Table Of Contents

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, technology, globalization, and innovation are expected to continue to drive growth in the markets the Commission regulates.

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 resources necessary to do the job expected of it by 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. The Commission attempts to balance its investment in four 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, by SROs. 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.

Performance Challenges

Technology

• Technology continues to make it possible for market participants to trade globally, 24 hours a day, on newly designed platforms. 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 where, when, and how to trade.
• The expansion of electronic trading continues to require an increase in Commission staff trained to carry out oversight of more technologically driven markets and self-regulatory systems.
• As electronic trading of commodity futures and option contracts on Commission-regulated exchanges becomes the norm, the Commission must continue to 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.
• The continuing shift of market volume to the electronic trading environment poses new data processing challenges to the CFTC. Because this medium allows exchanges to gather and transmit much more information about trading activity, the CFTC must increase its overall capacity for processing and storage. In addition to the significant increase in the amount of information being made available to the CFTC, there has been a large increase in the number of contracts being traded. Therefore, to meet these challenges, the Office of Information Technology Services (OITS) will continue to improve its computational performance. A variety of projects are underway that address specific CFTC business needs using the data and market information the Commission receives.
• Commission work continued on Project eLaw, an effort that provides law office automation and modernization to the Commission’s Division of Enforcement, Office of the General Counsel (OGC), and Office of Proceedings. Project eLaw is a Commission-wide initiative that seamlessly integrates technology and work processes to support managers and staff across the Commission in their investigation, trial, and appellate work. In FY 2007, Project eLaw became a major program supporting the Commission. The case management solution was further customized to best meet the needs and evolving requirements of the users. This year saw the program pursuing the area of computer forensics and audio analytics to further support the Division of Enforcement with their investigation and litigation work. Project eLaw will continue to support the Commission’s legal practice in the areas of case planning, case management, litigation support, and document management.
• In FY 2008, the Commission will continue to maintain, support, and enhance the eLaw solution and consider expansion into other areas of the Commission that would benefit from the automated technology.
• Presently, the Commission is developing a new trade surveillance system (TSS) to replace its older trade surveillance system that was designed for open outcry trading and has not been significantly upgraded since its inception in the mid-1980s. TSS will give the Commission the ability to accomplish its statutory mandate of deterring and preventing price manipulation and any other disruptions to the integrity of the markets the Commission regulates. Specifically, TSS will enhance staff ability to effectively detect and deter trade practice violations in a rapidly changing environment, especially with respect to electronic trading data, and will provide staff with greater efficiency and flexibility. Trade violation detection software will perform sophisticated pattern recognition and data mining to automate basic trade practice surveillance and detect novel and complex abusive practices in today’s high-speed, high-volume global trading environment. TSS also will fill a vacuum in inter-market surveillance that only the Commission can address, e.g., metals contracts traded on the New York Mercantile Exchange (NYMEX) and the Chicago Board of Trade (CBOT), and side-by-side trading, e.g., simultaneous trading of a contract on a designated contract market’s (DCM) floor and the DCM’s electronic trading platform.

Globalization

• Additional experienced staff will be required to meet the demands of the continued globalization of the futures and option markets through electronic linkages, strategic alliances and mergers, as well as increasing requests for the Commission to: 1) participate in U.S. government initiatives with economically important jurisdictions; and 2) provide technical assistance to developing markets.
• In such an integrated global marketplace, the possibility of market disruptions caused by economic changes, terrorism, epidemics, natural disasters, or political developments could trigger global market systemic concerns. Because no one regulator will have all of the needed information or jurisdiction over markets, firms, and persons to ensure customer and market protections, the Commission’s challenge will be to coordinate with global regulators.

Marketplace

• Development and growth of renewable energy sources (i.e., biofuels) could impact existing energy markets.
• Disruption of oil exports to the United States 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 option 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 increasingly complex legal and regulatory issues.
• Convergence of products and markets requires increased interagency coordination with the Securities and Exchange Commission (SEC) and the Federal Energy Regulatory Commission (FERC) to address areas of mutual interest related to cross-jurisdictional issues, such as those presented by credit card event products and commodity exchange-traded funds and potential manipulation in the energy markets, respectively.
• Expansion of these markets results in strong competition for employees with the skills the Commission requires to meet its mission, continually challenging the Agency to offer competitive compensation.

Government

• Congress could pass new legislation of certain 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.
• Prompt implementation of enhanced e-government business processes is a continual challenge within limited staff and financial resources.

Management Challenges

Information Technology

• Technology improvements will continue to empower the Commission in the future by increasing the availability of one of its most critical resources— 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

• Human capital management with an enhanced strategic focus continues to emphasize building the staff resources necessary for core business lines, with support requirements met through the use of leveraged resources and competitive sources of service.
• 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, the Commission must continually seek to improve the work environment so it can continue to attract, engage, and retain a workforce that is equal to the evolving challenges of market oversight.

Management

• Management challenges include compliance with the future demands and uncertainties of Homeland Security Presidential Directives 12 and 20, as well as pandemic influenza preparedness.

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