The Financial Section includes the Commission’s financial statements and the Independent Auditors’ report.
Other Information contains the Inspector General’s FY 2014 assessment of management challenges facing the Commission, the Commission’s summary of audit and management assurances, and a discussion of improper payments. The Office of the Chairman oversees the Commission’s principal divisions and offices that administer and enforce the CEA and the regulations, policies, and guidance thereunder. The Offices of the Chairman and the Commissioners provide executive direction and leadership to the Commission. The Commission’s ability to achieve its mission of protecting the public, derivative market participants, U.S. The OCE provides economic analysis and advice to the Commission, conducts research on policy issues facing the Commission, and educates and trains Commission staff. The DCR supervises the derivatives clearing organizations (DCOs) that clear futures, options on futures, and swaps, which involves supervision of DCOs and surveillance of other market participants that may pose risk to the clearing process including futures commission merchants (FCMs), SDs, major swap participants (MSPs), and large traders. The DOE investigates and prosecutes alleged violations of the CEA, the Dodd-Frank Act, and Commission regulations. The DMO fosters markets that accurately reflect the forces of supply and demand for the underlying commodities and are free of disruptive activity. The DSIO oversees the registration and compliance activities of intermediaries and the futures industry self-regulatory organizations (SROs), which include the U.S. Derivatives first began trading in the United States before the Civil War, when grain merchants came together and created this new marketplace.
Although a futures contract agreement is set today, the person selling (for example, a farmer marketing bushels of wheat) will not receive payment and the buyer (in this case a bakery) will not receive goods purchased until the predetermined delivery date agreed to in the contract. Electronic integration of cross-border markets and firms, as well as cross-border alliances, mergers and other business activities have transformed the futures markets and firms into a global industry. Generally speaking, a swap is an exchange of one asset or liability for a similar asset or liability for the purpose of, inter alia, shifting risks, where the value of those payments is determined in the future based on some previously agreed measure. The Commission’s rules for clearing swaps were patterned after the successful regulatory framework the Commission has had in place for many years in the futures market. A few core principles must motivate the Commission’s work in implementing the Dodd-Frank Act. The purpose of the CEA is to serve the public interest through a system of effective regulation of trading facilities, clearing systems, market participants, and market professionals under the oversight of the Commission. Growth in the futures and swaps marketplace carries an accompanying, potential increase of fraud for market users and the public. The Commission investigates and prosecutes alleged violations of the CEA and Commission regulations.
The Commission protects market participants and other members of the public from fraud, manipulation and other abusive practices in the commodities, futures and swaps markets.
The CFTC organizations support the strategic plan goals through nine key mission areas identified by the Commission. The Commission reviews the registration applications of all entities seeking to be registered as designated contract markets (DCMs), DCOs, SEFs and SDRs. The Commission reviews new product filings as well as issues no-action letters related to product issues. The Commission performs three broad types of surveillance: market and trade practice, financial and risk, and business analytics. The global nature of the futures and swaps markets makes it imperative that the United States consult and coordinate with foreign authorities. Discussions have focused on the details of the Dodd-Frank Act rules, including mandatory clearing, trading, reporting and regulation of derivatives market intermediaries (as well as analogous requirements in other jurisdictions). The Commission supports an in-depth, analytical research program that focuses on innovations in trading technology, developments in trading instruments, and the role of market participants in the futures, options, and swap markets. The Commission provides a stable, scalable and secure information technology (IT) infrastructure. The CFTC is committed to operationalizing the Commission’s expanded regulatory scope and to maintaining its strong presence in its traditional markets.
Collectively, the Commission employs 665 full-time permanent employees that comprise 491 direct mission staff (attorneys, economists, auditors, risk and trade analysts, and other financial specialists) and 174 management and support staff to accomplish five strategic goals and nine key mission activities in the regulation of commodity futures, options, and swaps.
Among the full-time personnel, the majority of Commission staff is analytical professionals with strong academic records and specialized skills in the commodities industry.
Attorneys across the CFTC’s divisions and offices represent the Commission in administrative and civil proceedings, assist U.S.
Auditors, Investigators, Risk Analysts, and Trade Practice Analysts examine records and operations of derivatives exchanges, clearinghouses, and intermediaries for compliance with the provisions of the CEA and the Commission’s regulations. Economists and Data Analysts monitor trading activities and price relationships in derivatives markets to detect and deter price manipulation and other potential market disruptions. Promote Commission excellence through executive direction and leadership, organizational and individual performance management, and effective management of resources. The selected accomplishments described below demonstrate progress made in FY 2014 toward the achievement of the Commission’s mission and strategic goals. The Commission’s FY 2014 APR, to be issued in February 2015 as part of its Congressional Budget Justification in conjunction with the President’s Budget, will present more detailed analysis of the following performance results. I am pleased to present the Strategic Plan of the Commodity Futures Trading Commission (CFTC) for fiscal years 2014 through 2018. This document presents the Commodity Futures Trading Commission’s (CFTC) Strategic Plan for the period FY 2014 through FY 2018.
Transparency and consistent application of both the statute and rules is an inherent obligation of the Commission. The focus of Financial Integrity and Avoidance of Systemic Risk is to strive to ensure that Commission-registered derivatives clearing organizations (DCOs), swap dealers (SDs), major swap participants (MSPs), and futures commission merchants (FCMs) have the financial resources, risk management systems and procedures, internal controls, customer protection systems, and other controls necessary to meet their obligations so as to minimize the risk that the financial difficulty of any of these registrants, or any of their customers has systemic implications. Through the goal of Comprehensive Enforcement, the CFTC enforces the CEA and Commission regulations, and works to promote awareness of and compliance with these laws.
Domestic and International Cooperation and Coordination focuses on how the Commission interacts with domestic and international regulatory authorities, market participants, and others affected by the Commission’s regulatory policies and practices. To advance its mission goals and objectives, the CFTC will achieve Commission-wide excellence by empowering strong, enterprise-focused leaders, maintaining a high-performing and engaged workforce, and ensuring effective stewardship of resources.
In the application process, an entity’s application must demonstrate that it is, and will continue to be, in compliance with the statutory core principles of the CEA and the Commission’s regulations.
Once rules and contracts are in place and trading begins, the Commission monitors such trading and the positions of market participants.
The Commission conducts regular Rule Enforcement Reviews (RERs) and System Safeguards Examinations (SSEs) to assess ongoing compliance by the exchanges with core principles through the self-regulatory programs operated by exchanges. Description: Surveillance staff routinely makes referrals to Enforcement regarding suspected violations of CEA or Commission regulations with respect to manipulation, trade practice abuses and other suspect violations of the CEA and Commission regulations.
With the passage of the Dodd-Frank Act, the Commission now has a responsibility to oversee trading in the swaps markets.
Description: In addition to regular reports on activity in the futures and options on futures markets, the Commission plans to begin publishing regular reports of activity in the swaps market to bring greater public transparency to this market. Description: These reports will be based on empirical research into the market microstructure of futures, options on futures, and swaps markets. An important goal of the Dodd-Frank Act was to create a data environment that allows the Commission to obtain a more complete view of traders’ positions and activity across derivatives markets.
As the data reporting to SDRs is enhanced through reporting compliance and data harmonization, staff will, in coordination with industry, work to integrate swaps information with information currently held in the Commission’s futures and options database. Another key objective of the Commission is to assess whether participants within the markets are protected against fraudulent or abusive trading practices. As the markets and trading strategies continue to evolve, staff will make use of newly available technologies to blend data from different data sources, such as futures and swaps position data, trade execution data and order data, and develop new methods to analyze trading within and across products and markets. On an ongoing basis, staff will review the rules and rule changes of SDRs for compliance with core principles as a means to verify that SDRs are operating in a fashion that protects markets and market users, and provides the Commission with the necessary access to the swaps data required to fulfill its mission. In an effort to ensure that the data reported to, and disseminated by SDRs, is meaningful to the Commission, staff, and market participants, the Commission and staff has ongoing consultations with a broad spectrum of market participants on all aspects of the reporting process. Given the fact that this information is relevant to other regulatory agencies in the United States, the Commission is collaborating with such agencies including the Office of Financial Research to develop new data standards.
Receiving data electronically and automating its distribution throughout the Commission using business process automation software will improve productivity through streamlined registrations and reviews. Implementing the president’s digital government strategy to enhance the usability and mobility of reports published on CFTC.gov will support increased transparency of futures and swaps. The Commission reviews the financial risks that the DCOs’ risk management procedures address and the financial risks that the DCOs’ financial resources cover.
The Commission also will evaluate the possible financial risk that, in the event of a default, the defaulting firm does not have sufficient margin on deposit to cover the default. The Commission’s registration and compliance oversight of SDs, MSPs, and market intermediaries will monitor the compliance activities of these registrants and seek to provide timely oversight and guidance for complying with the system of registration and compliance established by the CEA and the Commission’s regulations. The Commission will also evaluate the effectiveness of governance and internal oversight within the registrants through targeted reviews and examinations, oversight of examinations by SROs and a focus on the activities of the risk managers and chief compliance officers (CCOs) in the registrants.
