[ by Howard Haykin ]

The term is "sequestration" and it pertains to across-the-board spending cuts at the federal level.  That is what will happen if Congress is unable to resolve budget issues before the 3/1/13 deadline.  The SEC and CFTC, along with many other federal agencies would be seriously affected if sequestration were to take place.

However, unlike other federal agencies which are expecting to place large numbers of personnel on leave, neither the SEC nor the CFTC expects any layoffs or furloughs should the worst case scenario occur.  Both, in fact, have so far mostly downplayed the impact of any 3/1/13 cuts. 

The SEC and CFTC positions sharply contrast with the positions taken by the Obama administration - it forecasts doomsday scenarios if Congress does not replace the automatic cuts with a more measured approach to deficit reduction.  The White House further talks about potential layoffs for a broad spectrum of federal employees - e.g.,  emergency workers, preschool teachers and meat inspectors to illustrate the impact.

Having the SEC and CFTC at full strength...  would mean that means traders, financial firms and publicly traded companies can, for now, breathe a sigh of relief that there will not be a major immediate disruption of financial markets.   SEC spokesman John Nester, told Reuters on Thursday that all agency staff received an update on the matter late last week telling them that "no furloughs or reductions in force are expected should sequestration occur."  He added that the SEC will continue to monitor the situation and "provide staff additional information as we learn it."

CFTC Chairman Gary Gensler told reporters last week that similar notices concerning sequestration's impacts were sent around to CFTC staffers as well.  "We would definitely have to cut back expenditures in technology," Gensler told reporters. "We'd have to be ever so more careful about any hires that we do. We're doing everything to husband our resources to avoid a furlough."

Meanwhile, both regulators have in recent years been heavily burdened with relatively tight budgets  -  especially after being given new responsibilities in the 2010 Dodd-Frank Wall Street reform law.  Sequestration would add to the squeeze.  The White House Office of Management and Budget estimated last year that the SEC's annual $1.32 billion budget could be chopped by $108 million, while the CFTC's $205 million budget is facing a potential $17 million cut. 

That reduction will not put a huge dent in the CFTC's already relatively flat budget. As for the SEC, even the agency's union pointed out in an online posting in December that the size of the cut "would still leave the agency with a budget that is much higher than it was just a year ago in fiscal 2011."  Sequestration "just adds to the challenges," Mr. Gensler told reporters late last week after he and other regulators testified before the Senate Banking Committee.

[C-I Note:  How frustrating is this:  The SEC & CFTC may be asked , once again, to “ Operate with One Hand Tied Behind Their Backs.  Why is should this happen?]

For further details, go to:   [ Reuters, 2/22/13 ].