2008 Budget and Performance Plan

The number of actively Growth in Volume of Futures & Option Contracts Traded & FTEs ................................................................... ..1

Actively Traded Futures & Option Contracts .................................... 2

...

Growth of Foreign Commodity Trading ............................................ 3

...

Number of Registrants ....................................................................... 4

...

Preservation of Market Integrity and Protection of Market Users... 5

...

Contract Markets Designated by the CFTC, 2001 û 2006................ 6

....

Number of CFTC-Registered Derivatives Clearing Organizations, 2001 û 2006........................................................................................ 7

Exempt Commercial Markets, 2001 û 2006 .....................................8

....

Exempt Boards of Trade, 2001 û 2006 ............................................. 9

....

Customer Funds in Futures Commission Merchants Accounts..... 10

....

OVERVIEW OF PLANNED OUTCOMES BY STRATEGIC GOAL.... ..11 Introduction ......................................................................................11

....

FY 2008 Outcomes by Goal ............................................................. 12

....

COMMISSION STRATEGIES TO INFLUENCE OUTCOMES ......... 16

....

Strategic Goal One - Ensure the Economic Vitality of the Commodity Futures and Option Markets. ...........................16

Summary of Goal One Performance Indicators ..............................22

....

Breakout of Goal One Request by Program Activity....................... 23

....

Breakout of Goal One Request by Outcome Objective ................... 24

....

Strategic Goal Two û Protecting Market Users and the Public. ................................................................................. 25

Summary of Goal Two Performance Indicators..............................30

....

Breakout of Goal Two Request by Program Activity ...................... ..31

Breakout of Goal Two Request by Outcome Objective ................... 32

....

Strategic Goal Three û Ensuring Market Integrity in Order to Foster Open, Competitive, and Financially Sound Markets............................................................................... 33

Summary of Goal Three Performance Indicators .............................40

Breakout of Goal Three Request by Program Activity .................... ..41

Breakout of Goal Three Request by Outcome Objective ................42

....

JUSTIFICATION OF THE FY 2008 BUDGET & PERFORMANCE ESTIMATE..........................................................................43

Breakout of $116.0 Million Budget Estimate by Program ..............43

.....

Breakout of $116.0 Million Budget Estimate by Object Class ...........44

Crosswalk from FY 2007 to FY 2008 ..............................................45

.....

Market Oversight ............................................................... 46

.....

Total Budget: $23,180,000 101 FTEs .............................................46

Total Change: $ 3,162,000 1 FTE .............................................46

Clearing & Intermediary Oversight................................... 52

.....

Total Budget: $17,070,000 69 FTEs............................................52

Total Change: $3,697,000 7 FTEs...........................................52

.....

Enforcement ...................................................................... 58

.....

Total Budget: $30,262,000 120 FTEs ...................................... 58

.....

Total Change: $ 3,549,000 0 FTE ..................................... 58

Office of the Chief Economist............................................64

.....

Total Budget: $ 3,796,000 14 FTEs ....................................... 64

.....

Total Change: $ 1,613,000 5 FTEs ..................................... 64

Office of Proceedings .........................................................68

.....

Total Budget: $ 2,384,000 11 FTEs ........................................ 68

.....

Total Change: $ 315,000 0 FTE....................................... 68

Office of the General Counsel ............................................ 72

.....

Total Budget: $ 8,874,000 32 FTEs ................................ ...72

Total Change: $ 1,920,000 4 FTEs ................................. ...72

Executive Direction & Support.......................................... 77

.....

Total Budget: $30,434,000 128 FTEs .........................................77

Total Change: $ 3,735,000 0 FTE.......................................77

APPENDIX 1 ................................................................... 81.....

The Commissioners .............................................................................81

APPENDIX 2 ......................................................................83

Summary of Goals, Outcomes, and Business Processes ................ 83

.....

APPENDIX 3 ...................................................................85.....

Management Initiatives Supporting the PresidentÆs Management Agenda .............................................................................................. 85

...

APPENDIX 4 ......................................................................90

Proposed Goal 4: To facilitate Commission performance through organizational and management excellence, efficient use of resources, and effective mission support. ....................................... 90

...

APPENDIX 5 ................................................................. 104

.....Privacy Policy for the CFTC Web Site ........................................... 104

.....APPENDIX 6 ................................................................. 105

.......Table of Acronyms .............................................................................105

APPENDIX 7 .................................................................108

.....CFTC Mandatory Proposal: Futures & Options Transaction Fee108.....Figure 1: Growth of Volume of Contracts Traded and FTEs........................... 1

...

Figure 2: CFTC Actively Traded Contracts ......................................................2

...

Figure 3: Foreign Commodity Trading ............................................................3

...

Table 1: Number of Registrants........................................................................4

...

Table 2: Energy Markets...................................................................................5

...Table 3: Foreign Currency Markets .................................................................5

...Table 4: Designated Contract Markets ............................................................6

...

Table 5: CFTC-Registered Derivatives Clearing Organizations ...................... 7

...

Table 6: Exempt Commercial Markets ...............................................................8

Table 7: Exempt Boards of Trade.....................................................................9

...

Figure 4: Customer Funds in FCM Accounts ............................................... 10

...

Figure 5: Budget & Performance Estimate by Strategic Goal ...........................11

Table 8: Breakout of Goal One by Outcome .................................................. 12

...

Table 9: Breakout of Goal Two by Outcome .................................................. 13

...

Table 10: Breakout of Goal Three by Outcome.............................................. 14

...

Table 11: Summary of CFTC Mission, Goals, and Outcomes ........................ 15

...

Figure 7: Goal One Resource Strategy Mapping ........................................... 18

...

Table 12: Breakout of Goal One Request by Program Activity ......................23

...Figure 8: Breakout of Goal One Request by Program Activity ......................23

...Table 13: Breakout of Goal One by Outcome.....................................................24

Figure 9: Breakout of Goal One Request by Outcome Objective ......................24

Figure 10: Goal Two Resource Strategy Mapping ............................................26

Table 14: Breakout of Goal Two Request by Program Activity ..................... 31

...Figure 11: Breakout of Goal Two Request by Program Activity ..................... 31

...Table 15: Breakout of Goal Two by Outcome ....................................................32

Figure 12: Breakout of Goal Two Request by Outcome Objective .................32

...Figure 13: Goal Three Resource Strategy Mapping ..........................................34

Table 16: Breakout of Goal Three by Program Activity.................................. 41

...Figure 14: Breakout of Goal Three Request by Program Activity .................. 41

...Table 17: Breakout of Goal Three Request by Outcome.................................42

...Figure 15: Breakout of Goal Three Request by Outcome Objective...............42

...Table 18: Budget Estimate by Program ............................................................43

Figure 16: $116.0 Million Budget Estimate by Program ..................................43

Table 19: Budget Estimate by Object Class.......................................................44

Figure 17: $116.0 Million Budget Estimate by Object Class.............................44

Table 20: Crosswalk from FY 2007 to FY 2008 ............................................45

...

Figure 18: Market Oversight Percentage of Total Budget Dollars ....................46

Figure 19: Market Oversight Percentage of Total Budget FTEs .......................46

Table 21: Market Oversight Request by Subprogram ......................................50

Figure 20: Market Oversight FY 2008 Budget by Subprogram ......................50

Table 22: Market Oversight Request by Goal ................................................ 51

...Figure 21: Market Oversight FY 2008 Budget by Goal ................................. 51

...Figure 22: Clearing & Intermediary Oversight Percentage of Total Budget Dollars........................................................................................52...Figure 23: Clearing & Intermediary Oversight Percentage of Total Budget FTEs ...........................................................................................52...Table 23: Clearing & Intermediary Oversight Request by Subprogram.......56

...Figure 24: Clearing & Intermediary Oversight FY 2008 Budget by Subprogram.......................................................................................56Table 24: Clearing & Intermediary Oversight Request by Goal.................... 57

...Figure 25: Clearing & Intermediary Oversight FY 2008 Budget by Goal .... 57...Figure 26: Enforcement Percentage of Total Budget Dollars ..........................58

Figure 27: Enforcement Percentage of Total Budget FTEs..............................58

Table 25: Enforcement Request ........................................................................62

Table 26: Enforcement Request by Goal ..........................................................63

Figure 28: Enforcement FY 2008 Budget by Goal........................................ 63...

Figure 29: Chief Economist Percentage of Total Budget Dollars.................. 64...Figure 30: Chief Economist Percentage of Total Budget FTEs ..................... 64...Table 27: Office of the Chief Economist Request.......................................... 66...

Table 28: Office of the Chief Economist Request by Goal ............................ ...67

Figure 31: Proceedings Percentage of Total Budget Dollars......................... 68...Figure 32: Proceedings Percentage of Total Budget FTEs ........................... 68...Table 29: Proceedings Request by Subprogram ........................................... 70...Figure 33: Proceedings FY 2008 Budget by Subprogram ............................ 70...Table 30: Proceedings Request by Goal .........................................................71...Figure 34: Proceedings FY 2008 Budget by Goal ..........................................71...Figure 35: Percentage of Total Budget Dollars ............................................. ...72Figure 36: Percentage of Total Budget FTEs................................................ ...72Table 31: General Counsel Request ...................................................................75

Table 32: General Counsel Request by Goal ................................................. 76...Figure 37: General Counsel FY 2008 Budget by Goal .................................. ...76

Figure 38: Percentage of Total Budget Dollars .................................................77

Figure 39: Percentage of Total Budget FTEs....................................................77

Table 33: Executive Direction & Support Request by Subprogram ............. ...79Figure 40: Executive Direction & Support FY 2008 Budget by Subprogram ................................................................................... 79...Table 34: Executive Direction & Support Request by Goal ..........................80

...Figure 41: Executive Direction & Support FY 2008 Budget by Goal ........... 80

...Table 35: Breakout of Goal Four by Outcome.............................................. ...103

Figure 42: Breakout of Goal Four Request by Outcome Objective ............ ...103

Summary & Highlight Statement

February 5, 2007

The Honorable Robert C. Byrd Chairman Committee on Appropriations United States Senate S-128 Capitol Building Washington, D.C. 20510-6025

The Honorable David R. Obey Chairman Committee on Appropriations United States House of Representatives S-218 Capitol Building Washington, D.C. 20515-6015

Dear Chairman Byrd and Chairman Obey:

I am pleased to transmit to you the Commodity Futures Trading CommissionÆs (CFTC) Budget and Performance Estimate for FY 2008. This budget requests an ap¡propriation of $116,000,000 and 475 staff-years, an increase of approximately $18,000,000 and 17 staff-years over the estimated FY 2007 appropriation of $98,000,000.

Congress created the CFTC in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The Commis-sionÆs mandate was renewed and/or expanded in 1978, 1982, 1986, 1992, and 1995. In December 2000, the Commission was reauthorized by Congress and the President through FY 2005 with passage of the Commodity Futures and Modernization Act of 2000 (CFMA). Although the CFMA changed the Commission approach to regula¡tion, the Commission mission remains the same. The CFTC continues to be responsi¡ble for fostering the economic utility of futures markets by encouraging their com¡petitiveness and efficiency, ensuring their integrity, and protecting market partici¡pants against manipulation, abusive trading practices, and fraud. Through effective oversight regulation, the CFTC enables the commodity futures markets better to serve their vital function in the NationÆs economy û providing a mechanism for price dis¡covery and a means of offsetting price risks.

These trillion dollar futures markets, with massive economic force, are expanding steadily in both volume and new users and their complexity is rapidly evolving with new technologies, globalization, product innovation, and greater competition. In the past ten years trading volume has quintupled while Commission staffing levels have fallen significantly over the same time period. The funds requested will allow the Commission to hire critically needed staff, maintain the technological infrastructure, and acquire contractor assistance to keep pace with the volume and complexity of the burgeoning and dynamic futures markets. The Commission needs these funds simply to keep up with the industry we regulate. I respectfully submit that the additional sum requested in this budget is relatively small and needed to ensure the appropriate level of oversight.

cc:

The Honorable Tom Harkin Chairman Committee on Agriculture, Nutrition, and Forestry

U.S. Senate SR - 328A Russell Senate Office Building Washington, D. C. 20510-6000 The Honorable Collin C. Peterson Chairman Committee on Agriculture

U.S. House of Representatives 1301 Longworth House Office Building Washington, D. C. 20515-6001

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Actively Traded Futures & Option Contracts

The number of actively traded contracts traded on U.S. exchanges has more than quintupled in the last decade. The number is expected to grow to over 1,500 con¡tracts by FY 2008.

