The top U.S. derivatives regulator may dwindle to just twovoting commissioners and struggle to approve new rules unless theWhite House and Senate can overcome political hurdles to fill thevacancies by the end of the year.

The Commodity Futures Trading Commission (CFTC), which isdesigned to have five members who regulate trading by banksincluding Goldman Sachs Group Inc. and JPMorgan Chase & Co.,could instead have only one Democrat and one Republican early nextyear. The split would probably delay votes on contentiousDodd-Frank Act regulations.

The possible gridlock comes as the agency tries to flex itspowers under the 2010 Dodd-Frank Act, which gave the commissionoversight of the $633 trillion swaps market after largelyunregulated trades helped fuel the credit crisis.

A two-member commission “creates some hurdles in terms ofbringing new significant rule changes or significant reviews,” saidSharon Brown-Hruska, who served at the CFTC from 2002 to 2006 andwas present when the agency had only two members. More routinedaily business could still proceed, said Brown-Hruska, a visitingprofessor at Tulane University in New Orleans.

President Barack Obama's administration has for more than a yearbeen considering nominees to succeed Chairman Gary Gensler, whoseterm expires at the end of the year, and now has a slate ofnominees in mind, according to people briefed on the deliberations.Still, even if the White House officially nominates replacementssoon, it could take months for Senate confirmation.

Amy Brundage, a White House spokeswoman, declined to comment onthe CFTC openings.

Gensler is expected to leave by the beginning of next year,while Bart Chilton, a Democratic commissioner, said this week thathe will also leave this year. A third spot has been vacant sinceJuly when Jill E. Sommers, a Republican, stepped down from theagency.

Chilton, who sought limits on speculation in oil, natural gas,and other commodities and curbs on high-frequency trading, said heprobably wouldn't be present for another meeting on Dodd-Frankrules. The agency is planning a Dec. 12 meeting on rules includinglimits on proprietary trading at Wall Street banks, according totwo people with knowledge of the schedule.

“I anticipate being gone by the end of the year if not sooner,”Chilton said in a telephone interview yesterday. Gensler said onNov. 6 that he was trying to persuade Chilton to stay at the agencylonger.

Possible Nominees

Timothy Massad, a Treasury Department official responsible foroverseeing the rescue of banks and automakers, is underconsideration to succeed Gensler, a person familiar with the mattersaid in October.

Meanwhile, Sharon Y. Bowen, a securities lawyer at Latham &Watkins LLP in New York, is being considered to replace Chilton,four people in the financial industry said this week. Bowen is alsothe acting chairman of the Securities Investor Protection Corp.,created by Congress to restore funds to investors who lost money inbankrupt or financially troubled brokerage firms.

Their possible nominations and the pending nomination of J.Christopher Giancarlo, an executive at New York-based inter-dealerbroker GFI Group Inc., to replace Sommers could face hurdles in theSenate, which has split along party lines. A three-month bipartisantruce over nominees broke down on Oct. 31 when Republicans opposedtwo of Obama's candidates, including Representative Mel Watt tohead the Federal Housing Finance Agency.

Action on any possible nominee could also slip into next yearbecause the Senate is planning to be out of session from Nov. 22 toDec. 9 and committees typically take several weeks to reviewnominees' paperwork and to schedule confirmation hearings andvotes. A single senator can also hold up a vote on aconfirmation.

“I believe the president should quickly nominate experienced,independent candidates who have the knowledge necessary to overseederivatives markets, even as they continue to evolve,” SenatorDianne Feinstein, a California Democrat, said yesterday. She saidshe was disappointed that neither Chilton nor Gensler wasreappointed.

Split Commission

A split along party lines at the commission could slow finalvotes on rules including limits on speculation. The CFTC this weekreleased a second proposal for limits on traders' positions incommodity markets after a federal judge last year said the agency'sfirst attempt failed to demonstrate why they were necessary.

The two CFTC members who would stay after the end of the yearsplit on the proposal, with Democrat Mark Wetjen supporting itspublication and Republican Scott O'Malia opposing it.

“As a matter of pragmatism, it just seems like the amount ofpolicy making you can do with a two-person commission as opposed toa fuller one is going to be diminished,” Wetjen said in aninterview.

Work on other Dodd-Frank regulations may also slow, even as theagency has completed most rules to have swaps reported toregulators, guaranteed at clearinghouses, and executed on newtrading systems.

Adding to the to the agency's woes is a looming funding crisis;the agency is planning furloughs for workers, and Congress hasshown no sign of increase its annual budget.

The CFTC is drafting new regulations for collateral requirementsfor swaps that aren't guaranteed at the clearinghouses. Also underconsideration are decisions on which types of swaps must be tradedon new exchanges and whether additional swaps must be guaranteed atthe clearinghouses owned by CME Group Inc., LCH.Clearnet GroupLtd., and Intercontinental Exchange Inc.

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