EVENT:
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cover:
COMMODITY FUTURES TRADING COMMISSION
Performance and Accountability Report
Fiscal Year 2006
inside cover:
COMMODITY FUTURES TRADING COMMISSION
Reuben Jeffery III, Chairman
Madge Bolinger Gazzola, Executive Director
Mark Carney, Chief Financial Officer
November 2006
This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While permission to reprint this publication is not necessary, the citation should be: Commodity Futures Trading Commission, FY 2006 Performance
and Accountability Report, Washington D.C., 20581.
All photographs in this document are proprietary and prior permission from the photographer
is required for any use or reproduction of the photographs.
page i:
Table of Contents
Message from the Chairman . . . . . 1
FY 2006 Commissioners . . . . . 2
How This Report is Organized . . . . . 3
MANAGEMENTS DISCUSSION AND ANALYSIS
Commission at a Glance . . . . . 5
Performance Highlights . . . . . 14
Financial Highlights . . . . . 26
Management Challenges . . . . . 30
Inspector Generals FY 2006 Assessment . . . . . 33
PERFORMANCE SECTION
Introduction to the Performance Section . . . . . 41
Strategic Goal One: Economic Utility . . . . . 42
Strategic Goal Two: Market User and Public . . . . . 54
Strategic Goal Three: Industry . . . . . 71
FINANCIAL SECTION
Message from the Chief Financial Officer . . . . . 95
Limitations of Financial Statements . . . . . 96
Principal Financial Statements . . . . . 97
Report of the Independent Auditors . . . . . 117
APPENDICES
FY 2006 Commissioners . . . . . 133
Enforcement Litigation by Strategic Goals . . . . . 136
CFTC Information Technology Systems . . . . . 153
Glossary of Abbreviations and Acronyms . . . . . 154
page ii:
In the Tradition of Quality Reporting,
the Commodity Futures Trading Commission
Proudly Presents the FY 2006
Performance and Accountability Report
page 1:
A Message from the Chairman
It is a pleasure to present to you the Commissions third
annual Performance and Accountability Report. This report
presents our accomplishments and audited financial
statements for Fiscal Year (FY) 2006.
The Commodity Futures Trading Commission (CFTC
or Commission) oversees the commodity futures and option
markets in the United States (U.S.). These markets are
the key source of commodity price discovery and are used
as a tool by participants in the global economy to offset
price risk. In recent years these trillion dollar markets, with
massive economic force, have grown faster than almost
any other asset class. The markets are expanding steadily
in both volume and new users and their complexity is
rapidly evolving with new technologies, globalization,
product innovation, and greater competition.
The Commission accomplishes its mission through
three strategic goals, each focusing on a vital area of
regulatory responsibility. They are: to ensure the economic
vitality of the commodity futures and option markets; to
protect market users and the public; and to ensure market
integrity in order to foster open, competitive, and financially
sound markets.
In the audit report issued today, the public accounting
firm, KPMG LLP, on behalf of our Inspector General,
reports that our financial statements were presented fairly,
in all material respects, and in conformity with U.S. generally
accepted accounting principles for Federal agencies.
However, to achieve this result, the FY 2005 financial
statements, which reflected no material weaknesses, were
restated. This was necessary to conform with the Financial
Accounting Standards Boards Statement of Financial
Accounting Standards No. 13, Accounting for Leases. As a
consequence, the auditors reported a material weakness in
the controls over financial reporting. Included in this finding
was another significant deficiency related to how the
custodial fines and interest receivable balance was determined.
A full discussion of the material weakness can be
found in the Financial Section of this report, which also
highlights actions the Commission is taking to resolve it.
Over the last year, the Commission focused its
resources: to help ensure that customers were protected
when a futures brokerage firm collapsed amid an accounting
fraud; to take action against an energy company in
response to allegations of manipulation; and to actively
address governance conflicts at publicly listed exchanges.
We also addressed how best to disclose the impact of
hedge funds and other speculators on our markets. Internationally,
we engaged our regulatory counterparts and
stakeholders on whether it is appropriate for an exchange
based outside of the U.S. to be designated as a U.S. exchange.
Although these accomplishments are very significant
in themselves, they are only part of the important contributions
made daily by the dedicated staff of the Commission.
We hope you will join us in applauding their efforts,
which are highlighted in the pages to follow using data,
both financial and performance, that is reliable and complete.
Reuben Jeffery III
Chairman
November 15, 2006
CFTC
Fiscal Year 2006 Commissioners
From left; Sharon Brown-Hruska1, Commissioner; Walter L. Lukken, Commissioner; Reuben Jeffery III, Chairman; Frederick
W. Hatfield, Commissioner; Michael V. Dunn, Commissioner
1 Sharon Brown-Hruska resigned from the Commission on July 28,
2006.
How This Report is Organized
The CFTCs FY 2006 Performance and Accountability Report is the third such report published by the Commission. This
document is comprised of three primary sections:
MANAGEMENTS DISCUSSION AND ANALYSISCommission at a Glance.......................................5Performance Highlights.......................................14Financial Highlights...........................................26Management Challenges.....................................30Inspector Generals FY 2006 Assessment...............33
Managements Discussion and Analysis
The Managements Discussion and Analysis (MDA) section
is an overview of the entire report, as supported and
detailed in the Performance Section and the Financial Section.
The MDA presents performance and financial highlights
for FY 2006, in addition to compliance with legal
and regulatory requirements and the Inspector Generals
assessment of management challenges facing the Commission.
For more information on this section, please contact
Mark Carney, Chief Financial Officer, at 202-418-5477.
Performance Section
The Performance Section compares the Commissions
performance to the annual goals as set forth in the
20042009 CFTC Strategic Plan, Keeping Pace with Change.
For more information on this section, please contact
Emory Bevill, Deputy Director for Budget and Planning, at
202-418-5187.
Financial Section
The Financial Section is comprised of the Commissions
financial statements and related Independent Auditors
report. For more information, please contact Jeanne Ring,
Deputy Director for Accounting and Financial Systems, at
202-418-5184.
PERFORMANCE SECTIONIntroduction to the Performance Section................41Strategic Goal One: Economic Utility...................42Strategic Goal Two: Market Users and Public........54Strategic Goal Three: Industry..............................71
FINANCIAL SECTIONMessage from the Chief Financial Officer..............95Limitations of Financial Statements.....................96Principal Financial Statements............................97Report of the Independent Auditors......................117
Questions and comments about this report can be directed to Mark Carney, Chief Financial
Officer, at 202-418-5477 or, via e-mail at mcarney@cftc.gov
An electronic version of the Commodity Futures Trading Commission FY 2006 Performance and
Accountability Report is available on the Internet at www.cftc.gov/cftc/cftcreports.htm. The 2004
2009 CFTC Strategic Plan, Keeping Pace with Change, is also available at this Web site.
MANAGEMENTS DISCUSSION AND ANALYSIS
Commission at a Glance........................................5
Performance Highlights........................................14
Financial Highlights............................................26
Management Challenges......................................30
Inspector Generals FY 2006 Assessment................33
Commission at a Glance
CFTC
Organization and Locations
The CFTC consists of five Commissioners who are appointed
by the President to serve staggered five-year terms.
All Commissioners are confirmed by the Senate. No more
than three Commissioners at any one time may be from
the same political party. The President designates one of
the Commissioners to serve as Chairman, with the advice
and consent of the Senate.
The Commissions organization chart is aligned with
its 20042009 Strategic Plan, and its functions are divided
between program policy and internal management. The
Office of the Chairman oversees the Commissions principal
divisions and offices that administer the policies, regulations,
and guidance regarding the CEA. The Office of the
Executive Director, by delegation of the Chairman, directs
the internal management of the Commission, ensuring
that funds are responsibly accounted for and that program
performance is measured and improved effectively.
Attorneys at the Commission work on complex and
novel legal issues in litigation, regulation, and policy
development. They participate in administrative and civil
proceedings, assist U.S. Attorneys in criminal proceedings
involving futures law violations, develop regulations and
provide a wide range of analysis and guidance on regulatory
issues, and provide legal advice to the Commission
on policy and adjudicatory matters.
Auditors examine records and operations of futures
exchanges, clearinghouses and firms for compliance with
the CFTC regulations on financial requirements and trade
practices.
Economists evaluate filings for new futures and option
contracts and amendments to existing contracts to
ensure they meet the Commissions regulatory standards.
Economists also analyze the economic effect of various
Commission and industry actions and events and advise
the Commission accordingly. In addition, economists
monitor trading activity and price relationships in futures
markets to detect and deter price manipulation and other
potential market disruptions.
Futures Trading Specialists perform regulatory and
compliance oversight of alleged fraud, market manipulations,
and trade practice violations.
The CFTC is headquartered in Washington, D.C.
Regional offices are located in Chicago, New York, Kansas
City and Minneapolis.
Additional information about the Commissions history
and its divisions can be obtained from the Commissions
Office of External Affairs or through its Web site,
www.cftc.gov.
CFTC
Commodity Futures Trading Commission Organization StructureChairmanCommissionerCommissionerCommissionerCommissionerOffice of General CounselDivision of Clearing &
Intermediary OversightEastern Region(New York)
Central Region(Chicago)
Kansas City OfficeOffice of Inspector GeneralOffice of the SecretariatEastern Region(New York)
Central Region(Chicago)
Kansas City OfficeMinneapolis OfficeDivision of MarketOversightEqual Employment OpportunityOffice of External AffairsOffice of International AffairsEastern Region(New York)
Central Region(Chicago)
Kansas City OfficeDivision of EnforcementOffice of Executive DirectorOffice of Chief Economist
MANAGEMENTS DISCUSSION AND ANALYSIS
CFTC History and Transformation
Futures contracts for agricultural commodities have been
traded in the U.S. for more than 150 years and have been
under Federal regulation since the 1920s. Congress
created
the CFTC in 1974 as an independent agency
with the
mandate to regulate commodity futures and option markets
in the U.S. At the time of the Commissions
founding,
the vast majority of futures trading took place in the
agricultural sector. These contracts
gave farmers, ranchers,
distributors, and end-users of everything from corn to
cattle an efficient and effective set of tools to hedge against
price movements.
Over the years, however, the futures industry has
become increasingly complex. While farmers and ranchers
continue to use the futures markets as actively as ever
to effectively lock in prices for their crops and livestock
months before they come to market, highly complex
financial contracts based on interest rates, foreign currencies,
Treasury bonds, stock market indices, and other
products have far outgrown agricultural contracts in trading
volume. The latest statistics show that approximately
five percent of on-exchange derivatives activity occurs in
the agricultural
sector, while financial derivatives make
up approximately
86 percent, and other contracts, such as
those on metals and energy products, make up about nine
percent.
In recognition of this changing environment, Congress
and the President reauthorized the Commission
through FY 2005 with the passage of the Commodity
Futures Modernization Act (CFMA) in December 2000.
The CFMA repealed the ban on single stock futures and
instituted a regulatory framework for such products to be
administered jointly by the CFTC and the Securities and
Exchange Commission (SEC). It codified the principal
provisions
of a new regulatory framework adopted earlier
by the Commission. It also brought legal certainty to the
trading done in bilateral, over-the-counter derivatives
transactions and clarified the CFTCs jurisdiction over the
retail, off-exchange foreign currency market. It gave the
CFTC authority to regulate clearing organizations in a
way that enables the CFTC more effectively to foster open,
competitive, and financially sound markets.
Keeping Pace with Change
In February 2004, the Commission
issued Keeping Pace
with Change, a strategic plan for FY 2004-FY 2009.2 This
plan reflects the new direction of the agency, driven by
the CFMA, including three key objectives: 1) modernizing
regulations affecting trading platforms and market
intermediaries;
2) permitting futures based on single stocks
or narrow-based stock indices; and 3) providing legal
certainty for over-the-counter derivatives.
The plan also reflects the enormous and continuing
changes in the markets, including rapid growth in volume,
globalization, and the movement from open outcry on-exchange
trading floors to all-electronic trading from widely
dispersed geographic
locations.
The charts that follow reflect many of the changes
affecting the CFTC: 1) industry growth versus staff growth;
2) growth in actively traded futures and option contracts;
3) enforcement actions in energy and foreign currency
(forex) markets; 4) growth in foreign commodity trading;
5) registrants; 6) contract markets designated by the
CFTC; 7) CFTC-registered derivatives clearing organizations
(DCOs); 8) exempt commercial markets (ECMs); 9)
exempt boards of trade (XBOTs); and 10) customer funds
held at futures commission merchants (FCMs).
2 In November 2006, the Commission will begin its three-year update
of the five-year Strategic Plan for the period 2007-2012
Growth in Volume of Futures & Option
Contracts Traded & Full-time Equivalents
(FTEs), 1996 2006
Trading volume has quintupled in the last decade while
staffing levels have decreased in recent years.
05001000150020002500CONTRACT TRADING VOLUME (MILLIONS)
FTE (STAFF YEARS)
96 97 98 99 00 01 02 03 04 05 06541553560567546514521497517491490FTEsContract Trading Volume
Actively Traded Futures & Option
Contracts, 1996 2006
The number of actively traded contracts on U.S. exchanges
has more than quintupled in the last decade. The number
is projected to grow to over 1,400 contracts by FY 2008.
020040060080010001200CONTRACTSFISCAL YEAR96 97 98 99 00 01 02 03 04 05 061992582862512662502785386629061135
Spotlight on Energy and Foreign Currency Markets
Actions Taken Since Enron Bankruptcy in December 2001
Energy Markets
Number of Cases Filed or Enforcement Actions
35
Number of Entities/Persons Charged
55
Number of Dollars in Penalties Assessed
Civil Monetary Penalties
$ 302,863,500
Actions Taken Since the Passage of the CFMA in December 2000
Foreign Currency Markets
Number of Cases Filed or Enforcement Actions
93
Number of Entities/Persons Charged
354
Number of Dollars in Penalties Assessed
Civil Monetary Penalties
$ 292,042,098
Restitution
$ 182,471,571
u Number of Customers
25,070
Growth of Foreign Commodity Trading
Since 2000, the number of foreign customers trading on
U.S. exchanges has more than tripled and the number of
U.S. customers trading on foreign exchanges has more
than quintupled.
050100150200AMOUNT IN THOUSANDSFISCAL YEARForeign Customers Trading on U.S. Commodity Exchanges2000 200554.027.0184.3145.0U.S. Customers Trading on Foreign Commodity Exchanges
Number of Registrants
Companies and individuals who handle customer funds, solicit or accept orders, or give trading advice must apply for
CFTC registration through the National Futures Association (NFA), a self-regulatory organization (SRO) with delegated
oversight authority from the Commission.
The Commission regulates the activities of over 70,000 registrants:
Type of Registered Professional
Number as of September 30, 2006
Associated Persons (APs) (Salespersons)
54,258
Commodity Pool Operators (CPOs)
1,570
Commodity Trading Advisors (CTAs)
2,589
Floor Brokers (FBs)
8,203
Floor Traders (FTs)
1,512
Futures Commission Merchants (FCMs)
2103
Introducing Brokers (IBs)
1,7414
TOTAL
70,083
Customer Funds Held at Futures
Commission Merchants, 1996 2006
The amount of customer funds held at FCMs has more
than quadrupled in the last decade.
$ 0$ 50$ 100$ 150AMOUNT IN BILLIONSFISCAL YEAR96 97 98 99 00 01 02 03 04 05 06$33.0$38.7$47.5$54.1$56.7$59.7$64.3$75.6$94.5$116.7$139.4
3 Includes 16 notice-registered FCMs.
4 Includes 45 notice-registered IBs.
Contract Markets Designated by the CFTC, 2001 2006
Designated contract markets (DCMs) are boards of trade or exchanges that meet CFTC criteria and core principles for
trading futures or options by both institutional and retail participants.
Commodity
Exchanges5
2001
2002
2003
2004
2005
2006
BTEX
.
.
.
CBOT
.
.
.
.
.
.
CCFE
.
.
.
CFFE
.
.
CFE
.
.
.
.
CME
.
.
.
.
.
.
CSCE
.
.
.
.
EPFE
.
Eurex US
.
.
.
HedgeStreet
.
.
.
INET
.
KCBT
.
.
.
.
.
.
MACE
.
.
.
ME
.
.
.
.
MGE
.
.
.
.
.
.
NQLX
.
.
.
.
.
NYBOT
.
.
.
NYCE
.
.
.
.
NYFE
.
.
.
.
NYMEX
(incl. COMEX)
.
.
.
.
.
.
OCX
.
.
.
.
.
PBOT
.
.
.
.
.
.
TOTAL
14
16
15
18
13
12
5 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
Number of CFTC-Registered Derivatives Clearing Organizations, 2001 - 2006
Clearinghouses that provide clearing services for CFTC-regulated exchanges must register as DCOs. Currently, 11 DCOs
are registered with the Commission.
DCOs6
2001
2002
2003
2004
2005
2006
AE
Clearinghouse
.
.
BTEX
.
.
.
CCorp
.
.
.
.
.
.
CBOT
.
.
.
CME
.
.
.
.
.
.
EnergyClear
.
.
.
FCOM
.
.
.
GCC
.
.
HedgeStreet
.
.
.
ICC
.
.
.
KCBT
.
.
.
.
.
.
LCH
.
.
.
.
.
MGE
.
.
.
.
.
.
NYCC
.
.
.
.
.
.
NYMEX
.
.
.
.
.
.
OCC
.
.
.
.
.
ONXCC
.
.
.
TOTAL
11
14
14
10
11
11
6 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
Exempt Commercial Markets, 2001 2006
Electronic trading facilities providing for the execution of principal-to-principal transactions between eligible commercial
entities in exempt commodities may operate as ECMs as set forth under the CEA and the Commissions regulations.
An ECM is subject to antifraud and anti-manipulation provisions and a requirement that, if performing a significant
price discovery function, the ECM must provide pricing information to the public. A facility that elects to operate as an
ECM must give notice to the Commission and comply with certain informational, record-keeping and other requirements.
An ECM is prohibited from claiming that the facility is registered with, or recognized, designated, licensed or
approved by, the Commission. To date, 17 ECMs have filed notices with the Commission.
Exempt Commercial
Markets7
2001
2002
2003
2004
2005
2006
CCX
.
.
.
.
CDXchange
.
.
.
.
.
HSE
.
.
.
.
.
ICE
.
.
.
.
.
.
IMAREX
.
.
.
.
.
.
NGX
.
.
.
.
.
OPEX
.
.
.
.
.
.
SL
.
.
.
.
TFSE
.
.
.
.
TFS
.
.
.
.
TS
.
.
.
.
.
ChemConnect
.
ICAP ETC
.
ICAP
.
ICAP HYDE
.
TCX
.
.
NTP
.
TOTAL
3
7
11
11
12
17
7 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
Exempt Boards of Trade, 2001 2006
Transactions by eligible contract participants in selected commodities may be conducted on an XBOT as set forth under
the CEA and the Commissions regulations. XBOTs are subject only to the CEAs anti-fraud and anti-manipulation provisions.
An XBOT is prohibited from claiming that the facility is registered with, or recognized, designated, licensed, or approved,
by the Commission. Also, if it is performing a price discovery function, the market must provide certain pricing
information to the public. To date, six XBOTs have filed notices with the Commission.
Exempt Boards
of Trade8
2001
2002
2003
2004
2005
2006
CME AM
.
.
AE
.
.
.
MATCHBOXX
ATS
.
WBOT
.
.
.
.
WXL
.
.
.
.
.
Intrade
.
.
TOTAL
0
1
2
3
5
6
8 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
Introduction
The mission of the CFTC is accomplished through three
strategic goals, each focusing on a vital area of regulatory
responsibility: 1) to ensure the economic vitality of the
commodity futures and option markets; 2) to protect market
users and the public; and 3) to ensure market integrity
in order to foster open, competitive, and financially sound
markets. Accomplishing the three long-term strategic goals
is evidenced by the progress of nine key outcome objectives.
In most cases, due to the broad economic functions
that the Commission oversees, it is not a simple task to
identify specific detailed objectives that will be accomplished
each year; however, it is possible to identify conditions
that, if present, are indicators that the Commissions
activities are contributing successfully to the health of the
industry it regulates.
Annually, the performance metrics are analyzed to
determine the measure of success the programs activities
have achieved in accomplishing the Commissions overall
strategic mission.
Resource Investment by Strategic Goal
In FY 2006, the Commission invested 39 percent of its resources
protecting market users and the public, and nearly
equal amounts of 30 percent each in economic vitality
and market integrity.
Performance Highlights
Net Cost by Strategic Goal
$33.4 MillionGoal One; Ensure theeconomic vitality ofthe commodity futuresand option markets.
32%
$30.2 MillionGoal Three: Ensure marketintegrity in order to fosteropen, competitive, andfinancially sound markets.
29%
$40.6 MillionGoal Two: Protect marketusers and the public.
39%
Full-time Equivalents by Strategic Goal
160 FTEsGoal One; Ensure theeconomic vitality ofthe commodity futuresand option markets.
32%
139 FTEsGoal Three: Ensure marketintegrity in order to fosteropen, competitive, andfinancially sound markets.
28%
196 FTEsGoal Two: Protect marketusers and the public.
40%
Goal One Summary
The focus of this goal is the marketplace. If U.S. commodity futures and option markets are protected from, and are
free of, abusive practices and influences, they will fulfill their vital role in the nations market economy and the global
economy, accurately reflecting the forces of supply and demand and serving market users by fulfilling an economic need.
Strategic Goal One
Ensure the economic vitality of the commodity futures and option markets.
Outcome 1.1 Markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of
disruptive activity.
Annual Performance Goal 1.1 No price manipulation or other disruptive activities that would cause loss of confidence or negatively
affect price discovery or risk shifting.
Performance Measures
1.1.1. Percentage growth in market volume.
1.1.2. Percentage of novel or innovative market proposals or requests for CFTC action addressed within six months to
accommodate new approaches to, or the expansion in, derivatives trading, enhance the price discovery process, or
increase available risk management tools.
1.1.3. Percentage increase in number of products traded.
1.1.4. Percentage of new exchange and clearinghouse organization applications completed within fast track review period.
1.1.5. Percentage of new contract certification reviews completed within three months to identify and correct deficiencies in
contract terms that make contracts susceptible to manipulation.
1.1.6. Percentage of rule certification reviews completed within three months, to identify and correct deficiencies in exchange
rules that make contracts susceptible to manipulation or trading abuses or result in violations of law.
Outcome 1.2 Markets are effectively and efficiently monitored so that the Commission receives early warning of potential problems
or issues that could adversely affect their economic vitality.
Annual Performance Goal 1.2 To have an effective and efficient market surveillance program.
Performance Measures
1.2.1 Percentage of derivative clearing organization applications demonstrating compliance with core principles.
1.2.2 Ratio of markets surveilled per economist.
1.2.3 Percentage of contract expirations without manipulation.
Strategic Goal One
Performance Trends for Goal One
Monitoring market activity represents one of the ways the Commission seeks to protect the economic functions of the
markets. Market surveillance is conducted to detect attempted manipulation and other abusive practices that could undermine
the capacity of these markets to perform their economic function. The Commission takes preventive measures
to ensure that market prices accurately reflect fundamental supply and demand conditions, including the routine daily
monitoring of large trader positions, futures and cash prices, price relationships, and supply and demand factors in
order to detect threats of price manipulation.
Market Volume
Contract trading volume peaked to over 2.4 billion in FY 2006, as shown in Figure two, Growth in Volume of Futures &
Option Contracts Traded & FTEs, on page eight, with increased demand realized for products traded on exchanges. The
actual FY 2006 number is driven by changes in economic fundamentals, success of newly launched products, new participants
using these markets, and other changes in the marketplace. As such, these factors may impact the precision of any
prediction of future trading volume.
Performance Measure 1.1.1
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Percentage growth in market volume
24%
26%
20%
26%
New Products
Similar to the growth in volume, the actual percentage of new products offered on the exchanges in FY 2006 increased
above projections. These results are driven by customer demand for new products, exchange innovation, opportunities
made available by the increasing use of electronic trading, and other changes in the marketplace. As such, these factors
may impact the number of products introduced.
Performance Measure 1.1.3
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Percentage increase in number of products traded
12%
43%
15%
25%
Performance Highlights for Goal One
The following are the highlights of Commission performance
for Goal One:
Market Surveillance
In FY 2006, the Commissions market surveillance activities
included collecting and analyzing approximately 44
million line items of data regarding large trader activity
and approximately 16,000 reports identifying large
traders. In the course of the year, economists prepared
approximately 1,500 weekly surveillance reports and compiled
23 special market reports.
Energy Markets
In FY 2006, Commission staff conducted daily surveillance
of 1,135 active futures and option contracts. In
particular, close monitoring was conducted on the energy
futures markets, which experienced periods of high prices
and high price volatility due to, among other things, low
stocks, tight production capacity, geopolitical tension in
the Middle East, strong world economic demand, and
natural disasters. In addition, prices and price volatility in
both the petroleum markets and the natural gas market
were substantially increased by damage inflicted by
Hurricanes Katrina and Rita to the Gulf Coast oil and gas
production, processing, and transportation infrastructure.
Surveillance staff closely monitored large trader positions
on a daily basis to detect large positions that could pose
a threat of price manipulation, and staff also conducted
several special analyses of intraday trading to determine
whether there was evidence of improper trading to affect
settlement prices of energy futures contracts.
New Contracts
During FY 2006, Commission staff completed reviews
of several innovative contracts filed under its certification
procedures. Those contracts include the Volatility
Index (VIX) and Dow Jones Industrial Average (DJIA)
VIX futures contracts on the CBOE Futures Exchange, the
South American Soybean Meal futures contract on the
CBOT, Snowfall Index contracts on the CME, the physically
delivered Euro Index on the NYBOT, the Reformulated
Gasoline Blendstock for Oxygen Blending (RBOB)
Unleaded Gasoline futures contract on the NYMEX, and
many geographically specific energy futures contracts on
NYMEX.
Intergovernmental Cooperation
The Commission worked to limit the impact of the liquidation
of Refco LLC one of the largest retail commodity
brokers in the world. Commission staff worked cooperatively
and successfully with SROs, industry participants,
government officials, and the U.S. Bankruptcy Court to
ensure that futures market positions of Refco customers
and more than $7 billion in customer funds were safely
and securely protected.
The Commission, jointly with the SEC, promulgated
final regulations to permit trading of futures contracts on
debt indexes and debt securities. The joint rulemaking was
necessitated by statutory obstacles making it difficult to
trade these products. The regulations provide a definition
for broad-based debt security indexes; as a result, futures
transactions on these indexes will be able to trade subject
to the sole jurisdiction of the CFTC. And, for the first time,
the regulations permit trading of security futures products
based on debt securities, subject to joint regulation by the
CFTC and SEC.
Electronic Markets
The Commission has worked cooperatively with the
United Kingdoms (U.K.) Financial Services Authority
(FSA) to obtain and share, on a bilateral basis, information
needed to address common surveillance issues arising
from the trading of economically linked futures contracts
in the U.K. and U.S. The Commission recognizes that, as
global markets continue to become linked electronically,
no one regulator will have all of the information needed
to carry out its customer and market protection mandate
and therefore each regulator must cooperate with its foreign
regulatory counterparts.
Goal Two Summary
While our country is the beneficiary of explosive growth in the futures industry, the risk of fraud and manipulation is
always present. The trend toward electronic trading platforms and the expanding complexity of trading instruments have
challenged the Commission to reconfigure its ability to identify, investigate, and take action against parties involved in
violating applicable laws and regulations. If evidence of criminal activity is found, matters are referred to state or Federal
authorities for prosecution under criminal statutes.
Over the years, the Commission has taken action in a number
of cases involving manipulation or attempted
manipulation
of commodity prices. A variety of administrative sanctions, such as bans on futures trading, civil monetary
penalties, and restitution orders, is available to the Commission. The Commission may also seek Federal court injunctions,
asset freezes, and orders to disgorge ill-gotten gains.
Strategic Goal Two
Protect market users and the public.
Outcome 2.1 Violations of Federal commodities laws are detected and prevented.
Annual Performance Goal 2.1 Violators have a strong probability of being detected and sanctioned.
Performance Measures
2.1.1. Number of enforcement investigations opened during the fiscal year.
2.1.2. Number of enforcement cases filed during the fiscal year.
2.1.3. Percentage of enforcement cases closed during the fiscal year in which the Commission obtained sanctions, e.g.,
civil monetary penalties, restitution and disgorgement, cease and desist orders, permanent injunctions, trading bans,
and registration restrictions.
2.1.4. Cases filed by other criminal and civil law enforcement authorities during the fiscal year that included cooperative assistance
from the Commission.
Outcome 2.2 Commodity professionals meet high standards.
Annual Performance Goal 2.2 No unregistered, untested, or unlicensed commodity professionals.
Performance Measures
2.2.1. Percentage of self-regulatory organizations that comply with core principles.
2.2.2. Percentage of derivative clearing organizations that comply with core principles.
2.2.3. Percentage of professionals compliant with standards regarding testing, licensing, and ethics training.
2.2.4. Percentage of self-regulatory organizations that comply with requirement to enforce their rules.
2.2.5. Percentage of total requests receiving CFTC responses for guidance and advice.
Outcome 2.3 Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.
Annual Performance Goal 2.3 Customer complaints are resolved within one year from the date filed and appeals are resolved
within six months.
Performance Measures
2.3.1. Percentage of filed complaints resolved within one year of the filing date.
2.3.2. Percentage of appeals resolved within six months.
Strategic Goal Two
Performance Trends for Goal Two
An ever larger segment of the population has money at
risk in the futures markets, either directly or indirectly
through pension funds or ownership of shares in publicly
held companies that participate in the markets.
The Enforcement program works to protect market
users and the public by promoting compliance with, and
deterring violations of, the CEA and Commission regulations.
The majority of the work in this area involves investigating
and prosecuting enforcement actions in matters
involving fraud and imposing sanctions against wrongdoers.
These actions send a message to industry professionals
about the kinds of conduct that will not be tolerated.
Enforcement Investigation and Litigation
During FY 2006, the Commission filed 38 enforcement
actions and its Enforcement program opened 123 investigations
of potential violations of the Act and Commission
regulations. The Commission obtained record
relief against enforcement action defendants monetary
penalties imposed in FY 2006, including restitution, in the
amount of $256,724,698 and civil monetary penalties, in
the amount of $189,232,437, exceeded any other year in
Commission history.
While the Commissions Enforcement program
continued to perform at a high level, current resource constraints
had an adverse impact. For example, the 38 cases
filed fell short of the Commissions performance target of
60 cases for FY 2006. Due to a hiring freeze over the last
two fiscal years, the Division of Enforcement (Enforcement)
lost 11 percent of its staff and was forced to operate
with fewer staff members. Coming at a time when the
Enforcement programs litigation docket and the complexity
of matters investigated, such as investigation of alleged
market manipulation, are at historical highs, the Commission
believes that the hiring freeze contributed to this performance
result. Moreover, the Commission believes that
these resource constraints have the possibility of adversely
affecting future performance as well.
Enforcement staff are operating at full capacity and
shifting resources from important investigations to ongoing
and future litigation demands limits the ability to
pursue new investigations as shown in the metrics below.
If the Enforcement program is unable to bring actions
because of insufficient resources, other authorities will not
be available to step in and fill the void. SROs can take action
only against their own members, and their sanctions
cannot affect conduct outside their jurisdiction or markets.
In addition, other Federal regulators and state regulators
have limited jurisdiction and expertise in handling futures-
related misconduct. Finally, while criminal prosecutions
by the Department of Justice (DOJ) are an important
adjunct to effective enforcement of the CEA, cooperative
enforcement still requires the active use of Commission
FTEs to assist DOJ in their criminal prosecutions.
Performance Measure 2.1.1
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Number of enforcement investigations opened during the
fiscal year
215
131
100
123
Performance Measure 2.1.2
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Number of enforcement cases filed during the fiscal year
83
69
60
38
Performance Measure 2.1.3
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Percentage of enforcement cases closed during the fiscal
year in which the Commission obtained sanctions, e.g., civil
monetary penalties, restitution and disgorgement, cease and
desist orders, permanent injunctions, trading bans, and registration
restrictions
99%
100%
100%
100%
Performance Highlights for Goal Two
The following are the highlights of Commission performance
for Goal Two:
Foreign Currency Fraud Enforcement
During FY 2006, the Commission filed six enforcement
actions against firms and individuals selling illegal forex
futures and option contracts, bringing the total of such
actions to 93 since enactment of the CFMA in December
2000. To date, the Commission has obtained in these
enforcement actions approximate monetary sanctions of
$292 million in civil monetary penalties and $182 million
in restitution.
In March 2006, Commissioner Michael V. Dunn was
appointed to head the Commissions forex task force.
This task force seeks to alert and educate members of the
general public about the growing epidemic of fraudulent
solicitations and sales of forex to retail customers. The task
force has two goals: 1) to raise consumer awareness regarding
forex fraud through direct educational efforts; and
2) to encourage state, local and Federal authorities, as well
as consumer advocacy groups and industry organizations,
to assist the Commissions efforts in fighting forex fraud.
Manipulation, Attempted Manipulation, and False
Reporting Enforcement
On June 28, 2006, the Commission filed a civil injunctive
enforcement action against BP Products North America,
Inc. (BP), a wholly-owned subsidiary of BP plc, alleging
that BP manipulated the price of February 2004 TET physical
propane by, among other things, cornering the market
for February 2004 TET physical propane. (The term TET
propane refers to propane that is deliverable at the TEPPCO
storage facility in Mont Belvieu, Texas, or anywhere
within the TEPPCO system. TEPPCO is an acronym for
Texas Eastern Products Pipeline Co, LLC.)
The Commission also charged BP with attempting to
manipulate the price of April 2003 TET physical propane
by attempting to corner the April 2003 TET physical
propane market. According to the lawsuit, TET propane
is the primary propane used for residential and commercial
heating in the Northeast U.S., particularly in rural
areas that are not served by natural gas pipelines, and the
price of TET propane at Mont Belvieu affects the price of
propane paid by consumers. Furthermore, prices of TET
propane affect the price of the NYMEX futures contract
for propane, in part because the NYMEX propane contract
provides for delivery of propane at TEPPCO. CFTC v. BP
Products North America, Inc., No. 06C 3503 (N.D.Ill. filed
June 28, 2006).
With the filing of the BP enforcement action, the
Commission has, since December 2002, filed a total of 35
enforcement actions charging a total of 55 respondents/
defendants (31 companies and 24 individuals) with alleged
wrongdoing in the energy markets. The Commission
has settled 27 of these enforcement actions and obtained
$302,863,500 in civil monetary penalties. Eight Commission
energy market-related enforcement actions remain
pending. The Commissions Division of Enforcement is
currently investigating approximately 70 individuals and
companies for alleged violations in the energy sector.
Enforcement Actions Against Commodity Pool
Operators and Commodity Trading Advisors
Customers may be harmed by unscrupulous CPOs and
CTAs, including those operating hedge funds. These
enforcement actions typically involve investments in commodity
pools, including self-styled hedge funds, in which
the customers funds were misappropriated or misused,
or where customers were victimized by solicitation fraud
involving misrepresentations of assets under management
and/or profitability. The majority of the Commissions
pool fraud cases are brought against unregistered CPOs
and/or CTAs. These cases tend to involve Ponzi schemes or
outright misappropriation, as opposed to legitimate hedge
fund operations. During FY 2006, the Commission filed
11 enforcement actions against commodity pools, hedge
funds and CPOs, bringing the total number of actions
filed in this program area to 53 over the past six fiscal
years. The Commissions Division of Enforcement currently
has 55 pending investigations of commodity pools,
hedge funds, CPOs, and CTAs.
Quick-Strike Enforcement Actions
The Commission is committed to responding quickly to
enforcement investigations that uncover ongoing fraud.
Quick-strike cases are civil injunctive actions that generally
are filed in Federal district courts within days or weeks of
the discovery of the illegal activity, enabling the Commission
to stop fraud at an early stage and to attempt to
preserve customer funds. During FY 2006, the Commission
prosecuted five quick-strike cases, which were all filed
within four months of opening the related investigation.
Consumer Advisory
In FY 2006, the Commission issued a Consumer Advisory,
Beware Of Promises of Easy Profits from Commodity Trading
Based on Seasonal Demand and Other Well-Known Public
Information. The Advisory warns consumers to watch out
for possibly fraudulent claims that profits on commodity
futures or option trading can be made as a result of
changes in the prices of physical commodities based on
seasonal weather patterns or other well-known events. All
of the Commissions Consumer Advisories are available
on its Web site at http://www.cftc.gov/cftc/cftccustomer.htm
Overall FY 2006 Enforcement Results
During FY 2006, the Commissions Division of Enforcement
filed a total of 38 enforcement actions in the following
program areas: Manipulation, Attempted Manipulation
and False Reporting; Commodity Pools, Hedge
Funds, CPOs, CTAs, Managed Accounts, and Trading
Systems; FCMs, IBs and their APs; Foreign Currency Cases;
Other Illegal Off-Exchange Cases; Trade Practices; Financial,
Supervision, Compliance and Recordkeeping; and
Statutory Disqualification. During FY 2006, Enforcement
also obtained sanctions in Commission enforcement actions
that included orders to pay a total of $257 million
in restitution and approximately $189 million in civil
monetary penalties.
Goal Three Summary
The Commission focuses on issues of market integrity, seeking to protect: 1) the economic integrity of the markets so
that they may operate free from manipulation; 2) the financial integrity of the markets so that the insolvency of a single
participant does not become a systemic problem affecting other market participants; and 3) the operational integrity
of the markets so that transactions are executed fairly and proper disclosures to existing and prospective customers are
made.
Strategic Goal Three
Ensure market integrity in order to foster open, competitive, and financially sound markets.
Outcome 3.1 Clearing organizations and firms holding customer funds have sound financial practices.
Annual Performance Goal 3.1 No loss of customer funds as a result of firms failure to adhere to regulations. No customers
prevented from transferring funds from failing firms to sound firms.
Performance Measures
3.1.1. Lost funds:
a) Percentage decrease in number of customers who lose funds.
b) Amount of funds lost.
3.1.2. Number of rulemakings to ensure market integrity and financially sound markets.
3.1.3. Percentage of clearing organizations that comply with requirement to enforce their rules.
Outcome 3.2 Commodity futures and option markets are effectively self-regulated.
Annual Performance Goal 3.2 No loss of funds resulting from failure of self-regulated organizations to ensure compliance
with their rules.
Performance Measures
3.2.1. Percentage of intermediaries who meet risk-based capital requirements.
3.2.2. Percentage of self-regulatory organizations that comply with requirement to enforce their rules.
Outcome 3.3 Markets are free of trade practice abuses.
Annual Performance Goal 3.3 Minimize trade practice abuses.
Performance Measures
3.3.1. Percentage of exchanges deemed to have adequate systems for detecting trade practice abuses.
3.3.2. Percentage of exchanges that comply with requirement to enforce their rules.
Outcome 3.4 Regulatory environment is flexible and responsive to evolving market conditions.
Annual Performance Goal 3.4 Rulemakings issued and requests responded to reflect the evolution of the markets and protect
the interests of the public.
Performance Measures
3.4.1. Percentage of CFMA Section 126(b) objectives addressed.
3.4.2. Number of rulemakings, studies, interpretations, and guidances to ensure market integrity and exchanges compliance
with regulatory requirements.