1590

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Est. Est.

Fiscal Year

Figure 2: CFTC Actively Traded Contracts

Growth of Foreign Commodity Trading

Since 2000, the number of foreign customers trading on U.S. exchanges more than doubled and the number of U.S. customers trading on foreign exchanges has more than quadrupled.

144.6

2000 2006

Figure 3: Foreign Commodity Trading

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 Fu¡tures Association (NFA), a self-regulatory organization 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 (AP) (Sales People) 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) 210 1

Introducing Brokers (IBs) 1,741.F

TOTAL 70,083

Table 1: Number of Registrants

1 Includes 16 notice-registered FCMs. 2 Includes 45 notice-registered IBs.

Preservation of Market Integrity and Protection of Market Users

Spotlight on Energy and Foreign Currency Markets

Actions Taken Since Enron Bankruptcy in December 2001 Energy Markets

Number of Cases Filed or Enforcement Actions 35 Number of Entities/Persons Charged 55 Number of Dollars in Penalties Assessed

F Civil Monetary Penalties $302,863,500

Table 2: Energy Markets

Actions Taken Since Passage of the CFMA in December 2000 Foreign Currency Markets

Number of Cases Filed or Enforcement Actions 93 Number of Entities/Persons Charged 354 Number of Dollars in Penalties Assessed

F Civil Monetary Penalties $292,042,098

F Restitution $182,471,571

. On Behalf of Customers 25,070

Table 3: Foreign Currency Markets

Contract Markets Designated by the CFTC, 2001 û 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 institu¡tional and retail participants.

Table 4: Designated Contract Markets

3 Refer to the CFTC Glossary in Appendix 6 for full names of organizations

Number of CFTC-Registered Derivatives Clearing Organizations, 2001 û 2006

Clearinghouses that provide clearing services for CFTC-regulated exchanges must register as DCOs. Currently, 11 DCOs are registered with the Commission.

DCOs .F 4 AE Clearinghouse 2001 2002 2003 2004 2005 2006 9 9

BTEX CCorp 9 9 9 9 9 9 9 9 9

CBOT CME 9 9 9 9 9 9 9 9 9

EnergyClear FCOM 9 9 9 9 9 9

GCC HedgeStreet 9 9 9 9 9

ICC KCBT 9 9 9 9 9 9 9 9 9

LCH MGE 9 9 9 9 9 9 9 9 9 9 9

NYCC NYMEX 9 9 9 9 9 9 9 9 9 9 9 9

OCC ONXCC 9 9 9 9 9 9 9 9

TOTAL 11 14 14 10 11 11

Table 5: CFTC-Registered Derivatives Clearing Organizations

Exempt Commercial Markets, 2001 û 2006

Electronic trading facilities providing for the execution of principal-to-principal transactions between eligible commercial entities in exempt commodities may op¡erate as ECMs as set forth under the CEA and the CommissionÆs 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 facil¡ity is registered with, or recognized, designated, licensed or approved by, the Com¡mission. To date, 17 ECMs have filed notices with the Commission.

Exempt Commercial Markets .F 5 2001 2002 2003 2004 2005 2006 9 9 9 9

CCX

CDXchange HSE 9 9 9 9 9 9 9 9 9 9

ICE IMAREX 9 9 9 9 9 9 9 9 9 9 9 9

NGX OPEX 9 9 9 9 9 9 9 9 9 9 9

SL TFSE 9 9 9 9 9 9 9 9

TFS TS 9 9 9 9 9 9 9 9 9

ChemConnect ICAP ETC 9 9

ICAP ICAP HYDE 9 9

TCX NTP 9 9 9

TOTAL 3 7 11 11 12 17

Table 6: Exempt Commercial Markets

5 Refer to the CFTC Glossary in Appendix 6 for full names of organizations.

Exempt Commercial Markets

Exempt Boards of Trade, 2001 û 2006

Transactions by eligible contract participants in selected commodities may be con¡ducted on an XBOT as set forth under the CEA and the CommissionÆs regulations. XBOTs are subject only to the CEA's anti-fraud and anti-manipulation provisions. An XBOT is prohibited from claiming that the facility is registered with, or recog¡nized, designated, licensed, or approved, by the Commission. Also, if it is perform¡ing 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 Trade..F 6 2001 2002 2003 2004 2005 9 2006 9

CME AM

9 9 9

MATCHBOXX ATS 9

WBOT 9 9 9 9

WXL 9 9 9 9 9

Intrade 9 9

TOTAL 0 1 2 3 5 6

Table 7: Exempt Boards of Trade

Customer Funds in Futures Commission Merchants Accounts

The amount of customer funds held at futures commission merchants has more than quadrupled in the last decade.

