April 12, 2011

The nation's securities and commodities regulators are breathing easier following the last-ditch efforts of Congress to avoid a government shutdown. The deal also means that Republicans - who despised increased regulation on Wall Street to begin with - narrowly averted a potentially damaging argument with the Democrats during the 2012 campaign season.

Tasked with implementing the Dodd-Frank bill, which has dramatically increased their respective workloads, the Securities and Exchange Commission, and Commodity Futures Trading Commission were operating for months under the threat of a budget cut. It defied common sense to believe these agencies could oversee the largest rewrite of the rules governing Wall Street since the 1930s on a smaller budget, which the Republicans had been pushing for.

The SEC cautioned that it might've been forced to slash 600 jobs under the previous Republican budget proposal. Meanwhile the CFTC was in even more dire straits, having already been forced to shave $11 million from its technology budget in order to hire more employees last year. It also had to slow down the development of a trade surveillance system designed to help it police the swaps market, an asset class that played a starring role in the global economic collapse of 2008.

But in a stunning reversal, the GOP gave in to the Obama administration in this particular battle, agreeing to raise the SEC's budget by $74 million and the CFTC's budget by $34 million. In the process, conservatives may have averted turning the wrath of an erratic electorate back towards them when the White House and Senate are up for grabs in 2012.

Unlike the controversial healthcare bill, reform of the U.S. financial system garnered much more support with the nation's voters. Had Republicans successfully bled reform dry through budget cuts, they risked angering Main Street voters who are still feeling the effects of the worst recession to strike the U.S. in nearly 70 years. Such a scenario would've emboldened Democrats to argue that Republicans not only paved the way for the economic crisis, they even prevented the adoption of meaningful safeguards to stop a sequel.

Now that the SEC and CFTC can afford tools to implement Dodd-Frank, finance reform is on the backburner in 2012.

ABOUT THE AUTHOR
As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced ...