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Means and Strategies for Achieving Goal One Objectives
Means:
- Directly monitor commodity futures, options and swaps markets to detect and protect against price manipulation and abusive trading practices to ensure that the markets are performing the vital economic functions of price discovery and risk transfer or hedging.
- Perform market surveillance and trade practice oversight by conducting examinations of exchange programs to ensure that the exchange is appropriately monitoring daily trading activity, positions of large traders, and the supply and demand factors affecting prices.
- Review products listed by exchanges and rules and rule amendments submitted by exchanges to ensure compliance with the CEA and to develop, implement, and interpret regulations that are designed to protect the economic functions of the market, protect market participants, prevent trading abuses, and facilitate innovation.
Strategies:
- Collect and analyze trading data. On a daily basis, the Commission collects and analyzes U.S. futures and option data for all actively traded contracts to detect congestion and/or price distortion. Economists analyze the activities of traders, key price relationships, and relevant supply and demand conditions for nearly 1,400 contracts representing major agricultural commodities, metals, energy, financial instruments, equity indices, foreign currencies and emission allowances. Commission staff also analyze markets to determine how conditions and factors observed may impact individual registrants or the markets in general in order to deter potentially adverse conduct and to take appropriate action, responding quickly to potentially disruptive situations. Under the Dodd-Frank Act, the Commission also must collect and analyze information on swap trading to enforce aggregate position limits, identify potential market disruptions, ensure post trade transparency and conduct periodic assessments of activity in the swaps markets.
- Review products and rules. Properly designed futures and option markets serve vital price discovery and hedging functions, which are essential to a healthy, capital-based economy. Business, agricultural, and financial enterprises use the futures markets for pricing information and to hedge against price risk. The participants in commercial transactions rely extensively on the prices established by futures markets that affect trillions of dollars in commercial activity. Moreover, the prices established by the futures markets directly or indirectly affect all Americans. They affect what Americans pay for food, clothing, and shelter, what we pay to heat our homes and fuel our cars, as well as other necessities. Deficiencies in the terms and conditions of futures and option contracts increase the likelihood of cash, futures, or option market disruptions, and also decrease the economic usefulness and efficiency of a contract. Furthermore, deficiencies in market rules can increase the likelihood that the market will operate in an unfair manner or will not have appropriate safeguards in place for the protection of customers. Commission staff conducts a due diligence review of each contract and contract amendment to ensure compliance with the CEA and the Commission’s regulations, and relies on its authority to then alter, or supplement, exchange rules or to take emergency action, as appropriate, if a violation is discovered. Under the Dodd-Frank Act, the Commission now also must evaluate which products are subject to mandatory trading requirements and requirements for real time reporting of transaction information.
- Analyze markets and provide expert analysis. Each week, reports are prepared on special market situations and on market conditions for all contracts approaching their critical expiration periods. Potential problems detected while preparing these reports are shared with the Commissioners and senior staff. The Commission shares pertinent information with other regulatory agencies and works with the affected exchange to develop and administer responsive measures as necessary. Economists and futures trading specialists keep abreast of innovation in the marketplace in technology, trading strategies, trading instruments, and methods to ensure an understanding of how the markets are functioning and to develop a flexible, effective regulatory response to market conditions as they evolve.
- Coordinate with other financial regulators. Under Dodd-Frank the Chairman will be a voting member of the new Financial Stability Oversight Council (FSOC) and will participate in its deliberations and other activities. The FSOC, which was created in Title I of the Dodd-Frank Act, consists of the following voting members: the Secretary of the Treasury, who shall serve as Chairman of the Council, the Chairman of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Director of the Bureau of Consumer Financial Protection, the Chairman of the Securities and Exchange Commission (SEC), the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the CFTC, the Director of the Federal Housing Finance Agency, the Chairman of the National Credit Union Administration, and an independent member having insurance expertise, appointed by the President, by and with the advice and consent of the Senate. The non-voting members include the Director of the Office of Financial Research, the Director of the Federal Insurance Office, a designated State insurance commissioner, a designated State banking supervisor, and designated state securities. The purposes of the Council are to identify risks to the financial stability of the United States that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected bank holding companies or nonbank financial companies, or that could arise outside the financial services marketplace; to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure; and to respond to emerging threats to the stability of the U.S. financial system. By law, the FSOC must meet at least quarterly. The Chairman will rely on the staff and resources of the CFTC to carry out his statutory duties as a member of the FSOC.
- Address specific CFTC-SEC cross-jurisdictional products and issues. The CFTC and SEC have entered into a Memorandum of Understanding (MOU) establishing a permanent regulatory liaison between the two agencies to address areas of mutual interest, and providing a forum to discuss and address these issues on a timely basis. The agencies continue to address cross-jurisdictional issues as they arise, such as those presented by credit event products and commodity exchange-traded funds. The agencies’ cooperative efforts seek to avoid barriers to entry, accelerate the process for granting appropriate product approvals, and reduce legal uncertainty.
- Provide transparency about the marketplace. Commission staff prepare and provide materials and information on the functions of the markets and the types of participants to the public through public Commission meetings, public roundtables, advisory committee meetings, symposia, publications, press releases, advisories, and publication of the Commitments of Traders (COTS) reports. Staff also participates as appropriate in seminars sponsored by other Federal and state government organizations and industry-sponsored conferences. The Commission’s Web site plays a significant role in providing information to the public.
- Investigate and prosecute wrongdoing. Commission attorneys and investigators conduct investigations and institute enforcement actions against alleged violators. Violators are sanctioned. The sanctions are publicized and enforced. The Commission may bring Federal injunction or administrative enforcement cases against persons or firms charged with violating the CEA or Commission regulations.
- Review regulations and amend or abolish as appropriate. In order to ensure that the regulations enforced by the Commission are sufficiently protective of the public interest, especially the new provisions mandated by the Dodd-Frank Act; the Commission reviews and adapts its regulations to evolving conditions and changes in the industry.