President Obama is nominating Timothy Massad, a top Treasury Department official, to run the independent agency tasked with regulating and monitoring the futures and options market, a recent report stated.
The nomination announcement is expected to be on Tuesday. For the past three years Massad has overseen the Troubled Asset Relief Program (TARP), the bank-bailout program that was instituted at the end of the most recent Bush administration to avoid the 2008 real-estate financial collapse. If confirmed by the Senate, Massad will succeed Gary Gensler as chairman, who plans to step down when his term ends in January.
Obama is planning to use Massad’s nomination ceremony as a means to call on Congress to fully fund the CFTC, one of the smallest and most thinly funded federal agencies. The 2010 Financial Overhaul law gave the CFTC the task of laying down rules for oversight of the derivatives market, the complex instruments that are traded in a $700 trillion world-wide market that has been unregulated, and is primarily held responsible for the financial collapse in 2008.
The agency has now completed 43 of the 60 rules it was charged with putting into effect under the overhaul law, which says a lot, when, by comparison, the SEC has adopted roughly a third of the rules they were charged with adopting within the same time frame. Massad would take over the task of implementing the remaining rules. The main question is whether or not he plans to exercise the same degree of independence from the administration and from the banks, as Gensler often did.
Gensler, who had spent around 20 years on Wall Street, surprised many by being a particularly tough regulator of the banks. He wasn’t afraid to take positions that clashed with the Obama administration and pushed for implementation of rules that banks had lobbied against. 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.”
For the CFTC, some of the most difficult and critical rules are the ones that remain. They include the Volcker Rule, which would prohibit banks from trading for their own profit. Its latest version includes an exemption for banks to make such trades when they are used to offset existing risks. Adoption of the rule has been delayed, largely due to Wall Street banks’ objections, and the need to get a handful of federal agencies, including the CFTC, to agree on a final draft.
Under Gensler, the CFTC wrote new rules to bring derivatives under greater government regulation and scrutiny for the first time. The value of derivatives is based on a commodity or security, such as oil, interest rates or currencies. They are often used to protect businesses that produce or use the commodities, such as farmers or airlines, against future price fluctuations. But they also are used by financial firms to make speculative bets.