Massad picked to lead CFTC

President Barack Obama nominated Timothy Massad, who ran the Troubled Asset Relief Program at the Treasury Department, to head the Commodity Futures Trading Commission. The move comes after Gary Gensler said he would leave once a successor was appointed.

Here’s some of the background from the Wall Street Journal:

Among Mr. Massad’s biggest challenges will be securing additional funds for an agency whose mandate has outgrown its budget. The CFTC, which oversees the $600 trillion derivatives industry, is operating with a budget of about $194 million, far short of the $315 million Mr. Obama has requested for the agency. Derivatives are financial instruments that allow investors, companies and others to hedge against risk.

Mr. Obama called on Congress to boost the CFTC’s budget, saying the agency is “undermanned, they are outgunned, they are working overtime.” He said the agency’s budget had fallen victim to opponents of the 2010 Dodd-Frank financial overhaul, who have “tried to starve funding for the agencies charged with carrying it out.”

The five-member CFTC has been operating with just four commissioners since Republican Jill Sommers stepped down earlier this year. Another commissioner, Democrat Bart Chilton, last week announced plans to leave before year-end. The Senate has yet to confirm Republican J. Christopher Giancarlo to succeed Ms. Sommers, and the pending departures of Messrs. Gensler and Chilton could leave the CFTC with just two commissioners—Republican Scott O’Malia and Democrat Mark Wetjen. Senate aides have said they expect Congress to simultaneously move the nominations of Mr. Giancarlo and whomever the White House nominated to succeed Mr. Gensler.

It isn’t clear how Mr. Massad, 57 years old, a onetime corporate lawyer, will approach some of the biggest issues facing the CFTC, including the push to ensure that U.S. banks operating abroad adhere to U.S. derivatives rules. Mr. Massad, who worked at law firm Cravath Swaine & Moore LLP for 25 years, focused primarily on securities matters while at the firm, though he also has “extensive knowledge” of the derivatives market the CFTC oversees through his corporate legal practice, the official said.

The New York Times detailed the CFTC’s expanding role in regulating Wall Street and its products:

Some consumer advocates also remain skeptical of Mr. Massad, a former corporate lawyer who spent more than two decades at Cravath, Swaine & Moore. They wonder whether he will strike as aggressive a tone as Mr. Gensler did.

Under Mr. Gensler, the agency has received plaudits for its crucial role in putting in place new rules on derivatives and futures trading as part of the government’s Dodd-Frank financial overhaul. In the face of Wall Street lobbying, the agency created dozens of new rules since Congress passed the overhaul in 2010.

The Dodd-Frank Act gave the agency new authority to regulate the exchanges, and the derivatives and futures contracts traded on those exchanges, expanding the scope of the agency’s jurisdiction. Mr. Gensler was an unapologetic supporter of the law, pushing the agency to tighten rules that Wall Street sought to loosen.

Derivatives tied to mortgages were the main accelerator of the financial crisis, helping to pump up a real estate bubble that led to a bust and the worst financial crisis since the Depression.

Since then, the agency has also imposed record fines on financial institutions. Among its most notable actions was a wide-ranging crackdown on the manipulation of benchmark interest rates, which reeled in major banks including Barclays and UBS.

The Associated Press story (via Time) pointed out that Massad would have to finish the rule-making process, meaning he’ll need to be tough on Wall Street:

Obama is expected to use Massad’s nominating ceremony to call on Congress to fully fund the CFTC, one of the smallest and most thinly funded U.S. agencies. The 2010 financial overhaul law gave the CFTC the task of laying down rules for oversight of derivatives, the complex instruments traded in a $700 trillion worldwide market that has been unregulated.

The agency has now completed 43 of the 60 rules it was charged with putting into motion under the overhaul law. By comparison, other regulators, including the Securities and Exchange Commission, have adopted roughly a third of their rules.

Massad would take over the task of implementing the remaining rules. For many, a key question is whether he will exercise independence from the administration and the banks, as Gensler often did.

Gensler, who had worked for nearly 20 years on Wall Street, surprised many by being a tough regulator of banks. He pushed for stricter rules that banks had lobbied against. And he wasn’t afraid to take positions that clashed with the Obama administration.

Massad has worked for the Treasury since Obama took office in 2009 and has been an advocate for the administration’s policies.

“The question is whether he has the guts, independence and commitment … to stand up to Wall Street,” said Dennis Kelleher, the president of Better Markets, a group that advocates strict financial regulation. “It’s a dramatically difficult job at an independent agency at a critical time.”

That’s always the biggest questions with regulators and how they’ll do their jobs. Here’s hoping that independence and fairness prevail at the CFTC.