3.4.3. Percentage of requests for no-action or other relief completed within six months related to novel market or trading
practices and issues to facilitate innovation.
3.4.4. Percentage of total requests receiving CFTC responses for guidance and advice.
Strategic Goal Three
Performance Trends for Goal Three
In fostering open, competitive, and financially sound markets, the Commissions two main priorities are to avoid
disruptions to the system for clearing and settling contract obligations and to protect the funds that customers entrust
to FCMs. Clearing organizations and FCMs are the backbone of the exchange system; together, they protect against the
possibility that the financial difficulties of one trader may become a systemic problem for other traders.
The Commission also works with the exchanges and NFA to monitor closely the financial condition of the FCMs
themselves, who must provide the Commission, exchanges, and NFA with various monthly, quarterly, and annual
financial reports. The exchanges and NFA also conduct audits and daily financial surveillance of their respective member
FCMs. Part of this financial surveillance involves looking at each FCMs exposure to losses from large customer positions
that it carries. As an oversight regulator, the Commission reviews the audit and financial surveillance work of the
exchanges and NFA but also monitors the health of FCMs directly, as appropriate. The Commission also periodically
reviews clearing organization procedures for monitoring risks and protecting customer funds.
Protecting Customer Funds
Commission staff closely monitor the operations of registrants in possession of customer funds. There were no losses
of regulated customer funds as a result of firm failures or the inability of customers to transfer their funds from a failing
firm to a sound firm in 2005 or 2006.
Performance Measure 3.1.1
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Lost funds:
a) Percentage decrease in number of
customers who lose funds
0%
0%
0%
0%
b) Amount of funds lost
$0
$0
$0
$0
Self-Regulatory Organization Compliance
During FY 2006, the Division of Clearing and Intermediary Oversight (DCIO) completed a review of the NFAs program
for the oversight of CPOs and CTAs, and initiated a review of the financial and sales practice program of the CBOT.
These reviews included assessments of the disciplinary programs of the NFA and CBOT, respectively. DCIO presented a
report to the Commission stating that NFA was complying with the CEA and its delegated responsibilities. The review of
the CBOT is still in progress at this time, but no material deviations from CEA core principles have been observed.
Performance Measure 3.1.3
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Percentage of clearing organizations that comply with requirement
to enforce rules
100%
100%
100%
100%
Performance Measure 3.2.2
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Percentage of self-regulatory organizations that comply with
requirement to enforce their rules
100%
100%
100%
100%
Performance Measure 3.3.2
FY 2004
Actual
FY 2005
Actual
FY 2006
Plan
FY 2006
Actual
Percentage of exchanges that comply with requirement to
enforce their rules
100%
100%
100%
100%
Performance Highlights for Goal Three
The following are the highlights of Commission performance
for Goal Three:
Capital Computation and Risk Models
The Commission adopted amendments to its regulations
that recognize the growing use by FCMs of internally
developed mathematical models for value-at-risk (VaR),
especially in light of SEC regulations that permit well-capitalized
broker-dealers to incorporate VaR measurements
in the market risk and credit risk capital deductions that
are required for their proprietary trading assets. FCM/broker-
dealers who are registered with both the Commission
and the SEC, and who have received SEC approval for
their VaR-based market risk and credit risk deductions,
are permitted to use the same deductions when calculating
their capital under amended Commission Regulation
1.17. When compared to the capital deductions that
Commission Regulation 1.17 (or similar SEC regulations)
otherwise would require, capital deductions based on VaR
measurements are aligned more specifically to the risk
characteristics of the firms trading portfolio. FCMs using
such market risk and credit risk capital deductions are required
to provide to the Commission, on a periodic basis,
information related to their VaR models.
SRO Acceptable Practices
Recognizing that increased competition and changing
ownership models are dramatically transforming the
futures markets, the Commission proposed acceptable
practices for complying with Core Principle 15 relating
to exchange governance and conflicts of interest. The
acceptable practices call: 1) for each exchanges board to
be composed of at least 50 percent non-member public
directors; 2) for each exchange to establish a board-level
Regulatory Oversight Committee composed of only non-
member public directors; and 3) for exchange disciplinary
panels to include at least one public participant and not to
be dominated by any group or class of exchange members.
The proposal also offers guidance on the definition of
public director.
Foreign Currency
In FY 2006, the Commission approved numerous rules
submitted by NFA that were intended to address ongoing
problems in the off-exchange retail forex market
by, among other things: requiring higher net capital for
certain FCMs and forex option dealers; clarifying that enhanced
supervisory requirements applicable to other NFA
members also apply to forex dealer members, including
requiring the recording of conversations with customers
if specified percentages of APs had been previously
employed by disciplined firms, i.e., firms permanently
barred from the industry as a result of deceptive telemarketing
practices or promotional material; requiring NFA
Forex Dealer Members to file weekly reports; and requiring
additional disclosure on the bankruptcy consequences of
forex trading.
Foreign Board of Trade Access to U.S. Traders
The Commission continued its policy of issuing no-action
letters in response to requests by foreign boards of trade to
permit placement of electronic terminals in the U.S. without
requiring contract market designation for those boards
of trade. In FY 2006, the Commission issued no-action letters
to two additional foreign exchanges to permit them to
make their electronic trading and order matching systems
available to their respective members in the U.S. without
obtaining contract market designation or registration as a
derivatives transaction execution facility.
Foreign Board Of Trade Hearing
On June 27, 2006, the Commission held an open hearing
to obtain the views of interested parties on the issue of
what constitutes a board of trade, exchange, or market
located outside the U.S., its territories, or possessions as
that phrase is used in Section 4(a) of the CEA. The hearing
was undertaken in connection with the Commissions
ongoing review of its policy, initiated in 1999, of having
staff issue no-action letters in response to requests by
foreign boards of trade to permit placement of electronic
terminals in the U.S. without requiring contract market
designation for those boards of trade. Participants at the
June 27th hearing included representatives of DCMs, foreign
boards of trade, foreign regulators, market professionals
and commercial users of futures products. In addition
to views expressed at the hearing, the Commission also
solicited views on the same topic through a concurrent
public comment period.
Forward Looking
Future Effects and Performance
Challenges
The above performance metrics and the industry indicators
shown on pages eight through 13 reflect a dynamic
industry full of growth and potential. However, where
there is growth, change is ever present.
Possible future effects and challenges include:
Technology
Technology continues to make it possible for market
participants to trade globally 24 hours a day. This
presents a challenge to the Commission to maintain a
robust, yet flexible, regulatory framework as market participants
have an increasing number of choices available
to them as to how and where to trade.
The expansion of electronic trading will require an increase
in Commission staff trained to carry out oversight
of more technologically driven markets and self-regulatory
systems.
As electronic trading of futures and options on Commision-
regulated exchanges becomes the norm the
Commission must upgrade its own technology and
infrastructure so that it may effectively discharge its
statutory mandate of deterring and preventing price
manipulation and any other disruptions to the integrity
of the markets the Commission regulates.
Globalization
The increasing globalization of the futures and option
markets requires new staff competencies, including
knowledge of how individual overseas markets operate
and are regulated, how cross-border trading and clearing
systems operate, and what law, especially bankruptcy
law, applies in cross-border transactions.
The possibility of market disruptions caused by economic
changes, terrorism, epidemics, natural disasters
or political developments could trigger global market
concerns. In such an integrated global environment, no
one regulator will have all of the information or jurisdiction
over markets, firms and persons, that is needed
to ensure customer and market protections. Thus, our
challenge will be to work with and coordinate regulation
globally.
Marketplace
Development and growth of renewable energy sources
(i.e., biofuels) could impact existing energy markets.
Disruption of oil exports to the U.S. may disrupt energy
markets.
A significant portion of the power grids may be disabled
for an extended period of time, crippling markets.
Changes in the structure of the futures and options
industry, such as the conversion of exchanges from
member-owned entities to publicly-listed corporations,
exchange mergers, and the introduction of new and
novel contracts will mean that the Commission will require
more staff to review novel or increasingly complex
legal and regulatory issues.
Government
Congress could pass new legislation that may impact
the futures markets.
Congress may require an investigation of certain markets.
Congress may not appropriate adequate funds for the
Commission to effectively discharge its mission-critical
functions
Management
Competition to hire and retain staff is intense in a job
market where scarce mission-critical skills command
premium compensation levels. Even at pay parity
salaries, cost of living increases make recruitment and
retention of a talented and qualified workforce difficult.
Financial Summary
2006
2005
(As Restated)
Condensed Balance Sheet Data
Fund Balance with Treasury
$ 20,055,508
$ 23,464,887
Property, Equipment, and Software, Net
3,674,493
1,919,650
Accounts Receivable
63,855
185,927
Prepayments
461,038
0
Other (Custodial)
5,756,605
28,663,845
Total Assets
$ 30,011,499
$ 54,234,309
FECA Liabilities
$ 311,285
$ 629,800
Payroll, Benefits and Annual Leave
9,182,837
8,082,514
Contingent & Deposit Fund Liabilities
59,088
20,094
Other Deferred Lease Liabilities
2,837,403
2,166,518
Accounts Payable
2,574,535
1,692,411
Custodial Liabilities
5,756,605
28,663,845
Total Liabilities
$ 20,721,753
$ 41,255,182
Cumulative Results of Operations
$ (4,568,800)
$ (6,106,083)
Unexpended Appropriations
13,858,546
19,085,210
Total Net Position
9,289,746
12,979,127
Total Liabilities and Net Position
$ 30,011,499
$ 54,234,309
Condensed Statements of Net Cost
Total Cost
$ 104,256,065
$ $100,132,194
Net Revenue
(23,150)
(114,705)
Total Net Cost of Operations
$ 104,232,915
$ 100,017,489
Net Cost by Strategic Goal
Goal One - Economic Utility
$ 33,354,533
$ 34,005,946
Goal Two - Market User and Public
40,650,837
40,006,996
Goal Three - Industry
30,227,545
26,004,547
$ 104,232,915
$ 100,017,489
Financial Highlights
Financial Discussion and Analysis
The CFTC prepares annual financial statements in accordance
with GAAP for Federal government entities and
subjects the statements to an independent audit to ensure
their integrity and reliability in assessing performance.
Management recognizes the need for performance and
accountability reporting, and fully supports assessments of
risk factors that can have an impact on its ability to do so.
Improved reporting enables managers to be accountable
and supports the concepts of the Government Performance
and Results Act (GPRA), which require the Commission to:
1) establish a strategic plan with programmatic goals and
objectives; 2) develop appropriate measurement indicators;
and 3) measure performance in achieving those goals.
The financial summary as shown on page 26 highlights
changes in financial position between September 30, 2005
and September 30, 2006. This overview is supplemented
with brief descriptions of the nature of each required
financial statement and its relevance. Certain significant balances
or conditions featured in the graphic presentation are
explained in these sections to help clarify their relationship
to Commission operations. Readers are encouraged to gain
a deeper understanding by reviewing Commission financial
statements and notes, and the accompanying audit report
presented in the Financial Section of this report.
Understanding the Financial Statements
The CFTC presents financial statements and notes in the
format required for the current year by OMB Circular
A-136, Financial Reporting Requirements, which is revised
annually by the OMB in coordination with the U.S. Chief
Financial Officers Council. CFTC current year and prior
year financial statements and notes are presented in a
comparative format.
Balance Sheet
The balance sheet presents, as of a specific point in time,
the economic value of assets and liabilities retained or
managed by the Commission. The difference between
assets and liabilities represents the net position of the
Commission.
The balance sheet reflects total assets of $30 million,
an almost 45 percent decrease from FY 2005. This decrease
is attributable to custodial fines and interest receivables
from the Civil Monetary Sanctions Program. The CFTC
litigates against defendants for alleged violations of the
CEA, as amended. Violators may be subject to a variety
of sanctions including fines, injunctive orders, bars or
suspensions, rescissions of illegal contracts, disgorgement,
and restitution to customers. When collectable custodial
receivables (non-entity assets) are high, these fines and
penalties that have been assessed and levied against businesses
for violation of law dominate the balance sheet.
In FY 2005, the majority of approximately $28.7
million in net custodial receivables can be attributed
to two debts totaling approximately $24 million. The
energy company El Paso owed $10.3 million as the second
installment of a $20 million dollar judgment, paid March
2006, and DBS Capital, Inc. and Douglas Stevens owed
$14.1 million pursuant to a June 2005 order. The latter
receivable was maintained after allowances on the FY
2005 financials because almost one million dollars in
frozen funds had been collected, and staff were pursuing
other funds in a foreign bank. With the passage of time,
the Commission determined the chances of collecting
the remaining funds had diminished and a full allowance
for the DBS Capital, Inc. and Douglas Stevens receivable
was taken. Of the remaining 15 receivables for FY 2005,
seven were paid in full; one was partially paid; two others
remain as net receivables because payment is not yet
due; one was written off; and allowances were taken on
the remaining four. For FY 2006, the majority of the $5.7
million net receivables can be attributed to a $4.2 million
debt imposed on Dominion Resources in the last days of
the fiscal year, and collected in early October 2006.
As should be expected from a small regulatory agency,
payroll, benefits, and annual leave make up the majority
of CFTC liabilities. Several factors influenced the change
in the Commissions net position during FY 2006. This, as
noted above, includes the timing of prior year write-offs of
old debt, and the overall case management and analysis of
debt by the Division of Enforcement.
Statement of Net Cost
The statement of net cost is designed to present the components
of the net cost of the Commission. Net cost is the gross
cost incurred less any revenues earned from Commission
activities. The statement of net cost is categorized by the
Commissions strategic goals. The Commission experienced
a four percent increase in the total net cost of operations
during FY 2006. This is consistent with the increase in our
appropriation.
of operations during FY 2006. This is consistent with the
increase in our appropriation.
Goal One, which tracks activities related to market
oversight continues to require a significant share of Commission
resources, experienced a one percent decrease in
net cost in operations, in FY 2006, decreasing to $33.4
million.
Goal Two is representative of efforts to protect market
users and the public. In FY 2006, the Goal Two net cost of
operations rose to $40.7 million, a two percent increase.
These added funding permitted to Commission to pursue
a number of highly complex cases, many which are ongoing.
The impact of this work has yet to be reflected on the
balance sheet.
The net cost of operations for Goal Three, ensuring
market integrity, was $30.2 million, in FY 2006. The decision
to allocate an increase of 16 percent to this goal was
made by the Commission, in FY 2006, in response to market
concerns when futures brokerage Refco LLC collapsed
amid an accounting fraud. Moreover, as futures markets
generally become more global in nature, the Commission
is increasingly called upon to register overseas clearinghouses
and futures firms, to approve complex cross-border
trading and clearing linkages, and to perform effective
ongoing supervision. This requires the Commission to
invest resources in developing and maintaining effective
relationships with foreign regulatory authorities.
Statement of Budgetary Resources
This statement provides information about the provision
of budgetary resources and their status as of the end of the
reporting period. Information in this statement is consistent
with budget execution information and the information
reported in the Budget of the U.S. Government.
The variances in this statement are mainly due to the
increase in the appropriations received in FY 2006. The
increase was used to maintain a steady state and funded
benefits and compensation, lease expenses, printing, and
services to support systems users, telecommunications,
operations, and maintenance of technology equipment.
Gross outlays increases are mainly due to the increase in
the disbursements for payroll and benefits, netted by a
decrease in the disbursements in a no-year appropriation
and expired-year appropriations.
Statement of Financing
This statement demonstrates the relationship between an
entitys proprietary and budgetary accounting information.
It links the net cost of operations (proprietary) with
net obligations (budgetary) by identifying key differences
between the two statements. This statement is structured
to identify total resources used during the fiscal year, and
makes adjustments based on whether the resources were
used to finance the net obligations or net cost.
For FY 2006, this statement identifies the major
components of the net cost of operations as $99.6 million
of resources used to finance activities, and $3.8 million of
resources used to finance items not part of the net cost of
operations. As noted earlier, the total net cost of operations
for FY 2006 is a little over $104 million.
Statement of Custodial Activity
This statement provides information about the sources
and disposition of non-exchange revenues. Non-exchange
revenue at the CFTC is primarily represented by fines,
penalties, and forfeitures assessed and levied against businesses
and individuals for violations of the CEA. Other
non-exchange revenue includes registration, and filing and
appeal fees, as well as general receipts. The statement of
custodial activity reflects total non-exchange revenue collected
(cash collections) of $13.6 million and a transfer of
the collections to the Treasury in the same amount.
Historical experience has indicated that a high percentage
of custodial receivables proves uncollectible. The
methodology used to estimate the allowance for uncollectible
amounts related to custodial accounts is that custodial
receivables are considered 100 percent uncollectible unless
otherwise noted in the judgment. An allowance for uncollectible
accounts has been established and included in
accounts receivable on the balance sheet. The allowance
is based on past experience in the collection of accounts
receivable and analysis of outstanding balances. Accounts
are re-estimated quarterly based on account reviews and
determination that changes to the net realizable value
are needed. The re-estimate can cause wide swings in the
statement line that reports Changes in Accounts Receivable.
Future Business Trends and Events
Almost everything in the futures industry has fundamentally
changed over the last 20 years from the products
that are trading to the platforms on which they are traded.
As the Commission looks ahead, we expect technology,
globalization, and innovation will continue to drive
growth in the markets we regulate.
During this time of rapid change, the Commission
expects to lose most of its experienced career staff, primarily
through retirement. During FY 2006, the Commission
experienced its first large wave of these retirements.
From a performance perspective, the Commission has
struggled to operate at the level needed to ensure that it
has the tools and resources necessary to do the job expected
of it by the Congress, the Administration, and the
American people. The Commission must make difficult
choices about how it will use its limited resources.
It is anticipated that Commission efforts will be
scaled back to the extent increased productivity cannot
offset anticipated resource reductions. As noted in the
discussion of the net cost of operations, the Commission
attempts to balance its investment in three strategic goals,
each focusing on a vital area of regulatory responsibility.
To continue to be an effective regulator, the Commission
will need to place greater reliance on risk management
approaches to supervision. It will also continue to
leverage needed systems and data maintained by other
Federal agencies and, wherever possible, data repositories
maintained by self-regulatory organizations. Moving
forward the Commission will be required to confront the
jurisdictional challenges created by innovation and the
worldwide creation and expansion of futures and option
markets. This, coupled with a wide array of new surveillance
issues, is expected to significantly change the way the
Commission consumes and allocates resources across its
performance goals. From an operational perspective, the
Commission will continue to allocate and deploy its resources
in less traditional ways as described below. As this
process accelerates, the Commission seeks to transform
itself along the following dimensions.
Institutional Transformation
The Commission will concentrate on the costs of identifying
and controlling institutional risks, specifically, the risk
of impairment to the Commissions operations model,
reputation, and financial condition from failure to fully
comply with laws and regulations, internal controls, and
taxpayer expectations. This could lead to dramatic changes
in its workforce composition and geographical distribution.
Technology Transformation
Technology improvements will continue to empower the
Commission in the future by increasing the availability of
our most critical resource time. Through these improvements,
executive management may spend additional time
on policy analysis and decision-making rather than on the
processing and compiling of key data. The Commission
will increasingly leverage business processes, services, and
systems of larger agencies for internal operations, while
externally relying more on exchange databases when conducting
reviews and investigations.
Human Capital Transformation
Human capital management planning will emphasize
dedicating staff resources to core business lines, while
meeting support requirements through the use of leveraged
resources and competitive sources of service.
Management Overview
The CFTC is committed to management excellence and
recognizes the importance of strong financial systems and
internal controls to ensure accountability, integrity, and
reliability. This operating philosophy has permitted the
Commission to make significant progress documenting
and testing its internal controls over financial reporting
next year, as prescribed in OMB Circular A-123, Managements
Responsibility for Internal Control. The graph below
depicts all five components of the internal control process
that must be present in an organization to ensure an effective
internal control process.
Control Environment fosters the highest level of
integrity and personal and professional standards and
promotes internal control through leadership philosophy
and operating style.
Risk Assessment is the identification and analysis
of risks associated with business processes, financial
reporting, technology systems, and controls and legal
compliance in the pursuit of agency goals and objectives.
Control Activities are the actions supported by management
policies and procedures to address risk, e.g.,
performance reviews, status of funds reporting, and
asset management reviews.
Monitoring is the assessment of internal control performance
to ensure the internal control processes are
properly executed and effective.
Information and Communication ensures the agencys
control environment, risks, control activities, and performance
are communicated throughout the agency.
Management Challenges
Internal Control Process
MonitoringControl ActivitiesRisk AssessmentControl EnvironmentInformation
& CommunicationInformation
&
Communication
The Commission relies on its performance management
and internal control framework to:
ensure that its divisions and mission support offices
achieve their intended results efficiently and effectively;
and
ensure the maintenance and use of reliable, complete,
and timely data for decision-making at all levels.
The Commission strongly believes that the rapid
implementation of audit recommendations is essential to
improving its operations. Integration of Commission strategic,
budget, and performance data permits management
to make individual assurance statements with confidence.
Moreover, data-driven reporting provides the foundation
for Commission staff to monitor and improve its control
environment.
Management Assurances
The Statement of Assurance is required by the Federal
Managers Financial Integrity Act (FMFIA) and OMB Circular
A-123, Managements Responsibility for Internal Control.
The assurance is for internal controls over operational
effectiveness (we do the right things to accomplish our
mission) and operational efficiency (we do things right).
Statement of Assurance
CFTC management is responsible for establishing and
maintaining effective internal control and financial management
systems that meet the objectives of the Federal Managers
Financial Integrity Act (FMFIA). During the past fiscal year,
CFTC conducted its assessment of the effectiveness of internal
control over financial reporting, which includes safeguarding
of assets, and compliance with applicable laws and regulations,
in accordance with the requirements of OMB Circular A-123.
The Commission assessment is in agreement with the detailed
exceptions provided in the independent auditors report as of
September 30, 2006. Therefore, other than the exceptions
noted in Exhibit I of their audit report, Commission internal
controls were operating effectively, and no other material weaknesses
were found in the design or operation of the internal
control over financial reporting. In addition, the CFTC is able
to provide a qualified statement of assurance that the internal
controls and financial management systems meet the objectives
of FMFIA.
Reuben Jeffery III
Chairman
During FY 2006, in accordance with the FMFIA,
and using the guidelines of the OMB, the Commission
reviewed key components of its management and internal
control system.
The objectives of the Commissions internal controls
are to provide reasonable assurance that:
Obligations and costs are in compliance with applicable
laws;
Assets are safeguarded against waste, loss, unauthorized
use, or misappropriation;
Revenues and expenditures applicable to Commission
operations are properly recorded and accounted for to
permit the preparation of accounts and reliable financial
and statistical reports and to maintain accountability
over the assets; and
All programs are efficiently and effectively carried out
in accordance with applicable laws and management
policy.
The efficiency of the Commissions operations is
continually evaluated using information obtained from
reviews conducted by the Government Accountability
Office (GAO) and the Office of Inspector General (OIG),
specifically requested studies, or observations of daily
operations.
These reviews ensure that the Commissions systems
and controls comply with the standards established by
FMFIA. Moreover, managers throughout the Commission
are responsible for ensuring that effective controls are
implemented in their areas of responsibility. Individual
assurance statements from division and office heads serve
as a primary basis for the Chairmans assurance that management
controls are adequate. The assurance statements
are based upon each offices evaluation of progress made
in correcting any previously reported problems, as well
as new problems identified by the OIG, the GAO, other
management reports, and the management environment
within each office.
Commission organizations that have material weaknesses
are required to submit plans for correcting those
weaknesses. The plans, combined with the individual assurance
statements, provide the framework for continually
monitoring and improving the Commissions management
and internal controls. The items presented below
are illustrative of the work performed during FY 2005 and
2006:
Implemented analyses and initiatives that address challenges
identified by the OIG in FY 2005 concerning
strategic management of human capital;
Assessed gaps in compliance with the pay and benefits
provisions called for in Section 10702 of Public Law
107-171, Farm Security and Rural Investment Act of
2002;
Improved financial performance and expanded participation
in electronic government initiatives sponsored
by the OMB;
Took steps to become fully compliant with the Federal
Information Security Reform Act; and
Took action to correct reportable conditions and disclosed
noncompliance with laws and regulations identified
in the FY 2005 and FY 2006 independent auditors
report of the agencys financial statements and related
internal controls.
FMFIA Section 2, Management Control
The Commission has one declared material weakness
under FMFIA for FY 2006 in the area of financial reporting
that hinders preparation of timely and accurate financial
statements. The major impediments facing the Commission
and the actions its taking to resolve them fall across
the following areas:
Establishing the custodial fines and interest receivable
balance as well as estimating the allowance for loss on
each receivable. Over the next year the Commission will
rely on its new accounting system, and enhancements
to its case tracking processes and systems to correct this
impediment.
Accounting for leases and knowledge of accounting
principles. CFTC now recognizes lease expense, for rental
of its various office spaces, on a straight-line basis, as
required under U.S. generally accepted accounting principles.
CFTC restated its FY 2005 financial statements.
Improvements are needed in recording accruals and
preparing financial statements.CFTC did not properly
record the accounts payable, operating leases, subsequent
cash disbursements, and undelivered orders.
Over all these areas, 16 out of 95 transactions tested
were either inappropriately included or excluded from
accounts payable as of September 30, 2006. CFTC needs
to validate and improve its process to properly record its
accruals. It will evaluate the adequacy of the prior year
accrual by comparing subsequent payments received
after year-end against the accrual. It will consider making
changes to the accrual methodology based on the
results of the analysis.
The Commission did not declare any material weaknesses
in FY 2005.
FMFIA Section 4, Financial Management Systems
The Commission declared no systems nonconformance
under FMFIA during FY 2005. The independent auditors
report for FY 2005 disclosed one instance of noncompliance
that was required to be reported under Government
Audit Standards and OMB Bulletin 06-03, Audit Standards
for Federal Financial Statements. The auditors disclosed
noncompliance with the Federal Information Security
Management Act (FISMA), noting continued improvements
were required with entity-wide security and contingency
planning programs, access controls, segregation of
duties, and service continuity to fully meet guidelines of
the E-Government Act of 2002 and OMB Circular A-130,
Management of Federal Information Resources. The Commission
took corrective actions between June 30, 2005 and
June 30, 2006 that addressed the majority of the concerns
leading to the audit disclosure in particular with continuity
of operations. However, the independent auditors
report for FY 2006 continued to disclose noncompliance
with these two regulations. The agency will continue corrective
actions in FY 2007 to address these matters.
Inspector Generals FY 2006 Assessment
33
CFTC
Management Addresses Inspector
Generals FY 2005 Assessment
In the FY 2005 Performance and Accountability Report,
the Inspector General identified two serious management
challenges facing the Commission: 1) Human Resource
Planning, and 2) Challenges in the Marketplace.
The following is the Inspector Generals FY 2005 assessment
for each challenge and the Commissions actions
taken in FY 2006 to address these challenges.
Challenge #1, Human Resource Planning
FY 2005 IG Assessment:
Last year, we highlighted the forthcoming human resource
challenge likely to be faced by the agency in FY 2006. This year
that challenge is ever more apparent. By March 2006, current
estimates are that over 20 percent of CFTC staff including
28 percent of the agencys leadership positions will be eligible
for retirement. Consequently, based on these factors, this is a
significant challenge faced by a relatively small Federal agency
which will necessitate careful planning by management. The
OIG is heartened by the agencys decision to establish a Human
Capital Team to catalogue current skills of existing employees
and propose possible pathways for meeting this potential deficit
that is likely to occur in the next six months. We look forward
to the agency successfully accommodating the approaching
wave of employee retirements without materially disrupting the
performance of the agency.
FY 2006 Actions Taken or Actions in Progress:
To assure high-level attention to human capital planning
issues on an ongoing basis, agency leadership
directed the formation of the Pay Parity Governance
Committee (PPGC), in March 2006. The PPGC is a
permanent body with rotating membership from all offices,
divisions, and regions and is charged with identifying,
studying, and recommending solutions to agency
human resources challenges, particularly those that may
be positively affected by pay parity. It focuses on effective
use of the agencys authority to seek total compensation
parity with the other Federal financial regulators,
as provided by the 2002 amendments to the CEA, in
support of attracting, retaining, and developing agency
talent. The Office of Human Resources (OHR) provides
two technical representatives to support committee
research and communications. By meeting weekly since
March of 2006, the PPGC has made significant progress
by completing its initial project to prepare a compensation
philosophy that will guide future pay parity
program choices and to update the agency performance
management system so it can support the move to a
modern pay-for-performance system. These initiatives
will provide the requisite foundation of an improved
ability to account for and reward results, which will in
turn support effective implementation of programs to
strategically manage agency human capital assets.
Based on the successful launch of the Strategic Workforce
Planning Survey system in 2005, OHR has worked
with managers to help them act on that objective and
provided quantitative data that details the areas and
timeframes in which they stand to lose specific types
and levels of mission critical employee job competencies
through retirements or other attrition. By providing
assistance in the use of the online Talent Management
Action Plan template, OHR has encouraged planning
and responsive action by managers to close the potential
talent gaps in their units, since the tool facilitates
creation of targeted, prioritized human capital plans
down to the level of individual work units. At the same
time, OHR and the Office of Information and Technology
Services (OITS) have met regularly during the year
to enhance the reporting capability of the Strategic
Workforce Planning Survey system, so that managers
will continue to receive data on competencies at risk of
loss. Finally, OHR and OITS supported the first annual
update by employees of their online self-assessment
surveys, so that the inventory of employee job competencies
available to meet the agency mission remains up
to date.
In addition to aiding individual offices and divisions
and their subunits to create specific action plans, OHR
has acted to address human resource challenges that apply
across the agency. Armed with data on trends such
as the potential of 40 percent of CFTC supervisory and
managerial personnel to retire by 2009, OHR has rolled
out a customized suite of online managerial courses
from Harvard Business School Publishing and prepared,
during FY 2006, to provide all employees with the Skillsoft
online training facility. By funding these initiatives,
agency management has acted to train employees in the
managerial skills required to close the gap in this crucial
agency competency that would otherwise develop due
to inevitable retirements.
OHR staff have continued to represent the agency on
the Financial Regulatory Agency Group, comprised of
Human Resources staff from the financial regulatory
agencies that, like the CFTC, must seek comparability
with one another under their legislative authority to offer
pay and benefits outside of the normal limitations of
Title 5 of the U.S. Code that apply to General Schedule
and Senior Executive Service positions. These contacts
assure that OHR maintains current awareness of pay
parity issues, knowledge that is vital to supporting use
of the CFTC pay parity authority as a mainstay of strategic
planning to compete for mission-critical skills over
time.
OHR staff continue to implement administrative improvements
that will speed the recruitment of replacements
for retiring employees, when directed. These
include online systems that speed security and suitability
checks on candidates for employment and support
more efficient administrative processes. Examples
include the project now underway to convert to the
government-wide system of electronic Official Personnel
Folders under the Office of Personnel Managements
Enterprise Human Resources Integration program.
Challenge #2, Challenges in the Marketplace
FY 2005 IG Assessment:
The Commodity Futures Modernization Act of 2000 (CFMA)
transformed the agency from a prescriptive regulator into an
oversight regulatory agency. The agencys regulatory mission
over the futures industry is guided by core principles stated in
the CFMA. Recent innovations in the industry such as the initial
public offerings of major Chicago based futures exchanges
and futures commission merchants (FCM) have broadened the
impact of any malfeasance within the futures industry. How the
agency handles unanticipated events such as market disruptions
and FCM bankruptcies will be closely watched by a worldwide
audience. To date, management has handled major turbulences
that have occurred during the fiscal year.
FY 2006 Actions Taken or Actions in Progress:
Commission staff reviewed for compliance with the
CEA and the Commissions regulations, filings of
exchanges submitted to the SEC prior to demutualization
and initial public offering, including the review of
the CBOT initial public offering and ongoing review of
preparations for the NYMEX initial public offering. Staff
also have been in contact with SEC staff when requests
arise.
Commission staff reviewed for compliance with the
CEA and the Commissions regulations, exchange
notifications to the Commission, including merger
agreements and purchase and sale agreements, under
Commission Regulation 38.5(d) when equity in an
exchange is acquired by a new owner, including review
of the acquisitions of equity in HedgeStreet, NYMEX
and OneChicago. Such review includes evaluation, for
compliance with the CEA and the Commissions regulations,
of both new exchange governance documents and
changes to those documents, including bylaws, articles
of incorporation, and limited liability agreements or
operating agreements.
As part of its rule enforcement reviews, Commission
staff considered the impact of such changes on the
ability of the exchanges to continue to carry out their
self-regulatory responsibilities.
As a result of financial difficulties experienced by Refco,
Inc the parent of Refco LLC, a Commission-registered
FCM, the Commission mobilized its staff to ensure
that all customer segregated funds at Refco LLC, were
protected until such time as they were transferred in an
orderly manner to other FCMs including the eventual
sale of the remaining customer accounts and certain
other assets of Refco LLC, to Man Financial, Inc. (Man)
on November 25, 2005. CFTC staff took the following
steps to ensure that customers were fully protected: 1)
examining the FCMs books and records; 2) undertaking
daily calls with Refco staff on issues ranging from
transfers of accounts, to satisfaction of clearing obligations,
to requests to withdraw capital from the FCM;
and 3) coordinating with Commission-registered DCOs
to ensure that transactions were processed in a timely
manner. The Commission also took an active role in
the eventual sale of certain Refco LLC, assets during the
bankruptcy proceeding, including consultations with
the exchanges, Refco, and potential bidders concerning
the means by which the assets could lawfully be sold.
39
CFTC
PERFORMANCE SECTION
Introduction to the Performance Section.................41
Strategic Goal One: Economic Utility....................42
Strategic Goal Two: Market Users and Public.........54
Strategic Goal Three: Industry...............................71
Introduction to the Performance Section
Detail of Commission efforts to meet its strategies and performance goals are provided in this section. The Commission
scrutinizes performance measures to ensure that the metrics adequately challenge the programs to reach the desired
results, ensure accountability, and provide information that can be used to make financial decisions and develop future
budgets.
41
CFTC
Ensure the economic vitality of the commodity futures and option markets.
Impact
Properly functioning futures markets collect information from around the world, digest it, and respond with judgments
about the likely price of commodities at some future time. Such judgments could, in turn, trigger decisions to: 1) sell
a commodity at a certain price; 2) raise capital through an equity rather than a debt offering; 3) increase inventories of
various commodities, e.g., copper, soybeans, etc.; 4) use corn syrup rather than sugar as a sweetener; or 5) hold receivables
in Japanese Yen rather than British Pounds. Thus, futures markets help market users to plan and to make decisions,
so that they avoid uncontrolled risk.
Strategic Goal One
CFTC
42
PERFORMANCE SECTION
43
CFTC
Performance Results for Performance Goal One
Performance Measure 1.1.1 Percentage growth in market volume.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
20%
24%
26%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 26%
Measurement: Percentage
Data Source: Exchanges Trading Volume data.
Verification: Exchange data is compared to FIA report.
Lead Program Office
Division of Market Oversight (DMO)
Performance Analysis and Review
Growth in the futures markets continued in FY 2006 with
increased demand realized for products traded on the exchanges.
The actual FY 2006 number is driven by changes
in economic fundamentals, success of newly launched
products, the number of new participants using these
markets, and other changes in the marketplace.
Data Source and Validation
Exchanges are required to submit trading volume data to
the Commission on a daily basis. This data is then stored
in a Commission database for use in market surveillance
analyses.
Exchange volume data is submitted to the Commission
electronically for each business day, subjected to
a series of edit and quality checks, and maintained in a
central database. The data is also compared to monthly
data published by the Futures Industry Association (FIA).
CFTC
44
Performance Measure 1.1.2 Percentage of novel or innovative proposals or requests for CFTC action
addressed within six months to accommodate new approaches to, or the expansion in, derivatives trading, enhance the
price discovery process, or increase available risk management tools.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Formal filings and signed letter responses by
the Commission.
Verification: Formal filing and disposition dates
maintained in internal tracking system.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
DMO handled a number of proposals or requests for
Commission action during the fiscal year that included
newer approaches to derivatives trading or enhancements
to the price-discovery process. The items, which included
innovative products and exchange processes, were all addressed
within six months of formal receipt.
Data Source and Validation
Supporting documentation is in the form of formal filings
with the Commission and signed letter responses by DMO
or the Commission (upon DMO recommendation).
DMO is able to calculate review time by consulting
an internal tracking system which reflects all formal filings
that are made with the Division, including filing and
disposition dates.
Performance Measure 1.1.3 Percentage increase in number of products traded.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
25%
12%
36%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 25%
Measurement: Percentage
Data Source: Exchanges submit data on trading volume,
open interest, delivery notices, exchange of
futures and prices for all products traded.
Verification: Data is validated by internal program edits
and quality checks in central database.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
The growth in the number of new products offered on
the exchanges continued in FY 2006. The actual FY 2006
number is driven by customer demand for new products,
exchange innovation, opportunities made available by the
increasing use of electronic trading, and other changes in
the marketplace. As such, these factors may not be foreseeable
with high precision.
Data Source and Validation
Exchanges are required to submit trading volume, open
interest, delivery notices, exchange of futures, and prices to
the Commission each business day for all products traded.
This data is then stored in a Commission database for use
in market surveillance analyses.
The exchange data is submitted to the Commission
electronically for each business day, subjected to a series
of edit and quality checks, and maintained in a central
database.
Performance Measure 1.1.4 Percentage of new exchange or clearinghouse organization applications
completed within expedited review period.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: New Exchange(s) and DCO application(s).
Verification: FILAC automated database tracks and
calculates processing time from receipt
date through to date of designation or
registration.
Lead Program Office
Division of Clearing and Intermediary Oversight
Division of Market Oversight
Performance Analysis and Review
One exchange designation application was filed in FY
2006. The review of that contract market currently is
stayed.
Data Source and Validation
Supporting documentation consists of the application for
designation as a contract market, including all attachments
and supporting materials submitted by the applicant,
related materials produced by DCIO and DMO
staff in reviewing the application, a memorandum to the
Commission, and the proposed order.
DCIO and DMO staff maintain files containing supporting
documentation related to the review of an application.
The DCIO methodology for determining the statistic
would be to tabulate the number of applications received
and reviewed, determine the number that are completed
within the fast track review period, and calculate the performance
statistic. DMO staff use a database, Filings and
Actions (FILAC), that includes the date of receipt of the
request for designation as a contract market, stays in the
review process, and the date of designation. The database
automatically calculates processing time.
Performance Measure 1.1.5 Percentage of new contract certification reviews completed within three months
to identify and correct deficiencies in contract terms that make contracts susceptible to manipulation.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
21%
53%
54%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 81%
Measurement: Percentage
Data Source: Exchange certification filings, certified rule
amendments, and agency memoranda.
Verification: FILAC automated database tracks and
calculates processing time from receipt date
through to date of designation.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
In FY 2006, an unusually large proportion of new contract
certifications was for security futures products (SFPs).
SFPs typically are easier to review and analyze than other
contracts, and thus the percentage of completed reviews
for contract certifications filed in FY 2006 was higher than
anticipated.
Data Source and Validation
DMO staff maintain files containing exchange certification
filings, including new contract certification filings and
certified rule amendments to correct deficiencies in new
contract certification filings, and DMO memoranda. DMO
memoranda provide descriptions, analyses, and conclusions
regarding compliance with the CEA and Commission
regulations and policies. The FILAC database includes
the receipt date of the new product certification and the
date of DMOs memorandum. The database automatically
calculates processing time.
Performance Measure 1.1.6 Percentage of rule change certification reviews completed within three months, to
identify and correct deficiencies in exchange rules that make contracts susceptible to manipulation or trading abuses or
result in violations of law.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
70%
70%
84%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 86%
Measurement: Percentage
Data Source: Exchange certification filings and agency
memoranda.
Verification: FILAC automated database tracks and
calculates processing time from receipt date
of certification filing through to date of DMO
memorandum.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
The new FILAC database has improved tracking the
processing of rule amendment certification filings. That
database was delivered to DMO in May 2006. Thus, the
percentage calculations of filings reviewed and analyzed
within the last three months is more accurate than past
entries. The percentage of rule amendments to contract
terms and conditions was higher in FY 2006 than in past
years.
Data Source and Validation
DMO staff maintain files containing exchange certification
filings and DMO memoranda. Those DMO memoranda
provide descriptions, analyses, and conclusions regarding
compliance with the CEA and Commission regulations.
The FILAC database includes the receipt date of the certification
filing and the date of DMOs memorandum. The
database automatically calculates processing time.
Performance Measure 1.2.1 Percentage of derivative clearing organization applications demonstrating
compliance with core principles.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: Not Applicable
Measurement: Percentage
Data Source: New exchange(s) and DCO application(s)
for registration.
Verification: Agency files containing applications, staff
reviews, memoranda to the Commission and
proposed orders.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
No applications for registration as a DCO were received in
FY 2006.
Data Source and Validation
Supporting documentation would consist of an application
for registration as a DCO including all attachments
and supporting materials submitted by the applicant, and
related materials produced by DCIO staff in reviewing the
application including a memorandum to the Commission
and a proposed order.
DCIO staff maintain files containing supporting
documentation related to the review of an application.
The DCIO methodology for determining the statistic
would be to tabulate the number of applications received
and reviewed to determine that the applications demonstrated
compliance with CEA core principles, and calculate
the performance statistic.
Performance Measure 1.2.2 Ratio of contracts surveilled per economist.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
8
10
11
020406080100
RATIOFY 2006 Performance ResultsPlanActual
Results: 12
Measurement: Ratio
Data Source: Exchanges submit data to the Commission
on all traded contracts, which are maintained
in the Commissions database.
Verification: Data is validated by internal program edits
and quality checks in central database.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
The actual number of contracts surveilled per economist
met expectations. Even though the number of contracts
increased during the year, these were mostly extensions of
existing commodities and therefore not counted as discreet
contracts. Similar contracts on the same underlying
commodity are normally analyzed together and do not
add materially to the burden on the economist.
Data Source and Validation
Exchanges submit data to the Commission on all traded
contracts. The individual contracts are grouped by underlying
commodity in a central database. This grouping
is used in the adjustment of the number of contracts
surveilled by economist.
Exchanges submit data on all products traded to the
Commission electronically for each business day. The
data is subject to a series of edit and quality checks and
is maintained in a central database. The total number of
contracts is extracted from this data. This number is then
modified by subtracting out individual contracts that are
very similar to, and have the same underlying commodity
as, another contract. The final number is then divided by
the number of regional office economists.
Performance Measure 1.2.3 Percentage of contract expirations without manipulation.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
99.9%
99.9%
99.9%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 99.9%
Measurement: Percentage
Data Source: Surveillance reports and large trader
position reports.
Verification: Economists daily track and monitor futures
expirations and economic fundamentals.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
This measurement examines the number of contract expirations
without manipulation compared to the total number
of futures and option expirations. The total number
of expirations may vary throughout the year as different
contracts enter and exit the market.
Data Source and Validation
The number of referrals to and from the Division of Enforcement
in conjunction with information and evidence
gathered internally by surveillance economists is used to
find the number of expirations without manipulations.
The total number of futures and option expirations is
retrievable from the database.
Economists track and monitor futures expirations
and economic fundamentals on a daily basis. The large
trader reporting system is also used to generate detailed
surveillance reports of large trader positions going into
expiration. Information on reportable traders positions is
stored and kept in the system, and can be analyzed further
through its internally developed integrated surveillance
system.
Economic and Statistical Analyses
Commission staff performed economic and empirical
analyses to evaluate the performance of futures markets
and to evaluate the impact of changes in trading rules and
contract specifications on the performance of the futures
markets. For example, staff empirically examined the effects
of participation by managed money traders in certain
U.S. futures markets. Staff economists also conducted a
study of the role of commodity index investing on the
price discovery and hedging performance of commodity
futures markets. Economists in the Office of the Chief
Economist also provided economic and statistical consulting
services to Commission staff and offered economic
and financial research seminars and short courses in
futures, option, and financial economics.
Staff also provided economic and statistical analysis
on a number of cases involving foreign currencies and
energy products, and conducted an examination of the appropriate
role for Federal oversight of event-type markets
and of several recently developed derivatives products. In
addition, Commission staff presented research findings
relating to price discovery, hedging, and market microstructure
and development issues at industry or academic
and industry conferences, as well as through publications
available to the public.
Market Surveillance
In FY 2006, the Commission conducted daily surveillance
of 1,135 active futures and option contracts. Particularly
close monitoring was conducted on the energy futures
markets, which experienced periods of high prices and
high price volatility due to, among other things, low
stocks, tight production capacity, geopolitical tension in
the Middle East, strong world economic demand and
natural disasters. Close surveillance was also conducted
on the copper market, which had record high prices due
to strong demand, production disruptions and low world
copper stocks. In addition, Commission staff closely
monitored the expiration of the September 2005 10-Year
Treasury futures contract because of concern about large
long positions relative to the supply of the cheapest-to-deliver
note on this contract.
Commission staff reviewed one formal and several
draft applications of entities seeking to become designated
contract markets. Staff also reviewed four formal filings by
entities that notified the Commission of their intention
to operate as exempt markets under the CEA, as well as
several draft filings.
In FY 2006, under the Commissions certification
procedures for listing new products, 182 new contracts
were filed, including five SFPs, by eight different DCMs.
Commission staff completed reviews of the terms and
conditions of 248 contracts submitted under certification
procedures to ensure that statutory and regulatory anti-
manipulation requirements were met and to provide essential
background information in order to conduct market
surveillance. Staff also reviewed 14 rule amendment
approval requests for existing futures and option contracts.
Under the Commissions certification procedures, 124
substantive product rule changes were filed. Staff completed
the reviews of 72 certified rule amendments.
The Commissions review of exchange rules is a key
aspect of the statutory framework for self-regulation under
Commission oversight. The staff reviewed exchange rule
submissions with a view toward maintaining the fairness
and financial integrity of the markets, protecting
customers, accommodating and fostering innovation,
and increasing efficiency in self-regulation consistent with
the Commissions statutory mandates. During FY 2006,
staff reviewed 178 exchange rule submissions containing
1,237 separate new rules and rule amendments. Commission
staff are also responsible for providing exemptive,
interpretive, or other relief to various markets and market
participants to facilitate the continued development of an
effective, flexible regulatory environment responsive to
evolving market conditions.
Program Contributions to Strategic Goal One
Integrated Surveillance System
In FY 2005, the Commissions primary mission-critical
application to support futures and option data market
surveillance, the Integrated Surveillance System (ISS), was
significantly enhanced to address changes and growth in
the futures industry. In FY 2006, those changes included
the automation of the collection and review of data from
ECMs. In addition, a number of noteworthy enhancements
were established in the ISS that will improve the
efficiency of market monitoring and analysis. These
modifications include integrated document storage capabilities
in support of large trader reporting, consolidated
market queries that allow related markets to be grouped
together for better market analysis, full search capabilities
throughout the application, and comprehensive graphing
capability.
Protect market users and the public.
Impact
Market users must be protected from possible wrongdoing on the part of firms and commodity professionals with whom
they deal to access the marketplace, and they must be confident that the marketplace is free of fraud, manipulation, and
abusive practices. The Commission plays a crucial role in deterring behavior that could affect market users confidence by
investigating and taking action against these unscrupulous commodity professionals who engage in a variety of fraudulent
sales practices against the public.
Strategic Goal Two
CFTC
54
Performance Results for Performance Goal Two
Performance Measure 2.1.1 Number of enforcement investigations opened during the fiscal year.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
172
215
131
0102030405060708090100110120130
NUMBERFY 2006 Performance ResultsPlanActual
Results: 123
Measurement: Number
Data Source: Agency documentation and reports
maintained in the MSR (Monthly Status
Report) case tracking system.
Verification: Internal reports on investigations and
litigations documented and maintained in
internal Enforcment systems.
Lead Program Office
Division of Enforcement
Performance Analysis and Review
Performance targets were met. Commencing in 2002,
Commission case filings, as well as the complexity of cases
filed, have increased substantially over prior fiscal years.
By 2006, Enforcements litigation docket had increased
approximately 30 percent from FY 2002. Concurrently,
the complexity of the matters investigated, for example,
investigation of alleged energy market manipulation, also
has increased substantially since FY 2002.
Data Source and Validation
Internal Enforcement reports identify each of the litigations
and investigations opened during the fiscal year.
Staff prepare opening reports for each Enforcement
investigation and litigation. These opening reports are
recorded in internal Enforcement systems (currently,
Monthly Status Report (MSR); future, Practice Manager).
Performance Measure 2.1.2 Number of enforcement cases filed during the fiscal year.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
65
83
69
0102030405060
NUMBERFY 2006 Performance ResultsPlanActual
Results: 38
Measurement: Number
Data Source: Agency documentation and reports
maintained in the MSR (Monthly Status
Report) case tracking system.
Verification: Final orders for each litigation are recorded
in internal Enforcement system.
Lead Program Office
Division of Enforcement
Performance Analysis and Review
Performance targets were not met in terms of the number
of cases filed. Commencing in FY 2002, Commission
case filings as well as the complexity of cases filed have
increased substantially over prior fiscal years. By FY 2006,
Enforcements litigation docket had increased approximately
30 percent from FY 2002. Concurrently, the complexity
of the matters investigated, for example, investigation
of alleged market manipulation, also has increased
since FY 2002. Moreover, due to a hiring freeze over the
fiscal year, Enforcement was forced to operate with fewer
staff members. As a result of the overall increased case
filings over past years and refocus on the types of cases investigated
there has been a dramatic increase in the relief
obtained against defendantsrestitution and penalties
imposed in FY 2006 exceeded any other year in Commission
history.
Data Source and Validation
Enforcement results identify each litigation and litigation
result obtained by the Division on behalf of the Commission.
Staff are required to submit all final orders for each
litigation as part of closing activities for their files. These
orders are recorded in internal Enforcement systems (currently,
MSR; future, Practice Manager).
Performance Measure 2.1.3 Percentage of enforcement cases closed during the fiscal year in which the
Commission obtained sanctions (e.g. civil monetary penalties, restitution and disgorgement, cease and desist orders,
permanent injunctions, trading bans, and registration restrictions).
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
99%
99%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency documentation and reports
maintained in the MSR (Monthly Status
Report) case tracking system.
Verification: Final orders for each litigation are recorded
in internal Enforcement system.
Lead Program Office
Division of Enforcement
Performance Analysis and Review
Performance targets were met.
Data Source and Validation
Enforcement results identify each litigation and litigation
result obtained by the Division on behalf of the Commission.
Staff are required to submit all final orders for each
litigation as part of closing activities for their files. These
orders are recorded in internal Enforcement systems (currently,
MSR; future, Practice Manager).
Performance Measure 2.1.4 Cases filed by other criminal and civil law enforcement authorities during the
fiscal year that included cooperative assistance from the Commission.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
20
23
23
0510152025
NUMBERFY 2006 Performance ResultsPlanActual
Results: 23
Measurement: Number
Data Source: Copies of final orders submitted to the
Commission by cooperating authorities.
Orders maintained in the MSR (Monthly
Status Report) case tracking system.
Verification: Final orders for each litigation recorded in
internal Enforcement system.
Lead Program Office
Division of Enforcement
Performance Analysis and Review
Performance targets were met
Data Source and Validation
Copies of all orders are collected by the Divisions Office
of Cooperative Enforcement.
Staff and cooperating authorities submit final orders
to the Office of Cooperative Enforcement, which maintains
a database of all cooperative enforcement matters.
In addition, pending cooperative enforcement matters are
tracked through internal enforcement systems (currently,
MSR; future, Practice Manager).
Performance Measure 2.2.1 Percentage of self-regulatory organizations that comply with core principles.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency reports and files from reviews and
analyses.
Verification: Interviews, walk-through demonstrations,
empirical testing and site visits of SROs.
Lead Program Office
Division of Clearing and Intermediary Oversight
Division of Market Oversight
Performance Analysis and Review
DCIO staff conduct risk-focused reviews of the financial
and sales practice oversight programs of SROs. During FY
2006, DCIO completed a review of NFAs program for the
oversight of CPOs and CTAs and initiated a review of the
financial and sales practice program of the CBOT. DCIO
presented a report to the Commission stating that NFA
was complying with the CEA and its delegated responsibilities.
The review of the CBOT is still in progress at this
time, but no material deviations from CEA core principles
have been observed.
Data Source and Validation
Supporting documentation of DCIOs assessment of SROs
compliance with CEA core principles is contained in reports
and the workpapers prepared by staff while carrying
out the review and analyzing relevant SRO materials. Such
documentation is maintained in DCIOs files.
DCIO delivers a letter to the SRO requesting documents
that reflect the systems, policies, procedures, practices,
and internal controls implemented by the SRO. After
reviewing these materials, DCIO staff interview selected
management staff, followed by fieldwork at the SRO and a
review of documents. The fieldwork at the SRO primarily
consists of a walk-through demonstration. The purpose of
the fieldwork is to confirm DCIOs understanding of the
SROs program and to provide reasonable assurance that it
operates in the manner represented.
The testing of execution of procedures is performed
by sample testing and documentation review. DCIO
staff use standard statistical techniques to size and select
samples in the areas of disclosure documents, financial
reports, exemption and extension notices, compliance
examinations, and sales practices. However, samples are
selected and tested to facilitate an understanding of the
operation of a process or procedure in practice rather than
to provide statistical assurances.
For further verification of compliance oversight
procedures, DCIO staff also visit firms whose operations
were reviewed by the SRO during the SROs examination.
Such reviews include performing the same testing steps
that the SRO conducted in its examinations of the firms.
The results of such DCIO testing are then compared to the
workpapers of the SROs examination of the selected firm.
The methodology for collecting this statistic is based
on ongoing oversight and planned reviews related to the
aforementioned areas for which the results could potentially
indicate an SROs noncompliance with CEA core
principles.
Performance Measure 2.2.2 Percentage of derivative clearing organizations that comply with core principles.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Documentation from DCOs under review;
agency reports; and financial surveillance
materials.
Verification: Statistical data is obtained through financial
surveillance and planned reviews.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
As of the end of FY 2006, reviews of compliance with CEA
core principles were ongoing at six DCOs: CME, NYMEX,
NYCC, KCBT, CCORP, and MGE. Reviews of the first five
DCOs will be completed in the first quarter of FY 2007. A
review of the sixth DCO will be completed in the second
quarter of FY 2007. While analysis is currently underway,
no affirmative conclusion of noncompliance can be made
at this time.
On a daily basis, DCIO staff conduct financial surveillance
of DCOs and clearing members. Staff have identified
no instances of noncompliance.
During the past fiscal year, 57 rule submissions were
filed by DCOs under the self-certification provisions of the
CEA. Staff reviewed each of the submissions and found
none that violated CEA core principles.
Data Source and Validation
Each of the DCOs under review has submitted extensive
documentation. DCIO staff have created extensive
workpapers in conducting the reviews of DCOs. When the
reviews are complete, DCIO staff provide reports to the
Commission. Files are maintained containing many of
these materials.
Financial surveillance materials are also maintained
in files. Some of them are maintained on a DCIO shared
drive called Financial Surveillance Home. In addition,
written reports are periodically prepared and kept on file.
A paper file is created for each DCO rule submission.
Typically, a staff memorandum is included in the file.
The methodology for collecting this statistic is based
on ongoing oversight and planned reviews related to the
aforementioned areas for which the results potentially
could indicate a DCOs noncompliance with core principles.
Performance Measure 2.2.3 Percentage of professionals compliant with standards regarding testing,
licensing, and ethics training.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: National Futures Association audit reports.
Verification: NFA audits and the agencys ongoing
oversight of NFAs compliance and
registration programs.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
There is no variance; as planned, 100 percent of professionals
were compliant with standards regarding testing,
licensing, and ethics training.
Data Source and Validation
DCIO relies on information provided by NFA. In FY 2006,
NFA reported that, in 10 percent of the audits it completed,
NFA cited the firms in its audit report for failing to
have adequate ethics training procedures or failing to follow
their procedures. In FY 2005, NFA reported that, in 12
percent of the audits it completed, NFA cited the firms in
its audit report for failing to have adequate ethics training
procedures or failing to follow their procedures. However,
through subsequent follow-up activity for both FY 2005
and FY 2006, NFA confirmed that, in each case, the cited
firm came into compliance.
The methodology for collecting this statistic is based
on information provided by NFA and DCIOs ongoing
oversight and examinations it periodically conducts with
respect to NFAs registration and compliance programs.
Performance Measure 2.2.4 Percentage of self-regulatory organizations that comply with requirement to
enforce their rules.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency reports and files from reviews and
analyses.
Verification: Interviews, walk-through demonstrations,
empirical testing and site visits of DCOs.
Lead Program Office
Division of Clearing and Intermediary Oversight
Division of Market Oversight
Performance Analysis and Review
DCIO staff conduct risk-focused reviews of the financial
and sales practice oversight programs of SROs. During FY
2006, DCIO completed a review of NFAs program for the
oversight of CPOs and CTAs and initiated a review of the
financial and sales practice program of the CBOT. Both of
these reviews included an assessment of the disciplinary
programs of the NFA and CBOT. DCIO presented a report
to the Commission stating that NFA was complying with
the CEA and its delegated responsibilities. The review of
the CBOT is still in progress at this time, but no material
deviations from core principles have been observed.
Data Source and Validation
Supporting documentation is contained in the report and
the workpapers prepared by the staff while carrying out
the review and analyzing relevant SRO materials. Such
documentation is contained in DCIOs files. DCIO delivers
a letter to the SRO, requesting documents that reflect
the systems, policies, procedures, practices, and internal
controls implemented by the SRO. After reviewing these
materials, DCIO staff interview selected management
staff, followed by performing fieldwork at the SRO and a
review of documents. The fieldwork at the SRO primarily
consists of a walk-through demonstration. The purpose of
the fieldwork is to confirm DCIOs understanding of the
SROs program and to provide reasonable assurance that it
operates in the manner represented.
The testing of execution of procedures is performed
by sample testing and documentation review. DCIO
staff use standard statistical techniques to size and select
samples in the areas of disclosure documents, financial
reports, exemption and extension notices, compliance
examinations, and sales practices. However, samples are
selected and tested to facilitate an understanding of the
operation of a process or procedure in practice rather than
to provide statistical assurances.
For further verification of compliance oversight procedures,
DCIO staff also visit firms whose operations were
reviewed by the SRO. Such reviews include performing the
same testing steps that the SRO conducted in its examinations
of the firms. The results of such DCIO testing are
then compared to the workpapers of the SROs examination
of the selected firm.
The methodology for collecting this statistic is based
on ongoing oversight and planned reviews related to the
aforementioned areas for which the results potentially
could indicate an SROs and NFAs noncompliance with
the requirement to enforce their rules.
Performance Measure 2.2.5 Percentage of total requests receiving CFTC response for guidance and advice.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
90%
90%
90%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 95%
Measurement: Percentage
Data Source: Signed letters (formal) and email &
telephone responses (informal).
Verification: Agency files maintained in chronological
files and responses to formal requests are
published on Commissions Web site.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
DCIO staff respond to numerous requests for guidance
and advice on the CEA and Commission regulations each
year. Requests are received from members of the public,
market participants, intermediaries, SROs, foreign entities,
and others. These requests may be formal, such as written
requests for no-action, interpretative, or exemption letters.
DCIO also receives numerous requests for guidance and
advice via e-mail and phone calls.
DCIO responds to all requests received. Many of
these requests are routine in nature and are responded
to in a very short time frame, if not immediately. This is
particularly true for many of the requests that are received
via e-mail and phone calls. Other requests that raise
novel or complex issues, or requests for formal DCIO
responses in the form of no-action letters, interpretations
or exemptions, take more time to research and to prepare
a response. It should be noted, however, that statistics
on numbers of letters issued or e-mail responded to may
not reflect the complexity of any particular matter or the
resources necessary to address one issue versus another
issue. In addition, matters commenced in one fiscal year
may overlap into, and be completed during, a subsequent
fiscal year, resulting in some imprecision in statistical
measures for a given year. DCIO staff make every effort to
respond to requests as quickly as possible, but the timeliness
of a response also is affected by the speed with which
a requester provides additional information sought by
staff, and the length of time required by other Commission
divisions or offices to review a draft response, factors
outside the control of DCIO.
DCIO staff responded to five percent more requests
than planned. This was due, among other reasons, to the
ever-increasing experience and familiarity of staff with the
CEA and the Commissions regulations, and to the use by
requestors of electronic communications to more easily
and readily present and supplement their requests for
guidance.
Data Source and Validation
Supporting documentation is in the form of responses
to formal (by signed letter) and informal (by e-mail and
telephone) requests for guidance and advice contained in
DCIOs files.
Responses to formal requests are posted on the
Commissions Internet Web site and are maintained by
hard copy in DCIOs chronological files; responses to non-
routine, informal requests similarly are recorded by hard
copy and maintained in DCIOs chronological files. The
methodology for collecting these statistics is to compare
the files of requests received with responses sent and to
calculate the performance statistic.
Performance Measure 2.3.1 Percentage of filed complaints resolved within one year of the filing date.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
50%
41%
50%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 39%
Measurement: Percentage
Data Source: Reparations case tracking system and
Judge/Judgment Officer Disposition report.
Verification: Monthly reports and statistics submitted by
presiding officers.
Lead Program Office
Office of Proceedings
Performance Analysis and Review
As shown above, the performance results were 41 percent
in FY 2004, 50 percent in FY 2005 and 39 percent in FY
2006. The planned results were anticipated at 50 percent
for each fiscal year regarding the percentage of complaints
that would be resolved within one year of the filing date.
The planned results were not met for FY 2004 and FY
2006 because of the complexity of the complaints that
were received, requests for extensions of time, lengthy
discovery periods, and other factors that increased the
number of days that it takes to resolve a complaint. However,
the planned results were met for FY 2005.
During FY 2006, the actual results were less than the
FY 2005 results. Although the planned results were not
met, the decline in performance could be attributed to the
fact that the presiding officers decided more complaints
in FY 2006 than in FY 2004 and FY 2005. Based upon
the reports that were generated, one factor that may have
contributed to meeting the planned result in FY 2005 was
that there were fewer cases decided during that fiscal year.
It would be difficult to provide an alternative plan of
action to meet the planned results because the Office of
Proceedings does not have control over the various external
factors that affect the filing and disposition of reparations
cases.
In resolving complaints, the targets cannot be arbitrarily
set at a level at which achievement is automatic
because of the numerous and various external factors that
are involved in processing the complaints.
Data Source and Validation
The reparations case tracking system generates reports,
which provide the total number of cases that were decided
by fiscal year, the date that each case was received, the date
of the decision, number of processing days, and decision
type. There is also a report that provides the same information
except that it breaks down the data by administrative
law judge (ALJ) or judgment officer (JO) and
fiscal year. These reports are used to provide the statistical
information for the performance measure.
The Office of Proceedings uses Repcase, the integrated
computerized case tracking system, to collect,
maintain, and analyze performance information for each
reparations case. The reparations case reports are separated
into two sections: complaints and hearings. The data and
information collected in the Complaints Section consist
of the number of cases pending the first of the month, the
number of cases received during the month, the number
of cases disposed of in complaints, and the number
of cases pending at the end of the month. The data and
information collected for the Hearings Section consist
of the number of cases pending with an ALJ or JO at the
beginning of the month, the number of cases assigned
during the month, including remands, reassignments, and
motions to vacate, the number and type of cases disposed
of during the month, and the number of cases pending
with each ALJ and JO at the end of the month.
The data can be verified and validated by the reports
and statistics that the presiding officers submit on a
monthly basis. An additional report is prepared regarding
the reparations cases pending one year or more.
Performance Measure 2.3.2 Percentage of appeals resolved within six months.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
35%
35%
46%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 46%
Measurement: Percentage
Data Source: Opinions and orders issued by the
Commission.
Verification: Final opinions and orders are posted on
the Commissions Web site. Pending cases
are maintained by the Secretariat; status
reports are issued monthly.
Lead Program Office
Office of General Counsel (OGC)
Performance Analysis and Review
The increase between FY 2004 and FY 2005 in the number
of cases resolved within six months resulted from a strong
push for increased productivity, together with a number
of matters of limited complexity that could be resolved
quickly. The lower number projected for FY 2006 reflects
the issuance this year of several long-pending complex
cases. The difference between the plan and the actual
number indicates extended staff review.
Data Source and Validation
The principal supporting documentation consists of the
opinions and orders issued by the Commission.
Apart from this documentation, which is posted on
the Commissions Web site, the Office of Proceedings,
OGC, and the Secretariat maintain dockets on the status
of pending cases. In addition, OGC prepares monthly
reports to the Commission on the status of cases. Performance
data is validated as follows: the date of the notice
of appeal or other pleading bringing a matter before
the Commission starts the six-month time period. The
Commissions order disposing of a matter stops the time
period.
Oversight of NFA and Intermediary Registration
A core element of the Commissions mission is to protect
market users and the public from fraud and abusive practices
related to the offer and sale of commodity futures
and options. Toward this goal, the Commission oversees
NFA that operates as an industry-wide SRO with certain
regulatory responsibilities over intermediaries. These
include Commission-delegated responsibilities such as
processing and screening registration applications of futures
industry intermediaries and FTs, including initiating
actions to revoke and/or deny registration, and reviewing
CPO and CTA disclosure documents and CPO annual
reports.
Commission staff conduct formal oversight of NFAs
registration program and perform ongoing oversight related
to screening market professionals for fitness. Oversight
activities involve inspection of records and interviews with
NFA staff as well as numerous informal contacts between
NFA and the Commission staff on a weekly basis. These
oversight activities are designed to protect market participants
and the public interest by assuring that persons
who deal directly with customers and those who handle
customer orders and funds meet the standards for fitness
and integrity established under the CEA. Persons who
cannot meet these standards may be subject to statutory
disqualification from registration and may have their
registration denied, conditioned, or revoked. In addition,
Commission staff oversee CPO and CTA disclosure
standards, particularly for managed futures and option
products, to assure that market users and potential market
users are appropriately and consistently informed of the
risks of futures and option trading, and are provided with
information about trading managers.
As part of the Commissions formal oversight of NFA,
Commission staff completed a review of certain self-regulatory
activities of NFA to evaluate its members compliance
with NFA rules and Commission regulations. The review
addressed NFAs programs involving CPOs and CTAs
to assess NFAs performance with respect to: 1) disclosure
documents and annual reports; 2) compliance examinations;
3) monitoring of sales practices; 4) registration; and
5) processing of exemption notices. The purpose of the
review was to assess the effectiveness of NFAs systems,
practices, and procedures in monitoring its members that
are Commission-registered CPOs and CTAs with respect
to customer protection, including NFAs performance of
registration and compliance functions as authorized by
the Commission.
In FY 2006, there were 70,083 industry registrants.
These registrants included 210 FCMs (16 of which were
securities broker-dealers registered with the SEC that notice-
registered with the CFTC because their only futures-
related activity involved SFPs), 1,741 IBs (45 of whom
were notice-registered), 1,512 CPOs, and 2,589 CTAs.
These firms employ 54,258 sales personnel, known as APs.
In addition, there are 8,203 individuals registered as FBs
and 1,507 individuals registered as FTs executing trades
on U.S. exchanges. In connection with the huge number
of industry registrants, the Commission seeks to protect
market users and the public by requiring futures industry
professionals to meet high standards through registration
and passing of a proficiency exam by salespersons. When
Commission staff identify persons who are not registered
but should be, a letter is sent to the person, and/or the
matter is referred for enforcement action.
Commission staff chaired the Registration Working
Group (RWG), which is composed of Commission and
NFA representatives. The RWG was created as a means for
Commission and NFA staff to share ideas and concerns
about issues that are not tied to any specific pending
registration case. Commission staff participated in four
meetings of the RWG during FY 2006.
Program Contributions to Strategic Goal Two
Anti-Money Laundering (AML)
Commission staff continued to work with other Federal financial
regulators on various aspects of a program to combat
money laundering and terrorist financing. Specifically,
staff continue to participate in developing regulations
implementing the USA PATRIOT Act and in developing
and issuing guidance concerning the application of these
regulations. For example, staff worked with the Treasury in
drafting joint guidance that addressed the customer identification
program requirements for omnibus accounts
and sub-accounts established by financial intermediaries.
Commission staff also continue to work with the Treasury
to share information about possible terrorist financiers
and money launderers. As part of this process, staff maintain
and update a list of FCMs and contact persons that
the Treasury then uses when preparing a biweekly list of
possible money launderers and terrorist financiers.
Opinions and Review
During FY 2006, the Commission issued 23 opinions and
other orders, including orders issued pursuant to delegated
authority, 17 of which were final dispositions of cases
pending on the Commissions docket. These included the
Commissions decision in In re Global Telecom, Inc. The
Commission affirmed the initial decision, which held an
FCM liable for misleading advertising created and used
by three of its APs, although the FCMs name was not
used in the advertisements. The APs also owned a closely
held CTA firm, Global Telecom, Inc., which was the only
company named in the advertisements at issue. The FCM
argued that the advertising was used outside the scope
of the APs employment with it. It also argued that as a
matter of law, the advertising could not violate Section 4b
of the CEA, because it was not used in or in connection
with a futures transaction executed for or on behalf of
another person. The Commission held that the dually
registered APs acted on behalf of both corporate principals
in disseminating the fraudulent advertising. It found that
the FCM benefited because customers who responded to
the advertisements were solicited to open accounts at the
FCM. The Commission also rejected the FCMs Section
4b arguments, distinguishing Commodity Trend Service,
Inc. v. CFTC, 233 F.3d 981 (7th Cir. 2000). The FCM relied
on Commodity Trend Service for its argument that the
for or on behalf of element of Section 4b had not been
satisfied.
In another administrative enforcement case, the
respondent appealed from the ALJs decision to suspend
his FB registration under Section 8a(11) of the CEA pending
the resolution of securities and bank fraud, and other
Federal felony charges brought against him. The Commission
determined that the suspension was appropriate. It
held that charges of fraud and other dishonesty, even if
arising from markets not directly regulated by the Commission,
clearly affect both a registrants general fitness to
participate in financial markets and the public perception
of market integrity. In re Anixter.
A reparations appeal presented the question of
whether the 3H Commissions Policy Statement Concerning
Swap Transactions, issued in 1989, governed a
disputed interest rate transaction. The respondent argued
that the Policy Statement created a safe harbor for the
transaction, and operated to deprive the Commission of
jurisdiction over it. The complainant asserted that the
Policy Statement had been superseded by amendments
to the CEA, and that the transaction was an illegal, off-
exchange futures contract. The Commission stated that
it had never withdrawn the Policy Statement and had
expressly reaffirmed its continuing vitality on two occasions.
It scrutinized the transaction at issue and concluded
that all requirements of the Policy Statement had been
met, the safe harbor applied, and the swap lay outside its
regulatory authority. Khorram Properties, LLC v. McDonald
Investments, Inc.
In another reparations case, the Commission held
that solicitations involving high pressure sales techniques
generally are not unlawful in the absence of other fraud,
but that such marketing tactics become problematic when
designed to prevent customers from making reasoned
investment decisions. The Commission stated that such
pressure may contribute to a consumers ultimate deception
by increasing the likelihood that the customer will
accept and act on other statements that are deceptive. The
Commission affirmed the decision below in favor of the
complainant, who was rushed into opening an account
without receiving the complete risk disclosure statement
required by Regulation 33.7. The companys AP was held
liable as an aider and abettor under Section 13(a) of the
CEA. Sanchez v. Crown.
In a case raising procedural issues in the reparations
forum, the Commission granted a petition for interlocutory
review of an order by an ALJ retaining jurisdiction over
a counterclaim after dismissing the complaint for lack of
jurisdiction. The complainant sought dismissal after a year
of prehearing proceedings, having become convinced that,
even if he were able to prove that the injurious conduct
actually happened as alleged, he would not be able to
establish that respondents acted with scienter, as required
by Commission precedent. The Commission held that,
once the ALJ dismissed the main claim on jurisdictional
grounds, he lost jurisdiction over the counterclaim as well.
The Commission dismissed the counterclaim. Dunmire v.
Hoffman.
The Commission affirmed the NFAs denial of Daniel
P. Marzanos floor broker registration application based
on his felony convictions for fraud and embezzlement.
It found that Marzanos argument that he lacked the
requisite intent contradicted findings of an appeals court
and thus did not show mitigating circumstances. Concerning
rehabilitation, the Commission reiterated that
rehabilitation may be shown without expert testimony.
It stated that it considered favorably the testimony of
futures industry participants who knew and worked with
Marzano in the industry and in a personal capacity. The
Commission nonetheless determined that Marzano did
not introduce sufficient probative evidence that he had
changed his direction, noting that he did not affirmatively
accept responsibility for his misconduct, which included
using laundered money to buy an exchange seat. Marzano
v. National Futures Association.
Office of General Counsel
Through the litigation program, OGC represents the
Commission in the U.S. District Courts and the Courts of
Appeals and assists the Solicitor General in representing
the Commission before the U.S. Supreme Court. OGC
also monitors litigation of interest to accomplishing the
Commissions mission, including the Commissions cooperation
with other Federal financial regulators through the
Presidents Working Group on Financial Markets and the
Presidents Corporate Fraud Task Force.
During FY 2006, before the Courts of Appeals, three
separate appellate courts sustained the Commissions authority
to impose meaningful monetary penalties against
violators of the CEA. R & W Technical Services v. CFTC, No.
05-60641 (5th Cir. 2006); Miller v. CFTC, No. 04-73914
(9th Cir. 2006); Slusser v. CFTC, No. 04-2138 (7th Cir.
2006). With the Department of Justice, the Commission
defeated a claim that public access to information could
be barred by an unsubstantiated assertion that the Commission
received the information in settlement negotiations.
In re Subpoena Duces Tecum Issued to CFTC, 439 F. 3d
740 (D.C. Cir. 2006). Also, OGC successfully argued the
Commissions right to prevent even a firm in bankruptcy
from violating the Commodity Exchange Act. CFTC v.
NRG Energy, No. 05-2570 (8th Cir. 2006).
Before the District Courts, OGC assisted the court in
addressing issues critical to the financial stability of the
commodity exchange clearing system. CFTC v. Eustace,
No. 05-cv-2973 (E.D. Pa.). OGC also assisted the U.S.
Attorney in obtaining dismissal of a suit seeking damages
against Commission employees for their lawful conduct in
investigating and prosecuting violations of the CEA. Mady
v. CFTC, No. 2:05:cv73745 (E.D. Mich. 2006).
OGC monitors bankruptcy cases involving futures
industry professionals and, as appropriate, assists courts,
trustees, and customers in implementing special U.S.
Bankruptcy Code provisions that pertain to commodity
firms. In FY 2006, the OGC analyzed 35 bankruptcy
cases and formally appeared before various Bankruptcy
Courts in 14 cases. Notably, OGC appeared in one of the
largest financial industry bankruptcies in history, Refco
LLC. With other staff, OGC worked cooperatively and
successfully with SROs, industry participants, government
officials, and the U.S. Bankruptcy Court to ensure that
Refco customers market positions and more than seven
billion dollars in customer funds were safely and securely
protected.
Regulatory and Legislative Matters
In FY 2006, Commission staff continued to advise the
Commission concerning the implementation of regulations
issued pursuant to the CFMA. Commission staff
assisted the Commission in new regulatory initiatives to
further carry out CFMA mandates, including technical and
clarifying amendments to regulations for exempt markets,
derivatives transaction execution facilities and designated
contract markets, and procedural changes for DCOs, and
extending the interpretation of eligible contract participant.
The Commission, jointly with the SEC, promulgated
final regulations to permit trading of futures on debt
indexes and debt securities. The joint rulemaking was
necessitated by the existing statutory obstacles making it
difficult to trade these products. The regulations provide
a definition for broad-based debt security indexes; futures
transactions on these indexes will be able to trade subject
to the sole jurisdiction of the CFTC. The regulations also
provide for security futures product trading on debt securities,
subject to joint regulation by the CFTC and SEC.
In FY 2006, the Commission continued to consult
with staff of the Treasury and various Federal financial
regulators to develop AML regulations required under the
USA PATRIOT Act, providing guidance to certain customers
of CTAs and working with other agencies to complete
information-sharing agreements.
During FY 2006, the Commission presented testimony
before Congressional Committees on the Commissions
reauthorization.
Proceedings
The Commission provides a forum for effectively and expeditiously
handling customer complaints against persons
or firms registered with the Commission at the time of the
alleged wrongdoing or at the time the complaint is filed.
Of the 80 complaints disposed/completed, in FY
2006, 39 percent of those cases were disposed/completedwithin
one year from the date the complaint was
filed. The remaining complaints were not resolved within
one year as a result of issues beyond the Commissions
control. For example, parties requested additional time
for one or more of the following reasons: 1) to supplement
their cases; 2) to prepare pleadings; 3) to complete
extensive discovery documents; or 4) to deal with personal
or professional responsibilities.
The Commissions ALJs are responsible for hearing
and rendering decisions in administrative enforcement
cases brought by the Commission against alleged violators
of the CEA or related regulations. The Commission
decided 11 administrative enforcement cases in FY 2006.
Ensure market integrity in order to foster open, competitive, and financially sound
markets.
Impact
The U.S. futures markets must be protected from abusive practices and influences to better operate and fulfill their vital
role in the nations economy, as well as the global economy. The CFTC works diligently to ensure that futures markets
do function properly so that the marketplace may be used with confidence by market participants ranging from the
farmer who wishes to hedge his crop or feed, to the pension fund manager who desires to guarantee a particular return
on money entrusted for investment.
Strategic Goal Three
71
CFTC
Performance Results for Performance Goal Three
Performance Measure 3.1.1 (a) Lost Funds: Percentage decrease in number of customers who lose funds.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
0%
0%
0%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 0%
Measurement: Percentage
Data Source: Agency database for filing financial reports,
1-FR-FCM and FOCUS reports.
Verification: Exchanges daily trading data and FCMs
financial filings are maintained in SPARK and
1-FR data systems.
Performance Measure 3.1.1 (b) Lost Funds: Amount of funds lost.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
$0
$0
$0
020406080100
DOLLARSFY 2006 Performance ResultsPlanActual
Results: $0
Measurement: Dollars
Data Source: Agency database for filing financial reports,
1-FR-FCM and FOCUS reports.
Verification: Exchanges daily trading data and FCMs
financial filings are maintained in SPARK and
1-FR data systems.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
Through the use of DCIOs Stressing Positions at Risk
(SPARK) system, combined with required financial warning
notices and market monitoring, as well as statutory
requirements that customer funds be maintained in segregated
accounts, DCIO staff are able to closely monitor the
operations of registrants in possession of customer funds.
There were no losses of regulated customer funds due to
firm failures or the inability of customers to transfer their
funds from a failing firm to a sound firm in 2005 or 2006.
Data Source and Validation
Supporting documentation is contained in DCIOs files
and the database maintained for filing 1-FR-FCM forms
and FOCUS reports.
The methodology for collecting and maintaining the
data to use to analyze and validate this item is part of the
daily procedures for handling the SPARK and 1-FR data
systems. The data is obtained from daily trading information
obtained from the exchanges combined with the
periodic financial filings of the FCMs
Performance Measure 3.1.2 Number of rulemakings to ensure market integrity and financially sound markets.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
1
1
3
0123
NUMBERFY 2006 Performance ResultsPlanActual
Results: 3
Measurement: Number
Data Source: Code of Federal Regulations: proposed and
final amendments to regulations.
Verification: Proposed and final regulations are published
in the Federal Register and posted on the
Commissions Web site.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
The number of rulemakings to ensure market integrity
and financial soundness is not a number that can be
predetermined precisely. The final number of rulemakings
is driven in part by changes in the marketplace, or
in the structure of exchanges, clearing organizations, and
intermediaries that operate within that marketplace. The
number can be a function of what is needed to allow
appropriate market interrelationships to be maintained
and to allow these entities to operate in the most efficient
manner. As such, these factors may not be foreseeable at
the time the performance estimate is prepared. In addition,
a requirement for a rulemaking may not be known
or may not have reached a decision-making point until
further analysis, study, and other actions or events have
taken place. This also can account for a difference between
the FY 2006 Plan estimate and actual.
The number of rulemakings also can be affected by
other factors that arise after the plan is prepared. For example,
DCIO developed for issuance by the Commission
proposed amendments to Regulation 4.41, which governs
advertising by CPOs, CTAs, and their principals. DCIO
developed this proposal at the request of the Division of
Enforcement although the request was made after the FY
2006 Plan estimate had been submitted.
Data Source and Validation
In FY 2006, DCIO completed three rulemakings that addressed
regulatory efforts to ensure market integrity and
financially sound markets. The supporting documentation
is maintained in DCIOs system of files related to the
respective rulemaking.
17 CFR Part 4, Advertising by Commodity Pool Operators,
Commodity Trading Advisors, and the Principals
Thereof, at 71 Fed. Reg. 49387 (August 23, 2006) Proposed
amendments to regulations.
17 CFR Parts 36, 37, 38, 39, and 40, Technical and
Clarifying Amendments to Rules for Exempt Markets,
Derivatives Transaction Execution Facilities and Designated
Contract Markets, and Procedural Changes for
Derivatives Clearing Organization Registration Applications,
at 71 Fed. Reg. 1953 (January 12, 2006) Final
amendments to regulations.
17 CFR Parts 1, 145 and 147, Alternative Market Risk
and Credit Risk Capital Charges for Futures Commission
Merchants and Specified Foreign Currency Forward
and Inventory Capital Charges, at 71 Fed. Reg. 5587
(February 2, 2006) Final amendments to regulations.
DCIO staff maintain files of the supporting documentation
related to the respective rulemakings. The
methodology for collecting these statistics is by tabulating
the number of rulemakings for the fiscal year. In addition,
proposed and final regulations are published in the
Federal Register and are posted on the Commissions Web
site.
Performance Measure 3.1.3 Percentage of clearing organizations that comply with requirement to enforce
rules.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Documentation from DCOs under review;
agency reports & files; and financial
surveillance materials.
Verification: Statistical data is obtained through financial
surveillance and planned reviews.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
As of the end of FY 2006, reviews of compliance with the
core principles were ongoing at six DCOs: CME, NYMEX,
NYCC, KCBT, CCORP, and MGE. Reviews of the first five
DCOs will be completed in the first quarter of FY 2007. A
review of the sixth DCO will be completed in the second
quarter of FY 2007. While analysis is currently underway,
no affirmative conclusion of noncompliance can be made
at this time.
On a daily basis, DCIO staff conduct financial surveillance
of DCOs and clearing members. Staff have identified
no instances of noncompliance.
During the past fiscal year, 57 rule submissions were
filed by DCOs under the self-certification provisions of the
CEA. Staff reviewed each of the submissions and found
none that violated CEA core principles.
Data Source and Validation
Each of the DCOs under review has submitted extensive
documentation. DCIO staff have created extensive work
papers in conducting the reviews of DCOs. When the
reviews are complete, Commission staff provide reports to
the Commission. Files are maintained containing many of
these materials.
Financial surveillance materials are also maintained
in files. Some of them are maintained on a DCIO shared
drive called Financial Surveillance Home. In addition,
written reports are periodically prepared and kept on file.
A paper file is created for each DCO rule submission.
Typically, a staff memorandum is included in the file.
The methodology for collecting this statistic is based
on ongoing oversight and planned reviews related to the
aforementioned areas for which the results potentially
could indicate a DCOs noncompliance with the requirement
to enforce its rules.
Performance Measure 3.2.1 Percentage of intermediaries who meet risk-based capital requirements.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency database for filing financial reports,
1-FR-FCM and FOCUS reports.
Verification: FCMs financial filings are maintained in
SPARK and 1-FR data systems.
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
Through the use of DCIOs SPARK system, combined with
required financial warning notices and market monitoring,
DCIO staff are able to closely monitor the financial
condition of FCMs. As DCIO performs enhanced monitoring
of exchanges oversight of financial intermediaries
upon the filing of notices, DCIO ensures that risk-based
capital requirements continue to be met.
Data Source and Validation
Supporting documentation is contained in DCIOs files
and the database maintained for the filing of 1-FR-FCM
forms and FOCUS reports.
The methodology for collecting and maintaining the
data to use to analyze and validate this item is part of the
daily procedures for handling the SPARK and 1-FR data
systems. The data is obtained from daily trading information
obtained from the exchanges combined with the
periodic financial filings of the FCMs.
Performance Measure 3.2.2 Percentage of self-regulatory organizations that comply with requirement to
enforce their rules.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Documentation from SROs under review;
agency reports & files; and financial
surveillance materials.
Verification: SRO financial filings are maintained in
SPARK and 1-FR data systems..
Lead Program Office
Division of Clearing and Intermediary Oversight
Performance Analysis and Review
DCIO staff conduct risk-focused reviews of the financial
and sales practice oversight programs of SROs and NFA
on risk-based examination cycles. During FY 2006, DCIO
completed a review of NFAs program for the oversight of
CPOs and CTAs, and initiated a review of the financial and
sales practice program of the CBOT. Both of these reviews
included an assessment of the disciplinary programs of
the NFA and CBOT. DCIO presented a report to the Commission
stating that NFA was complying with the CEA and
delegated responsibilities. The review of the CBOT is still
in progress at this time, but no material deviations from
CEA core principles have been observed.
Data Source and Validation
DCIO delivers a letter to the SRO, requesting documents
that reflect the systems, policies, procedures, practices,
and internal controls implemented by the SRO. After
reviewing these materials, DCIO staff interview selected
management staff, followed by performing fieldwork at
the exchange and a review of documents. The fieldwork at
the SRO primarily consists of a walk-through demonstration.
The purpose of the fieldwork is to confirm DCIOs
understanding of the program and to provide reasonable
assurance that it operates in the manner represented.
The testing of execution of procedures is performed
by sample testing and documentation review. DCIO
staff use standard statistical techniques to size and select
samples in the areas of disclosure documents, financial
reports, exemption and extension notices, compliance
examinations, and sales practices. However, samples are
selected and tested to facilitate an understanding of the
operation of a process or procedure in practice rather than
to provide statistical assurances.
For further verification of compliance oversight procedures,
DCIO staff also visit firms whose operations were
reviewed by the SRO during 2004. Such reviews include
performing the same testing steps that the SRO conducted
in its examinations of the firms. The results of such DCIO
testing are then compared to the workpapers of the SROs
examination of the selected firm.
The methodology for collecting this statistic is based
on ongoing oversight and planned reviews related to the
aforementioned areas for which the results potentially
could indicate an SROs noncompliance with the requirement
to enforce its rules.
Performance Measure 3.3.1 Percentage of exchanges deemed to have adequate systems for detecting trade
practice abuses.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency reports and files from reviews
and analyses, and documentation from
exchanges subject to a rule enforcement
review.
Verification: Reviews and analysis of systems,
procedures, policies, practices and manuals.
Reviews include site visits.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
DMO staff conduct rule enforcement reviews (RERs) of
DCMs on a regular cycle that includes review and analysis
of systems for detecting trade practice abuses. During FY
2006, DMO completed an RER of the KCBT that included,
among other things, review of KCBTs trade practice
surveillance program, including a detailed analysis of
KCBTs surveillance system. Shortly after the end of FY
2006, DMO completed an RER of the CME that included,
among other things, review of CMEs automated trade
practice surveillance systems. These RERs resulted in
reports that found that KCBT and CME maintain adequate
trade practice surveillance programs that include surveillance
systems. In addition, during FY 2006, DMO initiated
a combined RER of the CCFE, U.S. Futures Exchange, and
HedgeStreet. These exchanges all contract with the NFA
to perform trade practice surveillance. In reviewing these
exchanges trade practice surveillance programs, DMO is
carefully reviewing and analyzing NFAs automated surveillance
system. Although this review is still in progress,
staff have not identified any material deficiencies.
Data Source and Validation
Each DCM that is the subject of an RER, and its third party
service provider, if applicable, submits extensive documentation
during the course of RERs. DMO staff also create
work papers during its analysis of submitted documentation.
Exchange submissions and staff work papers are
organized and maintained in DMO files.
When initiating an RER, DMO sends a letter to the
exchange requesting documents that reflect the systems,
policies, procedures, and practices that relate to the CEA
core principles and programs under review. With respect
to an exchanges surveillance systems, DMO requests
copies of all manuals, procedures, and/or guidelines
relating to any automated surveillance system used by the
exchange in connection with trade practice surveillance.
After reviewing the requested material, DMO staff conduct
an on-site visit that includes interviewing senior exchange
officials and reviewing files that demonstrate exchange
staffs use of surveillance systems as part of their investigatory
process. The verification of procedures and adequacy
of exchange surveillance systems is measured by determining
whether the exchange initiated a sufficient number
of investigations given exchange volume, the adequacy
of investigations, and the exchanges success in bringing
disciplinary actions.
The methodology for collecting this statistic is based
on RERs relating to review and evaluation of exchange
systems for detecting trade practice abuses.
Performance Measure 3.3.2 Percentage of exchanges that comply with requirement to enforce their rules.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency reports and files from reviews
and analyses, and documentation from
exchanges subject to a rule enforcement
review.
Verification: Statistical data is obtained through financial
surveillance and planned reviews.
Lead Program Office
Division of Clearing and Intermediary Oversight
Division of Market Oversight
Performance Analysis and Review
Division of Clearing and Intermediary Oversight
DCIO staff conduct risk-focused reviews of the financial
and sales practice oversight programs of SROs. During FY
2006, DCIO initiated a review of the financial and sales
practice program of the CBOT. This review will include an
assessment of the disciplinary program of the CBOT. The
review of the CBOT is still in progress, but no material deviations
from core principles have to date been observed.
Division of Market Oversight
DMO staff conduct RERs of DCMs on a regular cycle
to ensure that exchanges enforce their rules. CEA Core
Principle 2 specifically requires that exchanges monitor
and enforce compliance with their rules. DMO reviews
exchange compliance with CEA Core Principle 2 when it
conducts an RER of an exchanges trade practice surveillance
program. RERs also examine the adequacy of an exchanges
market surveillance, audit trail, disciplinary, and
dispute resolution programs. When DMO examines these
programs, its review includes an analysis to ensure that an
exchange is enforcing its rules that relate to the particular
program under review. During FY 2006, DMO completed
an RER of the KCBT that examined KCBTs compliance
with those core principles that relate to market surveillance,
audit trail, trade practice surveillance, disciplinary
procedures and sanctions, and dispute resolution. DMO
also completed an RER that examined the NYBOTs
market surveillance program. Shortly after the end of FY
2006, DMO completed an RER of the CME that examined
CMEs audit trail, trade practice surveillance, disciplinary,
and dispute resolution programs. These RERs culminated
in reports that found that the exchanges that were examined
adequately enforced their rules and had no material
deficiencies in any of the programs reviewed. In addition,
during FY 2006, DMO initiated a combined RER of the
CCFE, U.S. Futures Exchange, and HedgeStreet to examine
their compliance with CEA core principles relating to
market surveillance, audit trail, trade practice surveillance,
disciplinary procedures and sanctions, and dispute resolution.
Although this RER is still in progress, to date, DMO
staff have not identified any material deficiencies.
DMO also conducts ongoing daily surveillance of all
exchanges to ensure that exchanges are enforcing their
rules.
Data Source and Validation
Division of Clearing and Intermediary Oversight
Supporting documentation of DCIOs assessment of
exchanges complying with requirements to enforce their
rules is contained in the report and the work papers
prepared by DCIO staff while carrying out the review and
analyzing relevant exchanges materials. Such documentation
is contained in DCIOs files.
DCIO delivers a letter to the exchange, requesting
documents that reflect the systems, policies, procedures,
practices, and internal controls implemented by the
exchange. After reviewing those materials, DCIO staff
interview selected management staff, followed by performing
fieldwork at the exchange and a review of documents.
The fieldwork at the exchange primarily consists of a walk-
through demonstration. The purpose of the fieldwork is
to confirm DCIOs understanding of the exchange and to
provide reasonable assurance that it operates in the manner
represented.
The testing of execution of procedures is performed
by sample testing and documentation review. DCIO staff
use standard statistical techniques to size and select samples
in the areas of financial reports and audits. However,
samples are selected and tested to facilitate an understanding
of the operation of a process or procedure in practice
rather than to provide statistical assurances.
For further verification of compliance oversight
procedures, DCIO staff also visit firms whose operations
are reviewed by the exchange. Such reviews include
performing the same testing steps that the SRO conducts
in its examinations of the firms. The results of such DCIO
testing are compared to the work papers of the exchanges
examination of the selected firm.
The methodology for collecting this statistic is based
on ongoing oversight and planned reviews related to the
aforementioned areas for which the results could potentially
indicate an exchanges noncompliance with the
requirement to enforce its rules.
Division of Market Oversight
Each DCM that is the subject of an RER, and its third party
service provider, if applicable, submits extensive documentation
during the course of RERs. DMO staff also create
work papers during their analysis of submitted documentation.
Exchange submissions and staff work papers are
organized and maintained in DMO files.
DMO also maintains a log of its exchange floor surveillance
and maintains trade practice investigation files
that include exchange trade data and staffs analysis.
When initiating an RER, DMO sends a letter to the
exchange requesting documents that reflect the systems,
policies, procedures, and practices that relate to the CEA
core principles and programs under review. After reviewing
the requested material, DMO staff conduct an on-site
visit that includes interviewing senior exchange officials
and reviewing files that demonstrate exchange staffs use
of surveillance systems as part of the investigatory process.
The verification of procedures and adequacy of exchange
surveillance systems is measured by determining whether
the exchange initiated a sufficient number of investigations
given exchange volume, the adequacy of investigations,
and the exchanges success in bringing disciplinary
actions.
The methodology for collecting this statistic is based
on ongoing oversight and planned RERs relating to the
aforementioned areas for which the results potentially
could indicate a DCMs noncompliance with the requirement
to enforce its rules.
Performance Measure 3.4.1 Percentage of CFMA Section 126(b) objectives addressed.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Agency reports, files and documentation.
Verification: Formal MOUs or seriatim approvals are
published in the Federal Register and posted
on the Commissions Web site.
Lead Program Office
Executive Direction & Support
Performance Analysis and Review
The Commissions Office of International Affairs (OIA)
assists the Commission in formulating its international
policy by: 1) coordinating with foreign regulatory authorities;
2) participating in international regulatory organizations
and forums; and 3) providing technical assistance to
foreign governmental bodies. These efforts are intended to
facilitate cross-border transactions and the supervision of
such transactions by developing internationally accepted
standards, enhancing international supervisory cooperation,
and improving the quality and timelines of international
information sharing. The performance measure was
met.
Data Source and Validation
OIA staff maintain files of supporting documentation
under key words that reflect the Section 126(b) topics.
Projects are also found in the Commission Secretariats
file, e.g., formal Memoranda of Understanding (MOUs)
or seriatim approvals of International Organization of
Securities Commissions (IOSCO) documents, and published
Federal Register notices. IOSCO projects will also
be contained in those final reports adopted by the IOSCO
Technical Committee and published on the IOSCO
Web site.
Performance Measure 3.4.2 Number of rulemakings, studies, interpretations, and guidances to ensure market
integrity and exchanges compliance with regulatory requirements.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
8
6
6
05101520
NUMBERFY 2006 Performance ResultsPlanActual
Results: 20
Measurement: Number
Data Source: Code of Federal Regulations, proposed and
final amendments to regulations; Federal
Register, notice and order; and staff letters.
Verification: Proposed and final regulations are published
in the Federal Register and posted on the
Commissions Web site.
Lead Program Office
Division of Clearing and Intermediary Oversight
Division of Market Oversight
Performance Analysis and Review
Division of Clearing and Intermediary Oversight
The number of rulemakings, studies, interpretations, and
statements of guidance to ensure market integrity and
exchanges compliance with regulatory requirements is
not a number that can be predetermined precisely. The
final number of these combined statistics reported by
DCIO is driven in part by changes in the marketplace, or
in the structure of the exchanges, clearing organizations,
and intermediaries that operate within that marketplace.
The number can be a function of what is needed to allow
appropriate market interrelationships to be maintained
and to allow the exchanges, clearing organizations, and
intermediaries to operate in the most efficient manner. As
such, these factors may not be foreseeable at the time the
performance estimate is prepared. In addition, a requirement
for a rulemaking, study, or interpretation may not be
known or may not have reached a decision-making point
until further analysis and other actions or events have
taken place. This also can account for a difference between
the FY 2006 plan and actual.
Division of Market Oversight
The number of rulemakings, studies, interpretations,
and statements of guidance is not a number that can be
forecasted precisely. The final number is driven, in part,
by changes in the marketplace or in the operations of
exchanges that may not be foreseeable at the time the
performance estimate is prepared.
Data Source and Validation
Division of Clearing and Intermediary Oversight
In FY 2006, DCIO completed a combined total of 12
rulemakings, studies, interpretations, and statements of
guidance that addressed regulatory efforts to ensure market
integrity and exchanges compliance with regulatory
requirements. The supporting documentation is maintained
in DCIOs files related to the respective rulemaking,
study, interpretation, and statements of guidance.
DCIO staff maintain files of the supporting documentation
related to the respective rulemaking, studies,
interpretations, and statements of guidance. The methodology
for collecting these statistics is by tabulating the
number of such rulemakings, studies, interpretations, and
statements of guidance for the fiscal year. In addition, proposed
and final regulations are published in the Federal
Register and, along with staff no-action, interpretative and
exemptive letters, are posted on the Commissions
Web site.
17 CFR Part 1, Financial Reporting Requirements for
Introducing Brokers, at 71 Fed. Reg. 54789 (September
19, 2006) Proposed amendments to regulations.
17 CFR Part 1, Definition of Client of a Commodity
Trading Advisor, at 71 Fed. Reg. 9442 (February 24,
2006) Final amendments to regulations.
17 CFR Part 4, Commodity Pool Operator Electronic
Filing of Annual Reports, at 71 Fed. Reg. 8939 (February
22, 2006) Final amendments to regulations.
17 CFR Parts 36, 37, 38, 39, and 49, Technical and
Clarifying Amendments to Rules for Exempt Markets,
Derivatives Transaction Execution Facilities and Designated
Contract Markets, and Procedural Changes for
Derivatives Clearing Organization Registration Applications,
at 71 Fed. Reg. 1953 (January 12, 2006) Final
amendments to regulations.
Recognition of Multilateral Clearing Organizations
(re: NetThruPut, Inc.), at 71 Fed. Reg. 10958 (March 3,
2006) Notice and Order.
17 CFR Part 4, CPO and CTA Electronic Filing of Notices
and Exemptions and Exclusions under Part 4 of the
Commissions regulations, at 71 Fed. Reg. 60454 (October
13, 2006) Proposed amendments to regulations.
Staff Letter 06-16, dated July 7, 2006, granting an exemption
to a registered CPO of a publicly offered, publicly
traded commodity pool from otherwise applicable
disclosure, reporting and recordkeeping requirements.
Staff Letter 06-15, dated July 12, 2006, granting an exemption
to a registered CPO of a publicly offered, publicly
traded commodity pool from otherwise applicable
disclosure, reporting and recordkeeping requirements.
Staff Letter 05-19, dated November 10, 2005, granting
an exemption to a registered CPO of a publicly offered,
publicly traded commodity pool from otherwise applicable
disclosure, reporting and recordkeeping requirements.
Staff Letter 06-20, dated September 7, 2006, extending
previous relief to permit institutional customers to trade
certain futures contracts in a securities account with a
notice-registrant FCM by accepting substantial compliance
with the applicable securities laws.
DCIO letter of guidance, issued on May 23, 2006, regarding
segregation treatment of customer funds related
to intra-day variation settlements held by the NYCC.
DCIO memorandum to the Commission, issued on
November 14, 2006, regarding customer funds in segregated
amounts, Section 4d(2) of the CEA, and secured
accounts, Part 30 of the Commission regulations describing
trends in growth and concentration.
Division of Market Oversight
DMO staff maintain files of the supporting documentation
related to the referenced rulemakings and study. The
methodology for collecting these statistics is by tabulating
the number of rulemakings and studies for the fiscal
year. In addition, the referenced rulemakings and study
were published in the Federal Register and posted on the
Commissions Web site.
17 CFR Parts 36, 37, 38, 39 and 40, Technical and Clarifying
Amendments to Rules for Exempt Markets, Derivatives
Transaction Execution Facilities and Designated
Contract Markets, and Procedural Changes for Derivatives
Clearing Organization Registration Applications,
at 71 Fed. Reg. 1953 (January 12, 2006) - final amendments
to regulations.
Commission order In the Matter of the New York Mercantile
Exchange, Inc. Petition To Extend Interpretation
Pursuant to Section 1a (12) (C) of the Commodity
Exchange Act , at 71 Fed. Reg. 6755 (February 9, 2006)
final Commission order.
17 CFR Parts 1, 15, 16, 17, 18, 19, 21, and 37, Technical
and Clarifying Amendments to Rules for Market and
Large Trader Reporting, at 71 Fed. Reg. 37809 (July 3,
2006) final amendments to regulations.
17 CFR Parts 41 and 240, Application of the Definition
of Narrow-Based Security Index to Debt Securities Indexes
and Security Futures on Debt Securities, at 71 Fed.
Reg. 39534 (July 13, 2006) joint final amendments to
regulations with the SEC.
17 CFR Part 38, Conflict of Interest in Self-Regulation
and Self-Regulatory Organizations, at 71 Fed. Reg.
38739 (July 7, 2006) - proposed amendments to regulations.
Comprehensive Study of the Commitments of Traders
Reporting Program, at 71 Fed. Reg. 35627 (June 21,
2006) study of the continued use of the Commitments
of Traders reports.
Performance Measure 3.4.3 Percentage of requests for no-action or other relief completed within six months
related to novel market or trading practices and issues to facilitate innovation.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
100%
100%
100%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 100%
Measurement: Percentage
Data Source: Applicants letter requesting relief and
Commission letter of response.
Verification: Applicants letter and supporting
documentation maintained in internal
tracking system, FILAC. Responses to
formal request published on Commissions
Web site.
Lead Program Office
Division of Market Oversight
Performance Analysis and Review
In FY 2006, DMO issued nine no-action letters in response
to requests for formal no-action relief from requirements
of the CEA. Each letter was issued by DMO within six
months of the receipt of the relief request.
Data Source and Validation
Supporting documentation is in the form of the applicants
letter requesting relief and the Divisions signed
letter in response to the formal requests for guidance and
advice.
DMO maintains the FILAC internal tracking system
for recording DMO actions, such as the issuance of no-action
letters, which reflects the dates for relief requests and
responsive letters, as well as the length of staff review. Reponses
to formal requests are posted on the Commissions
Web site.
Performance Measure 3.4.4 Percentage of total requests receiving CFTC responses for guidance and advice.
History of Results:
FY 2003 Actual
FY 2004 Actual
FY 2005 Actual
90%
90%
90%
020406080100
PERCENTAGEFY 2006 Performance ResultsPlanActual
Results: 95%
Measurement: Percentage
Data Source: Signed letters (formal) and email &
telephone responses (informal).
Verification: Agency files maintained in chronological
files and responses to formal request are
published on Commissions Web site.
Lead Program Office
Division of Clearing and Intermediary Oversight
Division of Market Oversight
Performance Analysis and Review
Division of Clearing and Intermediary Oversight
DCIO staff respond to numerous requests for guidance
and advice on the CEA and Commission regulations each
year. Requests are received from members of the public,
market participants, intermediaries, SROs, foreign entities,
and others. These requests may be formal, such as written
requests for no-action, interpretative, or exemption letters.
DCIO also receives numerous requests for guidance and
advice via e-mail and phone calls.
DCIO responds to all requests received. Many of
these requests are routine in nature and are responded
to in a very short time frame, if not immediately. This is
particularly true for many of the requests that are received
via e-mail and phone calls. Other requests that raise novel
or complex issues, or requests for formal DCIO responses
in the form of no-action letters, interpretations or exemptions,
may take more time because of the need for research
and for preparation of an appropriate response. It is noted
that the statistics on numbers of letters issued or e-mail
responses may not reflect the complexity of any particular
matter or the resources necessary to address one particular
issue. In addition, matters commenced in one fiscal year
may overlap into, and be completed during, a subsequent
fiscal year, resulting in some imprecision in statistical
measures for a given year. DCIO staff make every effort to
respond to requests as quickly as possible, but the timeliness
of a response also is affected by the speed with which
a requester provides additional information sought by
staff, and the length of time required by other Commission
divisions or offices to review a draft response, factors
outside the control of DCIO. All these factors contributed
to DCIO responding to five percent fewer requests than
planned.
Division of Market Oversight
DMO staff respond to numerous requests for guidance
and advice on the CEA and Commission regulations each
year. These requests may be informal, via e-mail or phone
calls, or formal in the form of requests for no-action, interpretation,
or exemption letters. Staff respond to informal
guidance and advice requests in a very short period of
time, usually no longer than a period of days. To the extent
that staff are unable to provide an informal response
to such requests, the requester is advised to submit his/her
request formally. DMO staff strive to address such formal
requests within six months of receipt.
Data Source and Validation
Division of Clearing and Intermediary Oversight
Supporting documentation is in the form of responses
to formal (by signed letter) and informal (by e-mail and
telephone) requests for responses for guidance and advice.
Responses to formal requests are posted on the
Commissions Internet Web site and are maintained by
hard copy in the chronological files; responses to non-routine,
informal requests similarly are recorded by hard copy
and maintained in the chronological files. The methodology
for collecting these statistics is by comparing the files
of requests received with responses sent and calculating
the performance statistic.
Division of Market Oversight
DMO does not track the length of time needed to respond
to informal requests for guidance. Staff, however, operate
under the presumption that, if guidance cannot be
provided in response to informal requests, the requester is
advised to submit his/her request in the form of a written
request for a no-action, interpretation, or exemption letter.
Supporting documentation with respect to no-action,
interpretation and exemption requests is in the form of an
e-mail or signed letter from the requesting entity and the
Divisions signed letter in response.
DMO maintains the FILAC internal tracking system
for recording DMO actions, such as the issuance of no-action,
interpretation and exemption letters, which reflects
the dates of request and responsive letters, as well as the
length of staff review. Reponses to formal requests are
posted on the Commissions Web site.
Fostering Sound Business Practices: Oversight of SROs,
DCOs, and Market Intermediaries
A key aspect of assuring effective self-regulation is oversight
by the Commission of futures industry SROs, which
include exchanges, NFA and DCOs, to ensure the fulfillment
of their own responsibilities for monitoring and
ensuring the financial integrity of market intermediaries
and the protection of customer funds. Toward this end,
Commission staff oversee, review, and report to the Commission
concerning SRO and DCO self-policing programs
in order to evaluate their compliance with applicable provisions
of the CEA and Commission regulations. Similar
to the approach of other Federal financial regulators and
certain overseas financial supervisors, the Commission
employs a risk-based approach to its examination cycles
of SROs and DCOs, i.e., both the scheduling and scope
of the risk-based reviews are based on an analysis of the
underlying risks to which an institution is exposed and the
controls that it has in place to address those risks.
Commission staff perform periodic risk-based examinations,
daily financial surveillance, and other oversight
activities concerning the self-policing programs by which
the SROs monitor and enforce member compliance with
requirements concerning fitness, net capital, segregation
of customer funds, disclosure, sales practices, and related
reporting and recordkeeping. The oversight of SRO compliance
programs is necessary to ensure that SRO member
firms are properly capitalized and maintain appropriate
risk management capabilities, and that customer funds
are held in segregation by appropriate custodians and are
protected from misappropriation.
The oversight functions of the Commission took on
increased importance with the passage of the CFMA in
2000. The CFMA defined a new category of registered entities,
DCOs, and set forth core principles governing such
entities. The core principles require a DCO to demonstrate,
among other things, that it has adequate financial
resources, risk management, default procedures, protections
for customer funds, and system safeguards.
In addition to its formal oversight of SROs, Commission
staff performed examinations and reviews of approximately
30 FCMs during FY 2006 to test compliance with
the Commissions financial requirements for the safekeeping
of customer funds, and staff processed about 3,000 financial
reports filed by registrants. As a result of these and
other ongoing oversight activities, no regulated customer
funds were lost in FY 2006, thereby meeting the programs
objective of ensuring sound financial practices of clearing
organizations and firms holding customer funds.
Financial Surveillance
The Commission monitors the potential for, and instances
of, market volatility, market disruptions, or emergencies
that have the potential to impact: 1) the proper capitalization
of firms; 2) the proper segregation of customer funds;
3) the ability of financial intermediaries to make payments
to a DCO in a timely manner; and 4) issues with
respect to systemic risk. This financial surveillance function
performed by Commission staff has taken on greater
importance in recent years due to the number of instances
of market volatility and its impact on market intermediaries
and the clearing system.
Staff monitor cases of volatile markets in order to
advise the Commission of any potential financial impairment
of a registrant or potential systemic risk. It is not
possible to estimate in advance the number of such events
that will occur annually because market volatility cannot
be predicted. Nevertheless, such events are expected
to occur. Commission staff conducted 65 market move
reviews in FY 2006. Such reviews met the objectives of assuring
that registrants and financial intermediaries are not
impaired by market volatility or disruptions and continue
to meet financial obligations; and detecting any failure by
a DCO to meet its obligations.
Program Contributions to Strategic Goal Three
Ensuring a Flexible and Responsive Regulatory
Environment
In FY 2006, staff supported the Commissions ongoing
regulatory reform program, as well as actions required
by or appropriate to the implementation of the CFMA.
These actions, in the form of rulemakings, interpretations,
orders, and guidance, include the preparation of a number
of rulemakings during the fiscal year. One of these actions,
issued in February 2006, was a final rulemaking that
defined the term client as it relates to a CTA. Another
action is a proposed rulemaking to be issued in FY 2007,
which concerns the regulation of advertising by CPOs,
CTAs, and their principals. In addition, in March 2006, the
Commission issued an order with respect to the multilateral
clearing activities for over-the-counter derivative
instruments of a new foreign facility.
The Commission adopted amendments to Part 4 of
its regulations to require the electronic filing of commodity
pool annual reports with NFA, at the request of NFA.
The Commission continues to increase electronic filing
by proposing amendments to Part 4 of its regulations to
require electronic filing of notices of exemption submitted
to NFA, and by proposing amendments to Regulation
1.10 to require and permit the electronic filing of certified
annual reports by IBs. Electronic filing is expected to
increase the efficiency of the filing process. Further, the
Commission adopted amendments to its regulations that
recognize the growing use by FCMs of internally developed
mathematical VaR models, especially in light of SEC
regulations that permit well-capitalized broker-dealers
to incorporate VaR measurements in the market risk and
credit risk capital deductions that are required for their
proprietary trading assets.
The Commission issued clarifying and conforming
amendments to Part 39 of its regulations relating to
applications for registration as a DCO. During FY 2006,
the Commission received 50 submissions in which DCOs
certified rules as being in compliance with the CEA.
During FY 2006, staff reviewed 22 NFA rule submissions.
Under Section 17(j) of the CEA, NFA may either
make a proposed rule change effective ten days after
submission for review, absent determination that full
review is called for, or seek full review of the proposed
rule change on its own. Some of the rule change proposals
reviewed by staff were technical changes and others were
substantive in nature.
Also during FY 2006, Commission staff issued three
separate exemptive letters to CPOs of publicly-offered,
exchange-listed commodity pools. In each case, relief was
provided from specific disclosure and reporting requirements
ordinarily applicable to CPOs, based upon representations
that the relevant information would be made
readily available to pool participants on several private
and regulator-provided Web sites. The relief was necessary
in order to permit shares in the pools to be listed and
traded on national securities exchanges.
Remote Clearing
As a matter of first impression, a foreign firm requested
to become a full clearing member of a combined DCM
and DCO to clear trades only for non-U.S. located
customers without first registering under the CEA, commonly
referred to as remote clearing. Commission staff
researched the legal question as to whether a remote clearing
foreign firm that would clear trades only for non-U.S.
located customers would be required to register with the
Commission as an FCM, and addressed the material policy
issues of remote clearing with respect to both customer
protection and the financial integrity of the markets. After
discussions with staff, the foreign firm decided to become
registered with the Commission as an FCM.
CME Over-the-Counter (OTC) Clearing
The Commission issued an order permitting the CME, a
registered DCO, and its clearing FCMs to hold funds securing
positions executed in certain OTC markets in accounts
segregated pursuant to Section 4d of the CEA.
Foreign Currency
Commission staff continue to work with NFA staff regarding
retail foreign currency trading by FCMs and their affiliates.
NFA submitted several additional rules concerning retail
foreign currency, which the Commission subsequently
approved. These rules are intended to address ongoing
problems in the off-exchange retail forex market.
Commission staff have considered ways to provide
additional formal guidance regarding compliance and registration
issues pertaining to entities involved in retail foreign
currency trading and have met with other divisions to
discuss their concerns regarding issues that may be raised
in such an advisory. Staff also have discussed issues with
NFA concerning NFA examinations and required adjusted
net capital for firms engaged in retail forex transactions.
Foreign Futures and Option Transactions
The Commission took action to approve the offer and
sale of certain foreign futures and option transactions
(U.S. customers trading on non-U.S. markets) in FY 2006.
In this regard, the Commission issued orders to several
foreign exchanges granting firms designated by these exchanges
an exemption from certain of the Commissions
foreign futures and option regulations.
Hedge Funds
During FY 2006, Commission staff monitored the SECs
implementation of new regulations requiring registration
of hedge fund advisers under the Investment Advisers Act
of 1940 for potential impacts on the Commissions regulatory
programs. The staff also prepared the Chairman for
his testimony on hedge funds before the Senate Committee
on Banking, Housing, and Urban Affairs in July 2006.
Security Futures Products and Cooperation with the
SEC
The CFMA directs the Commission and the SEC to implement
a joint regulatory framework for SFPs and narrow-
based stock index futures. As part of the ongoing SFP supervisory
and oversight process, the Commission and the
SEC signed an MOU to clarify the ability of each agency
to conduct inspections of notice-registered intermediaries,
exchanges, and limited purpose national securities
associations. The MOU provides that the CFTC and SEC
will notify each other of any planned examinations, advise
the other of reasons for an intended examination, provide
each other with examination-related information, and
conduct examinations jointly, if feasible. The agencies
will notify each other of significant market issues and will
share trading data and related market information.
In furtherance of the goals of the CFMA, the Commission
and the SEC jointly promulgated final rules to permit
trading of futures on debt indexes and debt securities,
subject to the sole jurisdiction of the CFTC. In addition,
the Commissions new rules allowed trading of security
futures products based on debt securities, subject to joint
regulation by the SEC and CFTC. This joint rulemaking
was necessitated by existing statutory language that made
it difficult to trade such products.
The Commission permitted NFA in FY 2004 to
postpone indefinitely updating the Series 3 and Series 30
examinations to include questions on SFPs. Staff have
discussed with NFA and the National Association of
Securities Dealers how to accomplish eventual updating
of the examinations, but, for the time being, salespersons
will be permitted to continue to offer SFPs after taking a
Web-based training module. The SEC is in accord with this
approach.
International Policy
The Commission formulates international policy by:
1) coordinating with foreign regulatory authorities; 2)
participating in international regulatory organizations
and forums; and 3) providing technical assistance to
foreign governmental bodies. These efforts are intended to
facilitate cross-border transactions, and the supervision of
such transactions, by developing internationally accepted
standards, enhancing international supervisory cooperation
and improving the quality and timelines of international
information sharing. In FY 2006, the Commission
contributed to this effort by:
Coordinating representation in IOSCO, through its
direct participation in the development of regulatory
standard-setting and guidance papers in areas such as
recordkeeping, error trades, the role of prime brokers
in providing hedge fund valuation services, information
sharing for surveillance purposes, enforcement
issues related to the Internet, preserving and repatriating
property in cross-border enforcement cases and cross-
border enforcement cooperation. The Commission also
participates directly in the IOSCO Technical Committee,
and in a special IOSCO Executive Committee Task
Force on Implementation of the IOSCO Objectives and
Principles of Securities Regulation;
Coordinating Commission representation in the Council
of Securities Regulators of the Americas (COSRA),
including participating in ways to advance COSRAs
regional technical assistance and training initiatives;
Advancing the work program of the Commissions
Trans-Atlantic Initiative with Council of European
Securities Regulators (CESR) by publishing Frequently
Asked Questions in the form of online guides for conducting
derivatives business in the U.S. and the E.U.;
Coordinating the Commissions participation in the
International Institute for the Unification of Private Law
(Unidroit) discussions concerning a draft document
that would create new international rules in the area of
clearing and settlement of securities products;
Coordinating the Commissions participation in various
Treasury-led financial services dialogues, including
dialogues with China, India, and Japan, as well as commenting
on various Treasury position papers, including
work on a Hague Convention addressing intermediated
securities;
Coordinating with the U.K.s Financial Services Authority
to ensure the sharing of information needed to
conduct surveillance of cross-border electronic markets
in the U.S. and U.K.;
Coordinating the Commissions provision of representations
and regulatory information to regulatory authorities
in Australia and Singapore that supported the
recognition of U.S. futures exchanges, electronic trading
systems; and
Coordinating the Commissions technical assistance
program through: entering into a technical assistance
arrangement with the Office of the Agricultural Futures
Trading Commission of Thailand (AFTC), and providing
technical assistance to foreign regulators through
visits with staff at the Commission by nine jurisdictions,
one on-site visit by Commission staff to China, and a
week-long seminar organized by the Commission in
Chicago that was attended by 54 representatives from
38 jurisdictions that examined the techniques used to
promote market, firm, and customer protections.
Standing Committee 5
Commission staff continued to participate in IOSCOs
Standing Committee 5 (SC5) on Investment Management.
Throughout 2006, SC5 continued to consider and issue
reports on several topics of importance to collective investment
vehicles.
Foreign Futures Contracts
OGC continued its review of requests for no-action relief
to allow the offer and sale of foreign exchange-traded
stock index futures contracts in the U.S. Through mid-July
2006, OGC issued four such no-action letters.
Market Compliance
Commission staff completed two RERs of SRO compliance
programs at the KCBT and NYBOT. Periodic review of
SRO compliance programs is a component of the programs
oversight activity to promote and enhance effective
self-regulation and ensure that SROs enforce compliance
with their rules.
During FY 2006, the Commissions Trade Practice
Investigation (TPI) program generated 145 TPIs which
resulted in a total of 24 referrals to exchanges and the
Division of Enforcement. The TPI program, in conjunction
with the Commissions RER program, supports the Commission
in ensuring that market participants are protected
from abusive trading practices, protecting the integrity of
the markets as a price discovery mechanism, and maintaining
public confidence in the markets.
The Commissions review of exchange rules is a key
aspect of the statutory framework for self-regulation. The
DMO staff review exchange rule submissions with the
goals of: 1) maintaining the fairness and financial integrity
of the markets; 2) protecting customers; 3) accommodating
and fostering innovation; and 4) increasing efficiency
in self-regulation consistent with the Commissions statutory
mandates. To these ends, staff reviewed 178 exchange
rule submission packages and, within those packages, staff
reviewed 1,237 new rules and rule amendments.
Commission staff also work to facilitate industry
innovations and new trading methods and market
structures, thereby meeting the Commissions objective
of promoting and enhancing effective self-regulation and
competition. During FY 2005, staff were involved in a
number of significant matters including issues related to
new exchanges and exempt markets, exchange mergers,
novel trading procedures and contract designs, and new
automated trading systems.
Other Exemptive, Interpretive, and No-Action Relief
The Commission staff provide exemptive, interpretive, or
other relief to facilitate the continued development of an
effective, flexible regulatory environment responsive to
evolving market conditions. For example, in FY 2006, staff
issued a no-action letter regarding speculative position
limits to a registered CPO that planned to offer shares of
an index-based fund composed of notional amounts of
various physical commodities, including wheat and corn.
The fund sought relief from the position limits for wheat
and corn to the extent that its positions resulted from
maintaining long futures positions in the commodities
that made up the index. The letter conditioned the relief
upon the fund: passively tracking a widely recognized
commodity index; having unleveraged positions; and not
having price exposure or maintaining positions into the
spot month. During the past year, the Commission also
issued: 1) a no-action letter to a to-be-formed, wholly
owned subsidiary of Cargill, Inc. permitting it to register
as an agricultural trade option merchant, even though
such entity might not qualify as a producer, processor, or
commercial user of, or a merchant handling the commodity
underlying the option under a strict interpretation
of those terms; and 2) a comprehensive no-action letter
to all the designated contract markets allowing them to
comply with the requirement to file notice of changes to
option strike prices under Regulation 40.6(c)(2)(v) by
complying with the daily reporting requirement of Regulation
16.01.
The Commission also issued amended no-action letters
to Eurex Deutschland and SGX-DT (formerly known
as the Singapore International Monetary Exchange Limited).
The letter to Eurex permitted members who are registered
with the Commission as CPOs or CTAs, or who are
exempt from such CPO or CTA registration, to use Eurex
terminals located in the U.S. for the transmission of orders
on behalf of U.S. pools they operate or U.S. customer
accounts over which they have discretionary authority, respectively,
provided that an FCM or Regulation 30.10 Firm
acts as the clearing firm with respect to all activity conducted
by such CPOs and CTAs through the submission of
orders on the trading system. The letter to SGX extended
that exchanges relief to include the Joint Asian Derivatives
Exchange (JADE), a joint venture between SGX and CBOT
Holdings, Inc., that will be operated as a division of SGX
and whose products will be made available for trading on
the CBOTs electronic trading and order-matching system
known as the e-cbot trading platform.
Financial and Segregation Interpretation No. 10 (Interpretation
No. 10), issued in 1984, effectively permitted
customer margins to be deposited at a bank in a safekeeping
or custodial account, otherwise known as safekeeping
account or third-party custodial account, in lieu of
posting such funds directly with an FCM, without being
deemed to violate the customer funds segregation provisions
of Section 4d(a)(2) of the CEA and related Commission
regulations. Through analysis and discussions with
industry participants, it was determined that third-party
custodial accounts are no longer necessary or justified in
light of developments since the issuance of Interpretation
No. 10 and may present significant cost and burdens
for market participants. Accordingly, DCIO withdrew
Interpretation No. 10 in May 2005 and issued an amended
Interpretation No. 10-1 to prohibit FCMs from depositing,
holding, or maintaining margin funds for customer
accounts in third-party custodial accounts, with a limited
exception for FCMs not eligible to hold the assets of their
Registered Investment Company (RIC) customer, i.e., due
to their affiliation with the RIC or its adviser. The ban
against the use of third-party accounts is intended to prevent
potential delay or interruption in securing required
margin payments that, in times of significant market
disruption, could magnify the impact of such market
disruption and impair the liquidity of other FCMs and
clearinghouses.
93
CFTC
FINANCIAL SECTION
Message from the Chief Financial Officer..............95
Limitations of Financial Statements......................96
Principal Financial Statements.............................97
Report of the Independent Auditors.......................117
95
CFTC
A Message From the Chief Financial Officer
The public accounting firm, KPMG LLP, on behalf of
our Inspector General, reported that the financial statements
included in this report were presented fairly, in all
material respects, and in conformity with U.S. generally
accepted accounting principles for Federal agencies. However,
to achieve this result, the financial statements were
restated for FY 2005. This was necessary to conform with
the Financial Accounting Standards Boards Statement
of Financial Accounting Standards No. 13, Accounting for
Leases. Management will rely on this principle requiring
straight-lining of rent expenses going forward. Commission
error and other deficiencies led KPMG to find that
there were material weaknesses in the controls over financial
reporting. The Commission initiated corrective actions
during FY 2006 that conclude next year.
KPMG also disclosed noncompliance with the Federal
Information Security Management Act. Specifically, they
recommended that the Commission continue to improve
entitywide security and contingency planning programs,
access controls, segregation of duties, and service continuity
to fully meet guidelines of the E-Government Act
of 2002 and OMB Circular A-130, Management of Federal
Information Resources.
The FY 2006 audit report noted three reportable
conditions that were repeated from last year. The three
conditions affirmed the Commissions action to move to
a new financial management system, Delphi, operated by
the Department of Transportation, and its desire to leverage
an asset management system in its new environment.
A reportable condition related to undelivered orders was
modified to report inappropriate budgetary accounting for
replacement contracts. Last years finding that improvements
were needed in recording accruals and preparing
financial statements was revised, and reported as part of
the material weakness above.
The Commission recognizes that these conditions
impact reporting balances, and if left uncorrected increase
the risk that future statements could be misstated. There
were carryover matters from the prior year. The major
impediments to correcting them center on our successful
transition to the Delphi operating environment and fully
realizing the benefits of a full accounting services agreement.
Over the last two years, the Commission has taken a
number of positive steps to enable it to accumulate, analyze
and present reliable financial information, or provide reliable,
timely information for managing current operations and timely
reporting of financial information to central agencies. The
intent of these actions is to improve our audit results by
leveraging the financial management systems, resources,
and expertise of the Department of Transportation, a cabinet
level agency.
The Commission has implemented an audit follow-
up process to track corrective action taken by management
on findings and recommendations. Every attempt will be
made to put a plan into place within 60 days of November
15. Corrective actions are typically scheduled for completion
before June 30 for systems related items and September
30 for financial reporting and underlying data. Items
taking greater effort or that are dependent on longer term
solutions, carryover into the next audit cycle.
Mark Carney
Chief Financial Officer
November 15, 2006
Limitations of Financial Statements
Management has prepared the accompanying financial statements to report the financial position and operational results
for the CFTC for FY 2005 and FY 2004 pursuant to the requirements of Title 31 of the U.S. Code, section 3515(b).
While these statements have been prepared from the books and records of the Commission in accordance with
GAAP for Federal entities and the formats prescribed by OMB Circular A-136, Financial Reporting Requirements, these
statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared
from the same books and records.
The statements should be read with the understanding that they represent a component of the U.S. Government, a
sovereign entity. One implication of this is that the liabilities presented herein cannot be liquidated without the enactment
of appropriations, and ongoing operations are subject to the enactment of future appropriations.
CFTC
96
Principal Financial Statements
Commodity Futures Trading Commission
Balance Sheets
As of September 30, 2006 and 2005
2006
2005
(As Restated)
Assets
Intragovernmental:
Fund Balance with Treasury (Note 3)
$ 20,055,508
$ 23,464,887
Accounts Receivable (Note 4)
-
175,595
Prepayments (Note 2G)
461,038
-
Total Intragovernmental
20,516,546
23,640,482
Custodial Fines and Interest Receivable, Net (Note 4)
5,756,605
28,663,845
Accounts Receivable (Note 4)
63,855
10,332
Property, Equipment , and Software, Net (Note 5)
3,674,493
1,919,650
Total Assets
$ 30,011,499
$ 54,234,309
Liabilities
Intragovernmental:
FECA Liabilities
$ 29,484
$ 138,496
Accounts Payable
236,108
90,950
Total Intragovernmental
265,592
229,446
Accounts Payable
2,338,427
1,601,461
Accrued Funded Payroll
4,099,832
2,852,389
Annual Leave
5,083,005
5,230,125
Actuarial FECA Liabilities (Note 8)
281,801
491,304
Custodial Liabilities
5,756,605
28,663,845
Contingent Liabilities (Note 10)
11,600
-
Deposit Fund Liabilities
47,488
20,094
Other - Deferred Lease Liabilities (Note 9)
2,837,403
2,166,518
Total Liabilities
$ 20,721,753
$ 41,255,182
Commitments and Contingencies (Notes 9 and 10)
Net Position
Cumulative Results of Operations (Note 12)
$ (4,568,800)
$ (6,106,083)
Unexpended Appropriations
13,858,546
19,085,210
Total Net Position
9,289,746
12,979,127
Total Liabilities and Net Position
$ 30,011,499
$ 54,234,309
The accompanying notes are an integral part of these financial statements.
CFTC
98
Commodity Futures Trading Commission
Statements of Net Cost
For the Years Ended September 30, 2006 and 2005
2006
2005
(As Restated)
Goal 1: Ensure the economic vitality of the commodity futures and option markets
Intragovernmental Gross Costs
$ 5,254,073
$ 5,839,022
Less: Earned Revenue
-
(35,169)
Intragovernmental Net Cost of Operations
5,254,073
5,803,853
Gross Costs with the Public
28,107,867
28,205,924
Less: Earned Revenue
(7,407)
(3,831)
Net Cost of Operations with the Public
28,100,460
28,202,093
Net Cost of Operations- Goal One
$ 33,354,533
$ 34,005,946
Goal 2: Protect market users and the public
Intragovernmental Gross Costs
$ 6,403,402
$ 6,869,438
Less: Earned Revenue
-
(41,375)
Intragovernmental Net Cost of Operations
6,403,402
6,828,063
Gross Costs with the Public
34,256,464
33,183,440
Less: Earned Revenue
(9,029)
(4,507)
Net Cost of Operations with the Public
34,247,435
33,178,933
Net Cost of Operations- Goal Two
$ 40,650,837
$ 40,006,996
Goal 3: Ensure market integrity in order to foster open, competitive, and financially sound markets
Intragovernmental Gross Costs
$ 4,761,504
$ 4,465,134
Less: Earned Revenue
-
(26,894)
Intragovernmental Net Cost of Operations
4,761,504
4,438,240
Gross Costs with the Public
25,472,755
21,569,236
Less: Earned Revenue
(6,714)
(2,929)
Net Cost of Operations with the Public
25,466,041
21,566,307
Net Cost of Operations- Goal Three
$ 30,227,545
$ 26,004,547
Grand Total
Intragovernmental Gross Costs
$ 16,418,979
$ 17,173,594
Less: Earned Revenue
-
(103,438)
Intragovernmental Net Cost of Operations
16,418,979
17,070,156
Gross Costs with the Public
87,837,086
82,958,600
Less: Earned Revenue
(23,150)
(11,267)
Net Cost of Operations with the Public
87,813,936
82,947,333
Total Net Cost of Operations
$ 104,232,915
$ 100,017,489
The accompanying notes are an integral part of these financial statements.
FINANCIAL SECTION
Commodity Futures Trading Commission
Statements of Changes in Net Position
For the Years Ended September 30, 2006 and 2005
2006
2005
(As Restated)
Cumulative Results of Operations
Beginning Balances, October 1
$ (6,106,083)
$ (5,199,126)
Adjustments: Correction of errors (Note 12)
-
(1,785,274)
Beginning Balances as adjusted, October 1
(6,106,083)
(6,984,400)
Budgetary Financing Sources
Appropriations Used:
101,840,088
96,565,213
Other Financing Sources
Imputed Financing Sources
3,930,110
4,330,593
Net Cost of Operations
(104,232,915)
(100,017,489)
Net Change
1,537,283
878,317
Total Cumulative Results of Operations, September 30
$ (4,568,800)
$ (6,106,083)
Unexpended Appropriations
Beginning Balances, October 1
$ 19,085,210
$ 23,028,385
Adjustments: Correction of errors (Note 12)
-
(661,079)
Beginning Balances as adjusted, October 1
19,085,210
22,367,306
Budgetary Financing Sources
Appropriations Received
98,386,000
94,327,000
Less: Rescinded
(983,860)
(754,616)
Less: Canceled
(788,716)
(289,267)
Appropriations Used
(101,840,088)
(96,565,213)
Total Budgetary Financing Sources
(5,226,664)
(3,282,096)
Total Unexpended Appropriations, September 30
$ 13,858,546
$ 19,085,210
Net Position
$ 9,289,746
$ 12,979,127
The accompanying notes are an integral part of these financial statements.
Commodity Futures Trading Commission
Statements of Budgetary Resources
For the Years Ended September 30, 2006 and 2005
2006
2005
Budgetary Resources
Unobligated Balance, October 1
$ 3,768,541
$ 1,395,503
Recoveries of Prior Year Unpaid Obligations
5,598,356
6,920,117
Total Prior Resources
9,366,897
8,315,620
New Resources:
Appropriations
98,386,000
94,327,000
Spending Authority from Offsetting Collections
Collected
208,371
69,394
Change Receivables from Federal sources
(175,595)
152,789
Total New Resources
$ 98,418,776
$ 94,549,183
Permanently Not Available:
Cancellation of Expired Accounts
(788,716)
(289,267)
Enacted Reduction
(983,860)
(754,616)
Total Budgetary Resources
$ 106,013,097
$ 101,820,920
Status of Budgetary Resources
Obligations Incurred, Direct
$ 101,255,783
$ 98,029,681
Obligations Incurred, Reimbursable
23,150
22,698
Total Obligations Incurred (Note 13)
101,278,933
98,052,379
Unobligated Balance Apportioned
552,827
768,613
Unobligated Balance Not Available
4,181,337
2,999,928
Total Status of Budgetary Resources
$ 106,013,097
$ 101,820,920
Change in Obligated Balances
Net Obligated Balance, October 1
Unpaid Obligations
$ 19,851,847
$ 24,931,530
Uncollected customer payments from Federal sources
(175,595)
(22,806)
Net Obligated Balance, October 1
19,676,252
24,908,724
Gross Obligations Incurred
101,278,933
98,052,379
Gross Outlays
(100,258,569)
(96,211,945)
Recoveries of Prior Year Unpaid Obligations
(5,598,356)
(6,920,117)
Change in Receivables from Federal sources
175,595
(152,789)
$ 15,273,855
$ 19,676,252
Commodity Futures Trading Commission
Statements of Budgetary Resources
For the Years Ended September 30, 2006 and 2005
2006
2005
Net Obligated Balance, September 30
Unpaid Obligations
$ 15,273,855
$ 19,851,847
Uncollected customer payments from Federal sources
-
(175,595)
Net Obligated Balance, September 30
15,273,855
19,676,252
Net Outlays
Gross Outlays
$ 100,258,569
$ 96,211,945
Offsetting Collections Received
(208,371)
(69,394)
Distributed Offsetting Receipts
(5,499)
(9,474)
Net Outlays
$ 100,044,699
$ 96,133,077
The accompanying notes are an integral part of these financial statements.
Commodity Futures Trading Commission
Statements of Financing
For the Years Ended September 30, 2006 and 2005
2006
2005
(As Restated)
Resources Used to Finance Activities
Budgetary Resources Obligated
Obligations Incurred
$ 101,278,933
$ 98,052,379
Less: Spending Authority from Offsetting Collections and Recoveries
(5,631,132)
(7,142,300)
Obligations Net of Offsetting Collections and Recoveries
95,647,801
90,910,079
Less: Offsetting Receipts
(5,499)
(9,474)
Net Obligations After Offsetting Receipts
95,642,302
90,900,605
Other Resources
Imputed Financing from Cost Absorbed by Others
3,930,110
4,330,593
Total Resources Used to Finance Activities
$ 99,572,412
$ 95,231,198
Resources Used to Finance Items Not Part of the Net Cost of Operations
Offsetting Receipts
$ 5,499
$ 9,474
Change in Budgetary Resources Obligated for Goods, Services, and Benefits Ordered
But not yet Provided
6,707,559
5,655,299
Resources that Finance the Net Acquisition of Fixed Assets
(2,447,064)
(1,248,014)
Resources that Fund Expenses Recognized in Prior Periods (Note 16)
(465,635)
(353,810)
Total Resources Used to Finance Items Not Part of the Net Cost of Operations
$ 3,800,359
$ 4,062,949
Resources Used to Finance the Net Cost of Operations
$ 103,372,771
$ 99,294,147
Components of the Net Cost of Operations That Will not Require or Generate
Resources in the Current Period
Components Requiring or Generating Resources in Future Periods:
Increase in Exchange Revenue Receivable from the Public
$ -
$ (875)
Increase in Unfunded Annual Leave and Contingent Liabilities
11,600
454,822
Increase in Other Unfunded Liabilites - Deferred Leases
670,885
226,840
Total Components of Net Cost of Operations that will Require or Generate Resources
in Future Periods (Note 16)
$ 682,485
$ 680,787
Components Not Requiring or Generating Resources
Depreciation and Amortization
$ 225,049
$ 134,562
Revaluation of Assets or Liabilities
6,133
(92,007)
Other - Increase in Exchange Revenue Receivable from the Public
(53,523)
-
Total Components of Net Cost of Operations that will Not Require or
Generate Resources
$ 177,659
$ 42,555
Net Cost of Operations
$ 104,232,915
$ 100,017,489
The accompanying notes are an integral part of these financial statements.
Commodity Futures Trading Commission
Statements of Custodial Activity
For the Years Ended September 30, 2006 and 2005
2006
2005
Revenue Activity
Sources of Cash Collections:
Registration and Filing Fees
$ 1,239,020
$ 742,133
Fines, Penalties, and Forfeitures
12,395,880
34,260,078
General Proprietary Receipts
5,499
9,474
Total Cash Collections
13,640,399
35,011,685
Change in Accounts Receivable (Primarily write-offs)
(22,907,240)
(6,739,094)
Total Custodial Revenue
$ (9,266,841)
$ 28,272,591
Disposition of Collections
Transferred to Others, by Recipient:
Treasury
$ (13,640,399)
$ (35,011,685)
Change in Custodial Liabilities
22,907,240
6,739,094
Net Custodial Activity
$ -
$ -
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
As of and For the Fiscal Years Ended September
30, 2006 and 2005
Note 1. Reporting Entity
The Commodity Futures Trading Commission (CFTC)
is an independent agency of the executive branch of the
Federal Government. Congress created the CFTC in 1974
under the authorization of the Commodity Exchange Act
(CEA) with the mandate to regulate commodity futures
and option markets in the United States. The agencys
mandate was renewed and expanded under the Futures
Trading Acts of 1978, 1982, and 1986; under the Futures
Trading Practices Act of 1992; and under the CFTC
Reauthorization Act of 1995. The Commodity Futures
Modernization Act of 2000 reauthorized the Commission.
Since its inception, the CFTC has continuously operated
through authorized appropriations.
The CFTC is responsible for ensuring the economic
utility of futures markets by encouraging their competitiveness
and efficiency, ensuring their integrity, and protecting
market participants against manipulation, abusive
trade practices, and fraud.
Note 2. Summary of Significant
Accounting Policies
A. Basis of Presentation
The financial statements have been prepared to report the
financial position and results of operations for the CFTC,
as required by the Chief Financial Officers Act of 1990
along with the Accountability of Tax Dollars Act of 2002,
and the Government Management Reform Act of 1994.
They are presented in accordance with the form and content
requirements contained in Office of Management and
Budget (OMB) Circular No. A-136, Financial Reporting
Requirements.
The financial statements have been prepared from the
agencys books and records in conformity with U.S. generally
accepted accounting principles, as prescribed for the
federal government by the Federal Accounting Standards
Advisory Board (FASAB).
The financial statements report on the CFTCs
financial position, net cost of operations, changes in net
position, budgetary resources, financing, and custodial
activities. The books and records of the agency served as
the source of information for preparing the financial statements
in the prescribed formats. All agency financial statements
and reports used to monitor and control budgetary
resources are prepared from the same books and records.
The statements should be read with the understanding
that they are for a component of the U.S. Government, a
sovereign entity.
The Balance Sheets present the financial position
of the agency. The Statements of Net Cost present the
agencys operating results; the Statements of Changes in
Net Position display the changes in the agencys equity
accounts. The Statements of Budgetary Resources present
the sources, status, and uses of the agencys resources
and follows the rules for the Budget of the United States
Government. The Statements of Financing present the
reconciliation of the agencys use of budgetary resources
with its operating results. The Statements of Custodial
Activity present the sources and disposition of collections
for which the CFTC is the fiscal agent, or custodian, for the
Treasury General Fund Miscellaneous Receipt accounts.
Throughout these financial statements, intragovernmental
assets, liabilities, earned revenue, and costs have
been classified according to the type of entity with whom
the transactions were made. Intragovernmental assets
and liabilities are those from or to other federal entities.
Intragovernmental earned revenue represents collections
or accruals of revenue from other federal entities, and
intragovernmental costs are payments or accruals to other
federal entities.
B. Budgetary Resources and Status
The CFTC is funded through Congressionally approved
appropriations. The CFTC is responsible for administering
the salaries and expenses of the agency through the execution
of these appropriations.
Congress annually enacts one-year appropriations that
provide the CFTC with the authority to obligate funds
within the respective fiscal year for necessary expenses to
carry out mandated program activities. In addition, Congress
enacted a permanent indefinite appropriation that is
available until expended. All appropriations are subject to
quarterly apportionment as well as Congressional restrictions.
The CFTCs budgetary resources for FY 2006 consist of:
Unobligated balances of resources brought forward
from the prior year,
Recoveries of obligations in prior years, and
New resources in the form of appropriations and spending
authority from offsetting collections.
Unobligated balances associated with resources
expiring at the end of the fiscal year remain available for
five years after expiration only for upward adjustments of
prior year obligations, after which they are canceled and
may not be used. All unused monies related to canceled
appropriations are returned to Treasury and the canceled
authority is reported as a line item on the Statements of
Budgetary Resources and the Statements of Changes in
Net Position.
C. Entity and Non-Entity Assets
Assets consist of entity and non-entity assets. Entity assets
are those assets that the CFTC has authority to use for its
operations. Non-entity assets are those held by the CFTC
that are not available for use in its operations. Non-entity
assets held by the CFTC include deposit fund balances,
custodial fines, and interest receivable, net.
D. Fund Balance with Treasury
Fund Balance with Treasury is the aggregate amount of the
CFTCs funds with Treasury in expenditure, receipt, and
deposit fund accounts. Appropriated funds recorded in
expenditure accounts are available to pay current liabilities
and finance authorized purchases. Custodial collections
recorded in the deposit fund account and miscellaneous
receipts accounts of the Treasury are not available for
agency use. At fiscal year end, receipt account balances are
cleared and returned to Treasury.
The CFTC does not maintain bank accounts of its
own, has no disbursing authority, and does not maintain
cash held outside of Treasury. Treasury disburses funds for
the agency on demand. Spending authority from offsetting
collections is recorded in the agencys expenditure account
and is available for agency use subject to certain limitations.
(See Note 3.)
E. Accounts Receivable
Accounts receivable consists of amounts owed by other
federal agencies and the public to the CFTC and is valued
net of an allowance for uncollectible amounts. The allowance
is based on past experience in the collection
of receivables and analysis of the outstanding balances.
Accounts receivable arise from reimbursable operations,
earned refunds or the Civil Monetary Sanctions program.
(See Note 4.)
F. Property, Equipment, and Software
Property, equipment, and software represents furniture,
fixtures, equipment, and information technology hardware
and software, which are capitalized and depreciated
or amortized over their useful lives.
The CFTC capitalizes assets annually if they have
useful lives of at least two years and an individual value of
$25,000 or more. Bulk or aggregate purchases are capitalized
when the individual useful lives are at least two years
and a value of $25,000 or more. Property, equipment, and
software that does not meet the capitalization criteria are
expensed when acquired. Depreciation and amortization
is computed on a straight-line basis using a 5-year life.
The Commissions assets are valued net of accumulated
depreciation. (See Note 5.)
G. Prepayments
Payments in advance of the receipt of goods and services
are recorded as prepayments, and recognized as expenses
when the related goods and services are received. Prepayments
reported on the Balance Sheet were made primarily
to the Department of Transportation (DOT) for implementation
of the Delphi Financial System in 2007.
H. Liabilities
The CFTCs liabilities consist of actual and estimated
amounts that are likely to be paid as a result of transactions
covered by budgetary resources for which Congress
has appropriated funds or funding, or are otherwise available
from reimbursable transactions to pay amounts due.
Liabilities include those covered by budgetary resources
in existing legislation and those not yet covered by
budgetary resources (See Note 6). The CFTC liabilities not
covered by budgetary resources include:
Annual leave benefits which will be funded by annual
appropriations as leave is taken,
Actuarial Federal Employees Compensation Act (FECA)
liabilities,
Custodial liabilities for custodial revenue transferred to
Treasury at fiscal year end,
Contingent liabilities,
Deposit funds, and
Other- Deferred Lease Liabilities.
The CFTCs liabilities that are covered by budgetary resources
are considered current liabilities.
I. Accounts Payable
Accounts payable consists primarily of contracts for goods
or services, such as leases, utilities, telecommunications,
and consulting and support services.
J. Accrued Payroll and Benefits and Annual Leave
Liability
The accrued payroll liability represents amounts for salaries
and benefits owed for the time since the payroll was
last paid through the end of the fiscal year. The annual
leave liability is the amount owed employees for unused
annual leave as of the end of the fiscal year. At the end
of each quarter, the balance in the accrued annual leave
account is adjusted to reflect current balances and pay
rates. Sick leave and other types of non-vested leave are
expensed as taken.
The agencys employees participate in the Civil Service
Retirement System (CSRS) or the Federal Employees
Retirement System (FERS). On January 1, 1987, FERS went
into effect pursuant to Public Law 99-335. Most employees
hired after December 31, 1983, are automatically covered
by FERS and Social Security. Employees hired prior to
January 1, 1984, could elect to either join FERS and Social
Security or remain in CSRS.
For employees under FERS, the CFTC contributes
an amount equal to one percent of the employees basic
pay to the tax deferred Thrift Savings Plan and matches
employee contributions up to an additional four percent
of pay. FERS and CSRS employees can contribute a portion
their gross earnings to the plan up to IRS limits; however,
CSRS employee receive no matching agency contribution.
K. Leases
The CFTC does not have any capital lease liabilities. The
operating leases consist of commercial property leases
for the CFTCs headquarters and regional offices. Lease
expenses are recognized on a straight-line basis.
L. Deposit Funds
Deposit funds are expenditure accounts used to record
monies that do not belong to the Federal government.
They are held awaiting distribution based on a legal
determination or investigation. The CFTC deposit fund is
used to record and later distribute monetary awards to the
appropriate defendants as restitution.
M. Net Position
Net position consists of unexpended appropriations and
cumulative results of operations.
Unexpended appropriations are appropriations that
have not yet been used to acquire goods and services or
provide benefits. Appropriations are considered expended,
or used, when goods and services have been acquired by
the CFTC or benefits have been provided using the appropriation
authority, regardless of whether monies have
been paid or payables for the goods, services, or benefits
have been established. Appropriations were used primarily
to acquire goods and services to operate the CFTCs
programs or to provide benefits.
Cumulative results of operations represent the excess
of financing sources over expenses since inception. Cumulative
results of operations are derived from the net effect
of capitalized assets, expenses, exchange revenue, and
unfunded liabilities.
N. Earmarked Funds
As of September 30, 2006, the CFTCs financing sources
did not have any earmarked funds. Earmarked funds were
not received by the agency for designated activities, benefits
or purposes as specifically required by statute.
O. Revenues
The CFTC receives reimbursement and earns revenue for
the following activities:
Reimbursement for travel, subsistence, and related expenses
from non-federal sources for attendance at meetings
or similar functions that an employee has been
authorized to attend in an official capacity on behalf of
the Commission.
Reimbursement for Intergovernmental Personnel Act
Mobility Program assignments from state and local governments,
institutions of higher education, and other
eligible organizations for basic pay, supplemental pay,
fringe benefits, and travel and relocation expenses.
Reimbursement from non-federal sources for registration
fees to cover the cost of expenses related to the
CFTC's annual International Regulators Conference.
P. Net Cost of Operations
Net cost of operations is the difference between the CFTCs
expenses and its earned revenue. The presentation of
program results by strategic goals is based on the CFTCs
current Strategic Plan established pursuant to the Government
Performance and Results Act of 1993.
The mission statement of the CFTC is to protect
market users and the public from fraud, manipulation,
and abusive practices related to the sale of commodity and
financial futures and options, and to foster open, competitive,
and financially sound futures and option markets.
The mission is accomplished through three strategic goals,
each focusing on a vital area of regulatory responsibility:
Ensure the economic vitality of the commodity futures
and option markets.
Protect market users and the public.
Ensure market integrity in order to foster open, competitive,
and financially sound markets.
Q. Reconciliation of Net Obligations and Net Cost of
Operations
The Statements of Financing reconcile the net obligations
with the net cost of operations. On the Statements
of Budgetary Resources, net obligations are calculated by
subtracting downward adjustments of prior-period obligations
and offsetting collections from gross obligations.
The net cost of operations, reported on the Statements of
Net Cost represents the difference between gross costs and
earned revenue.
Resources Used to Finance Activities reflects the
budgetary resources obligated and other resources used to
finance the activities of the agency. The obligations of budgetary
resources are net of offsetting collections, recoveries,
and offsetting receipts. The other resources are financing
sources that increase net position but are not budgetary
resources.
Resources Used to Finance Items Not Part of the Net
Cost of Operations adjusts total resources used to finance
the activities of the entity to account for items that were
included in net obligations and other resources but were
not part of the net cost of operations. This section includes
items in which the expense was recognized in a prior
period but the budgetary resource and obligation are recognized
in the current period (e.g., changes in the balance
for undelivered orders, or decreases in unfunded liabilities).
It also includes budgetary resources and obligations
recognized in the current period that do not affect the net
cost of operations (e.g., the acquisition of assets reflected
in net obligations but not in net cost of operations for the
period).
The costs of the Federal Government are not always
funded in the period the costs are incurred. Components
Requiring or Generating Resources in Future Periods
identifies items that are recognized as a component of the
net cost of operations for the period but the budgetary
resources (and related obligation) will not be provided (or
incurred) until a subsequent period (e.g., an increase to
the annual leave liability).
Components Not Requiring or Generating Resources
includes items recognized as part of the net cost of operations
for the period but will not generate or require the
use of resources, such as depreciation expense.
Net Cost of Operations is the sum of the line items
Total Resources Used to Finance Net Cost of Operations
and Total Components of Net Cost of Operations that will
not Require or Generate Resources in the Current Period.
This line item agrees with the Net Cost of Operations as
reported on the Statements of Net Cost.
R. Custodial Activity
The CFTC collects penalties and fines levied against
firms for violation of laws as described in the Commodity
Exchange Act as codified at 7 U.S.C. 1, et seq, and
the Commodities Futures Modernization Act of 2000,
Appendix E of P.L. 106-554, 114 Stat. 2763. Unpaid fines,
penalties and accrued interest are reported as custodial
receivables, with an associated custodial liability. The
receivables and the liability are reduced amounts determined
to be uncollectible. Revenues earned and the losses
from bad debts are reported to Treasury.
Collections made by the CFTC during the year are
deposited and reported into designated Treasury miscellaneous
receipt accounts for:
Registrations and filing fees,
Fees, fines, penalties and forfeitures, and
General miscellaneous recoveries and refunds.
At fiscal year end, custodial collections made by the
CFTC are returned to Treasury. The CFTC does not retain
any amount for custodial activities including reimbursement
of the cost of collection.
S. Use of Management Estimates
The preparation of the accompanying financial statements
in accordance with accounting principles generally
accepted in the United States of America requires
management to make certain estimates and assumptions
that directly affect the results of reported assets, liabilities,
revenues, and expenses. Actual results could differ from
these estimates.
T. Tax Status
The CFTC is not subject to Federal, state or local income
taxes. Accordingly, no provision for income taxes is recorded.
Note 3. Fund Balance with Treasury
A. Reconciliation to Treasury
There are no differences between the Fund Balance reflected in the CFTC Balance Sheets and the balance in the Treasury
accounts.
B. Fund Balance with Treasury
Fund Balances with Treasury consist of entity assets such as appropriations and reimbursements for services rendered.
Obligation of these funds is controlled by quarterly apportionments made by the OMB. Work performed under reimbursable
agreements is initially financed by the annual appropriation and is subsequently reimbursed. Other funds
include non-entity deposit fund receipts.
Fund Balance with Treasury at September 30, 2006 and 2005 consisted of the following:
2006
2005
Appropriated Funds
$ 20,008,020
$ 23,444,793
Other Funds:
Deposit Fund
47,488
20,094
$ 20,055,508
$ 23,464,887
C. Status of Fund Balance with Treasury
Status of Fund Balance with Treasury at September 30, 2006 and 2005 consisted of the following:
2006
2005
Appropriated Funds
Unobligated Fund Balance
Available
$ 42,385
$ 756,075
Expired
510,443
12,538
Unavailable
4,181,337
2,999,928
Obligated Balance Not Yet Disbursed
15,273,855
19,676,252
Deposit Fund
47,488
20,094
Total Fund Balance with Treasury
$ 20,055,508
$ 23,464,887
Note 4. Accounts Receivable
Accounts receivable consist of amounts owed to the CFTC by other Federal agencies and the public. Accounts receivable
are valued net of estimated uncollectibles. Non-custodial accounts receivable are primarily for overpayments of expenses
to other agencies, or vendors, and repayment of employee benefits. Historical experience has indicated that most of the
non-custodial receivables are collectable and there are no material uncollectible amounts.
Custodial receivables (non-entity assets) are those for which fines and penalties have been assessed and levied
against businesses for violation of law. The CFTC litigates against defendants for alleged violations of the CEA, as
amended. Violators may be subject to a variety of sanctions including fines, injunctive orders, bars or suspensions,
rescissions of illegal contracts, disgorgements, and restitutions to customers.
Historical experience has indicated that a high percentage of custodial receivables prove uncollectible. The methodology
used to estimate the allowance for uncollectible amounts related to custodial accounts is that custodial receivables
are considered 100% uncollectible unless otherwise noted in the judgment. An allowance for uncollectible accounts has
been established and included in accounts receivable on the balance sheets. The allowance is based on past experience
in the collection of accounts receivable and analysis of outstanding balances. Accounts are reestimated quarterly based
on account reviews and the agency determination that changes to the net realizable value are needed.
Accounts receivable, as of September 30, 2006 and 2005, consisted of the following:
2006
2005
Intragovernmental Accounts Receivable
$ -
$ 175,595
Custodial Fines and Interest Receivable, Net:
Civil Monetary Penalty Interest
$ 9,438,316
$ 2,501,590
Civil Monetary Penalties, Fines, and Administrative Fees
530,489,941
328,168,373
Less: Allowance for Loss on Interest
(9,421,924)
(2,290,056)
Less: Allowance for Loss on Penalties, Fines, and Administrative Fees
(524,749,728)
(299,716,062)
Net Custodial
$ 5,756,605
$ 28,663,845
Other Accounts Receivable
$ 63,855
$ 10,332
Note 5. Property, Equipment, and Software, Net
Assets are capitalized annually if they have useful lives of at least two years and an individual value of $25,000 or more.
Bulk or aggregate purchases are capitalized when the individual useful lives are at least two years and a value of $25,000
or more. Depreciation and amortization is computed on a straight-line basis using a 5-year life. The CFTC did not defer
any maintenance in FY 2006 or FY 2005. Property and Equipment as of September 30, 2006 and 2005 consisted of the
following:
2006
Service Life and Method
Cost
Accumulated
Amortization/
Depreciation
Net Book Value
Major Class
Equipment
5 Years/Straight Line
$ 1,146,835
$ (334,735)
$ 812,100
IT Software
5 Years/Straight Line
2,966,169
(103,776)
2,862,393
$ 4,113,004
$ (438,511)
$ 3,674,493
2005
Service Life and Method
Cost
Accumulated
Amortization/
Depreciation
Net Book Value
Major Class
Equipment
5 Years/Straight Line
$ 562,894
$ (176,878)
$ 386,016
IT Software
5 Years/Straight Line
1,580,271
(46,637)
1,533,634
$ 2,143,165
$ (223,515)
$ 1,919,650
Note 6. Liabilities Not Covered by Budgetary Resources
As of September 30, 2006 and 2005, the following liabilities not covered by budgetary resources exist:
2006
2005
Intragovernmental - FECA Liabilities
$ 29,484
$ 138,496
Annual Leave
5,083,005
5,230,125
Actuarial FECA Liabilities
281,801
491,304
Custodial Liabilities
5,756,605
28,663,845
Contingent Liabilities
11,600
-
Deposit Fund Liabilities
47,488
20,094
Other - Deferred Lease Liabilities
2,837,403
2,166,518
Total Liabilities Not Covered by Budgetary Resources
$ 14,047,386
$ 36,710,382
Note 7. Retirement Plans and Other Employee Benefits
The CFTC imputes costs and the related financing sources for its share of retirement systems accruing to its past and
present employees which are in excess of the amount of contributions from the CFTC and its employees, which are
mandated by law. The Office of Personnel Management (OPM), which administers federal civilian retirement programs,
provides the cost information to the CFTC. The CFTC recognizes the full cost of providing future pension and Other
Retirement Benefits (ORB) for current employees as required by Statement of Federal Financial Accounting Statement
(SFFAS) No. 5, Accounting for Liabilities of the Federal Government.
