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Means and Strategies for Achieving Goal Three Objectives
Means:
- Oversee market intermediaries, swap dealers, major swap participants and the self-regulatory programs and compliance activities of the futures industry SROs, which include the U.S. commodity exchanges, the NFA, and DCOs.
- Protect market users and financial intermediaries by developing regulatory requirements related to registration, business conduct, record-keeping and reporting, financial adequacy including capital margin, sales practices, protection of customer funds, and clearance and settlement activities.
- Address cross-border transactions, the coordination of policy with foreign market authorities, systemic risk, anti-money laundering programs, and procedures to address extraordinary events such as firm defaults.
- Monitor market movements for potential financial impact on clearing firms and DCOs.
- Monitor trading activity to detect abusive trading practices through examinations of audit trail data.
Strategies:
- Maintain a flexible regulatory environment responsive to evolving market conditions. In order to ensure that the regulatory framework under which futures and option contracts are traded remains current, Commission staff will continue to review the Commission’s regulations with the intention of: eliminating obsolete regulations; streamlining and coordinating regulations across markets; and fostering efficiency and competitiveness while assuring customer protection, sound financial practices, and market integrity. The Commission will also respond to requests for exemptions and other relief from regulatory requirements to address situations in which additional flexibility is warranted. The Commission also will issue advisories and other guidance concerning the application of Commission regulations.
- Oversight of SROs, DCOs, Swap Dealers and Major Swap Participants. A key aspect of effective self-regulation is oversight by the Commission of SROs, NFA, and DCOs to ensure their fulfillment of responsibilities for monitoring and ensuring the financial integrity of market intermediaries and the protection of customer funds. This oversight program involves conducting risk-based reviews and examinations of SROs (including NFA) and DCOs to evaluate their compliance programs with respect to applicable provisions of the CEA and Commission regulations. The Commission also will incorporate the supervision of swap dealers and major swap participants into its regulatory program.
- Conduct financial surveillance. To discharge the Commission’s statutory responsibility to ensure the financial integrity of all transactions and avoid systemic risk, the clearing oversight program undertakes daily risk surveillance across all markets that are subject to CFTC jurisdiction by reviewing the risk profiles of DCOs, clearing firms and market participants with large positions. This responsibility will only increase with the anticipated increase in the number and complexity of swaps being cleared and the attendant increased risk at all DCOs, as a result of the clearing mandate of the Dodd-Frank Act.
- Increase activities in international forums to respond to the financial crisis. The global financial crisis has prompted regulators and international standard setting bodies such as the IOSCO, the Financial Stability Board (FSB) and G20 to accelerate work that focuses on enhancing international financial standards and principles. The Commission will expand its efforts within these organizations and their constituent working groups, and coordinate closely with the Treasury and SEC, to promote the development of stronger international financial standards.
- Increase cooperative efforts to implement new legislative authority. The new financial regulatory authority provided in the Dodd-Frank with regard to swaps will have international implications, such as the impact of this authority on entities located outside the United States, the need to avoid regulatory gaps that might encourage regulatory arbitrage and the need for oversight of entities that may be registered both in the United States and a foreign jurisdiction. The Commission will continue its international engagement with the European Commission and regulators in other relevant market jurisdictions to encourage the avoidance of regulatory gaps and to develop, as needed, new information sharing and supervisory coordinating mechanisms.
- Respond to increasing concerns with respect to volatility in energy and agricultural markets. The Commission will respond to global concerns about energy and agricultural market volatility by continuing to co-chair the IOSCO Commodity Task Force on Commodity Futures Markets and continuing its efforts to promote greater transparency of futures, cash and over-the-counter (OTC) commodity market transactions.
- Review SRO rule submissions. New rules and rule changes submitted by the exchanges, DCOs, and NFA to the Commission are reviewed with a view towards ensuring compliance with statutory core principles and regulatory standards in order to maintain the fairness and integrity of the markets, protect customers, and accommodate and foster innovation and efficiency in self-regulation consonant with the Commission’s mandates from Congress. Many of the rule submissions present complex new trading and clearing procedures, market structures, and financial arrangements that present novel issues and, in some cases, require amendments to or interpretations of Commission regulations to facilitate implementation of the SRO’s rule changes. The Commission has adapted its requirements to ensure quicker approval of submitted rules and rule changes, and an expeditious and complete due diligence reviews of new rule and rule change certification submitted by exchanges for compliance with the CEA and the Commission’s regulations. This due diligence review, when carried out in a timely fashion, allows the Commission to meet its statutory responsibility to ensure avoidance of systemic risks, protection of market participants, and the promotion of responsible innovation and fair competition.