Finally, the Commission will review whether SDs, MSPs, and FCMs maintain sufficient financial resources, risk management procedures, internal controls, and customer protection practices to improve the financial stability of market participants and transparency in the markets. With the additional oversight of several new DCOs, and in order to evaluate financial integrity and system-wide risk, the Commission has to develop a program to monitor variation and initial margin requirements across DCOs. Recognizing that each DCO’s view of risk is limited to market participants clearing at that DCO and that many market participants will have positions at multiple DCOs and in more than one asset class, the Commission is the only financial regulator that will have the authority to aggregate and evaluate risk across all DCOs.
The Commission conducts risk based examinations to assess ongoing compliance by the DCO with core principles and the implementing regulations.
Description: The Commission has a comprehensive program in place to aggregate and conduct risk surveillance of market participants’ futures and options positions. Description: Strive to conduct comprehensive risk based examinations of DCOs regarding compliance with the Core Principles of the CEA and Commission regulations. With the ongoing oversight of Commission registrants and the recent addition of swap market regulation and new futures customer protection rules, there is a critical need to provide SDs, MSPs, FCMs, and other market intermediaries with timely guidance with regard to the regulations. Description: The Commission, working with the DSROs, will review annual and periodic reports from SDs, MSPs, and FCMs and provide oversight guidance to registrants through examinations, issuance of guidance and no action letters, and other communications such as round tables as appropriate. Description: Relying upon a risk-based and regulatory compliance oversight approach, the Commission, working with the DSROs, will conduct appropriate reviews of SDs and FCMs with a focus on the risk governance, risk management practices and, legal compliance policies and procedures of the firm.
For newly regulated SDs, evaluate capital, margin, and liquidity models and the oversight of such activity by the SD’s risk management program, and assess whether these models conform to the CEA and Commission regulations. The new SD regulations impose requirements on SDs with respect to documentation of swap trading activity and the swap confirmation process. Through close coordination with NFA, the Commission will review registration documentation and the policies and procedures being employed by SDs and MSPs to achieve compliance with the CEA and the Commission’s regulations and that registrants operate with an effective governance and risk management structure.
In India the inspector general of police or joint commissioner of police is a two-star rank officer+ and one of the most senior officers in the state police forces. In the British+ tradition, an inspector general is usually a senior military officer responsible for the inspection of military unit+s to ensure that they meet appropriate standards of training and efficiency. This has been a year of remarkable progress in bringing transparency, access and competition to the swaps market and continuing our efforts to insure that the futures and options markets operate with integrity. I am pleased to report that for the tenth consecutive year, the Commission has received an unmodified opinion on its financial statements.
The Commission has chosen an alternative to the consolidated Performance and Accountability Report and instead, produces an Agency Financial Report (AFR), Annual Performance Report (APR), and a Summary of Performance and Financial Information, pursuant to OMB Circular A-136, Financial Reporting Requirements. The President appoints and the Senate confirms the CFTC Commissioners to serve staggered five-year terms. In 2012, the Commission established the Whistleblower Office (WBO) and the Office of Consumer Outreach (OCO) to administer the whistleblower and customer education programs.
The mission of the OIG is to detect waste, fraud, and abuse and to promote integrity, economy, efficiency, and effectiveness in the CFTC’s programs and operations.
Possible violations involve improper conduct related to commodity derivatives trading on U.S.
When the Commission was founded in 1974, the majority of derivatives trading consisted of futures trading in agricultural sector products. The CEA generally requires futures contracts to be traded on regulated exchanges, with futures trades cleared and settled with clearinghouses. The speculator buying a futures contract for November wheat believes the value of the wheat in November will be higher than the price he is paying for the contract today. Highly complex financial contracts based on interest rates, foreign currencies, Treasury bonds, security indexes, and other products have far outgrown the agricultural contracts in trading volume. With the passage of the Dodd-Frank Act, the Commission was tasked with bringing regulatory reform to the swaps marketplace.
With a swap, counterparties agree to exchange future cash flows at regular intervals, with each cash flow calculated on a different (previously agreed-upon) basis. The idea is simple: if many participants are trading standardized products on a regular basis, the tangled, hidden web created by thousands of private two-way trades can be replaced with a more transparent and orderly structure, like the spokes of a wheel, with the CCP at the center interacting with other market participants. The Commission does not require that clearing take place in the United States, even if the swap is in U.S. The third area for reform under the Dodd-Frank Act was to require more transparent trading of standardized products.