Full costs include pension and ORB contributions paid out of the CFTCs appropriations and costs financed by
OPM. The amount financed by OPM is recognized as an imputed financing source. Reporting amounts such as plan assets,
accumulated plan benefits, or unfunded liabilities, if any, is the responsibility of OPM.
Liabilities for future pension payments and other future payments for retired employees who participate in the Federal
Employees Health Benefits Program and the Federal Employees Group Life Insurance Program are reported by OPM
rather than the CFTC.
Note 8. Actuarial FECA Liabilities
FECA provides income and medical cost protections to covered federal civilian employees injured on the job, to employees
who have incurred work-related occupational diseases and to beneficiaries of employees whose deaths are attributable
to job-related injuries or occupational diseases. The FECA program is administered by the U.S. Department of
Labor (DOL), which pays valid claims against the CFTC and subsequently seeks reimbursement from the CFTC for these
paid claims. Accrued FECA liabilities represent amounts due to DOL for claims paid on behalf of the agency.
Actuarial FECA liability represents the liability for future workers compensation (FWC) benefits, which includes the
expected liability for death, disability, medical, and miscellaneous cost for approved cases. The liability is determined
using a formula provided by DOL annually as of September 30th using a method that utilizes historical benefits payment
patterns related to a specific incurred period to predict the ultimate payments related to that period. The projected
annual benefits payments are discounted to present value using OMBs economic assumptions for ten-year Treasury
notes and bonds. To provide more specifically for effects of inflations on liability for FWC benefits, wage inflation factors
(Consumer Price Index-Medical) are applied to the calculation of projected future benefits. These factors are also used to
adjust historical payment so benefits are stated in current-year constant dollars.
Note 9. Leases
The CFTC leases office space in publicly owned buildings for its locations in Washington D.C., Chicago, New York, Minneapolis,
and Kansas City. The lease contracts for publicly-owned buildings are operating leases. The CFTC has no real
property. Future estimated lease payments are not accrued as liabilities and are expensed on a straight-line basis.
As of September 30, 2006, future estimated minimum lease payments through FY 2011, and thereafter, is as follows:
Fiscal Year
Dollars
2007
$ 10,400,699
2008
10,608,221
2009
10,801,166
2010
10,970,312
2011
11,268,766
Thereafter
34,636,011
Total Minimum lease payments
88,685,175
Add: Amount representing estimated executory costs (such as taxes, maintenance, and insurance)
16,557,028
Total minimum lease payments, including estimated executory costs
$ 105,242,203
Lease expense is recognized on a straight-line basis. Because the lease payment amounts vary, and in some cases,
CFTC received periods of up-front free rent, a deferred lease liability representing expense amounts in excess of payments
to date, has been recorded. The deferred lease liabilities at September 30, 2006 and September 30, 2005 were
$2,837,403 and $2,166,518, respectively.
Note 10. Contingent Liabilities
The CFTC records commitments and contingent liabilities for legal cases in which payment has been deemed probable
and for which the amount of potential liability has been estimated, including certain judgments that have been issued
against the agency and which have been appealed. In FY 2006, the Office of General Counsel signed an agreement on
behalf of the CFTC to pay $11,600 in attorney fees for an Equal Employment Opportunity complaint and a contingent
liability was established.
Note 11. Undelivered Orders
The amount of budgetary resources obligated for undelivered orders as of September 30, 2006 and 2005 consisted of the
following:
2006
2005
Undelivered Orders
$ 8,599,488
$ 15,307,047
Note 12. Restatement of FY 2005 Financial Statements
During FY 2006, the CFTC corrected its accounting for lease expenses. The CFTC previously recorded its lease expense
in the period in which the actual payments were made, rather than on a straight-line basis, as required. As a result, the
CFTC has restated its FY 2005 financial statements. Additionally, the CFTC recorded reductions to FY 2005 expenses for
transactions that should have been recorded as expenses in FY 2004. The effects of the restatements on CFTCs 2005
financial statements are as follows:
FY 2005 Restatement
September 30, 2005
As Reported
2005
Adjustment
September 30, 2005
As Restated
Balance Sheet
Other - Deferred Lease Liabilities
$ -
$ 2,166,518
(A)
$ 2,166,518
Total Liabilities
$ 39,088,664
$ 2,166,518
(A)
$ 41,255,182
Cumulative Results of Operations
$ (3,939,565)
$ (2,166,518)
(A)
$ (6,106,083)
Unexpended Appropriations
$ 19,085,210
$ -
$ 19,085,210
Total Net Position
$ 15,145,645
$ (2,166,518)
(A)
$ 12,979,127
Statement of Net Cost
Goal 1:
Gross Costs with the Public
$ 28,301,068
$ (172,270)
(B)
$ 77,126
(A)
$ 28,205,924
Net Cost of Operations with the Public
$ 28,297,237
$ (172,270)
(B)
$ 77,126
(A)
$ 28,202,093
Net Cost of Operations - Goal One
$ 34,101,090
$ (172,270)
(B)
$ 77,126
(A)
$ 34,005,946
Goal 2:
Gross Costs with the Public
$ 33,295,374
$ (202,670)
(B)
$ 90,736
(A)
$ 33,183,440
Net Cost of Operations with the Public
$ 33,290,867
$ (202,670)
(B)
$ 90,736
(A)
$ 33,178,933
Net Cost of Operations - Goal Two
$ 40,118,930
$ (202,670)
(B)
$ 90,736
(A)
$ 40,006,996
Goal 3:
Gross Costs with the Public
$ 21,641,993
$ (131,735)
(B)
$ 58,978
(A)
$ 21,569,236
Net Cost of Operations with the Public
$ 21,639,064
$ (131,735)
(B)
$ 58,978
(A)
$ 21,566,307
Net Cost of Operations - Goal Three
$ 26,077,304
$ (131,735)
(B)
$ 58,978
(A)
$ 26,004,547
Grand Total:
Gross Costs with the Public
$ 83,238,435
$ (506,675)
(B)
$ 226,840
(A)
$ 82,958,600
Net Cost of Operations with the Public
$ 83,227,168
$ (506,675)
(B)
$ 226,840
(A)
$ 82,947,333
Total Net Cost of Operations
$ 100,297,324
$ (506,675)
(B)
$ 226,840
(A)
$ 100,017,489
(A) To record lease expense on a straight-line basis and record a resulting deferred lease liability
(B) To reduce FY 2005 expenses for transactions that should have been recorded as expenses in FY 2004
FY 2005 Restatement
September 30, 2005
As Reported
2005
Adjustment
September 30, 2005
As Restated
Statement of Changes in Net Position
Cumulative Results of Operations:
Beginning Balance, October 1
$ (5,199,126)
$ -
$ (5,199,126)
Adjustments - Correction of errors
$ -
$ 154,404
(B)
$ -
$ -
$ (1,939,678)
(A)
$ (1,785,274)
Beginning Balance, as adjusted
$ (5,199,126)
$ (1,785,274)
$ (6,984,400)
Appropriations Used
$ 97,226,292
$ (661,079)
(B)
$ 96,565,213
Net Cost of Operations
$ (100,297,324)
$ 506,675
(B)
$ (226,840)
(A)
$ (100,017,489)
Net Change in Cumulative Results of Operations
$ 1,259,561
$ 506,675
(B)
$ (226,840)
(A)
$ (661,079)
(B)
$ 878,317
Ending Cumulative Results of Operations
$ (3,939,565)
$ (2,166,518)
$ (6,106,083)
Unexpended Appropriations:
Beginning Balance, October 1
$ 23,028,385
$ -
$ 23,028,385
Adjustments - Correction of errors
$ -
$ (661,079)
(B)
$ (661,079)
Beginning Balance, as adjusted
$ 23,028,385
$ (661,079)
$ 22,367,306
Appropriations Used
$ (97,226,292)
$ 661,079
(B)
$ (96,565,213)
Total Budgetary Financing Sources
$ (3,943,175)
$ 661,079
(B)
$ (3,282,096)
Ending Unexpended Appropriations
$ 19,085,210
$ -
$ 19,085,210
Statement of Financing
Resources Used to Finance Items Not Part of Net Cost:
Change in Undelivered Orders
$ 6,316,378
$ (661,079)
(B)
$ 5,655,299
Net Acquisition of Assets
$ (1,472,567)
$ 224,553
(B)
$ (1,248,014)
Resources that Fund Expenses Recognized in Prior
Periods
$ -
$ (353,810)
(C)
$ (353,810)
Total Resources Used to Finance Items Not Part of
Net Cost
$ 4,853,285
$ (436,526)
(B)
$ (353,810)
(C)
$ 4,062,949
Resources Used to Finance Net Cost of Operations
$ 100,084,483
$ (436,526)
(B)
$ (353,810)
(C)
$ 99,294,147
Components of the Net Cost of Operations that will not Require or Generate Resources in the Current
Period:
Increase in Unfunded Annual Leave, FECA
Expenses, and Contingent Liabilities
$ 171,161
$ (70,149)
(B)
$ 353,810
(C)
$ 454,822
Increase in Other Unfunded Liabilities - Deferred
Leases
$ -
$ 226,840
(A)
$ 226,840
Total Components of Net Cost of Operations that
will Require or Generate Resources in Future
Periods
$ 170,286
$ (70,149)
(B)
$ 226,840
(A)
$ 353,810
(C)
$ 680,787
Net Cost of Operations
$ 101,297,324
$ (506,675)
(B)
$ 226,840
(A)
$ 100,017,489
(A) To record lease expense on a straight-line basis and record a resulting deferred lease liability
(B) To reduce FY 2005 expenses for transactions that should have been recorded as expenses in FY 2004
(C) To reclassify amounts to conform with FY 2006 presentation
Note 13. Apportionment Categories of Obligations Incurred
Obligations incurred and reported in the Statements of Budgetary Resources in 2006 and 2005 consisted of
the following:
2006
2005
Direct Obligations, Category A
$ 101,255,783
$ 98,029,681
Reimbursable Obligations, Category A
23,150
22,698
Total Obligations Incurred
$ 101,278,933
$ 98,052,379
Note 14. Permanent Indefinite Appropriations
The CFTCs permanent indefinite appropriation funds emergency expenses to respond to the terrorist attacks on the
United States that occurred on September 11, 2001 as authorized by Public Law 107-38. The fund provides support to
deal with consequences of the attacks and support national security.
Note 15. Explanation of Differences Between the Statement of Budgetary Resources
and the Budget of the United States Government
The CFTC had no material differences between the amounts reported in the Statement of Budgetary Resources and the
actual amounts reported in the Budget of the U.S. Government for FY 2005, except for the restated amounts. The Budget
of the U.S. Government with actual numbers for FY 2006 has not yet been published. The expected published date is
February 2007. A copy of the Budget can be obtained from OMBs Internet site at http://www.whitehouse.gov/omb/.
Note 16. Explanation of Differences Between Liabilities Not Covered by Budgetary
Resources and Components Requiring or Generating Resources in Future Periods
Liabilities that are not by realized budgetary resources and for which there is not certainty that budgetary authority will
be realized, such as enactment of an appropriation, are considered liabilities not covered by budgetary resources. These
liabilities totaling $14,047,386 and $36,710,382 on September 30, 2006 and 2005, respectively, are discussed in Note
6, Liabilities Not Covered by Budgetary Resources. Deposit and custodial liabilities are non-entity liabilities and do not
affect the Statement of Budgetary Resources or the Statement of Financing. For the remaining liabilities that are not
covered by budgetary resources: (1) decreases in liabilities result from current year budgetary resources that are used to
fund expenses recognized in prior periods, and (2) increases in liabilities represent unfunded expenses recognized in the
current period. These increases represent components of current period net cost of operations that will require or generate
resources in future periods. The changes in CFTCs entity liabilities not covered by budgetary resources are comprised
of the following:
2006
2005
Components Requiring or Generating Resources in Future Periods:
Increase in Exchange Revenue Receivable from the Public
$ -
$ (875)
Increase in Annual Leave
-
454,822
Increase in Contingent Liabilities
11,600
-
Increase in Other Unfunded Liabilities-Deferred Lease Liabilities
670,885
226,840
Total Components Requiring or Generating
Resources in Future Periods
$ 682,485
$ 680,787
Resources that Fund Expenses Recognized in Prior Periods:
Decrease in Annual Leave
$ 147,120
$ -
Decrease in FECA Liabilities
318,515
113,340
Decrease in Contingent Liability
-
240,470
Total Resources that Fund Expenses Recognized
in Prior Periods
$ 465,635
$ 353,810
A Report of the Independent Auditors
117
CFTC
Independent Auditors ReportChairman and Inspector General of the
U.S. Commodity Futures Trading Commission:
We have audited the accompanying balance sheetsof the U.S. Commodity Futures Trading
Commission(CFTC) as of September 30, 2006 and 2005, and the related statements of net cost,
changes in net position, budgetary resources, financing, and custodial activity (hereinafter
referred to as financial statements) for the years then ended. The objective of our audits was to
express an opinion on the fair presentation of these financial statements. In connection with our
fiscal year 2006 audit, we also considered CFTCs internal controls over financial reporting and
performance measures, and tested CFTCs compliance with certain provisions of applicable laws,
regulations, and contracts that could have a direct and material effect on these financial
statements.
SUMMARYAs stated in our opinion on the financial statements, we concluded that CFTCs financial
statements as of and for the years ended September 30, 2006 and 2005, are presented fairly, in all
material respects, in conformity with U.S. generally accepted accounting principles.
During 2006, CFTC restated certain 2005 financial statement amounts, as discussed in the
opinion section below.
Our consideration of internal controls over financial reporting and performance measures resulted
in the following conditions being identified as reportable conditions:
..Improvement is Needed over Financial Reporting;
..Financial Management Systems Need Improvement;
..Improvement is Needed in the Fixed Asset System; and
..Improvement is Needed in Evaluating Undelivered Orders and Recording Budgetary
TransactionsWe consider the first reportable condition, above, to be a material weakness.
The results of our tests of compliance with certain provisions of laws, regulations, and contracts
disclosed the following instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards, issued by the Comptroller General of the United
States, and Office of Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements
for Federal Financial Statements:
KPMG LLP
2001 M Street, NW
Washington, DC 20036
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
..Federal Information Security Management Act (FISMA); and
..Federal Financial Management Improvement Act of 1996 (FFMIA).
The following sections discuss our opinion on CFTCs financial statements; our consideration of CFTCs
internal controls over financial reporting and performance measures; our tests of CFTCs compliance with
certain provisions of applicable laws, regulations, and contracts; and managements and our
responsibilities.
OPINION ON THE FINANCIAL STATEMENTS
We have audited the accompanying balance sheetsof the U.S. Commodity Futures Trading Commission as
of September 30, 2006 and 2005, and the related statements of net cost, changes in net position, budgetary
resources, financing, and custodial activity for the years then ended.
As discussed in Note 12 to the financial statements, the 2005 financial statements have been restated.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of CFTC as of September 30, 2006 and 2005, and its net costs, changes in net position,
budgetary resources, reconciliation of net costs to budgetary obligations, and custodial activity for the
years then ended, in conformity with U.S. generally accepted accounting principles.
The information in the Managements Discussion and Analysis is not a required part of the financial
statements, but is supplementary information required by U.S. generally accepted accounting principles
and OMB Circular No. A-136, Financial Reporting Requirements. We have applied certain limited
procedures, which consisted principally of inquiries of management regarding the methods of measurement
and presentation of this information. However, we did not audit this information and, accordingly, we
express no opinion on it.
The information in the FY 2006 Performance Section, Appendices, and pages 1 and 2 of the FY 2006
Performance and Accountability Report, are presented for purposes of additional analysis and are not
required as part of the financial statements. This information has not been subjected to auditing procedures
and, accordingly, we express no opinion on it.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Our consideration of internal control over financial reporting would not necessarily disclose all matters in
the internal control over financial reporting that might be reportable conditions. Under standards issued by
the American Institute of Certified Public Accountants, reportable conditions are matters coming to our
attention relating to significant deficiencies in the design or operation of the internal control over financial
reporting that, in our judgment, could adversely affect CFTCs ability to record, process, summarize, and
report financial data consistent with the assertions by management in the financial statements.
Material weaknesses are reportable conditions in which the design or operation of one or more of the
internal control components does not reduce to a relatively low level the risk that misstatements caused by
error or fraud, in amounts that would be material in relation to the financial statements being audited, may
occur and not be detected within a timely period by employees in the normal course of performing their
assigned functions. Because of inherent limitations in internal control, misstatements due to error or fraud
may nevertheless occur and not be detected.
In our fiscal year 2006 audit, we noted certain matters, described in Exhibits I and II, involving internal
control over financial reporting and its operation that we consider to be reportable conditions. We believe
that the reportable condition presented in Exhibit I is a material weakness. Exhibit II presents the other
reportable conditions. Exhibit III presents the status of prior year reportable conditions.
We noted certain additional matters that we have reported to management of CFTC in two separate letters,
addressing information technology and other matters, dated July 28 and November 15, 2006, respectively.
INTERNAL CONTROLS OVER PERFORMANCE MEASURES
Under OMB Bulletin No. 06-03, the definition of material weaknesses is extended to other internal
controls as follows. Material weaknesses are reportable conditions in which the design or operation of one
or more of the internal control components does not reduce to a relatively low level the risk that
misstatements caused by error or fraud, in amounts that would be material to a performance measure or
aggregation of related performance measures, may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. Because of inherent limitations in
internal control, misstatements due to error or fraud may nevertheless occur and not be detected.
Our consideration of the design and operation of internal control over the existence and completeness
assertions related to key performance measures would not necessarily disclose all matters involving the
design and operation of the internal control over the existence and completeness assertions related to key
performance measures that might be reportable conditions.
In our fiscal year 2006 audit, we noted no matters involving the design and operation of the internal control
over the existence and completeness assertions related to key performance measures that we considered to
be material weaknesses as defined above.
COMPLIANCE AND OTHER MATTERS
Our tests of compliance with certain provisions of laws, regulations, and contracts, as described in the
Responsibilities section of this report, exclusive of those referred to in FFMIA, disclosed one instance of
noncompliance that is required to be reported under Government Auditing Standards or OMB Bulletin No.
06-03, and is described below.
..FISMA, passed as part of the E-Government Act of 2002, requires that Federal agencies: (1) provide a
comprehensive framework for ensuring the effectiveness of information security controls over
information resources that support Federal operations and assets; (2) provide effective government-
wide management and oversight of the related information security risks; (3) provide for development
and maintenance of minimum controls required to protect Federal information and information
systems; (4) provide a mechanism for improved oversight of Federal agency information security
programs; (5) acknowledge that commercially developed information security products offer advanced,
dynamic, robust, and effective information security solutions, reflecting market solutions for the
protection of critical information infrastructures important to the national defense and economic
security of the nation that are designed, built, and operated by the private sector; and (6) recognize that
the selection of specific technical hardware and software information security solutions should be left
to individual agencies from among commercially developed products. OMB Circular No. A-130,
Management of Federal Information Resources, provides further information security guidance. We
noted that CFTC needs continued improvements with its entity-wide security and contingency planning
programs, access controls, segregation of duties, and service continuity, to fully meet these guidelines.
This matter is further described in the reportable condition entitled Financial Management Systems
Need Improvement, in Exhibit II.
The results of our tests of compliance with certain provisions of other laws and regulations, exclusive of
those referred to in FFMIA, disclosed no instances of noncompliance or other matters that are required to
be reported under Government Auditing Standards or OMB Bulletin No. 06-03.
The results of our tests of FFMIA disclosed instances, described below and in Exhibits I and II, in which
CFTCs financial management systems did not substantially comply with the Federal financial
management systems requirements or the applicable Federal accounting standards, discussed in the
Responsibilities section of this report.
..FFMIA mandates that Federal financial management be advanced by ensuring that Federal financial
management systems can and do provide reliable, consistent disclosure of financial data, and that they
do so on a basis that is uniform across the Federal government from year-to-year consistently, using
U.S. generally accepted accounting principles. Federal agencies need to comply with FFMIA by
adhering to policies established by OMB, such as OMB Circular No. A-127, Financial Management
Systems, and OMB Circular No. A-130. FFMIA requires that Federal agencies implement information
security controls and contingency planning capabilities in accordance with OMB Circular No. A-130.
Although CFTC has implemented certain security measures to alleviate prior year vulnerabilities, the
agency needs to improve in these areas to be in compliance with OMB Circular No. A-130. This
matter is discussed in further detail in our separate IT report, dated July 28, 2006, and we recommend
that CFTC implement the recommendations presented in that report in fiscal year 2007.
..FFMIA mandates that Federal financial management systems comply with Federal accounting
standards. We noted that CFTC did not appropriately account for its lease expenses in accordance with
Statement of Financial Accounting Standards No. 13, Accounting for Leases, resulting in a restatement
of its 2005 financial statements. This matter is further discussed in Exhibit I.
The results of our tests of FFMIA disclosed no instances in which CFTCs financial management systems
did not substantially comply with the United States Government Standard General Ledger at the
transaction level.
* * * * *
RESPONSIBILITIESManagements Responsibilities.The United States Code, Title 31, Sections 3515 and 9106 require
agencies to report annually to Congress on their financial status and any other information needed to fairly
present their financial position and results of operations. To meet these reporting requirements, CFTC
prepares and submits financial statements in accordance with OMB Circular No. A-136.
Management is responsible for the financial statements, including:
..Preparing the financial statements in conformity with U.S. generally accepted accounting principles;
..Preparing the Managements Discussion and Analysis (including the performance measures);
..Establishing and maintaining effective internal control; and
..Complying with laws, regulations, and contracts applicable to CFTC, including FFMIA.
In fulfilling this responsibility, management is required to make estimates and judgments to assess the
expected benefits and related costs of internal control policies.
Auditors Responsibilities.Our responsibility is to express an opinion on the fiscal year 2006 and 2005
financial statements of CFTC based on our audits.We conducted our audits in accordance with auditing
standards generally accepted in the United States of America; the standards applicable to financial audits
contained in Government Auditing Standards,issued by the Comptroller General of the United States; and
OMB Bulletin No. 06-03. Those standards and OMB Bulletin No. 06-03 require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of CFTCs internal control over financial reporting. Accordingly, we
express no such opinion.
An audit also includes:
..Examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements;
..Assessing the accounting principles used and significant estimates made by management; and
..Evaluating the overall financial statement presentation.
We believe that our audits providea reasonable basis for our opinion.
In planning and performing our fiscal year 2006 audit, we considered CFTCs internal control over
financial reporting by obtaining an understanding of CFTCs internal control, determining whether internal
controls had been placed in operation, assessing control risk, and performing tests of controls in order to
determine our auditing procedures for the purpose of expressing our opinion on the financial statements.
We limited our internal control testing to those controls necessary to achieve the objectives described in
Government Auditing Standards and OMB Bulletin No. 06-03. We did not test all internal controls
relevant to operating objectives as broadly defined by the Federal Managers Financial Integrity Act of
1982. The objective of our audit was not to provide an opinion on CFTCs internal control over financial
reporting. Consequently, we do not provide an opinion thereon.
As required by OMB Bulletin No. 06-03, in our fiscal year 2006 audit, with respect to internal control
related to performance measures determined by management to be key and reported in the Managements
Discussion and Analysis and Performance sections, we obtained an understanding of the design of internal
controls relating to the existence and completeness assertions and determined whether these internal
controls had been placed in operation. We limited our testing to those controls necessary to test and report
on the internal control over key performance measures in accordance with OMB Bulletin No. 06-03.
However, our procedures were not designed to provide an opinion on internal control over reported
performance measures and, accordingly, we do not provide an opinion thereon.
As part of obtaining reasonable assurance about whether CFTCs fiscal year 2006 financial statements are
free of material misstatement, we performed tests of CFTCs compliance with certain provisions of laws,
regulations, and contracts, noncompliance with which could have a direct and material effect on the
determination of the financial statement amounts, and certain provisions of other laws and regulations
specified in OMB Bulletin No. 06-03, including certain provisions referred to in FFMIA. We limited our
tests of compliance to the provisions described in the preceding sentence, and we did not test compliance
with all laws, regulations, and contracts applicable to CFTC. However, providing an opinion on
compliance with laws, regulations, and contracts was not an objective of our audit and, accordingly, we do
not express such an opinion.
Under OMB Bulletin No. 06-03 and FFMIA, we are required to report whether financial management
systems for executive departments and agencies subject to the Chief Financial Officers Act of 1990substantially comply with (1) Federal financial management systems requirements, (2) applicable Federal
accounting standards, and (3) the United States Government Standard General Ledger at the transaction
level. As an agency requiring financial statement reporting under the Accountability of Tax Dollars Act of
2002, CFTC is not subject to FFMIA. However, it has elected to implement the provisions as described
above. Therefore, we performed tests of compliance with FFMIA Section 803(a) requirements.
RESTRICTED USEThis report is intended solely for the information and use of CFTCs management, CFTCs Office of
Inspector General, OMB, the U.S. Government Accountability Office, and the U.S. Congress and is not
intended to be and should not be used by anyone other than these specified parties.
November 15, 2006
Exhibit I
U.S. COMMODITY FUTURES TRADING COMMISSION
Material Weakness
Improvement is Needed over Financial Reporting
CFTC has a material weakness in the area of financial reporting that hinders preparation of timely and
accurate financial statements. We noted the following conditions in our fiscal year 2006 audit:
..Allowance for Custodial Fines Receivable
The Division of Enforcement (DOE) within CFTC is responsible for reviewing each case and
determining the Custodial Fines and Interest Receivable balance as well as estimating the allowance for
loss on each receivable. CFTCs policy is to assume that all custodial fines are 100% uncollectible,
unless otherwise noted in the judgment. During the year, DOE reported four cases totaling
approximately $65.6 million as collectible, when in fact they were uncollectible. These receivables
were reported as collectible on the third quarter Treasury Report on Receivables (TROR) and in the
interim financial statements submitted to the Office of Management and Budget (OMB). The error was
discovered by the Office of Financial Management (OFM) during its third quarter fluctuation analysis.
However, the fluctuation analysis was not performed prior to the issuance of the above reports. The
lack of an adequate review process at DOE and OFM caused the error to occur and be reported.
Statement of Federal Financial Accounting Standards (SFFAS) No. 1, Accounting for Selected Assets
and Liabilities, paragraphs 44-46, states that losses on receivables should be recognized when it is
more likely than not that the receivables will not be totally collected. Losses due to uncollectible
amounts should be measured through a systematic methodology. The systematic methodology should
be based on analysis of both individual accounts and a group of accounts as a whole.
During our test work over the fourth quarter activity, we noted that DOE implemented corrective
actions to address this finding. DOE and OFM developed a spreadsheet to track each case and the
related allowance. This spreadsheet was reviewed by the Deputy Director of DOE. We did not find
any exceptions during our test work over the fourth quarter.
..Accounting for Leases and Knowledge of Accounting Principles
CFTC does not recognize lease expense, for rental of its various office spaces, on a straight-line basis,
as required under generally accepted accounting principles. Instead, lease expense is recognized in the
period in which the actual payments are made. Because CFTC is a relatively small federal agency, the
cumulative impact of the straight-lining of lease expense results in a significant adjustment. The
deferred lease liability as of September 30, 2006, was $2.8 million, but had not been recorded prior to
our audit. Of this amount, $0.7 million should have been expensed in FY 2006, $0.2 million should
have been expensed in FY 2005, and $1.9 million should have been expensed prior to FY 2005. As a
result, CFTC restated its FY 2005 financial statements.
The Financial Accounting Standards Boards Statement of Financial Accounting Standards No. 13,
Accounting for Leases, paragraph 15, states that if rental payments are not made on a straight-line
basis, rental expense nevertheless shall be recognized on a straight-line basis unless another systematic
and rational basis is more representative of the time pattern in which use benefit is derived from the
leased property, in which case that basis shall be used. For purposes of the calculation of the prepaid
Exhibit I
U.S. COMMODITY FUTURES TRADING COMMISSION
Material Weakness
rent or deferred rent liability, the lease term is the fixed noncancelable term of the lease, including a
period after the lease term meeting certain criteria, as defined in SFAS No. 13 paragraph 5f. The
CFTC error occurred because management was not aware of this accounting principle requiring
straight-lining of rent expenses.
..Improvements are Needed in Recording Accruals and Preparing Financial Statements
Although CFTC has developed and implemented a process for estimating its interim and year-end
accounts payable and accruals, the process needs improvement. At year-end, CFTC makes a rigorous
effort to pay all of its invoices received prior to September 15. This effort is designed to ensure that
CFTC does not have a significant accounts payable balance at year-end. In addition, each individual
Contracting Officers Technical Representative (COTR) evaluates contracts for open obligations as of
September 15, 2006 to determine whether a liability should be accrued, and informs the OFM. CFTC
did not properly record the accounts payable, operating leases, subsequent cash disbursements, and
undelivered orders. Over all these areas, 16 out of 95 transactions we tested were either
inappropriately included or excluded from accounts payable as of September 30, 2006.
The aggregated amount of all known differences identified in our sample totaled to a net overstatement
of accounts payable of $12,703, and the statistically projected error was $261,458.
Office of Management and Budgets Circular No. A-136, Form and Content of Performance
Accountability Report (PAR), defines accounts payable as the amounts owed by the reporting agency
for goods and services received from other entities, progress in contract performance made by other
entities, and rents due to other entities.
Statement of Federal Financial Accounting Standards No. 1, Accounting for Selected Assets and
Liabilities,paragraph 74, states that when the entity accepts title to goods, whether goods are received
or in transit, the entity should recognize a liability for the unpaid amount of the goods. If invoices for
those goods are not available when financial statements are prepared, the amounts should be estimated.
RecommendationsWe recommend that CFTC:
1.Establish timely management review controls over the determination and reporting of the allowance
for losses for Custodial Fines and Interest Receivable at DOE;
2.Provide formal training on generally accepted accounting principles to key accounting personnel at
least annually;
3.Hire additional people with experience in financial reporting;
4.Implement timely internal controls which requires OFM to review the Custodial Fines and Interest
Receivable balance prior to recording in the accounting system and inclusion in the financial
Exhibit I
U.S. COMMODITY FUTURES TRADING COMMISSION
Material Weakness
statements. The review should include DOE justifying and explaining to OFM why they believe
receivable amounts are collectible if identified as such;
5.Develop a system to assure that existing leases are properly recorded on a straight-line basis;
6.Ensure that new leases or changes to existing leases are properly accounted for;
7.Review CFTCs accounting policies to identify any others which may not be in accordance with U.S.
generally accepted accounting principles;
8.Improve accrual procedures to ensure that accounts payable and other accruals are recorded when the
goods or services are received and accepted, including determining a reasonable and logical accrual
estimate for invoices not yet received; and
9.Evaluate the adequacy of the prior year accrual by comparing subsequent payments received after year-
end against the accrual. Consider making changes to the accrual methodology based on the results of
the analysis.
Agency Response
We concur with this finding and agree with the recommendation.
Exhibit II
U.S. COMMODITY FUTURES TRADING COMMISSION
Reportable Condition
Financial Management Systems Need ImprovementEffective general information technology (IT) controls add assurance that data used to prepare and report
financial information and statements is complete, reliable, and has integrity. Our fiscal year 2006 IT
assessment was focused on general IT controls over CFTCs management systems and supporting network
infrastructure, using GAOs Federal Information System Controls Audit Manual (FISCAM) as a guide.
The six FISCAM general IT control review elements are as follows:
..Entity-wide security program;
..Secure access controls;
..Application software development and change control;
..System software;
..Segregation of duties; and
..Service continuity.
CFTC management has not implemented test plans that will allow them to assess their efficiency and
effectiveness in carrying out the process steps in its IT Continuity of Operations Plan. Additionally,
controls in the following areas need to be strengthened: granting of system access to users, managing of
software change controls, and the proactive assessing of device security controls to identify potential
vulnerabilities.
These weaknesses led to our determination that CFTC was not in compliance with the Federal Information
Security Management Act and the Federal financial management system requirements called for in the
Federal Financial Management Improvement Act of 1996, as discussed in the Compliance and Other
Matters section of our auditors report.
RecommendationsSpecific recommendations to address IT controls are included in a separate limited distribution IT general
controls report dated July 28, 2006, issued as part of the fiscal year 2006 financial statement audit. We
recommend that CFTC take steps to ensure effective implementation of our recommendations.
Agency ResponseWe concur with this finding and agree with the recommendation.
Improvement is Needed in the Fixed Asset System
CFTC does not have adequate internal controls to account for, record, track, or monitor its Property and
Equipment and IT Software (collectively P&E). Based on discussions with OFM, and review of CFTCs
fixed asset policy and records, CFTCs assets are comprised of furniture, equipment, computer hardware
and software, copiers, and fax machines. CFTC has completed the development of its asset management
policy but has not completed the implementation of its asset management program. CFTC has designated
Exhibit II
U.S. COMMODITY FUTURES TRADING COMMISSION
Reportable Condition
several individuals to track its fixed assets; however, the information maintained by these individuals is not
complete or precise as required by the Federal Accounting Standards Advisory Board (FASAB) and Joint
Financial Management Improvement Program (JFMIP) standards, that requires an accounting and control
function that ensures standard transaction processing, accurate valuation, and disclosure of the acquisition
and disposition of assets.
In addition, CFTC has not conducted a detailed physical inventory of all property and equipment within the
last five years. Partial inventories performed during the last five years by different CFTC groups have not
been uniform or consistent with an established set of physical inventory policies and procedures. For
example, CFTCs Office of Information Management may perform a physical inventory using one set of
guidelines, and CFTCs Office of Management Operations may use entirely different guidelines.
We used a substantive approach in auditing the balance of CFTCs P&E and the related accumulated
depreciation as of September 30, 2006. OFM manually compiled all obligations, purchase orders, and
contracts related to fixed asset purchases that were recorded in Federal Financial System (FFS) from 2001
through 2006, to determine total P&E capitalizable assets. An accumulated depreciation and write-off
schedule was also prepared. We noted during our test work that CFTC inappropriately expensed software
development costs of $1.2 million instead of capitalizing the costs to P&E.
Statement of Federal Financial Accounting Standards (SFFAS) No. 6, Accounting for Property, Plan, and
Equipment, defines property, plant, and equipment (PP&E) as any property, plant, or equipment used in
providing goods or services or supports the mission of the entity. All general PP&E shall be recorded at
cost and the cost shall be charged to expense through depreciation.
SFFAS No. 10, Accounting for Internal-Use Software, states that for internally developed software,
capitalized cost should include the full cost (direct and indirect) incurred during the software development
stage. These costs include salaries of programmers, systems analysts, project managers, and administrative
personnel, associated employee benefits, and outside consultants fees.
RecommendationsWe recommend that CFTC:
..Implement a property management system that will do the following: (1) classify P&E by assets or
classes described in SFFAS No. 6, Accounting for Property, Plant, and Equipment, and No. 10,
Accounting for Internal Use Software; (2) allow user defined transaction types and automatically
record the transaction type when the property record is created or updated; (3) provide unique
identification; (4) provide a complete audit trail of all changes to property records including, but not
limited to, modifications, improvements, changes in value, and the individual entering or approving the
information; (5) designate property tracked in the property management system as either capitalized or
expensed; (6) allow user defined capitalization thresholds to be established for property classes; and (7)
notify the user when depreciation, amortization, or depletion thresholds are exceeded.
..Improve internal controls, policies, and procedures related to fixed assets to ensure that assets and
depreciation are recorded in the financial statements on a timely basis. CFTC should also ensure that
Exhibit II
U.S. COMMODITY FUTURES TRADING COMMISSION
Reportable Condition
appropriate personnel are designated to maintain adequate and timely records of inventories and
property additions/disposals and that this information is communicated to OFM on a timely basis for
recording in the financial statements.
..Improve procedures for property accountability that includes tracking the movement of assets,
recording changes in physical condition, and verification of physical counts. In addition, a unique item
identification system should be implemented to track each individual asset and assist in performing
physical inventories.
Agency ResponseWe concur with this finding and agree with the recommendations.
Improvement is Needed in Evaluating Undelivered Orders and Recording Budgetary TransactionsAt the end of each quarter, OFM sends correspondence to program office officials responsible for
recording obligations to request the status of undelivered orders. The program offices are required to
review the obligations and determine if each should be de-obligated. During the year, CFTC program
offices did not provide timely information to OFM for the undelivered orders review, and OFM did not
follow-up to ensure that memorandums were returned timely.
We performed test work over balances for a statistical sample of 43 undelivered orders. Four of the sample
items were not properly de-obligated, and two additional sample items were delivered orders that had not
been properly recorded for the year ended September 30, 2006. These errors result in an overstatement of
undelivered orders of $482,014 as of September 30, 2006, for which CFTC made a correcting entry for
September 30, 2006 financial statement purposes. The statistically projected overstatement is $504,645.
In addition, CFTC inappropriately accounted for replacement contracts on its quarterly Standard Form (SF)
133, Report on Budget Execution and Budgetary Resources. Per GAO Appropriations Law, Chapter 5,
obligations can be made for replacement contracts without a new apportionment when a previous
contractor defaults. The replacement contract seeks only to meet the pre-existing and continuing need.
CFTC reported the defaulted contracts as recoveries of prior year obligations and the replacement contracts
as new obligations in FY 2006. OMB guidelines indicate that these transactions should not be shown as
recoveries and new obligations in the current fiscal year. Also, during its analysis, CFTC discovered that
$193,563 of new replacement contracts were obligated; however, the previous contract was not de-
obligated; therefore, these were double counted on the general ledger and on the SF 133. Correcting
entries were made for this matter for September 30, 2006 financial statement purposes.
The United States Standard General Ledger defines undelivered orders as the amount of goods and/or
services ordered, which have not been actually or constructively received.
The GAO Appropriations Law, Chapter 5, states that appropriations are made to be used and not to be
defeated in their use, and it would be a narrow construction to hold that a default on a properly made
Exhibit II
U.S. COMMODITY FUTURES TRADING COMMISSION
Reportable Condition
contract would prevent the use of the appropriation for the object for which it was made and for carrying
out which the contract was executed.
RecommendationWe recommend that:
..CFTC improve its process for analyzing its undelivered orders balance on a quarterly and year-end
basis, to determine those obligations that should be de-obligated or expended (the process should
ensure that OFM can accurately and timely identify those outstanding undelivered orders that should be
de-obligated);
..Program office officials provide necessary documentation in a timely manner to support why
outstanding obligations should remain open; and
..OFM properly account for replacement contracts on its general ledger and SF 133 submissions.
Agency Response
We concur with this finding and agree with the recommendation.
Exhibit III
U.S. COMMODITY FUTURES TRADING COMMISSION
Fiscal Year 2006 Status of Prior Year Comments
The status of prior year reportable conditions and compliance matters is presented below.
Internal Control Over Financial Reporting Fiscal Year 2006 Status
Reportable Conditions
Financial Management Systems Need Improvement Repeated.
Improvement is Needed in the Fixed Asset System Repeated.
Improvement is Needed in Evaluating Undelivered
OrdersRepeated.
Improvements are Needed in Recording Accruals and
Preparing Financial Statements
Revised and reported as part of the
Material Weakness in Exhibit I.
Compliance with Laws and Regulations
Noncompliance with the Federal Information
Security Management Act
Repeated.
Noncompliance with the Federal Financial
Management Improvement Act of 1996 (Although
CFTC is not required to comply with FFMIA, it has
elected to do so.)
