By Mike Castiglione, Director of Regulatory Affairs, Digital Assets, Eventus
Cracking Down on Financial Misconduct and Market Manipulation
The U.S. Securities and Exchange Commission (SEC) and Commodities Future Trading Commission (CFTC) are each asking Congress for about a 13 percent increase in funding for fiscal year 2024 in part to expand their enforcement and trade surveillance capabilities across market participants. SEC Chairman Gary Gensler in late March testified that expanding the SEC budget would support efforts in “stamping out fraud, manipulation, and abuse” and would allow for more capacity to “investigate misconduct on a large scale.” The CFTC likewise is asking for more money for investigations and enforcement against “manipulative and deceptive conduct and spoofing.”
Both regulatory agencies published their budget requests with detailed analysis of their priorities and how they would use extra resources. Although the SEC budget and CFTC budget must still go through a divided Congress, they indicate where these regulators are putting their attention.
SEC Budget Increase Highlights
The SEC’s 13.4 percent increase would take its budget to $2.4 billion per year.
- The SEC would hire 170 more personnel, to include 50 more for enforcement and 20 more for examinations. The budget request says those added enforcement staffers would include trial attorneys to staff litigated cases and experts to augment the SEC’s market surveillance. More personal would also expand exams in, for instance, the security-based swap market.
- The SEC also promised “further rulemaking initiatives,” to include implementing recently adopted or planned rules.
CFTC Budget Increase Highlights
The CFTC’s requested 12.6 percent increase would take its annual budget to $411 million.
- Part of that increase would get directed to enforcement: “detecting, investigating, and prosecuting misconduct—fraud, manipulation, spoofing, or other forms of disruptive trading,” per the CFTC. The CFTC promised a “robust Market Surveillance Unit” across all commodity asset classes to identify trading behavior or account positions that warrant further investigation.
- The CFTC’s budget proposal also places attention on covered firms’ reporting, risk management, overall compliance programs, and compliance business practices.
Validus in Practice
The SEC and CFTC are clearly stating their desire to do even more against market manipulation and disorderly trading. With potentially more resourcing going into trade investigations and enforcement, the stakes are even higher for all entities under SEC and CFTC jurisdiction. These firms should reassess their compliance systems to ensure enough flexibility to adapt to regulatory changes and to respond to regulatory inquiries.
Our Validus Trade Surveillance and transaction monitoring software is an award-winning platform used by global broker-dealers, tier-1 banks, market makers, prop trading firms, DCMs, FCMs, energy traders, asset managers, and digital asset exchanges.
Our alerts, tailored to each client, cover multiple-asset classes in one platform and reflect the holistic look regulators expect. In addition, our team of former chief compliance officers and trade surveillance leaders have the real-world experience to understand how to maintain an adequate trade compliance program that adjusts to changing markets and regulatory priorities, as reflected in the SEC and CFTC budget requests. This allows our clients to satisfy SEC and CFTC requirements, along with those of other global regulators.
For instance, the CFTC’s budget request specifically noted “spoofing” eight times. The Validus Trade Surveillance “spoofing” alerts are popular among our clients for their flexibility and ability to weed out noise and find the problems that warrant more attention from trade compliance teams.
The SEC, meanwhile, mentioned “security-based swaps” twenty-eight times in its budget request, showing attention to potential new rules around swap dealers (SDs), swap markets, and swap execution facilities (SEFs). Our Validus platform also offers procedures to monitor for disorderly, disruptive, or manipulative trading in swaps used by traders, SDs, and SEFs, such as cancel/corrects, price fixing, price variance, market manipulation (including cross-market and cross-product), front running, and excessive markups.
About Eventus
Eventus is a leading global provider of multi-asset class trade surveillance, market risk and anti-money laundering (AML) solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets.
Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.