Regulators imposed new rules over the $710 trillion global swaps market after largely unregulated trades helped fuel the 2008 credit crisis. Most swaps now must be guaranteed at central clearinghouses and traded on exchanges or other platforms.

After being sworn in as chairman of the primary U.S. derivatives regulator in June, Massad has mostly kept a low profile while getting up to speed on the new job. The former Treasury official said other priorities on his agenda include negotiations with European regulators over harmonizing rules, getting more funding for the CFTC, and improving the agency's ability to receive and analyze data about the swaps market.

Massad and his fellow commissioners are facing challenges as they work to turn the once-sleepy agency that monitored futures trades into a regulator that polices major swaps dealers such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., as well as trading platforms run by CME Group and ICE.

The safety of clearinghouses is a major concern, said Massad, who said he has been working closely with Fed Governor Jerome Powell on the issue.

The Fed and the CFTC will focus on clearinghouses' capital levels, as well as contingency plans for market disruptions and cyber attacks. Regulatory examinations are in the works, Massad said.

While the CFTC was given new duties and powers over swaps—derivatives contracts that were mostly unregulated before the 2008 financial crisis—it has been hamstrung by a low budget and small staff. Low employee morale has caused workers there to attempt to join the National Treasury Employees Union; voting is set to begin at the end of this month.

Completed Rules

Unlike most of the other financial regulatory agencies in Washington, the CFTC has completed most of the rules it was required to write under the 2010 Dodd-Frank Act. Still, Wall Street is pushing to undo some of the reforms put in place by Massad's predecessor Gary Gensler, whose tenure was marked by clashes with the largest banks and European authorities.

While Massad praised Gensler, the new chairman said his role will be different and requires reviewing rules to see what needs tweaking or improved coordination. He said he has been trying to build relationships with members of Congress, international overseers, and fellow Washington regulators.

Massad indicated he was willing to consider changes to the overseas reach of CFTC rules. That could help resolve disputes with Wall Street that last year prompted a lawsuit against the CFTC's entire policy for regulating swaps traded overseas.

The lawsuit followed CFTC guidance in November that sought to forestall banks' moves to avoid Dodd-Frank by arranging trades in the U.S. but booking them in overseas units. The agency's staff advisories said traders based in the U.S. who arrange, negotiate, or execute a deal—even on behalf of an overseas affiliate—must comply with the law. U.S. banks say the policy puts them at a disadvantage to foreign rivals.

“There are a lot of issues for us to sort out,” Massad said. “I think conduct in the U.S. has traditionally been a basis for jurisdiction in a lot of areas, but I also appreciate these issues have competitive angles to them.”

The CFTC is also reviewing trading practices at Wall Street's biggest banks to escape Dodd-Frank restrictions on overseas transactions. The agency sent letters in July to JPMorgan, Goldman Sachs, Bank of America Corp., Citigroup Inc. and Morgan Stanley seeking further information about the practice of removing parent-company guarantees for overseas trades.

'Structuring Things'

“The financial industry is very good at morphing, at structuring things around regulation,” Massad said. “Even if it's well within the rules, it may still mean that activity abroad poses a risk to the U.S. banking corporations which own these swap dealers.”

Massad said he is working with the bank regulators to respond to the risks that may be “beyond the reach of our authority but could affect the parent banking corporation,” he said. “That may be something that they can address.”

On the CFTC budget, Massad said he has been talking with lawmakers in the House and Senate in an effort to increase the agency's funding. It now operates on a roughly $200 million annual budget—about one-seventh of the money given to the Securities and Exchange Commission (SEC).

“People are stretched,” he said.

Congressional Republicans, in particular, have been loath to give the CFTC a boost because they want to tamp down new regulations that they say will stifle the financial industry. Massad said part of his message to them is that “more money doesn't mean more rules.” Instead, he said, smart regulation is “a good investment” in keeping markets fair and functioning properly.

To compensate for the budget woes, Massad said he is asking the National Futures Association, an industry-funded self-regulator, to handle more inspections and other work.

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