Repeated.
APPENDICES
FY 2006 Commissioners.....................................133
Enforcement Litigation by Strategic Goals............136
CFTC Information Technology Systems................153
Glossary of Abbreviations and Acronyms..............154
133
CFTC
FY 2006 Commissioners
Reuben Jeffery III, Chairman
Reuben Jeffery III was nominated by President George
W. Bush to serve as Chairman of the Commodity Futures
Trading Commission. He was confirmed by the U.S. Senate
on June 30, 2005, to a term expiring April 13, 2007.
In his capacity as Chairman, Mr. Jeffery serves as a
member of the Presidents Working Group on Financial
Markets along with the Secretary of the Treasury, the
Chairman of the Board of Governors of the Federal Reserve,
and the Chairman of the SEC.
Prior to joining the CFTC, Mr. Jeffery was the Special
Assistant to the President and Senior Director for International
Economic Affairs at the National Security Council.
He was previously the Representative and Executive Director
of the Coalition Provisional Authority Office at the
Pentagon, after having served as an advisor to Ambassador
Bremer in Iraq. Before joining the Coalition Provisional
Authority in May of 2003, Mr. Jeffery served as Special Advisor
to the President for Lower Manhattan Development.
In this capacity he helped coordinate ongoing Federal efforts
in support of the longer term recovery and redevelopment
of Lower Manhattan in the aftermath of September
11, 2001.
Mr. Jeffery spent eighteen years working for Goldman,
Sachs & Co. where he was managing partner of Goldman
Sachs in Paris (1997-2001) and of the firms European
Financial Institutions Group (1992-1997) based in London.
Mr. Jeffery has a broad range of international capital
markets, corporate finance and merger and acquisition
experience.
Prior to joining Goldman Sachs, Mr. Jeffery was a lawyer
with the New York firm of Davis Polk & Wardwell. He
began his career as a commercial banker with the Morgan
Guaranty Trust Company of New York.
Mr. Jeffery received his BA degree in Political Science
from Yale University in 1975 and his Juris Doctor and
Master of Business Administration degrees from Stanford
University in 1981. He was admitted to the New York Bar
in 1982. Mr. Jeffery lives with his wife, Robin and three
children, Jocelyn, Ben and Bob in Washington, D.C.
Walter L. Lukken, Commissioner
Walter L. Lukken was sworn in on August 7, 2002 as a
Commissioner of the CFTC. He was nominated by President
George W. Bush on April 16, 2002, and confirmed by
the Senate on August 2, 2002, to a term expiring April 13,
2005. On May 25, 2005, Mr. Lukken was nominated by
President Bush to a second term as a Commissioner expiring
April 13, 2010. The Senate confirmed that nomination
on June 30, 2005.
Commissioner Lukken was appointed in October
2003 to serve as Chairman and Designated Federal Official
of the CFTCs Global Markets Advisory Committee
(GMAC). The GMAC was created by the Commission to
provide a forum in which it can discuss the many complex
134
CFTC
and novel issues raised by the ever-increasing globalization
of futures markets. Commissioner Lukken has also
represented the CFTC before the International Organization
of Securities Commissions (IOSCO), the European
Union, and other foreign regulatory bodies.
In May 2003, CFTC Chairman James Newsome and
SEC Chairman William Donaldson tasked Commissioner
Lukken and SEC Commissioner Paul Atkins, respectively,
to work together with agency staff on the completion of
issues arising from the implementation of the CFMA of
2002 (H.R. 5660). Their efforts resulted in a memorandum
of understanding between the agencies regarding
security futures products in March 2004.
Mr. Lukken joined the Commission after serving four
years on the professional staff of the U.S. Senate Agriculture
Committee under Chairman Richard Lugar (R-IN).
While working for the committee, Mr. Lukken specialized
in futures and derivatives markets, agricultural banking,
and agricultural tax issues. In this capacity, Mr. Lukken was
involved in the drafting of the CFMA of 2002 (H.R. 5660)
and the 2002 Farm Bill (H.R. 2646).
Before joining the committee, Mr. Lukken worked
for five years in the personal office of Senator Lugar as a
legislative assistant specializing in finance and tax matters.
A native of Richmond, Indiana, Mr. Lukken received
his B.S. degree with honors from the Kelley School of
Business at Indiana University, and his Juris Doctor degree
from Lewis and Clark Law School in Portland, Oregon.
Mr. Lukken is a member of the Illinois Bar. He is married
to Dana Bostic Lukken of Morgan City, Louisiana, and
they and their son William and daughter Genevieve reside
in Washington, D.C.
Frederick W. Hatfield, Commissioner
Fred Hatfield was confirmed by the U.S. Senate on November
21, 2004, as a Commissioner of the Commodity
Futures Trading Commission. He was sworn in on December
6, 2004 to a term expiring April 13, 2008.
Since joining the Commission, Mr. Hatfield has
worked on several cross regulatory issues, such as portfolio
margining, and has represented Chairman Reuben Jeffery
on the Presidents Corporate Fraud Task Force.
Prior to joining the CFTC, Mr. Hatfield was Chief of
Staff to Senator John Breaux (D-LA), Assistant Minority
Whip and Member of the U.S. Finance, Commerce, Rules
and Aging Committees. In this position, he advised Senator
Breaux on all policy decisions, as well as coordinating
Senator Breauxs lead role in the Senate bipartisan Centrist
Coalition. Mr. Hatfield also served as Chief of Staff to the
House Majority Whip, Tony Coelho (D-CA) where he
managed Congressman Coelhos personal and whip staffs.
In between stints on Capitol Hill, Mr. Hatfield served
as Deputy Commissioner General of the U.S. Pavilion at
the 1998 Worlds Fair in Lisbon, Portugal where he was
responsible for outreach to 139 foreign governments participating
in the Worlds Fair.
Mr. Hatfield has significant experience in public
service, but has also been influential in the private sector.
In 1989, Mr. Hatfield partnered with a colleague to form
a government affairs company which concentrated on issues
under the jurisdiction of the House Ways and Means
Committee, the House Energy and Commerce Committee
and the Senate Environmental and Public Works Committee.
He also directed and oversaw communications and
public affairs for a start-up education telecommunications
company called Education Training Communications, Inc.
Mr. Hatfield is a native of California and graduated
Summa Cum Laude from California State University,
Fresno. He now resides in Washington, DC.
Michael V. Dunn, Commissioner
Michael V. Dunn was nominated to a second term as
a Commissioner of the Commodity Futures Trading
Commission by President Bush on June 16, 2006, and
confirmed by the Senate on August 3, 2006, to a term
expiring June 19, 2011. Mr. Dunn has served as a Commissioner
since December 6, 2004. On January 9, 2006, he
was chosen by his colleagues to chair the Commissions
Agriculture Advisory Committee and on March 13, 2006,
he was appointed Chairman of the Commissions Forex
Task Force.
Prior to joining the CFTC, Mr. Dunn served as Director,
Office of Policy and Analysis at the Farm Credit Administration
(FCA). Prior to this position, in January 2001
he served briefly as a member of the FCA Board.
Prior to joining FCA, Mr. Dunn was the Under Secretary
of Agriculture for Marketing and Regulatory Programs
at the U.S. Department of Agriculture (USDA). He also
served as the Acting Under Secretary for Rural Economic
Community Development and as Administrator of the
Farmers Home Administration (FmHA) at USDA.
APPENDICES
Mr. Dunn has had a long involvement in agricultural
credit dating back to the late 1970s, when he was the
Midwest Area Director for the FmHA. He has been a loan
officer and vice president of the Farm Credit Banks of
Omaha and has served as a member of the professional
staff of the Senate Agricultural Committee, specializing in
agricultural credit. At the USDA, Mr. Dunn also served as a
member of the Commodity Credit Corporation and Rural
Telephone Bank Board. He is a past member of the Iowa
Development Commission and has served as the Chairman
of the State of Iowas City Development Board.
A native of Keokuk, Iowa, and a current resident of
Harpers Ferry, West Virginia, Mr. Dunn received his B.A.
and M.A. degrees from the University of New Mexico.
Sharon Brown-Hruska, Former Commissioner
Sharon Brown-Hruska resigned from the Commission on
July 28, 2006. She was first nominated to the Commission
by President Bush on April 9, 2002, confirmed by the Senate
on August 2, 2002, and sworn in on August 7, 2002.
She was subsequently nominated by President Bush to a
second term as a Commissioner, and confirmed by the
Senate on November 21, 2004, to a term expiring April 13,
2009. Dr. Brown-Hruska was designated by President Bush
as Acting Chairman at the Commodity Futures Trading
Commission on July 26, 2004 and served in that capacity
until July 5, 2005.
In her capacity as Acting Chairman, Brown-Hruska
served as a member of the Presidents Working Group on
Financial Markets along with the Secretary of the Treasury,
the Chairman of the Board of Governors of the Federal
Reserve, and the Chairman of the SEC. Dr. Brown-Hruska
was also the Chairman of the CFTCs Technology Advisory
Committee.
Energy. In March 2003, then CFTC Chairman James
Newsome announced that Dr. Brown-Hruska would be
evaluating legislation, issues and economic developments
of relevance to our Nations energy markets, in addition
to her other duties as a Commissioner. She has spoken on
energy issues to many forums and organizations, including
the Energy Bar Association, Edison Electric Institute,
and the World Forum on Energy Regulation. She has
recently published articles in the Energy Daily on energy
derivatives and the Futures and Derivatives Law Report on
market manipulation in the energy markets. For her work
in this area, she was awarded the Key Women in Energys
Global Leadership Award, announced at the March 31,
2004, National Energy Marketers Association Conference
in Washington, D.C.
Financial Literacy and Education. Dr. Brown-Hruska
served as the CFTCs representative on the Financial
Literacy and Education Commission, chaired by Treasury
Secretary John Snow. Subsequently, she was named Chairman
of the Subcommittee on Web site Development,
which is made up of representatives from various agencies
within the Federal government. In September 2004, a
Web site that serves as a clearinghouse for information on
financial literacy was successfully launched.
Financial Markets. Dr. Brown-Hruska holds a Ph.D. in
economics (1994) from Virginia Tech in Blacksburg,
Virginia. Prior to coming to the CFTC, Dr. Brown-Hruska
was an Assistant Professor of Finance at George Mason
Universitys School of Management (1998 2002) and
the A.B. Freeman School of Business at Tulane University
(1995-1998). Courses taught by Professor Brown-Hruska
included Risk Management and Financial Innovation,
International Finance, Venture Capital, Investments, and
Financial Markets. Dr. Brown-Hruska has authored numerous
scholarly and applied papers based on her research in
the areas of derivatives and market microstructure, including,
A Penny for Your Trade in Barrons (2001); Financial
Markets as Information Monopolies? in Regulation
(2000), and Fragmentation and Complementarity: The
Case of EFPs in the Journal of Futures Markets (2002).
A native of Winchester, Virginia, she lives with her
husband Donald Hruska and their son, Jacob, in Burke,
Virginia.
Enforcement Litigation for Goal One
Strategic Goal One Ensure the economic
vitality of the commodity futures and
option markets.
Manipulation, Attempted Manipulation and False
Reporting
Enforcement actions filed during FY 2006:
Manipulation, Attempted Manipulation, and False
Reporting Enforcement
On June 28, 2006, the Commission filed a civil injunctive
enforcement action against BP Products North
America, Inc. (BP), a wholly-owned subsidiary of BP
plc, alleging that BP manipulated the price of February
2004 TET physical propane by, among other things,
cornering the market for February 2004 TET physical
propane. (The term TET propane refers to propane
that is deliverable at the TEPPCO storage facility in
Mont Belvieu, Texas, or anywhere within the TEPPCO
system. TEPPCO is an acronym for Texas Eastern
Products Pipeline Co, LLC.)
The Commission also charged BP with attempting
to manipulate the price of April 2003 TET physical
propane by attempting to corner the April 2003 TET
physical propane market. According to the lawsuit, TET
propane is the primary propane used for residential and
commercial heating in the Northeast U.S., particularly
in rural areas that are not served by natural gas pipelines,
and the price of TET propane at Mont Belvieu
affects the price of propane paid by consumers. Furthermore,
prices of TET propane affect the price of the
NYMEX futures contract for propane, in part because
the NYMEX propane contract provides for delivery of
propane at TEPPCO. CFTC v. BP Products North America,
Inc., No. 06C 3503 (N.D.Ill. filed June 28, 2006).
With the filing of the BP enforcement action,
the Commission has, since December 2002, filed a
total of 35 enforcement actions charging a total of 55
respondents/defendants (31 companies and 24 individuals)
with alleged wrongdoing in the energy markets.
The Commission has settled 27 of these enforcement
actions and obtained $302,863,500 in civil monetary
penalties. Eight Commission energy market-related enforcement
actions remain pending. The Commissions
Division of Enforcement is currently investigating approximately
70 individuals and companies for alleged
violations in the energy sector.
In re Dominion Resources, Inc.
On September 27, 2006, the Commission simultaneously
filed and settled an administrative enforcement
action against Dominion Resources, Inc. (Dominion)
finding that Dominion falsely reported trade information
concerning natural gas transactions in violation of
the Act. Specifically, the order finds that, from at least
December 2000 through November 2002, several traders
on Dominions natural gas trading desks knowingly
reported false, misleading and knowingly inaccurate
natural gas trading information, including price and
volume information, to Gas Daily, Inside FERC, and
Natural Gas Intelligence. According to the order, the reports
contained both fictitious trades and certain actual
trades in which the prices and/or volumes were altered,
as well as selected trades observed in the market, all of
which were represented to be Dominions actual trades.
The order explains that reporting firms including Gas
Daily, Inside FERC, and Natural Gas Intelligence use
price and volume information collected from participants
like Dominion to calculate indexes of natural gas
prices for various hubs throughout the United States.
According to the order, participants in the natural gas
markets use these indexes to price and settle commodity
transactions, and natural gas futures traders refer
to the published indexes for price discovery and for
assessing price risks. The Commission assessed sanctions
including: a civil monetary penalty ($4.5 million);
order to comply with certain undertakings, including
providing future cooperation to the Commission. The
Commission received cooperation from the Richmond
Division of the Federal Bureau of Investigation, and the
United States Attorneys Office of the Eastern District of
Virginia in connection with this matter. In re Dominion
Resources, Inc., CFTC Docket No. 06-06 (CFTC filed Sept.
27, 2006).
Strategic Goal Two Protect market users
and the public.
Commodity Pools, Hedge Funds, Commodity Pool
Operators, and Commodity Trading Advisors
Enforcement actions filed during FY 2006:
CFTC v. Lake Dow Capital, LLC, et al.
On October 19, 2005, the Commission filed a civil
enforcement action charging Lake Dow Capital, LLC
(Lake Dow), a registered commodity pool operator and
commodity trading advisor, and Ty Edwards, a Lake
Dow principal and registered associated person, with
fraud in their operation of the Aurora Investment Fund
(Aurora Fund) hedge fund. The Commission alleges
that the defendants misrepresented the amount of funds
they managed ($60 to $100 million, when in fact the
Aurora Fund did not exceed $20 million) and falsely
represented that the fund had consistently generated
annual profits without a single losing month. The court
entered a statutory restraining order, which included an
asset freeze, on the same date that the action was filed.
On November 8, 2005, the court issued a consent order
of preliminary injunction against all defendants prohibiting
further violations of the Commodity Exchange
Act and continuing the asset freeze. CFTC v. Lake Dow
Capital, LLC, et al., No. 1 05-CV 2709 (N.D. Ga. filed
Oct. 19, 2005).
In re Veras Investment Partners, LLC, et al.
On December 22, 2005, the Commission simultaneously
filed and settled an administrative enforcement
action against Veras International Partners, LLC (Veras),
a registered commodity pool operator and commodity
trading advisor, and James McBride and Kevin Larson,
both of whom were registered associated persons of
Veras. The Commission found that the defendant the
fraudulently operated two pools as hedge funds that
traded commodity futures contracts and securities.
Specifically, the Commission found that the defendants
failed to disclose to fund participants certain deceptive
and illegal market timing and late trading practices that
Veras used to execute its securities trading strategies. The
Commission assessed sanctions including: a cease and
desist order; $500,000 joint and several civil monetary
penalty; and 18-month trading bans for McBride and
Larson. The U.S. Securities and Exchange Commission
and the New York Attorney Generals Office filed and
settled related actions against Veras, McBride, Larson
and others. In re Veras Investment Partners, LLC, et al.,
CFTC Docket No. 06-01 (CFTC filed Dec. 22, 2006).
CFTC v. DeFazio.
On January 5, 2006, the Commission filed a civil
enforcement action charging Charles A. DeFazio, and
Galaxy Resources 2000, LLC with fraud. The complaint
alleges that, from March through September 2005,
Enforcement Litigation for Goal Two
DeFazio solicited and accepted at least $900,000 from
at least 85 customers while claiming that Galaxy was
a profitable commodity pool when, in fact, Galaxy
lost more $937,000 trading commodity futures. The
complaint also alleges that in September 2005, DeFazio
confessed to pool participants that their funds had been
wiped out completely. According to the complaint,
DeFazio improperly commingled funds, used customer
funds to pay personal expenses, and that DeFazio and
Galaxy falsely claimed to be registered with the CFTC.
On January 10, 2006, the court issued consent order
of preliminary injunction that: enjoins the defendants
from trading commodity futures contracts and options
and also enjoins them from further violations
as charged; and freezes the defendants assets. CFTC v.
DeFazio, et al., No. 06CV 0020 (S.D. Cal. filed Jan. 5,
2006).
CFTC v. Rodriguez.
On February 3, 2006, the Commission filed a civil
enforcement action charging Lazaro Jose Rodriguez with
fraud. The complaint alleges that, between March 2005
and January 2006, Rodriguez, doing business as The
FIRM Financial and as Financial Investments Require
Money Financial Consultants, solicited and received
approximately $1.5 million from at least 400 customers
to trade commodity futures and options contracts.
As part of those solicitations, Rodriguez allegedly made
false promises guaranteeing large profits without risk.
The complaint also alleges that as part of his fraudulent
scheme, Rodriguez pretended to be an experienced commodities
trader, which he was not. Rather than using
customer funds to trade commodity futures and options,
Rodriguez allegedly misappropriated the money
and used it to purchase luxury cars, jewelry, and other
personal items. On the same day that the complaint
was filed, the court entered a statutory restraining order
freezing the defendants assets and, among other things,
enjoining the defendant from destroying, or denying
CFTC representatives access to books and records.
The Commission received cooperation from the U.S.
Attorneys Office for the Southern District of Florida, the
Federal Bureau of Investigation, and the Florida Office
of Financial Regulation in connection with this matter.
CFTC v. Rodriguez, No. 06 CV 0855 (S.D.N.Y. filed Feb.
3, 2006).
CFTC v. Aurifex Commodities Research Company, et al.
On March 7, 2006, the Commission filed a civil enforcement
action charging Ty and Monette Klotz, and
their two Michigan companies, Aurifex Commodities
Research Co. and Aurifex Research LLC, with hedge
fund fraud. The CFTC complaint alleges that, between
at least April 2004 and February 2006, Ty and Monette
Klotz, doing business as Aurifex Investments, engaged in
a Ponzi scheme while soliciting participants for and operating
what they described as a private hedge fund.
According to the complaint, Ty Klotz told potential participants
that Aurifex invested participants funds in a
pooled commodity futures account, and falsely claimed
that the Aurifex fund earned monthly profits of 20
percent. The complaint alleges that Klotz falsely assured
potential participants that their Aurifex deposits would
be insured against loss with Lloyds of London, and that
Aurifex would receive fees only after participants funds
doubled. Also, according to the complaint, Ty Klotz
claimed to have more than 200 participants whose
funds were deposited into a commodity futures trading
account opened in the name of Monette Klotz in April
2004. Trading in this account lost money, whoever, as
alleged, the Klotzes falsely informed participants that
the fund was profitable while concealing the trading
losses and their misappropriation of participants funds.
Monette Klotz, the complaint alleges, used participant
funds for a down-payment on the purchase of a house,
and for the purchase of multiple automobiles. On the
same day the complaint was filed, the court issued a
statutory restraining order freezing the defendants assets.
CFTC v. Aurifex Commodities Research Company, et
al., No. 1:06-cv-0166-RHB (W.D. Mich. filed March 7,
2006).
CFTC v. Scholze.
On June 9, 2006, the Commission filed a civil enforcement
action charging Gary F. Scholze with fraudulently
soliciting approximately $1.2 million in a scheme involving
commodity futures and options. Specifically, the
complaint alleges that, since about August 2001 through
May 2006, Scholze, a retired chiropractor, fraudulently
solicited through professional publications for
chiropractors and at commodity trading seminars -- at
least 14 customers located throughout the United States
to invest in commodity futures and options, through
either individual accounts or a pooled account with
other customers that he would trade on their behalf.
The complaint further alleges that Scholze fraudulently
promised some customers that they would make a profit
and reassured others that they would not lose their
principal investment due to his specialized trading strategy.
However, the complaint alleges that Scholze traded
less than half of the customer funds, sustaining losses
of over $200,000, and misappropriated additional participant
funds to pay for personal expenses. Throughout
the time period, Scholze allegedly concealed his trading
losses and misappropriation by falsely reporting to
customers that their investments were growing due to
profitable trading. For example, in one alleged incident,
a customer who invested $300,000 believed, based on
the statements from Scholze, that by early 2005, his
investment had grown to over $1 million. According to
the complaint, while some customers received partial
returns of their investments, since March 2005, customers
have not received any funds from Scholze, despite
repeated demands. The complaint also charges Scholze
with failure to register as a commodity trading advisor
and a commodity pool operator, and with committing
other regulatory violations, including failing to provide
required disclosure documents, accepting money in
his own name and commingling customer funds with
personal funds. In a related matter, on June 19, 2006,
Scholze was arraigned in federal court on one count of
wire fraud based on a criminal complaint filed by the
United States Attorney for the District of Vermont. The
Commission received assistance from the Federal Bureau
of Investigation, the United States Postal Inspector,
and the United States Attorneys Office for the District
of Vermont in connection with this matter. CFTC v.
Scholze, NO. 2:06-CV-114 (D. Vt. filed June 9, 2006).
In re Liskiewicz.
On June 12, 2006, the Commission simultaneously
filed and settled an administrative enforcement action
against Michael J. Liskiewicz. Without admitting or
denying the findings, Liskiewicz consented to entry of
the order that finds he, while unlawfully acting as an
unregistered commodity pool operator, engaged in
fraud by misappropriating customer funds and issuing
false account statements. According to the CFTCs
order, Liskiewicz, who has never been registered with
the CFTC in any capacity, solicited and pooled approximately
$193,000 from nine participants to trade in S&P
futures contracts. Liskiewicz misappropriated a portion
of the pool participants funds for his personal use and
lost the remaining funds in unprofitable trading, according
to the order. Liskiewicz fraudulently concealed
his conduct from the pool participants by issuing false
account statements showing healthy profits from futures
trading, the order finds. The order further finds that
Liskiewicz failed to operate his commodity pool as a
legal entity separate from himself, commingled pool
participants funds with his personal funds, and failed
to provide required disclosure documents to the pool
participants. The Commission imposed the following
sanctions: a cease and desist order from further violations
as charged; civil monetary penalty ($240,000);
permanent trading ban; and undertaking to neither
apply for registration with the Commission nor act in
a capacity requiring such registration. In re Liskiewicz,
CFTC Docket No. 06-04 (CFTC filed June 12, 2006).
CFTC v. King, et al.
On August 30, 2006, the Commission filed a civil enforcement
action charging Carl W. King and his company,
Carl W. King Investments, LLP (King Investments),
with fraud and the issuance of false reports to customers.
The complaint alleges that since 1995 and continuing
through February 2003, King, individually and as
the agent of King Investments, engaged in a scheme
to defraud customers of more than $4.5 million. King
allegedly told potential customers that King Investments
managed over $15 million in assets for customers
with which he traded commodity futures contracts
on their behalf. King purportedly informed customers
that he achieved positive returns on his trading which,
at times, yielded profits in excess of 20 percent. As alleged
in the complaint, the defendants accepted money
from individual customers and placed the money in an
account in the name of King Investments (the Corporate
Account). After receiving money from individual
customers, the complaint alleges that the defendants
did not invest the money in commodity futures trading,
but left the money in the Corporate Account where King
could access it for his personal use on items including
his home mortgage and health care expenses. The
complaint further alleges that the defendants concealed
the misappropriation of customer finds by issuing
customers false statements showing profits and mak
ing purported profit payments from other customers
investments. In a related criminal action, King pled
guilty in the United States District Court for the Eastern
District of Texas to one count of mail fraud as a result of
his fraudulent activities. King is currently serving an 87
month prison term in Federal prison. The Commission
received cooperation from the United States Securities
and Exchange Commission, the Texas State Securities
Board, and the United States Attorneys Office for the
Eastern District of Texas in connection with this matter.
CFTC v. King, et al., No. 3-06CV1583-M (N.D. Tex. filed
Aug. 30, 2006).
In re Holman.
On September 27, 2006, the Commission simultaneously
filed and settled an administrative enforcement
action against Eddie Holman Jr., who did business
under the name C-THRU Inc., finding commodity
pool fraud. The order finds that, beginning in at least
September 2000, Holman, while acting as a commodity
pool operator, fraudulently solicited members of the
public to deposit funds with the C-THRU pool. Specifically,
the order finds that Holman falsely represented
that the pool was earning profits through the trading
of commodity futures, and delivered false performance
statements to pool participants that supported these
false claims that the pool was generally making profits.
In fact, the order finds that when Holman did trade, the
trading generally incurred losses and the account closed
with a net loss. The order further finds that Holman
commingled pool funds with other funds, failed to
furnish monthly trading statements received from the
futures commission merchant, and failed to maintain
certain records. The Commission assessed sanctions
including: a cease and desist order; permanent trading
ban; payment of restitution ($146,000) and a civil
monetary penalty ($240,000); and order to comply
with certain undertakings, including not applying for
registration with the CFTC. In September 2006, Holman
was arrested in Jupiter, Florida, by the Indian River
County Sheriffs Office and criminally charged with two
second degree felonies, organized scheme to defraud
($50,000 or more) and grand theft ($50,000 or more).
In re Holman, CFTC Docket No. 06-07 (CFTC filed Sept.
27, 2006).
CFTC v. Kis.
On September 27, 2006, the Commission filed a civil
enforcement action charging Christian Kis with fraud in
his operation of Raptor Capital, Inc. (Raptor Capital), a
company he formed primarily for purposes of trading
commodity futures contracts, as a commodity pool. The
complaint alleges that, from approximately March 2003
through January 2006, Kis used the internet to solicit
over $400,000 from members of the general public in
the U.S. and the United Kingdom to purchase shares in
Raptor Capital, lost all of the investors money, and then
concealed those losses by issuing false statements to investors.
The complaint further alleges that although Kis
was sustaining losses throughout the time he was trading,
he routinely sent false written statements to investors
indicating that the share price of Raptor Capital was
increasing as a result of his supposedly profitable commodity
futures trading. The complaint also alleges that
Kis failed to register with the Commission as a commodity
trading advisor and a commodity pool operator
and committed other regulatory violations, including
failure to provide required disclosure documents and
accepting customer funds in his own name. On October
6, 2006 the court entered a statutory restraining order
freezing assets and preserving books and records. The
Commission received cooperation from the Securities
Division of the Tennessee Department of Commerce
and Insurance in connection with this matter. CFTC v.
Kis, No. 3 06 0935 (M.D. Tenn. filed Sept. 27, 2006).
CFTC v. Perkins, et al.
On September 28, 2006, the Commission filed a civil
enforcement action charging William D. Perkins with
fraudulently soliciting participation interests in a commodity
pool he operated under the name Universe Capital
Appreciation, LLC (Universe), which led to the loss
of over $2 million of the $3.4 million that participants
invested. The Commission alleges that, from at least
January 2002 through March 2004, Perkins touted Universe
as a way for investors with less than $100,000 to
participate in a so-called superfund trading in selected
financial futures contracts. Specifically, the complaint
alleges that Perkins: falsely claimed that astonishing
profits of approximately 100 percent per annum were
being made by the superfund and that those profits
were verified by an allegedly independent CPA, whose
name was not disclosed; misrepresented the compensation
he expected to receive from operating Universe;
prepared and distributed false statements to investors.
In fact, as the complaint alleges, the superfund accepted
approximately $43 million during the relevant time and
used only a portion to trade commodity futures contracts
but lost, misappropriated, or dissipated approximately
$13.6 million. The complaint further alleges
that Perkins failed to disclose that, immediately prior to
forming Universe, he had participated in at least three
other failed high-yield investment schemes in which
Perkins and the business acquaintance and partner
who brought the Universe opportunity to Perkins had
solicited and lost over $2 million of participant funds in
other apparent investment scams. In 2004, the Commission
filed a related civil enforcement action, CFTC v. Equity
Financial Group, LLC, et al., No. 04-cv-1512 (D.N.J.),
which remains pending, and the United States Attorneys
Office for the Western District of North Carolina
filed a criminal action against one of the defendants in
that case, United States v. Coyt E. Murray, No. 3:06cr79-
1 (W.D.N.C.). CFTC v. Perkins, et al., CFTC Docket No.
1:06-cv-4674 (D.N.J. filed Sept. 28, 2006).
Results obtained during FY 2006 in enforcement actions
filed during previous fiscal years:
CFTC v. Steele, No. 05-3130, Order of Default Judgment
(N.D. Ill. filed Nov. 22, 2005) (enforcement
action filed May 25, 2005; default judgment included
the following sanctions: permanent injunction from
further violations, permanent trading and registration
bans, payment of restitution ($7.4 million), and, after
full restitution to customers is made, payment of a civil
monetary penalty ($6.2 million)).
CFTC v. Charles L. Harris, Tradewinds International,
L.L.C., Civil Action No. 04-C-5723, Consent Order
of Permanent Injunction (N.D. Ill. filed Feb. 9, 2006)
(enforcement action filed Sept. 1, 2004; consent order
included the following sanctions: permanent injunction
from further violations, permanent trading ban, payment
of restitution, jointly and severally ($13,904,331),
and, upon full payment of restitution, payment of a
civil monetary penalty ($7 million)).
CFTC v. Bayou Management, LLC, No. 05 CIV. 8374,
Consent Order of Permanent Injunction (S.D.N.Y. entered
April 3, 2006) (filed Sept. 29, 2005 alleging misappropriation
and fraud involving Connecticut hedge
fund manager Bayou Management, LLC (Bayou Management),
its principals, Samuel Israel III and Daniel E.
Marino, and Richmond Fairfield Associates, Certified
Public Accountants PLLC (Richmond Fairfield); consent
order with Bayou Management and Israel included a
permanent injunction and trading ban with monetary
sanctions to be determined later; action remains pending
against Marino and Richmond Fairfield).
CFTC v. Pippin, No. CV 05 4120, Consent Order of
Permanent Injunction (E.D.N.Y. filed April 26, 2006)
(enforcement action filed Aug. 29, 2005; consent order
included the following sanctions: permanent injunction
from further violations, permanent trading ban, payment
of restitution ($1.68 million), and payment of a
civil monetary penalty ($106,500)).
Commodity Trading Advisors, Managed Accounts, and
Trading Systems
Enforcement actions filed during FY 2006:
CFTC v. Maggio, et al.
On November 25, 2005, the Commission filed a civil
enforcement action charging John Anthony Maggio and
two companies he owned, Trade Risk Management LLC
(OR) and Trade Risk Management (WA), with fraudulent
solicitation of over 420 customers to purchase a
futures charting service known as Sigma Band Charting.
Specifically, the complaint alleges that the defendants,
none of whom were registered with the Commission,
misrepresented, among other things, that use of the
Sigma Band Charting charts would give customers a
99 percent chance of making money every time they
traded. The complaint alleges that the defendants collected
approximately $400,000 in customer fees. CFTC
v. Maggio, et al., No. C05 5766RJB (W.D.Wash. filed
Nov. 25, 2005).
In re Burgess, et al.
On January 31, 2006, the Commission simultaneously
filed and settled an administrative enforcement action
against James R. Burgess, and his firm, Optioneer Inc.
(Optioneer) finding that they fraudulently solicited
customers for a commodity options trading system and
related products and services. Specifically, the Commission
found that, between August 2002 and July 2004,
the respondents fraudulently solicited clients through
their Web site to purchase an options trading system
known as The Optioneer System. According to the
order, the respondents falsely touted substantial profits
from using The Optioneer System, failed to disclose that
certain performance histories posted on the Optioneer
Web site were based on hypothetical or simulated trading
rather than actual trading, and failed to provide the
required disclosure statement concerning the inherent
limitations of hypothetical or simulated trading. The
Commissions sanctions included a civil monetary
penalty ($130,000) and a cease and desist order. In re
Burgess, et al., CFTC Docket No. 06-03 (CFTC filed Jan.
31, 2006).
CFTC v. McCall.
On February 2, 2006, the Commission filed a civil
enforcement action charging Richard McCall, doing
business as The Mastery Group International, with
fraudulent solicitation with respect to his futures trading
workshop called Sabaki-Micro Trading for Futures.
The complaint alleges that, between March and June
2004, McCall made the following misrepresentations,
among others: 1) he was an experienced futures trader
with his trading results consistently ranked among the
top five percent of traders worldwide (in fact he had
traded commodity futures for only one year, and that
the account in which he traded experienced consistent
trading losses); and 2) students following his Sabaki-
Micro Trading for Futures would have a better than 90
percent chance of being profitable. On February 22,
2006, the court entered a consent order of preliminary
injunction preserving books and records and enjoining
the defendant from further violations as charged.
CFTC v. McCall, No. 2:06-cv-00132 (D.Nev. filed Feb. 2,
2006).
CFTC v. Castillo, et al.
On April 12, 2006, the Commission filed a civil enforcement
action charging Gilbert Philip Castillo, Jr.
and his company, Castle Enterprise Corporation, with
fraudulent solicitation. The complaint alleges that,
during the period of February 1999 through mid-2005,
the defendants fraudulently solicited over $800,000
from the retail public to purchase commodity trading
advice and services related to the trading of S&P 500
commodity futures and options contracts. Specifically,
the complaint alleges that the defendants made on their
Web sites the following misrepresentations, among others:
defendants represented that their advisory service
had a record of 90-96 percent accuracy and profitability,
with purported returns for each year from 1998 through
2002 that ranged from 302 percent to 447 percent; and
defendants failed to reveal that purported trading was
based on hypothetical or simulated performance. In
fact, the complaint alleges that the defendants advisory
services never operated, and clients were abandoned
after purchasing trading systems or training courses,
receiving little or nothing of value and losing their
money. The complaint further alleges that Castle acted
as an unregistered commodity trading advisor and Castillo
acted as an unregistered associated person. CFTC v.
Castillo, et al., No. C 06 2540 (N.D. Cal. filed April 12,
2006).
CFTC v. Schroeder.
On September 27, 2006, the Commission filed a civil
enforcement action charging Steven G. Schroeder with
fraudulently soliciting more than $1 million from at
least 10 clients, whose commodity futures trading accounts
he managed and who lost in excess of $184,465.
Specifically, the complaint alleges that, commencing at
least as early as September 2004 and continuing to the
present, Schroeder fraudulently solicited and defrauded
existing and prospective managed futures account
clients, while holding himself out to the public as a
commodity trading advisor, including soliciting clients
via contacts he established by postings on an internet
Web site, letstalkwinning.com. Among other things,
Schroeder is alleged to have: lied about the size of his
personal trading accounts, the profitability of his past
trading, and his educational background; and created
a fictitious brokerage statement showing his personal
trading account with more than $1 million in equity
at a time when his personal trading account had a zero
balance. On the same day the complaint was filed, the
court entered a statutory restraining order freezing assets
and preserving books and records. CFTC v. Schroeder,
No. 1:06CV0705 (W.D. Mich. filed Sept. 27, 2006).
CFTC v. Hayes, et al.
On September 29, 2006, the Commission filed a
civil enforcement action charging Michael Hayes and
Coldwell Publishing, Inc. (Coldwell) with fraudulently
promoting a commodity futures and options trading
system that was contained in a book entitled, The Insiders
Profit Matrix (IPM), which was authored by Hayes
under the pseudonym Frank Richards. Specifically, that
Hayes authored both the trading system and the promotional
material used to sell that system to the general
public through Coldwell. The complaint alleges that
Hayes acted as a commodity trading advisor by offering
and selling approximately 15,000 copies of the book to
the public, grossing more than $1 million in sales from
2001 through 2004. The complaint further alleges that
Hayes: misrepresented that IPMs performance record
and profit results presented were based an actual trading,
when, in fact, the results were either derived from
hypothetical trading or simply made-up; overstated the
profit potential of the trading system; failed to adequately
warn potential purchasers of the risks inherent
in futures and options trading; and presented hypothetical
performance results without the required cautionary
statement. CFTC v. Hayes, et al., No. 4:06cv130 (E.D. Va.
filed Sept. 29, 2006).
Results obtained during FY 2006 in enforcement actions
filed during previous fiscal years:
CFTC v. Webman, et al., No. 05-CV-4819 (MBM), Orders
(S.D.N.Y. filed Nov. 5, 2005 and July 10, 2006) (enforcement
action filed May 19, 2005; order of default
judgment against International Forex Advisory Group
(IFA Group) and Worldwide Currencies Corp. (WCC)
filed Nov. 5, 2005; consent order of permanent injunction
against Melvin and Larry Webman filed July 10,
2006; orders included the following sanctions: permanent
injunction from further violations (all defendants),
permanent trading and registration bans (both
Webmans), payment of restitution (Webmans jointly
and severally $2,957,912, IFA Group $2,701,960, and
WCC $255,952), and payment of civil monetary penalties
(Webmans $500,000 each, IFA Group $3,178,530,
and WCC $526,470); litigation remains pending against
Wexler).
CFTC v. Longhorn Financial Advisors, LLC, et al., No.
04cv00911 (Beatty), Consent Orders of Permanent Injunction
(M.D.N.C. filed March 28, 2006) (enforcement
action filed October 5, 2004; consent orders included
the following sanctions: permanent injunction from further
violations (all defendants), permanent trading and
registration bans (all defendants), payment of restitution
(Owen, Longhorn and Phoenix jointly and severally
$308,400, and Belbeck $26,000) and payment of
civil monetary penalties (Owen, Longhorn and Phoenix
each $480,000, and Belbeck $10,000)).
CFTC v. Poole, No. 1:05CV00859, Order for Entry of Default
Judgment (M.D.N.C. filed May 1, 2006) (enforcement
action filed September 30, 2005; default judgment
included the following sanctions: permanent injunction
from further violations, permanent trading and registration
bans, and payment of a civil monetary penalty
($240,000)).
CFTC v. Wall Street Underground, Inc., No. 03-2193-CM,
Orders (D.Kan. filed April 7 and July 11, 2006) (enforcement
action filed April 22, 2003; consent order of
permanent injunction against Asaro and Web Fulfillment
Centre, Inc. (Web) filed April 7, 2006; default
judgment against Guarino and Wall Street Underground,
Inc. (WSU) filed July 11, 2006; consent order
and default judgment included the following sanctions:
permanent injunctions from further violations (all
defendants), permanent trading bans (all defendants),
permanent registration bans (Asaro and Web), payment
of restitution (Guarino and WSU jointly and severally
$2,374,582), and payment of civil monetary penalties
(Asaro and Web jointly and severally $310,000, and
Guarino and WSU jointly and severally $7,123,746)).
