WASHINGTON Feb 21 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
'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,
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
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.