$138.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Figure 4: Customer Funds in FCM Accounts

Overview of Planned Outcomes by Strategic Goal Introduction

The futures industry is experiencing a period of tremendous growth. Volume has more than doubled since 2002 and reached a record level of 2.4 billion contracts traded in 2006. The CommissionÆs mission in the futures industry is to foster competitive and financially sound markets, to protect market users and the public from fraud, manipulation and abusive trading practices and to foster open, com¡petitive, and financially sound markets.

The Commission requests $116 million in FY 2008 to fund its efforts to reach its three strategic goals:

$37.9 Million Goal One: Ensure the economic vitality of the

$33.6 Million commodity futures Goal Three: and option Ensure market markets. integrity in order 33%

to foster open,

competitive, and

financially sound

markets.

29%

$44.4 Million Goal Two: Protect market users and the public. 38%

Figure 5: Budget & Performance Estimate by Strategic Goal

To achieve the planned outcomes for FY 2008, the Commission will allocate the $116 million request among six programs: Enforcement; Clearing & Intermediary Oversight; Market Oversight; Chief Economist; Proceedings; and General Coun¡

sel. There is one support program: Executive Direction.F .

Clearing & Intermediary Oversight Chief Economist 3%

15%

Direction &

General Counsel

Support

26%

FY 2008 Outcomes by Goal

Goal One: Ensuring Economic Vitality of Commodity Futures & Option Markets

In seeking to fulfill its mission, a substantial portion of the CommissionÆs re¡sources are devoted to daily oversight of registered exchanges, intermediaries, and derivatives clearing organizations (DCOs). In 1974, when the Commission was founded, 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 volatility.

Over the years, however, the futures industry has experienced increased complex¡ity. 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, new and highly complex financial contracts, based on such things as interest rates, foreign currencies, Treasury bonds, and stock market in¡dices have now far outgrown agricultural contracts in trading volume. Latest sta¡tistics show that approximately eight percent of on-exchange derivatives activity is in the agricultural sector, while financial derivatives make up approximately 82 percent; and other contracts, such as those on metals and energy products, make up about 10 percent.

In FY 2008, the Commission requests $37.9 million to fund its efforts to reach the following outcomes of Strategic Goal One:

Markets that accurately reflect the forces of supply and demand for the un¡derlying commodity and are free of disruptive activity.with an FY 2008 per¡formance goal of zero price manipulations that would cause loss of confi¡dence or negatively affect price discovery or risk shifting.

Markets that are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely affect their economic vi-tality.with an FY 2008 performance goal of improving effectiveness and ef¡ficiency of market surveillance.

Breakout of Goal One Request by Outcome

FY 2007 FY 2008 Change $ (000) FTE $ (000) FTE $ (000) FTE

GOAL ONE: Ensure economic vitality of commodity futures and option markets.

Outcomes

1.1

Futures and option markets that $25,797 125 $30,697 130 $4,900 5 accurately reflect the forces of supply and demand for the underlying com¡modity and are free of disruptive activ¡ity.

1.2

Markets that can be monitored to 5,781 27 7,231 29 1,450 2 ensure early warning of potential prob¡lems or issues that could adversely affect their economic vitality.

Total Goal One $31,578 152 $37,928 159 $6,350 7

Table 8: Breakout of Goal One by Outcome

Goal Two: Protecting Market Users and the Public

While our country reaps the rewards of an explosive futures industry, never has the risk of fraud and manipulation been higher for market users and the public. The trend toward electronic trading platforms as well as the expanding complex¡ity of trading instruments has challenged the Commission to reconfigure its abil¡ity to identify, investigate, and prosecute all parties involved in violating applica¡ble laws and regulations. Typically, the Commission has over 100 investigations open at any particular time. If evidence of criminal activity is found, matters can and will be referred to state or Federal authorities for prosecution under criminal statutes.

