are not necessarily surprising for an agency that has been thrust from relative obscurity into the forefront of sweeping reforms, and is now undertaking an overhaul of derivatives trading without the big increase in funding and additional staff it is seeking.
Nonetheless, internal discord may be the biggest challenge yet for Gensler, the 53-year-old marathon runner who is sprinting to finish a new regulatory framework for the $600 trillion over-the-counter derivatives market.
And it is heating up as the CFTC draws closer to finalizing the most controversial and important rules that could force Wall Street firms to change the way they do business.
What it tells you is there's a fair amount of acrimony within the commission on these issues, said one lawyer, noting the whistleblower complaints .
The discontent in some ways stems from the top. CFTC commissioners have openly disagreed on what the rules should look like, and the best way to put them into effect. Increasingly, some commissioners have spoken out about being left in the dark about what is going on at their own agency.
It now appears to be trickling down to lawyers, economists and others tasked with finishing the rules on which they have been working nonstop for nearly a year, and have at least six more months to go.
Jill Sommers, a Republican CFTC commissioner who has opposed a number of the rules, told Reuters on Friday she was frustrated by a lack of communication to agency commissioners about things going on at the CFTC.
It's frustrating that we find things out third hand, Sommers said. I understand there are a lot of different things being juggled and we have limited resources at the commission, so I'm sensitive to that, but I would guess there is a better way to keep us all on the same page.
One example was a Senate Republican aide who told Reuters last Friday that CFTC Inspector General A. Roy Lavik would investigate the whistleblower complaints on the position-limit rule. Sommers said she had not been told of the investigation.
Earlier this month, whistleblowers expressed concern at internal strife in the CFTC over how to craft a workable rule to crack down on speculation in oil markets. They asked the agency's inspector general to step in. [nS1E78D1KJ]
A second senior regulations lawyer, who like many others requested anonymity, added: There's insurrection at the commission, evidently.
Gensler, a former Goldman Sachs executive who regularly puts in late nights and long weekends, also has been driving his staff toward the finish line on reforms that he largely helped craft, likely adding to the agency's tensions.
CFTC spokesman Steve Adamske declined to comment for this story.
Gensler quickly became a go-to guy for Congress after being sworn in May 2009.
Lawmakers and staffers at the time lauded his ability to explain a complicated subject clearly and simply as they embarked on the Dodd-Frank financial reform legislation in the wake of the 2008 meltdown on Wall Street.
Gensler worked the halls of Congress and was a fixture on financial television as he pushed for a strengthening of the CFTC's regulatory powers. When the reform bill was before the Senate Agriculture Committee, Gensler had a front-row seat.
The tide has turned, however.
Republicans, who are chafing at new regulations in general, are particularly vocal in their criticisms of the CFTC. Democrats, already concerned the agency is not being tough enough on Wall Street and anxious for action to crack down on speculators they blame for driving up food and fuel prices, are worried the agency may be watering down the rules.
He wanted all this stuff and put a tremendous burden on an agency that was probably not manned-up to handle it, said Craig Pirrong, a professor at the University of Houston.
In that respect I think he is somewhat culpable, but the main issue is Congress just dumped a huge amount of stuff on the agency and I think it's inevitable that there's going to be a tremendous amount of tension, Pirrong said.
The regulatory gunslinger has sometimes rubbed people the wrong way, namely the Republicans at the CFTC who, for example, have pushed for a more detailed timeline for how the agency intends to finalize and then implement new rules -- with Gensler providing only a broad schedule.
To be sure, Gensler, who was a senior adviser for Hillary Clinton's presidential campaign, has told Congress he needs more resources and a few hundred more people to implement and enforce the swaps rules, which cover a market several times larger than the futures arena the CFTC traditionally oversees.
The Obama administration asked for funding in fiscal year 2012 to increase the agency's staff to 983 full-time employees, though it appears unlikely Congress will boost its budget enough to accommodate that request.
TOO FAST, OR NOT FAST ENOUGH
The regulator so far has finalized nearly a dozen complex rules, but most of the high-profile and controversial regulations remain works in progress.
The agency expects to consider end-user exemptions, position limits and real-time reporting this year, and rules for capital and margin, and swap-execution facilities in 2012.
Republicans, saying the CFTC has emphasized speed over deliberation in the rule-writing, have proposed legislation to slow it down. It is unlikely these bills will make it through the Democrat-led Senate.
In some cases, the challenges facing Gensler come from outside the agency. In August, Sen. Bernie Sanders, a staunch critic of oil speculators who has said the CFTC has failed to move fast enough on position limits, intentionally released oil-trading data that exposed the extensive positions speculators held in the run-up to record prices in 2008.
By law, the CFTC must hand over such information if a congressional committee acting within its proper authority requests it. There is nothing to prevent lawmakers from releasing it to the public.
Sommers called the data leak very serious, and expressed concern that CFTC officials had said nothing about it.
Some industry watchers said the challenges facing the CFTC while writing swaps rules, which until now had been largely unregulated, are unsurprising given the complexity of the rules and differing opinions at the agency on how they should look.
I would give him the benefit of the doubt, Jeff Harris, finance professor at Syracuse University and a former chief economist at the CFTC, said of Gensler. He's thrown into a pretty difficult situation.
(Additional reporting by Roberta Rampton and Sarah N. Lynch; Editing by Russell Blinch and Dale Hudson)