U.S. market regulators not expecting job cuts from sequestration

Fri Feb 22, 2013 3:07am IST

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WASHINGTON Feb 21 (Reuters) - The country's top Wall Street regulators are not expecting layoffs or furloughs in the event that Congress is unable to avoid across-the-board spending cuts known as "sequestration."

Both the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission have so far mostly downplayed the impact of the cuts, which kick in on March 1.

That means traders, financial firms and publicly traded companies can, for now, breathe a sigh of relief that there will not be a major immediate disruption of financial markets.

The financial regulators' statements contrast with the doomsday scenarios put forward by the Obama administration if Congress does not replace the automatic cuts with a more measured approach to deficit reduction.

The White House has talked about potential layoffs for a broad spectrum of federal employees such as emergency workers, preschool teachers and meat inspectors to illustrate the impact.

The Pentagon formally notified Congress earlier this week that most of the department's 800,000 civilian employees could face 22 days of unpaid leave.

SEC spokesman John Nester told Reuters on Thursday that all agency staff received an update on the matter late last week telling them that "no furloughs or reductions in force are expected should sequestration occur."

He added that the SEC will continue to monitor the situation and "provide staff additional information as we learn it."

CFTC Chairman Gary Gensler told reporters last week that similar notices concerning sequestration's impacts were sent around to CFTC staffers as well.

"We would definitely have to cut back expenditures in technology," Gensler told reporters. "We'd have to be ever so more careful about any hires that we do. We're doing everything to husband our resources to avoid a furlough."

The SEC and CFTC rely heavily on having a full staff to police trading and routinely review rule changes submitted to them by self-regulatory organizations such as exchanges.

In addition, the SEC needs to review initial public offerings and other debt and equity offerings. It is also entering a busy season during which it must examine attempts by companies to exclude certain shareholder proposals from proxy voting materials.

'ADDS TO THE CHALLENGES'

The SEC and CFTC have been coping in recent years with relatively tight budgets after being given new responsibilities in the 2010 Dodd-Frank Wall Street reform law.

Sequestration would add to the squeeze.

A White House Office of Management and Budget estimated last year that the SEC's annual $1.32 billion budget could be chopped by $108 million, while the CFTC's $205 million budget is facing a potential $17 million cut.

That reduction will not put a huge dent in the CFTC's already relatively flat budget. As for the SEC, even the agency's union pointed out in an online posting in December that the size of the cut "would still leave the agency with a budget that is much higher than it was just a year ago in fiscal 2011."

Sequestration "just adds to the challenges," Gensler told reporters late last week after he and other regulators testified before the Senate Banking Committee.

The sequestration law was passed in response to an impasse in 2011 over raising the nation's borrowing limit as Democrats and Republicans wrangled over how to address the nation's budget deficit. The law calls for $1.2 trillion in across-the-board spending cuts over 10 years unless an alternative deal on the budget is reached.

'WE ARE PREPARED'

Another enforcement authority, the U.S. Justice Department, has been more dramatic in describing the impact of the cuts.

In a letter dated Feb. 1, Attorney General Eric Holder said the automatic cuts would slice $1.6 billion from the department's funding and force it to lose the equivalent of some 1,000 federal agents to combat violent crime, pursue financial crimes, help secure the Southwest Border and other issues.

The FBI would potentially be required to furlough everyone for up to 14 days, a move that would have the effect of shutting down the FBI's field offices in Chicago, Miami and Baltimore, Holder said.

The cuts would also deduct $338 million from the prison budget and mean a 5 percent reduction in staff levels with no corresponding reduction in inmate numbers, he said.

The SEC and CFTC, by contrast, have remained relatively calm as the deadline looms.

"We won't be able to hire all of the people we need. We won't be able to do all of the things we plan to do. But we are prepared," SEC Chairman Elisse Walter told reporters after last week's hearing.

Still, it remains unclear if the potential budget cuts could lead to some delays in how the agencies operate.

Nester declined to provide details beyond Walter's remarks about how sequestration might impact public companies, investment funds or other self-regulatory groups.

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