2006 Performance and Accountability Report

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

Number of Entities/Persons Charged

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

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

MGE

NQLX

NYBOT

NYCE

NYFE

NYMEX

(incl. COMEX)

OCX

PBOT

TOTAL

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

Clearinghouse

BTEX

CCorp

CBOT

CME

EnergyClear

FCOM

GCC

HedgeStreet

ICC

KCBT

LCH

MGE

NYCC

NYMEX

OCC

ONXCC

TOTAL

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

TFSE

TFS

ChemConnect

ICAP ETC

ICAP

ICAP HYDE

TCX

NTP

TOTAL

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

MATCHBOXX

ATS

WBOT

WXL

Intrade

TOTAL

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

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%

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

b) Amount of funds lost

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%

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%

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%

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

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

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.

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.

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

PERFORMANCE SECTION

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

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%

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%

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%

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%

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

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%

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

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

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%

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

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%

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%

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%

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%

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%

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%

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

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

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

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

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%

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%

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%

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%

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%

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%

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

05101520

NUMBERFY 2006 Performance ResultsPlanActual

Results: 20

Measurement: Number

Data Source: Code of Federal Regulations, proposed and

final amendments to regulations; Federal

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

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%

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%

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.

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

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

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

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

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

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