It provides regulators with information that can facilitate informed oversight and surveillance of the market and implementation of the Commission’s statutory responsibilities.
The Commission must have data reporting rules and standards that are specific and clear, and that are harmonized as much as possible across jurisdictions. The first is that the Commission must never forget the cost of the financial crisis to American families, and it must do all it can to address the causes of that crisis in a responsible way. The Commission takes enforcement actions against individuals and firms registered with the Commission, those who are engaged in commodity futures, option and swaps trading on designated domestic exchanges, and those who improperly market futures, option and swaps contracts. Its cases range from quick strike actions against Ponzi enterprises that victimize investors across the country, to sophisticated manipulative and disruptive trading schemes in markets the Commission regulates including financial instruments, oil, gas, precious metals and agricultural goods. Review teams comprised of attorneys, industry economists, trade practice analysts and risk analysts ensure that the Commission undertakes a thorough analysis of such applications to assess compliance with the applicable statutory core principles and Commission regulations. The CFTC’s traditional scope of work includes reviewing new futures and options contract filings, reviewing contract rule submissions, and developing new rules and policies to accommodate innovations in the industry, including the clearing of swaps.
Examinations are the most effective method of assessing entity compliance with the core principles established in the CEA, as amended, and this activity covers both the direct examinations performed by CFTC staff and the examination oversight responsibilities the Commission exercises over the SROs and designated SROs. Its cases range from quick strike actions against Ponzi enterprises that victimize investors across the country, to sophisticated derivatives, segregation deficiencies, supervisory violations, manipulative and disruptive trading schemes in markets the Commission regulates including indexes, energy, interest rates, oil, gas, precious metals and agricultural goods.
The Commission is actively participating in international efforts to promote robust and consistent standards and avoid conflicting requirements, wherever possible.
A team of specialized economists supports the Commission’s numerous divisions by analyzing these constantly evolving components of markets to help anticipate and mitigate significant regulatory, surveillance, clearing, and enforcement challenges. Economists also analyze the economic effect of various Commission and industry actions and events, evaluate policy issues and advise the Commission accordingly. Preliminary results for FY 2014 indicate that the Commission met 41 percent of its performance targets. This new responsibility expanded CFTC’s mission of ensuring the fair, open, and efficient functioning of the futures market and represents approximately an eight times growth to the CFTC’s regulatory portfolio. Where proposed and interim final rules have been issued, the Commission continues to afford as much opportunity as practicable for public comment both through written submissions and through public meetings. The mission of the agency is vital: To protect market participants and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives – both futures and swaps – and to foster transparent, open, competitive and financially sound markets. While the Commission believes that in aggregate, they provide an accurate portrayal of progress, the Commission saw the opportunity to improve in a couple key areas.
The market and its participants should understand clearly all Commission rules and requirements. With the Commission’s increased responsibilities, upgrades in technology will require input and collaboration across the Commission’s divisions to include well defined parameters, staffing and budgetary resources to enable cost-effective development and deployment of systems. The goals break down the mission into the major ideals the Commission is trying to achieve and distinguish the Commission’s mission from other agency missions. Likewise, “derivatives markets” includes, but is not limited to, futures, swaps, and options on swaps markets. The foundation for accomplishing these strategic goals lies with management objectives focused towards achieving Commission-wide excellence. Through domestic and international cooperation and coordination, the Commission is able to identify regulatory concerns, to develop solutions, and to address activities that cut across the jurisdiction of multiple authorities. This market and trade practice surveillance function screens for potential market manipulations and disruptive trading practices, as well as trade practice violations such as wash trading, prearranged trading, accommodation trading, customer fraud, fictitious sales, trading ahead, and trading against customer orders. In addition, the staff conducts economic research and analyses of the markets to foster a better understanding of how the markets are functioning and to better inform the Commission and the public with respect to policy issues.
Through the portal, exchanges will be able to electronically file submissions directly with the Commission. Commission staff will strive to promptly assess market events giving rise to a market emergency in order to provide and implement timely recommendations. In this respect, exchanges are expected to have effective rules and procedures in place to protect the price discovery and risk shifting functions of the market as well as the interests of those trading in the markets. At the outset, the Commission operates a designation process that reviews the overall capability of new exchanges to operate a viable marketplace with proper rules and procedures. Part of this responsibility includes assuring that certain trading activity and information produced in these markets is reported, not only to regulators, but generally to the public on a real-time basis. The metric provides a measure of economic analyses designed to inform both the public and the academic community of various developments in these markets, including their ongoing evolution within the context of electronic trading technologies and regulations.
