A "massive amount of misconduct" in futures, options and swaps markets goes undetected because of insufficient data mining, Aitan Goelman, who until last month was enforcement chief for the top US derivatives regulator, said in an interview. Goelman said a lack of resources meant the US Commodity Futures Trading Commission (CFTC) did not have the sophisticated software and staff necessary to uncover many of the suspicious trading patterns within the 325 million records filed each day.
Goelman said there is much more manipulation, insider trading, front-running and Ponzi scheming in the markets than is being prosecuted, even though the CFTC receives the data from industry participants and exchanges and gained enhanced enforcement authority under a 2010 financial reform law.
A handful of cases were brought under Goelman over spoofing, the illegal practice of placing orders without intending to execute them. Goelman, who believes the practice is widespread, is credited with bringing groundbreaking cases utilising the anti-spoofing provision and other powers provided by the Dodd-Frank Act.
"One of my regrets is there's such a massive amount of misconduct in the market we're just not pursuing," said Goelman, who left the CFTC after the change to a Republican
administration and nearly three years as enforcement chief.
"We could do a lot more manipulation cases. We have all these new enforcement tools and this vastly expanded jurisdiction and data," Goelman said in the interview. "But you have to be acutely conscious about the limited resources."
Derivatives played a central role in the 2008 financial crisis. In the aftermath, through Dodd-Frank, the CFTC went from regulating the now $50 trillion futures and options markets to gaining primary oversight for the over-the-counter US swaps market, now estimated at $300 trillion.
CFTC Commissioner Sharon Bowen, a Democrat, said in an emailed statement that the market data the agency receives is "of little use if we lack the resources to fully analyse it."
Tyson Slocum, a staffer with the consumer advocacy group Public Citizen who serves on an advisory committee to the CFTC, said the regulator does what it can with the resources it is provided.
But Slocum and Dennis Kelleher, chief executive of government watchdog Better Markets, said Wall Street lobbying left the CFTC chronically underfunded.
Kelleher described that as "one of the biggest scandals in this town."
The CFTC's annual budget of $250 million is more than double the $111 million it was allotted in 2008, with just over 20 percent designated for enforcement.
The US Securities and Exchange Commission, by contrast, had a $1.6 billion budget in fiscal 2016, with one-third slotted for enforcement.