Financial regulators say they need more resources to keep up with modern traders

The fretting over resources came during a joint hearing hosted by subcommittees in the Senate Banking and Homeland Security committees. The hearing explored the high frequency, algorithm-based and large-volume trading that has been identified as a primary culprit in the “flash crash” that occurred May 6. That day, the Dow Jones Industrial Average nose-dived roughly 900 points in a matter of minutes before rebounding shortly thereafter. It was the biggest intra-day point swing in the Dow’s history.

“Resources are a significant concern for the agency,” said Mary Schapiro, the commissioner of the Securities and Exchange Commission, who noted that funding levels for the SEC are just now returning to 2005 levels.

Gary Gensler, chairman of the Commodities Futures Trading Commission, said his agency will have to increase staffing by 70 percent to handle its new responsibility of regulating the swaps market, which has an estimate notional value in the hundreds of trillions of dollars.

“The CFTC’s current funding is far less than what is required to properly fulfill our significantly expanded role,” he said in prepared testimony.

Sen. Jack Reed (D-R.I.) said the agencies’ budgetary constraints were a “troubling concern.” Reed is chairman of the subcommittee on securities, insurance and investment under the Senate Banking Committee.

And Sen. Carl Levin (D-Mich.), who is chairman of the permanent subcommittee on investigations under the Homeland Security Committee, lamented that federal regulators cannot keep up with modern traders.

“Our regulators are riding the equivalent of mopeds,” he said.

To illustrate the speed in which traders now operate and the volume of trading data they create, Levin plopped down a large stack of paper that appeared to be roughly 10 inches high. He said it contained the market data created by the trading of one unidentified stock in one second.

A continuing resolution currently being considered by Congress would increase the budget for both agencies if approved.