Being able to match these records not only allows Commission staff to see a more complete summary of traders’ activities, but allows staff to produce more comprehensive market reports and conduct more in-depth studies of market activity. Staff will continue to prioritize and analyze in a timely manner the terms and conditions of contracts to verify that contracts self-certified by DCMs and SEFs are well-designed and that they meet the core principles of the CEA and Commission regulations. When warranted, Commission staff contacts traders and works with exchange surveillance staff to defuse potentially disruptive situations in futures markets.
To detect these types of abuses Commission staff routinely reviews trading activity of individuals at each domestic exchange, and with respect to transactions reported to SDRs. Reflecting the global nature of the swaps markets, the Commission is also collaborating with regulators in other jurisdictions as well as international bodies like the Financial Stability Board to harmonize data standards so as to facilitate aggregation of swaps data reported to data repositories operating in such jurisdictions.
This is to be accomplished by bringing the trading of standardized swaps onto exchanges and to have information on all swaps reported to swaps data repositories. Commission rules require that DCMs offer open and competitive centralized market trading for futures and swaps.
Commission staff reviews these notifications to evaluate the impact on the DCO’s financial and operational resources, and to monitor the DCO’s response. The Commission will evaluate the possible financial risk that, in an extreme market condition, a clearing firm may not have the financial resources to make a variation or initial margin payment. Congress recognized the need for oversight of the swap activities of SDs and MSPs when it adopted the Dodd-Frank Act, and gave that responsibility primarily to the Commission. These activities will be undertaken both directly by the Commission and through oversight of the self-regulatory organizations to which the Commission has delegated authority. These activities will not only seek to improve governance and internal oversight practices in accordance with the Commission’s regulations, but to also shape these activities and encourage the adoption of best practices by our registrants. The Commission is seeking to enhance its existing futures-specific risk surveillance program by developing procedures to stress test positions in swaps.
The Commission is developing procedures to aggregate swap positions across multiple DCOs and the asset classes for which such DCOs offer clearing services. Developing and implementing Commission oversight procedures to help monitor CCO and risk management supervision activities and policies and procedures used by these functions to ensure they are effective.
In addition to the more traditional areas, it also will be important to focus on business continuity, conflict-of-interest partitions between trading and research, trading practices, disclosure to the public of appropriate information, and proper maintenance of swap data books and records. It will be important to perform reviews of the timeliness and accuracy of trade confirmations, the reporting transaction and confirmation data to SDRs, and the execution of swap trading relationship documentation, portfolio reconciliation, and compression exercises required under the CEA and Commission regulations.
The program will allow the CFTC to track daily variation and initial margin requirements so that clearing firms with unusually large variation margin payment obligations will be contacted by the Commission to confirm the firm’s ability and resources to make such payments. The Commission will review with NFA the registration applications of SDs and MSPs to ensure the registrants have included policies and procedures in accordance with applicable regulations. In recent decades, many of its members have occupied various high positions in lieu of their traditional mission of inspection.
All inspectors general and joint commissioners in state police forces are Indian Police Service+ officers. The size of the swaps market we are now tasked to oversee is vast and many times larger than the futures and options markets we also must supervise. As such it has the ability to review all of the Commission’s programs, activities, and records. To that end, futures contracts are standardized to facilitate exchange trading and clearing. As time passes, and November draws closer, people may try to estimate whether the cost of November wheat will rise or fall, and may cause the value of that futures contract to fluctuate. Swaps, which had not previously been regulated in the United States, formed a collective global trading market valued in trillions of dollars.
In response to the influx of new data from new and existing registrants, the Commission is building its own infrastructure and analytical capabilities to support its responsibilities as a first line regulator.
The CFTC Swaps Reports currently include only interest rates and credit, but the Commission expects to include additional asset classes in the near future.
The Commission oversees the clearing of futures, options, options on futures, and swaps by DCOs, and it oversees other market participants that may pose a risk to the clearing process including FCMs, SDs, MSPs, and large traders. For SDs, MSPs, FCMs, and other intermediaries where registration responsibility has been delegated to the NFA, an SRO, the Commission provides registration regulatory guidance to the NFA and prospective registrants as well as oversight of the SRO’s registration process including sampling testing of the application reviews and periodic targeted reviews of the SRO registration procedures generally.
Currently, the Commission conducts due diligence reviews of new contract filings to ensure that the contracts are not readily susceptible to manipulation or price distortion, and that the contracts are subject to appropriate position limits or position accountability.
