Senate Panel Considers 3 Futures Commission Nominees

The Senate Agriculture Committee heard testimony on Thursday from President Obama’s three nominees for the Commodity Futures Trading Commission, a market watchdog that the president has called “small but mighty.”

The appointees - Timothy G. Massad, a former lawyer who would become chairman, and Sharon Y. Bowen and J. Christopher Giancarlo, who would be commissioners - now await a vote from the panel and full confirmation by the Senate.

The confirmation process comes at an important time for the agency. The 2010 Dodd-Frank financial overhaul law expanded the agency’s supervisory powers over derivatives and complex financial instruments, many of which helped to accelerate the financial crisis.

As the commission’s new leader, Mr. Massad, a former lawyer at Cravath, Swaine & Moore, pledged to take an aggressive stance on the oversight of derivatives markets.

“Strong enforcement is vital to maintaining the public’s confidence in our markets,” he told the committee.

Mr. Massad, a former assistant secretary at the Treasury Department responsible for winding down the government’s Troubled Asset Relief Program, also highlighted how excessive risk related to derivatives helped precipitate the crisis.

“Today, the C.F.T.C.’s role is even more important, because it has the responsibility to bring much-needed regulation to the markets for over-the-counter derivatives,” Mr. Massad told the committee.

Mr. Massad would succeed Gary Gensler, who turned the once toothless regulator into one that has levied record fines on large financial institutions in recent years. Under Mr. Gensler’s leadership, the watchdog sharpened its teeth by adopting tough rules on derivatives and futures trading.

But where Mr. Massad focused on the agency’s need for robust enforcement and aggressive pursuit of wrongdoers, Mr. Giancarlo sounded a note of caution about excessive regulation, signaling what could be a point of tension within the commission as it continues to enforce the more than 60 rules and orders it has issued over recent years.

“Regulatory effectiveness must be a higher priority than speed,” said Mr. Giancarlo, a senior executive of the inter-dealer broker GFI Group, who will fill the Republican seat vacated by Jill E. Sommers. He told the committee he planned to focus on how businesses like airlines used derivatives to hedge their risks.

Ms. Bowen, a former securities lawyer at Latham & Watkins, where she represented corporations and financial firms, discussed the excessive risk-taking and speculation in the swaps market and the importance of new rules to regulate them.

“The next phase of the C.F.T.C.’s mandate requires effective implementation of these rules, with the participation and coordination of regulatory bodies both inside and outside of the U.S.,” Ms. Bowen said. She will succeed Bart Chilton, the commission’s most liberal and outspoken member, who announced in December that he would step down.

Senator Debbie Stabenow, Democrat of Michigan and chairwoman of the Senate Agriculture Committee, reminded the nominees of their duty to “make sure that we never see another MF Global or Peregrine Financial shatter faith in either the markets or the ability of regulators to oversee those markets.”

After the collapse of the brokerage MF Global, the commission was responsible for cleaning up the mess.

More recently, the agency has levied record fines on big financial institutions like Barclays and UBS as part of a wider crackdown on the manipulation of the benchmark London interbank offered rate. It also scored a victory in a $100 million settlement and an admission of guilt from JPMorgan Chase related the bank’s multibillion-dollar loss from derivatives trades through its London office.

During the hearing, Mr. Massad and Mr. Giancarlo clashed on the issue of money for the commission. Earlier this week, Mr. Obama proposed a 2015 budget of $280 million for the agency, which is $35 million less than the agency requested.

Mr. Massad told the committee it was “critically important” for the regulator to receive more money. Disagreeing, Mr. Giancarlo told the committee “we live in a time where resources need to be stretched.”

Elsewhere on Thursday, Mark P. Wetjen, who has been acting chairman since Mr. Gensler’s departure, addressed the House Appropriations Committee about the agency’s budget.

“The unfortunate reality is that, at current funding levels, the commission is unable to adequately fulfill the mission given to it by Congress,” Mr. Wetjen said.

This post has been revised to reflect the following correction:

Correction: March 6, 2014

An earlier version of this article and headline misstated the action taken by the Senate Agriculture Committee. While it heard testimony from the three nominees for the Commodity Futures Trading Commission, it did not vote on the nominations.