Futures Commission Merchants, Introducing Brokers
and Their Associated Persons
Enforcement actions filed during FY 2006:
CFTC v. Executive Commodity Corp., et al.
On June 20, 2006, the Commission filed a civil
enforcement action charging Executive Commodity
Corporation (Executive), a registered introducing
broker, and three of Executives registered associated
persons (Thomas Kennedy, Don Campbell, and Alberto
Jimenez) with fraudulent solicitation. Specifically, the
complaint alleges that the defendants fraudulently solicited
more than $6.2 million from approximately 495
retail customers to trade in exchange-traded options on
commodities futures contracts during the period from
January 2003 through December 2003. CFTC v. Executive
Commodity Corp., et al., No. 06-60886 CIV-DIMITROULEAS
(S.D. Fla. filed June 20, 2006).
In re Denniston.
On August 7, 2006, the Commission simultaneously
filed and settled an administrative enforcement action
against Toby Wayne Denniston, II, who has never been
registered with the Commission in any capacity. The
Commission found that Denniston, while employed
by registered IB Castle Trading Inc, committed fraud
and misappropriation of customer funds. Specifically,
the Commission found that between November 2004
and August 2005, Denniston misappropriated over
$190,000 from Acceleration Mercury Fund 4X LP, a
commodity pool, for his own use and benefit. Denniston
accomplished the misappropriation by forging
signatures on at least 58 checks. To conceal his misappropriation,
Denniston regularly altered the pools
bank and trading account statements and created false
account statements to be sent to pool participants. The
Commission assessed sanctions including: a cease and
desist order; permanent trading ban; payment of restitution
($209,070, which includes prejudgment interest)
and a civil monetary penalty ($250,000); and an order
to comply with his undertaking to neither apply for
registration with the Commission nor act in a capacity
requiring such registration or acting as a principal, officer,
or employee of any person registered, required to be
registered or exempt from registration. The Commission
received cooperation from the National Futures Association
in connection with this matter. In re Denniston,
CFTC Docket No. 06-05 (CFTC filed August 7, 2006).
Results obtained during FY 2006 in enforcement actions
filed during previous fiscal years:
CFTC v. Wilshire Investment Management Corp., et al.,
No. 04-80862, Final Judgment Trial Order (S.D. Fla.
filed Dec. 5, 2005) (enforcement action filed September
14, 2004; final judgment included the following
sanctions: permanent injunction from further violations
(all defendants), payment of restitution (all defendants
$147,892), and payment of civil monetary penalties
(Wilshire, Malcolmson and Russo each $100,000,
corporate defendants Wilshire Investment Management
Corp. and National Commodities Corp., Inc. jointly
and severally $100,000)).
CFTC v. Carnegie Trading Group, Ltd., et al., No. 1:04
CV 1403, Orders (N.D. Ohio filed Dec. 16, 2005 and
June 27, 2006) (enforcement action filed July 23, 2004;
consent orders against John Hollenbaugh and Reid
Henshaw entered December 16, 2005 included permanent
injunction from further violations and from trading
commodity futures and options, and order to pay
restitution ($165,695, to be offset by restitution paid by
other defendants) and civil monetary penalties (Hollenbaugh
$50,000 and Henshaw $75,000); judgment
against Carnegie and John Glase filed June 27, 2006
included order to pay restitution ($229,971), disgorgement
(32,850) and a civil monetary penalty ($32,850)).
CFTC v. Chase Commodities Corp., et al., No. CV04-6463
PA (CWx), Consent Order of Permanent Injunction
(C.D.Cal. filed Jan. 25, 2006) (enforcement action filed
August 4, 2004; the consent order included the following
sanctions: permanent injunction from further
violations (Chase, LaGorio and Obando), permanent
trading bans (permanent against Chase and LaGorio,
and five-year against Obando); payment of restitution,
jointly and severally (all defendants, $4,252,645 total),
and payment of civil monetary penalties (LaGorio and
Obando, $120,000 each)).
CFTC v. Lanier, No. CIV-05-516-F Consent Order of
Permanent Injunction (W.D. Okla. field March 3, 2006)
(enforcement action filed March 10, 2005; consent
order included the following sanctions: permanent
injunction from further violations, permanent trading
ban, payment of restitution ($110,860) and payment of
a civil monetary penalty ($120,000)).
CFTC v. First American Investment Services, Inc., et al.,
No. 04-60744-CIV-HURLEY/HOPKINS, Consent Order
of Permanent Injunction (S.D. Fla. filed May 22, 2006)
(enforcement action filed June 7, 2004; consent order
included the following sanctions: permanent injunction
from further violations as charged (all defendants), payment
of restitution, jointly and severally (First American
$7,983,388, Knowles $1,600,000, Allotta $1,137,000,
Savitsky $660,000, Mills $250,000 and Eulo $200,000)
and civil monetary penalties (First American
$1,000,000, Knowles $400,000, Allotta $373,000, Savitsky
$140,000, Mills $75,000 and Eulo $75,000)).
Foreign Currency
Enforcement actions filed during FY 2006:
CFTC v. Madison Forex International, LLC, et al.
On October 18, 2005, the Commission filed a civil
enforcement action charging: two related companies,
Madison Forex International, LLC (Madison) and
its predecessor, Chadwick Grayson Bauer & Co., Inc.
(Chadwick); four employees of Madison and Chadwick,
John Peter DOnofrio (who is also the owner of Madison),
Christopher Peck, Gary Baugh and Lea Lauren,
and a registered FCM, Qualified Leverage Providers,
Inc. (QLP), for whom Madison allegedly acted as a de
facto agent pursuant to an Introducing Agreement.
The complaint alleges a series of violations that started
at Chadwick and continued at Madison. Madison
Allegations: Specifically, the complaint alleges that,
from November 2003 through March 2005, Madison,
Peck, Lauren, and other Madison employees fraudulently
solicited retail customers to trade forex options
misrepresenting the potential trading profit and risks.
Contrary to their representation that none of Madisons
customers had ever lost money, the complaint alleges
that at least 177 Madison customers had losses totaling
approximately $2.7 million. Also, according to the
complaint, DOnofrio, as the owner, and Baugh, as the
managing partner, are liable for Madisons violations
as controlling persons of Madison, and QLP is liable
for violations of its agent, Madison. Chadwick Allegations:
Peck and other employees of Chadwick engaged
in similar fraud in soliciting customers to trade foreign
currency futures and options between September 2002
and November 2003, according to the complaint.
Chadwick allegedly churned customer accounts by
trading those accounts for the purpose of generating
commissions, without regard for customers interests.
In a seven-month period in 2003, it is alleged that these
managed accounts lost $320,000 of $440,000 invested,
including $230,000 in commissions paid to Chadwick.
The complaint alleges that DOnofrio and Baugh, as
President and Vice President of Chadwick, respectively,
are liable for Chadwicks fraud violations as controlling
persons. On the same day that the complaint was filed,
the court entered a statutory restraining order freezing
the assets of all the defendants except QLP, and prohibiting
the defendants from destroying documents. CFTC
v. Madison Forex International, LLC, et al., No. 05-61672
(S.D. Fla. filed Oct. 18, 2005).
CFTC v. Saume, et al.
On December 13, 2005, the Commission filed a civil
enforcement action charging Carlos Alejandro Libera
Saume and three of his companies (Asesoria Invertrust
C.A., Forinex Investment Corp., and Invertrust, Inc.)
with forex futures fraud. The complaint alleges that,
since 2000, the defendants fraudulently solicited more
than $14 million from at least 140 customers. Specifically,
the complaint alleges that the defendants, who
have never been registered with the Commission, misrepresented
their trading history and misappropriated
customer funds for personal use, trading, and the distribution
of false profits to prior customers. On the same
date that the action was filed, the court issued an order
freezing assets and ordering the defendants to repatriate
all funds in offshore accounts. CFTC v. Saume, et al., No.
05-61903 CIV-MARRA (S.D. Fla. filed Dec. 13, 2005).
CFTC v. Valko, et al.
On January 3, 2006, the Commission filed a civil
enforcement action charging International Investments
Holdings Corp. (IIHC), Doreen Valko (IIHCs
president) and Frank DeSantis (who allegedly provided
consulting and marketing services to both Valko and
IIHC) with foreign currency options fraud. Specifically,
the complaint alleges that the defendants misappropriated
and defrauded approximately 205 retail customers
of at least $1.13 million while purportedly trading foreign
currency options. The complaint alleges that IIHSC
and DeSantis sought to hide the misappropriation by
generating false statements for customer accounts, confirming
the purported foreign currency options transactions.
On January 4, 2006, the court entered a statutory
restraining order freezing assets and preserving books
and records. On August 16, 2006 the court entered a
Judgment by Default and Order of Permanent Injunction
against IIHC, which included the following sanctions:
a permanent injunction from further violations
and from engaging in any business activities related to
commodity futures and options trading; and payment
of restitution ($6,060,000) and a civil monetary penalty
($6,060,000). The Commissions enforcement action
remains pending against Valko, and DeSantis. CFTC v.
Valko, et al., No. 06-060001-CIV-DIMITROULEAS/SELTZER
(S.D. Fla. filed Jan. 3, 2006).
CFTC, et al. v. Rask.
On February 6, 2006, the Commission and the State
of Oregon Department of Consumer and Business
Services jointly filed a civil enforcement action charging
James John Rask with forex fraud. The complaint
alleges that, from at least December 2000 to August
2002, Rask fraudulently solicited retail customers to
participate in a purported foreign currency investment
fund called the Orion Fund, which was operated by
Orion International, Inc. (Orion) and its owner Russell
Cline. An enforcement action is pending against Orion
and Cline charging illegal off-exchange forex fraud in
connection with the solicitation of at least $27 million
from over 600 retail customers. See CFTC, et al., v. Orion
International, Inc., et al., No. CV-03-603-KI (D. Ore. filed
May 7, 2003). On February 26, 2006, the court entered
a consent order of permanent injunction against Rask.
The order found that Rask fraudulently solicited $3.4
million from 44 retail customers, which funds were deposited
into an account controlled by Orion and Cline.
Among Rasks misrepresentations were his claims that
the Orion Fund had produced annual profits in excess
of 150 percent and that customer funds would be used
to trade foreign currency futures. In fact, the consent order
found that Rask personally misappropriated almost
$2 million of customer funds, and virtually all Orion
Fund customer funds were misappropriated by Orion,
Cline and Rask. The order included the following sanctions:
permanent injunction from further violations, as
charged; $2,409.885 in restitution; and a $1,965,565
civil monetary penalty. CFTC, et al. v. Rask, No. CV 06
162 (D. Ore. filed Feb. 6, 2006).
CFTC v. Falco & Stevens, Inc.
On March 3, 2006, the Commission filed a civil enforcement
action charging Falco & Stevens, Inc. (F&S)
and its President, Vyacheslav Nass, neither of whom
were registered with the Commission, with: illegally
selling forex futures contracts to over 100 retail customers;
fraudulently soliciting retail customers; and
misappropriating millions of dollars of customer funds.
The complaint alleges that, beginning in August 2005,
F&S made false promises that guaranteed customers
large profits without risk in foreign currency trading.
According to the complaint, however, instead of trading
customer monies as promised, F&S and Nass misappropriated
more than $4.3 million of customer funds.
Customer funds were sent to various overseas bank
accounts in the names of foreign companies, according
to the complaint. On the same date that the complaint
was filed, the court entered a statutory restraining order
preserving books and records and freezing assets. CFTC
v. Falco & Stevens, Inc., No. 06 CV 1692 (S.D.N.Y. filed
March 3, 2006).
CFTC v. First Intl Group, Inc., et al.
On April 17, 2006, the Commission filed a civil enforcement
action charging First International Group, Inc.
(FIG) and two of the firms brokers, Michael Mesa and
Tom Keesee, with fraudulent solicitation since at least
June 2004. Specifically, the complaint alleges that FIG,
through its brokers, fraudulently represented that their
trade recommendations would result in large profits
in a short period of time, and also fraudulently failed
to inform customers and prospective customers that
the vast majority of FIG customers who traded closed
their accounts at a loss. According to the complaint, 93
percent of First International Groups customers lost
money, and approximately two-thirds of the customers
lost virtually all of their investments. On April 18, 2006,
the court entered a statutory restraining order preserving
books and records and freezing assets. The Commission
received assistance from the Florida Bureau of Financial
Investigations and the U.S. Postal Inspection Service in
this matter. CFTC v. First Intl Group, Inc., et al., No. 06-
20979 CIV-JORDAN (S.D. Fla. filed April 17, 2006).
Results obtained during FY 2006 in enforcement actions
filed during previous fiscal years:
CFTC v. International Funding Association, et al., No. CIV
03-1826 PHX, Consent Order of Permanent Injunction
(D. Ariz. filed Feb. 22, 2006) (enforcement action
filed September 18, 2003; consent order included the
following sanctions: permanent injunction from further
violations, permanent trading ban, payment of restitution,
jointly and severally ($15,963,433), and payment
of a civil monetary penalty, jointly and severally
($15,963,433)).
CFTC v. Hawker, et al., No. 2:03 CV 0260 JTG, Supplemental
Consent Order (D. Utah filed March 29, 2006)
(enforcement action filed March 12, 2003; consent order
of permanent injunction entered October 24, 2003;
supplemental consent order included the following
sanctions: payment of restitution, jointly and severally
($245,163) and payment of a civil monetary penalty,
jointly and severally ($120,000)).
CFTC v. Sonoma Trading Corporation, et al., No. 05-CIV-
60342-COOKE/BROWN, Judgment by Default and Order
of Permanent Injunction (S.D. Fla. filed March 30,
2006) (enforcement action filed March 9, 2005; default
judgment included the following sanctions: permanent
injunction from further violations, and payment of a
civil monetary penalty ($500,000)).
CFTC v. Tambiev, et al., No. 03-CV-0177 (RJD), Judgment
(E.D.N.Y. filed May 5, 2006) (enforcement action filed
January 7, 2003; order adopting magistrates recommendation
included the following sanctions: permanent
injunction from further violations, and payment of civil
monetary penalties (Tambiev and Tamb International,
Inc. each to pay $240,000)).
CFTC v. Firsone, et al., NO. 2:05-CV-02547 (TCP)
(MLO), Order of Default Judgment (E.D.N.Y. filed
March 23, 2006) (enforcement action filed May 26,
2005; default judgment against Windsor Forex Trading
Corp. included the following sanctions: permanent injunction
from further violations, permanent trading and
registration bans, payment of restitution ($266,768),
and payment of a civil monetary penalty ($266,768)).
CFTC v. Gibraltar Monetary Corporation, Inc., et al., No.
04-80132-CIV-DIMITROULEAS, Final Judgment (S.D.
Fla. filed June 14, 2006) (enforcement action filed February
10, 2004; permanent injunction from further violations
(Kline, Fremer and Johnson), permanent trading
bans (Kline, Fremer and Johnson), payment of restitution,
jointly and severally (all defendants $2,752,337
total), and payment of civil monetary penalties (Gibraltar
$120,000, Kline $240,000, Fremer $352,011, and
Johnson $191,367)).
CFTC v. Orion Intl, Inc., et al., No. 03-CV-603-KI, Order
of Default Judgment (D. Ore. filed June 16, 2006)
(enforcement action filed May 7, 2003; default judgment
against Orion International, Inc. included the
following sanctions: permanent injunction from further
violations, permanent trading and registration bans,
payment of restitution ($28,823,034), and payment of a
civil monetary penalty ($84,469,100); litigation remains
pending against Cline).
CFTC v. World Market Advisors, Inc., et al., Order of Default
Judgment (S.D. Fla. filed June 27, 2006) (enforcement
action filed June 9, 2005; default judgment against
World Market Advisors, Inc., U.S. Capital Management,
Inc., United Equity Group, Inc., Liberty One Advisors,
LLC, and Lighthouse Capital Management, LLC
included the following sanctions: permanent injunction
against further violations, permanent trading and
registration bans, payment of restitution (jointly and
severally $20,514,361), and payment of disgorgement
(jointly and severally $12,632,841); litigation remains
pending against five individual and three corporate
defendants).
Other Illegal Off-Exchange
Enforcement action filed during FY 2006:
CFTC v. American Energy Exchange.
On September 12, 2006, the Commission filed a civil
enforcement action charging American Energy Exchange
(AMENX) and York Commodities (York) with fraud in
the solicitation of customers to purchase options on
commodity futures contracts. The complaint alleges
that AMENX and York, through misrepresentations on
their Web sites, www.amenx.com and www.york-commodities.
com, defrauded customers out of over $1.39
million. York allegedly solicited customers to trade
options on energy futures contracts with AMENX by
duping customers into believing that: 1) AMENX is a
futures exchange; 2) York is its broker; and 3) both are
located in the United States. As alleged, York leased the
use of a fax number with a (212) New York area code
to substantiate its representations as a United States-
based company. Likewise, as part of the fraud to deceive
customers into believing it was a reputable commodity
futures exchange, the complaint alleges that AMENX on
its Web site listed firms as members of AMENX when,
in fact, none were members and had never heard of
AMENX. On the same day the complaint was filed, the
court entered a statutory restraining order preserving
books and records. The Commission received cooperation
from the Australian Securities and Investment
Commission, the Bundesbank and German Financial
Supervisory Authority, the Hong Kong Securities and
Futures Commission, the Swiss Federal Banking Commission,
the New York Mercantile Exchange, and the
Office of Investor Education and Assistance, U.S. Securi
ties and Exchange Commission for their assistance.
CFTC v. American Energy Exchange, et al., No. 06 CV 7017
(S.D.N.Y. filed Sept. 12, 2006).
Statutory Disqualification
In re Chase Commodities Corp.
On April 7, 2006, the Commission filed a Notice of Intent
to Revoke Registration against Chase Commodities
Corporation (Chase), a registered introducing broker.
The Commission seeks to determine whether Chases
registration should be revoked based upon entry of a
consent order against it by a federal district court that
contained findings of fact and conclusions of law that
respondent committed options fraud (see CFTC v. Chase
Commodities Corp., et al., No. CV 04-6463 PA (CWx)
(C.D. Cal. filed Jan. 24, 2006)). In re Chase Commodities
Corp., CFTC Docket No. SD 06-01 (CFTC filed April 7,
2006)
In re United Investors Group, Inc.
On August 21, 2006, the Commission filed a Notice of
Intent to Revoke Registration against United Investors
Group, Inc. (UIG). The Commission seeks to determine
whether UIG is subject to statutory disqualification of
its registration as an Introducing Broker based on the
entry of a district court consent order of permanent injunction
against it. CFTC v. United Investors Group, Inc.,
et al., No. CV 05-80002-CIV-HURLEY/HOPKINS (S.D.
Fla. entered June 6, 2006). The district court found UIG
liable for options fraud committed by its APs and assessed
sanctions against UIG including: a permanent injunction
from further violations and from either applying
for registration or acting in a capacity requiring such
registration with the Commission except as provided
for in Commission Regulation 4.14(a)(9); permanent
trading ban; and payment of restitution ($8,025,021)
and a civil monetary penalty ($16,299,903). In re United
Investors Group, Inc., CFTC Docket No. SD 06-02 (CFTC
filed August 21, 2006).
In re Israel and In re Bayou Management LLC.
On August 21, 2006 and September 27, 2006, the Commission
filed Notices of Intent to Revoke Registration
against Samuel Israel III and Bayou Management LLC
(Bayou Management), respectively. The Commission
sought to determine whether registered CPO Bayou
and its registered AP Israel were subject to statutory
disqualification of their registrations based upon entry
of a district court consent order of permanent injunction
entered against them. CFTC v. Bayou Management,
LLC, et al., No. 05cv8374 (CM), Partial Consent Order
of Permanent Injunction and Ancillary Equitable Relief
Against Samuel Israel and Bayou Management LLC
(S.D.N.Y. entered April 3, 2006). The district court order
found that Israel and Bayou defrauded commodity
pool participants, submitted to NFA annual reports that
were not prepared by an independent certified public
accountant or independent licensed public accountant.
The district court assessed sanctions including: a permanent
injunction from further violations and from either
applying for registration or acting in a capacity requiring
such registration with the Commission; permanent
trading ban; and payment of restitution and a civil
monetary penalty in amounts to be determined by later
agreement between the Commission and Israel and
Bayou. The Commission accepted Israels settlement
offer and revoked his registration on the day the notice
was filed; the statutory disqualification action against
Bayou remains pending. In re Israel, CFTC Docket No.
SD 06-03 (CFTC filed Aug. 21, 2006) and In re Bayou
Management LLC, CFTC Docket No. SD 06-05 (CFTC
filed September 27, 2006).
In re Risk Capital Trading Group, Inc.
On September 1, 2006, the Commission filed a Notice
of Intent to Revoke Registration against Risk Capital
Trading Group, Inc. (Risk Capital). The Commission
seeks to determine whether Risk Capital is subject
to statutory disqualification of its registration as an
Introducing Broker based on the entry of a district court
consent order of permanent injunction against it. CFTC
v. Risk Capital Trading Group, Inc., No. 03-CV-2633-ODE,
Consent Order of Permanent Injunction and Equitable
Relief (N.D. Ga. entered June 16, 2006) (the Consent
Order). The Consent Order found that from at least
January 2001 through September 2003 Risk Capitals
associated persons fraudulently solicited customers to
trade commodity options. The Consent Order assessed
sanctions including: a permanent injunction from further
violations and from either applying for registration
or acting in a capacity requiring such registration with
the Commission; permanent trading ban; and payment
of restitution (over $12 million) and a civil monetary
penalty (over $8 million). In re Risk Capital Trading
Group, Inc., CFTC Docket No. SD 06-04 (CFTC filed
Sept. 1, 2006).
In re Wilshire Investment Management Corp.
On September 28, 2006, the Commission filed a Notice
of Intent to Revoke Registration against Wilshire Investment
Management Corp. (Wilshire). The Commission
seeks to determine whether Wilshire is subject to statutory
disqualification of its registration as an Introducing
Broker based on the entry of a district court trial
order and final judgment against it. CFTC v. Wilshire
Investment Management, et al., No. 04-80862-CIV-
MIDDLEBROOKS/JOHNSON (S.D. Fla. entered Dec. 5,
2005). The courts order found that Wilshire, through
its employees, engaged in the fraudulent solicitation
of retail customers to invest in options on commodity
futures contracts, as charged by the CFTC in its complaint
filed in September 2004. The courts order found
that Wilshire and others fraudulently solicited members
of the public to open accounts to trade options on commodity
futures contracts by misrepresenting and failing
to disclose material facts concerning, among other
things: 1) the likelihood that a customer would realize
large profits from trading options; 2) the risk involved
in trading options; and 3) the performance record
of Wilshire customers. The court assessed sanctions
included requiring Wilshire to pay restitution and a civil
monetary penalty, and barring Wilshire from engaging
in any commodity related activity. In re Wilshire Investment
Management Corp., CFTC Docket No. SD 06-06
(CFTC filed Sept. 28, 2006).
Strategic Goal Three Ensure market
integrity in order to foster open,
competitive, and financially sound
markets.
Financial, Supervision, Compliance and Recordkeeping
Enforcement
Enforcement action filed during FY 2006:
CFTC v. FX Trading, LLC.
On December 8, 2005, the Commission filed a civil
enforcement action charging registered futures commission
merchant FX Trading, LLC with failure to maintain
required minimum net capital requirements since at
least October 31, 2005. On the same day that the complaint
was filed, the court entered a statutory restraining
order preserving books and records and freezing approximately
$3.5 million in assets. CFTC v. FX Trading,
LLC, No. 05-5722 (D.N.J. filed Dec. 8, 2005).
Trade Practice
Enforcement actions filed during FY 2006:
In re Shell Trading US Company, et al.
On January 4, 2006, the Commission simultaneously
filed and settled an action against Shell Trading US
Company (STUSCO) and Shell International Trading
and Shipping Co. (STASCO), two companies whose
ultimate parent is Royal Dutch Shell, and Nigel Catterall,
who was the chief trader on behalf of STUSCO.
The Commission found that the defendants engaged
in non-competitive transactions and fictitious sales by
prearranging NYMEX trades. Specifically, the Commission
found that, on five occasions between November
2003 and March 2004, traders for STUSCO and STASCO
prearranged trades for crude oil futures contracts. In
each instance, according to the order, the traders prearranged
the trade by agreeing in advance on the quantity
and the settlement month, agreeing to take the opposite
positions of the trade and executing the trade on the
NYMEX. The order finds that Catterall was involved in
the prearrangement of certain of these trades. Without
admitting or denying the findings, the respondents consented
to entry of the order, which included the following
sanctions, among others: a cease and desist order;
and civil monetary penalties for STASCO ($200,000)
and Catterall ($100,000). Separately, NYMEX has taken
disciplinary action against its member firm, STUSCO,
and an employee of the firm. The Commission received
assistance in this matter from NYMEX staff. In re Shell
Trading US Company, et al., CFTC Docket No. 06-02
(CFTC filed Jan. 4, 2006).
CFTC v. Doyle.
On August 10, 2006, the Commission filed a civil
enforcement action charging Matthew Doyle, a telephone
clerk for a registered floor broker, in connection
with an alleged scheme to defraud certain customers
and his employer. Specifically, the Commission alleges
Enforcement Litigation for Goal Three
that, during the week of April 18, 2005, Doyle willfully
prepared or caused to be prepared order tickets for
hundreds of natural gas futures contracts containing
false customer account identification to be executed
by his employer on the NYMEX. Through this scheme,
the complaint alleges, Doyle attempted to assign losing
trades to the accounts of certain customers, and when
that failed, he caused these losing trades to be assigned
to his employers account. According to the complaint,
as a result of this scheme, Doyles employer suffered
millions of dollars in losses through the losing trades.
The Commission received cooperation from the NYMEX
Compliance staff in connection with this matter. CFTC
v. Doyle, Docket No. 06 CV 6094 (S.D.N.Y. filed August
10, 2006).
In re Machata, et al.
On September 27, 2006, the Commission simultaneously
filed and settled an administrative enforcement
action against Andrew Machata and his company, Rolling
Meadow Ranch, Inc. (RMR), finding they violated
NYBOT trading limits for frozen concentrated orange
juice commodity futures contracts. Specifically, the
order finds that, between March 2004 and August 2005,
RMR, by and through Machata, traded frozen concentrated
orange juice futures contracts on the NYBOT and
exceeded the position limits set by the NYBOT in violation
of the Act. Machata, as president and sole operator
of RMR, opened the trading accounts, determined
trading strategies, and placed all trades, according to the
order. The Commission assessed sanctions including:
a cease and desist order; and a civil monetary penalty
($130,000 jointly and severally). The Commission received
cooperation from the NYBOT in connection with
this matter. In re Machata, et al., CFTC Docket No. 06-08
(CFTC filed Sept. 27, 2006).
International Cooperative Enforcement
December 2005, Protocol with the Dubai Financial
Services Authority.
January 2006, Amendment of the Commissions Statement
of Intent with the Japanese FSA to reflect new authority
obtained by the Japanese FSA over all financial
derivatives including foreign currency.
June 2006, Information Sharing Agreement with the
Israeli Securities Authority.
CFTC Information Technology Systems
Integrated Surveillance System (ISS)
User: Market Oversight
Functionality: ISS collects futures and options position
data for large traders from reporting firms and open
interest, volume, price, and clearing member data from
exchanges and is used to monitor futures and options
trading in order to detect any market anomalies that may
occur.
Regulatory Statement Review (RSR
Express)
User: Clearing & Intermediary Oversight
Functionality: RSR Express collects 1-FR reports and Focus
reports from all firms and is used to monitor the financial
status of firms and the changes to that status over time.
Stressing Positions at Risk (SPARK)
User: Clearing & Intermediary Oversight,
Market Oversight
Functionality: SPARK is a tool used by Commission staff
to perform what if analysis to determine the effect of
market movement on margin.
Filings and Actions (FILAC)
User: Clearing & Intermediary Oversight,
Market Oversight
Functionality: FILAC manages data associated with the approval
organizations, products, rules, foreign filings, and
actions.
Strategic Planning Workforce (SWP)
User: CFTC-Wide
Functionality: SWP is designed to allow the Commission
to matech current CFTC skill needs to the existing talent
base in the workforce. This matching will help determine
skill gaps and allow for future planning on how to meet
skill needs.
Project eLaw
User: Enforcement, General Counsel, Proceedings
Functionality: Project eLaw is a CFTC-wide initiative to
define requirements that will lead to the creation of an
automated law office that seamlessly integrates technology
and work processes to support Commission managers
and staff in their investigative, trial, and appellate work.
The CFTC Glossary
A Guide to the Language of the Futures Industry
http://www.cftc.gov/opa/glossary/opaglossary_a.htm
Because the acronyms of many words and phrases used throughout the futures industry are not readily available in standard
references, the Commissions Office of External Affairs compiled a glossary to assist members of the public.
This glossary is not inclusive, nor are general definitions intended to state or suggest the views of the Commission
concerning the legal significance, or meaning of any word or term. Moreover, no definition is intended to state or suggest
the Commissions views concerning any trading strategy or economic theory.
Glossary of Acronyms
AE................................................................................................The Actuarials Exchange, LLC
AFTC...........................................................................................Office of the Agricultural Futures Trading Commission of
Thailand
ALJ...............................................................................................Administrative Law Judge
AML.............................................................................................Anti-Money Laundering
AP................................................................................................Associated Persons
BTEX............................................................................................BrokerTec Futures Exchange
CBOE..........................................................................................Chicago Board Options Exchange
CBOT..........................................................................................Chicago Board of Trade
CCORP.......................................................................................The Clearing Corporation
CCX.............................................................................................Chicago Climate Exchange, Inc.
CDXCHANGE............................................................................Commodities Derivative Exchange, Inc.
CCFE...........................................................................................Chicago Climate Exchange, Inc.
CEA.............................................................................................Commodity Exchange Act
CESR...........................................................................................Council of European Securities Regulators
CFE..............................................................................................CBOE Futures Exchange
CFFE............................................................................................Cantor Financial Futures Exchange
CFTC...........................................................................................Commodity Futures Trading Commission
CFMA..........................................................................................Commodity Futures Modernization Act of 2000
CME............................................................................................Chicago Mercantile Exchange
CME AM.....................................................................................CME Auction Markets
COMEX.......................................................................................Commodity Exchange Division
COSRA........................................................................................Council of Securities Regulators of the Americas
CPO............................................................................................Commodity Pool Operator
CSCE...........................................................................................Coffee Sugar and Cocoa Exchange
CTA..............................................................................................Commodity Trading Advisor
DCIO..........................................................................................Division of Clearing and Intermediary Oversight (CFTC)
DCM...........................................................................................Designated Contract Market
DCO............................................................................................Derivatives Clearing Organization
DJIA VIX......................................................................................Dow Jones Industrial Average Volatility Index
DMO...........................................................................................Division of Market Oversight (CFTC)
DOJ.............................................................................................Department of Justice
ECM............................................................................................Exempt Commercial Markets
EGA.............................................................................................E-Government Act
EPFE............................................................................................Exchange Place Futures, LLC
EUREX US...................................................................................U.S. Futures Exchange, LLC
FB................................................................................................Floor Brokers
FCM............................................................................................Futures Commission Merchant
FCOM.........................................................................................FutureCom
FIA...............................................................................................Futures Industry Association
FILAC..........................................................................................Filings and Actions
FISMA.........................................................................................Federal Information Security Management Act
FMFIA.........................................................................................Federal Managers Financial Integrity Act
FOREX.........................................................................................Foreign Currency
FSA..............................................................................................Financial Services Authority
FT................................................................................................Floor Trader
FTE..............................................................................................Full-time Equivalent
FY................................................................................................Fiscal Year
GAAP...........................................................................................U.S. Generally Accepted Accounting Principles
GAO............................................................................................General Accountability Office
GCC............................................................................................Guaranty Clearing Corporation
GPRA...........................................................................................Government Performance and Results Act
HSE.............................................................................................HoustonStreet Exchange, Inc.
IB.................................................................................................Introducing Broker
ICAP............................................................................................ICAP Commodity Derivatives Trading System
ICAP ETC....................................................................................ICAP Electronic Trading Community
ICAP HYDE................................................................................ICAP Hyde Limited Trading System
ICC..............................................................................................Intermarket Clearing Corporation
ICE..............................................................................................IntercontinentalExchange, Inc.
IMAREX......................................................................................International Maritime Exchange
INET............................................................................................INET Futures Exchange
INTRADE....................................................................................INTRADE Board of Trade
ISS...............................................................................................Integrated Surveillance System
IOSCO........................................................................................International Organization of Securities Commissions
JADE............................................................................................Joint Asian Derivatives Exchange
JO................................................................................................Judgment Officer
KCBT...........................................................................................Kansas City Board of Trade
LCH.............................................................................................London Clearing House
LLC..............................................................................................Limited Liability Corporation
MACE..........................................................................................MidAmerica Commodity Exchange
MDA............................................................................................Managements Discussion and Analysis
ME...............................................................................................Merchants Exchange
MGE............................................................................................Minneapolis Grain Exchange
MOU...........................................................................................Memoranda of Understanding
MSR.............................................................................................Monthly Status Report
NFA.............................................................................................National Futures Association
NGX............................................................................................Natural Gas Exchange
NQLX..........................................................................................NQLX LLC
NTP.............................................................................................NetThruPut
NYBOT........................................................................................New York Board of Trade
NYCC..........................................................................................New York Clearing Corporation
NYCE..........................................................................................New York Cotton Exchange
NYFE...........................................................................................New York Futures Exchange
NYMEX.......................................................................................New York Mercantile Exchange
OCC............................................................................................The Options Clearing Corporation
OCX............................................................................................OneChicago Futures Exchange
OGC............................................................................................Office of the General Counsel (CFTC)
OHR............................................................................................Office of Human Resources (CFTC)
OIA..............................................................................................Office of International Affairs (CFTC)
OIG.............................................................................................Office of Inspector General (CFTC)
OITS............................................................................................Office of Information and Technology Services (CFTC)
OMB............................................................................................Office of Management and Budget
ONXCC.......................................................................................OnExchange Clearing Corporation
OPEX...........................................................................................Optionable, Inc.
OTC.............................................................................................Over-the-Counter
PBOT...........................................................................................Philadelphia Board of Trade
PPGC...........................................................................................Pay Parity Governance Committee
RBOB..........................................................................................Reformulated Gasoline Blendstock for Oxygen Blending
RER..............................................................................................Rule Enforcement Reviews
RIC..............................................................................................Registered Investment Company
RWG............................................................................................Registration Working Group
SC5..............................................................................................IOSCOs Standing Committee 5 on Investment Management
SEC..............................................................................................Securities and Exchange Commission
SFP..............................................................................................Security Futures Products
SL.................................................................................................Spectron Live.com Limited
SPARK.........................................................................................Stressing Positions at Risk
SRO.............................................................................................Self-Regulatory Organization
TCX.............................................................................................Trade Capture Exchange
TFS...............................................................................................Traditional Financial Services Pulp and Paper Division
TFSE............................................................................................TFS Energy, LLC
TPI...............................................................................................Trade Practice Investigation
TRADE........................................................................................Trade Practice Surveillance System
TREASURY..................................................................................U.S. Department of the Treasury
TS................................................................................................TradeSpark, LP
UK...............................................................................................United Kingdom
UNIDROIT.................................................................................International Institute for the Unification of Private Law
US................................................................................................United States of America
USA PATRIOT.............................................................................Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism
VaR..............................................................................................Value at Risk
VIX..............................................................................................Volatility Index
WBOT.........................................................................................Weather Board of Trade
WXL.............................................................................................WeatherXchange Limited
XBOT...........................................................................................Exempt Boards of Trade
Photo Credits and Acknowledgements
Cover Page Photo Credits:
Top of page, from left to right:
KCBT Building, 1877. Photo provided by Kansas City Board of Trade
KCBT Trading Floor, 1877. Photo provided by Kansas City Board of Trade
KCBT Building, 18871924. Photo provided by Kansas City Board of Trade
CME Trading Floor, 1950s. Photo provided by Chicago Mercantile Exchange
The last day in the old Board of Trade Building, January 1, 1925. Photo provided by Kansas City Board of Trade
Trading Floor Board of Trade, Kansas City, January 9, 1925. Photo provided by Kansas City Board of Trade
CME Trading Floor Soon After 1928 Opening. Photo provided by Chicago Mercantile Exchange
KCBT Trading Floor, 1930s. Photo provided by Kansas City Board of Trade
KCBT Trading Floor, July 19, 1932. Photo provided by Kansas City Board of Trade
KCBT 80th Anniversary, February 6, 1936. Photo provided by Kansas City Board of Trade
CME, 1940s . Photo provided by Chicago Mercantile Exchange
CBOT Building. Photo provided by Chicago Board of Trade
KCBT Building, 19251966. Photo provided by Kansas City Board of Trade
Ticker Tape Parade with CBOT Building in the Background. Photo provided by Chicago Board of Trade.
KCBT Building. Photo provided by Kansas City Board of Trade
CBOT Trading Floor. Photo provided by Chicago Board of Trade
CME S&P Pit. CME-NYSE AP photo provided by Chicago Mercantile Exchange
CBOT Trading Floor. Photo provided by Chicago Board of Trade
CME Trading Floor. Photo provided by Chicago Mercantile Exchange
CME Trading Floor. Photo provided by Chicago Mercantile Exchange
CBOT Building. Photo provided by Chicago Board of Trade
CBOT Trading Floor. Photo provided by Chicago Board of Trade
Internal Report Photo Credits:
Robert Rathe Photography; Pages 2, 26, 54, 133, 138, and 151; photos by Robert Rathe
Commodity Futures Trading Commission; Pages 1, 5, 14, 30, 33, 41, 42, 71, 95, 96, 97, 117, 136, 153, and 154;
photos by Stacy D. Yochum
Acknowledgements
This Performance and Accountibility Report was produced with the energies and talents of Commission staff. To these
individuals, the Office of Financial Management would like to offer our sincerest thanks and acknowledgement.
We would also like to acknowledge the Office of Inspector General and KPMG, LLP for the professional manner in
which they conducted the audit of the Fiscal Year 2006 Financial Statements.
We offer our special thanks to Sledd Studios, in particular John Sledd, for his outstanding contribution to the design of
this report.
Additional copies of the Commodity Futures Trading Commission FY 2006 Performance and Accountability Report
are available by contacting the Office of Financial Management:
Office of Financial Management
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
Telephone: Emory Bevill, 202.418.5187 or Lisa Malone, 202.418.5184
Fax: 202.418.5414
E-mail: ebevill@cftc.gov or lmalone@cftc.gov
Web: http://www.cftc.gov/cftc/cftcreports.htm
The CFTCs Strategic Plan is available on the Web at: http://www.cftc.gov/files/ofm/ofmfy2009strategicplan.pdf
COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre 1155 21st Street, N.W. Washington, DC 20581
202.418.5000 www.cftc.gov
Last Updated: February 8, 2007
See Also:
Media Contacts in Office of Public Affairs
-
Steven Adamske
-
202-418-5080