Commission staff screen for potential market manipulations and disruptive trading practices, as well as trade practice violations. The Commission participates in numerous international working groups regarding swaps, including the IOSCO Task Force on over-the-counter derivatives, which the CFTC co-chairs, and the Committee on Payments and Market Infrastructures CPMI-IOSCO Steering Group on Standards for Financial Market Infrastructures. In FY 2014, the Commission made its first award to a whistleblower for providing valuable information about violations of the CEA.
The Commission fully considers the comments and continues to offer this opportunity as additional proposed rules are developed.
While the Commission has completed the majority of rules required under the Dodd-Frank Act, a few remain to be finalized. Well-functioning markets require clear and consistent regulatory guidance and must operate according to the Commission approved rulebooks. The Commission’s cooperative work promotes internationally accepted standards of best practice, enhanced global regulatory practices, and robust enforcement efforts. Staff also evaluates changing market conditions and developments, such as shifting patterns of commercial or speculative trading, or the introduction of new trading activities, such as index trading or high frequency and algorithmic trading to assess possible market impacts. In conducting RERs, Commission staff examines trading and compliance activities at the exchange that are in question. However, transparency can more broadly describe the availability of information pertaining to the reporting of price and volume of trading on an exchange and to the composition of participants involved in trading.
The Dodd-Frank Act also requires publication, by the Commission, of semi-annual reports summarizing activity in the swaps markets. These reports are a new stream of data available to the Commission that will bring greater transparency to daily activity in the swaps markets. To improve the allocation of Commission resources, staff plans to increase automation of the submission process by implementing the OPERA portal, allowing exchanges to submit certification information and supporting documents electronically to the Commission.
As with DCMs and SEFs, SDRs are required to register with the Commission and comply with applicable core principles in CEA. Because of this flexibility and the unique processes each DCO has in the place, the Commission has established regulations and a comprehensive program for evaluating DCOs for compliance with these regulations and statutory core principles.
To evaluate this risk, the Commission will review the DCO’s process for setting margin levels, review whether margin levels are sufficient to cover the appropriate liquidation period, and review the types of margin the DCO will accept. In this regard, the Commission will review required reports from registrants, address inquiries for formal and informal interpretative guidance and address self-reported compliance failures. Additionally, the Commission is seeking to develop a system that allows for the identification and then aggregation of related market participants across DCOs. To measure the sufficiency of margin requirements, the Commission will strive to back test the profit or loss of a given product or portfolio against the margin requirement for the applicable liquidation period. The Commission is gathering information as to the type and level of financial resources available to clearing members to meet variation margin payments.
Upon the development of such procedures, the Commission will be in a position to aggregate the risk of market participants that trade futures, swaps, and options and conduct risk surveillance for that aggregate portfolio. NFA currently is the designated self-regulatory organization (DSRO) responsible for regulating SDs and MSPs registered with the Commission.
The Commission needs to be proactive in ensuring DCOs are setting adequate initial margin levels. The Commission will use SDR data to develop procedures to combine cleared positions with uncleared, bilateral positions to have a comprehensive understanding of the risk posed by market participants registered with the Commission.
They are in some states the commissioner of police for the city, that is they head a police force for a particular city. With the advice and consent of the Senate, the President designates one of the Commissioners to serve as Chairman. In accordance with the Inspector General Act of 1978, as amended, the OIG issues semiannual reports detailing its activities, findings, and recommendations. These attributes of an effective organization combine to lead and support the critical work of the Commission to provide sound regulatory oversight and enforcement programs for the U.S.
DSIO monitors the compliance activities of these registrants and provides oversight and guidance for complying with the system of registration and compliance established by the CEA and the Commission’s regulations. The Commission’s mandate has been renewed and expanded several time since then, most recently by the 2010 Dodd-Frank Act. For example, if people expect there to be an especially bad harvest in November, then the price of November wheat will rise, and the speculator may sell that futures contract for November wheat for even more (or less) than he or she paid. The Commission must do all it can to ensure that CCPs have financial resources, risk management systems, settlement procedures, and all the necessary standards and safeguards consistent with the core principles to operate in a fair, transparent and efficient manner. The Dodd Frank Act defined a SEF as “a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants.” The trading requirement was designed to facilitate a more open, transparent and competitive marketplace, benefiting commercial end-users seeking to lock in a price or hedge risk.
These core principles provide a framework that includes obligations to establish and enforce rules, as well as policies and procedures that enable transparent and efficient trading. The Commission must have an accurate, ongoing picture of what is going on in the marketplace to achieve greater transparency and to address potential systemic risk. The CFTC Swaps Report currently incorporates data from four SDRs; however data from additional SDRs could be incorporated in the future.
The Commission also analyzes amendments to contract terms and conditions to ensure that the amendments do not render the amended contracts readily susceptible to manipulation and do not otherwise affect the value of existing positions. The CFTC, SEC, European Commission and European Securities Market Authority are intensifying discussions through a technical working group.
Performance targets were set in FY 2011 in light of the expanded responsibilities given to the Commission under the Dodd-Frank Act.
The Commission actively seeks and takes into full consideration public comments regarding the costs, benefits, and economic effects of proposed rules. The Plan takes account of the progress we have made and the work ahead as we continue implementing the reforms mandated by Congress and fulfilling our responsibilities under the Commodity Exchange Act.
The CFTC and its predecessor were established to protect market participants and the public from fraud, manipulation, and other abusive practices in the commodity futures and options markets.
It established a comprehensive regulatory structure to oversee the volatile futures trading complex. It is also imperative that the Commission act in a timely manner to review and approve contracts, rulebooks, and applications so that SEFs, DCMs, SDRs, FBOTs, and DCOs may operate in an efficient and effective manner.
In addition, appropriate information relevant to the markets must be widely and publicly distributed and applicable rules and trading structures must be sound, effective, and accessible to participants.
The Commission will expand internal controls, governance, and planning processes and ensure that staff has the knowledge, data and technology, and other tools to work effectively. This weekly report provides a breakdown of each Tuesday’s open interest for selected futures and options markets. Keys to achieving this goal are effective exchange rules and well-designed contracts to provide the base for sound price discovery and effective risk management, as well as active monitoring of the behavior of market participants in all trading in the related markets including both the underlying and referenced derivatives. On an ongoing basis, new rules and amendments to existing rules are reviewed by Commission staff to verify that they meet the core principles applicable to Designated Contract Markets (DCMs) and Swap Execution Facilities (SEFs), and SDRs under the CEA. To fulfill this obligation, and generally assure that the derivatives markets are transparent, the Commission will initiate several strategies to update its current public transparency efforts as well as to launch new transparency efforts with respect to the swaps market.
In addition, staff reviews registration applications for FBOTs to assess the extent to which they are subject to comprehensive supervision and regulation by the appropriate governmental authority in their home country that is comparable to the comprehensive supervision and regulation to which DCMs are subject under CEA, Commission regulations, and other applicable U.S.
While trade data from DCMs is being reported to the Commission, staff will work with DCMs to collate order book data, develop a database to store this data or alternatively, access data from DCMs on an as-needed basis, and develop tools to analyze this data and integrate it with trade data.
The CEA and the Commission’s regulations establish a system of registration and oversight to address these requirements for protecting the derivatives markets.
Under Commission regulations, initial margin requirements should be sufficient to cover the historical one-day or five-day price moves depending on the asset class of the product that the DCO offers for clearing. By developing the tools to evaluate risk in this manner, the Commission seeks to be in a position to evaluate risks posed to the DCO and its clearing participants, as well as measure available financial resources and evaluate a DCO’s risk program proactively. The Commission’s objective is to enhance existing programs to evaluate aggregate clearing member financial resources against possible calls for variation payments at all DCOs in which a firm is a clearing member. The Commission will review with NFA the registration applications of SDs and MSPs to determine whether the registrants have included policies and procedures in accordance with applicable regulations. Most futures contracts are not settled with the actual physical delivery of the commodity, but by the purchase of opposite (offsetting) futures contracts, which serve to close out the original positions, with profits or losses dependent on the direction in which the price of the contracts have moved relative to those positions.
The Commission will also look to make sure these rules work to achieve their objectives, and fine-tune them as needed where they do not.
But the Commission does require that clearing occurs through registered CCPs that meet certain standards—a comprehensive set of core principles that ensures each clearinghouse is appropriately managing the risk of its members, and monitoring its members for compliance with important rules. SEFs must make trading information publicly available, put into place system safeguards, and maintain financial, operational and managerial resources to discharge their responsibilities. The task of collecting and analyzing data concerning this marketplace requires intensely collaborative and technical work by industry and the Commission’s staff.
The Commission must also make sure the SDRs collect, maintain, and publicly disseminate data in the manner that supports effective market oversight and transparency. The Commission also evaluates swap products to determine whether the product is suitable for clearing by a DCO, and whether it should be mandated for clearing by market participants.
The Commission also conducts risk and financial surveillance across DCOs, clearing futures commission merchants, and other market participants such as SDs, MSPs, and large traders that may pose a risk to DCOs and to the clearing process. The Commission also is consulting with many other jurisdictions such as Hong Kong, Singapore, Japan, and Canada. When viewed together, the Commission believes they will display whether true progress is being made towards the goal. The Commission also produces an index investment data report, summarizing index investment activity in commodity markets, a Bank Participation in futures and options report, and a Cotton On-Call report. Additionally, exchanges are required to provide timely notice to the Commission of all electronic trading halts and malfunctions, cyber security incidents or threats, activation of business continuity-disaster recovery plans, and planned changes to automated systems that may impact the reliability, security, or adequate scalable capacity of systems. Generally speaking, the initial margin requirements for futures products are calculated at the product level, while the initial margin requirements for swaps are calculated at the portfolio level. Ongoing interpretive work for registering and overseeing swap dealers, major swap participants, and market intermediaries associated with the derivatives markets will serve to help guide these registrants in implementing best practices in line with the regulations adopted by the Commission under the Dodd-Frank Act.
Another aspect of the program will be the conducting of regular reviews of clearing members to determine compliance with Commission regulations regarding clearing member risk management.
The rank insignia of an inspector general of police or joint commissioner of police is one star above a crossed sword and baton. To ensure the Commission’s continued success, continuity of operations, and adaptation to the ever-changing markets it is charged with regulating, the Commission must empower strong, enterprise-focused leaders, maintain a high-performing, diverse and engaged workforce, promote transparent and clear communication, and develop and equip leaders at all levels of the organization. Finally, the Commission tied the performance goals to the broader strategic goals and objectives instead of individual strategies, which should be a better gauge of program success. As the Commission gathers and analyzes the swap data that is now being reported to SDRs, the Commission anticipates the development of new reports designed to enhance the transparency of those markets that are able to draw on automated systems to assemble the necessary data for these reports. Although SDRs are not SROs, they are required by Commission regulation to have system safeguard programs similar to exchange programs. In addition, Commission staff routinely consults with surveillance staff at exchanges and SDRs as a means to collect additional information and intelligence on surveillance matters as well as to coordinate actions involving traders when appropriate. The Commission will have to expand its program for reviewing futures and swaps initial margin models to determine DCO compliance and to monitor for adequate collateralization of risk within the clearing system. These efforts will include ongoing guidance on the implementation of new regulations, including customer protection rules, business conduct standards, sales practices, swaps disclosure, risk governance and management, recordkeeping and reporting for swaps, and guidance to new Commodity Pool Operators (CPOs), Commodity Trading Advisors (CTAs), and Introducing Brokers (IBs). Some OIGs employ no criminal investigators and rely solely on administrative investigators, auditors, and inspectors. Additionally, other jurisdictions have not yet implemented trading mandates, which has slowed the development of cross-border platforms. The Commission must manage its resources effectively through effective internal controls, governance and planning processes and ensure its workforce has the leadership, knowledge, data and technology, and other tools to work effectively. Under effective self-regulation and Commission oversight, market participants can trade knowing that they will not be taken advantage of, and the public can have confidence in the integrity of regulated markets. On an ongoing basis, Commission staff review these notifications and track status of changes and issues in order to evaluate the stability, capacity, resilience, security controls, and management of automated systems.
The efforts of such rigorous economic analysis will generate internal staff reports to inform the Commission, cost and benefit considerations to support Commission rulemaking, and research papers targeting publication in academic and practitioner journals.
Additionally, the Commission will develop a program to compare initial margin requirements for similar, or the same, products that are cleared at more than one DCO. The three service delivery components are unified by an enterprise-wide approach that is driven by the Commission’s strategic goals and objectives and incorporates information security, enterprise architecture, and project management.
The Commission develops and implements technology based surveillance tools in support of existing and expanded responsibilities to ensure financially sound markets, mitigate systemic risk, and monitor intermediaries. Finally, the Commission maintains a review program that conducts examinations of exchanges’ self-regulatory programs, including system safeguards, on an ongoing basis to assess their continuing compliance with applicable core principles under the CEA and Commission regulations as well as the enforcement of their own rules. These programs will be administered by a margin model assessment group within the Commission. Inspector General of the Bundeswehr+ The Inspector General of the Bundeswehr (German: Generalinspekteur der Bundeswehr, GenInspBw), also translated as Chief of Staff of the Federal Armed Forces, is the highest-ranking military post held by a commissioned officer in the Bundeswehr, the present-day armed forces of Germany. The OCO administers the Commission’s consumer anti-fraud and other public education initiatives. The Commission will need to work through these to fully achieve the goals of efficiency and transparency SEFs are meant to provide.
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