Over the years, the Commission has prosecuted a number of cases involving ma¡nipulations or attempted manipulations of commodity prices. The Sumitomo copper case and the Hunt brothers silver case are well-known examples. Fur¡thermore, during the last three years, the Commission charged over 40 individu¡als and companies for attempting to manipulate, or for manipulating energy markets. A variety of administrative sanctions are available to the Commission, such as bans on futures trading, civil monetary penalties, and restitution orders. The Commission may also seek Federal court injunctions, asset freezes, and or¡ders to disgorge ill-gotten gains.

In FY 2008, the Commission requests $44.4 million to fund its efforts to reach the following outcomes of Strategic Goal Two:

Violations of Federal commodities laws are detected and prevented.with an FY 2008 performance goal of increasing the probability of violators being de¡tected and sanctioned.

Commodity professionals meet high standards.with an FY 2008 perform¡ance goal of zero unregistered, untested, or unlicensed commodity profes¡sionals, unless they qualify for exemption from registration.

Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.with an FY 2008 performance goal of resolving customer complaints within one year from the date filed and resolv¡ing appeals within six months.

Breakout of Goal Two Request by Outcome

FY 2007 FY 2008 Change $ (000) FTE $ (000) FTE $ (000) FTE

GOAL TWO: Protect markets users and the public.

Outcomes

2.1

Violations of Federal com¡modities laws are detected and prevented.

2.2

Commodities professionals 4,741 22 6,921 29 2,180 7 meet high standards.

2.3

Customer complaints against persons or firms falling within the jurisdiction of the Commodity Exchange Act are handled effec¡tively and expeditiously.

Total Goal Two $37,546 172 $44,430 179 $6,884 7

$29,599 135 $33,692 135 $4,093

3,206 15 3,817 15 611 0

Table 9: Breakout of Goal Two by Outcome

Goal Three: Ensuring Market Integrity in Order to Foster Open, Competitive, and Financially Sound Markets

The Commission also focuses on issues of market integrity, seeks to protect the: economic integrity of the markets so that they may operate free from manipula¡tion; financial integrity of the markets so that the insolvency of a single partici¡pant does not become a systemic problem affecting other market participants; and operational integrity of the markets so that transactions are executed fairly and that proper disclosures are made to existing and prospective customers.

In FY 2008, the Commission requests $33.6 million to fund its efforts to reach the following outcomes of Strategic Goal Three:

Clearing organizations and firms holding customer funds have sound finan¡cial practices.with FY 2008 performance goals of zero loss of customer funds as a result of firmsÆ failure to adhere to regulations and zero customers prevented from transferring funds from failing firms to sound firms.

Commodity futures and option markets are effectively self-regulated.with an FY 2008 performance goal of zero loss of funds resulting from failure of self-regulatory organizations (SROs) to ensure compliance with their rules.

Markets are free of trade practice abuses.

Regulatory environment is flexible and responsive to evolving market condi¡tions.

Breakout of Goal Three Request by Outcome

FY 2007 FY 2008 Change $ (000) FTE $ (000) FTE $ (000) FTE

GOAL THREE: Ensure market integrity in order to foster open, competitive, and financially sound markets.

Outcomes

3.1

Clearing organizations and firms $5,292 24 $6,356 26 $1,064 2 holding customer funds have sound fi¡nancial practices.

3.2

Commodity futures and option mar-12,915 60 15,002 60 2,087 0 kets are effectively self-regulated.

3.3

Markets are free of trade practice 5,297 24 6,044 25 747 1 abuses.

3.4

Regulatory environment responsive 5,381 26 6,240 26 859 0 to evolving market conditions.

TOTAL $28,885 134 $33,642 137 $4,757 3

Table 10: Breakout of Goal Three by Outcome

Summary of CFTC Mission Statement, Strategic Goals & Outcomes

Mission Statement The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity futures and options, and to foster open, competitive and financially sound commodity futures and option markets.

Goal One Protect the economic functions of the commodity futures and option markets.

Outcomes

1. Markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity.

2. Markets that are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely affect their economic vitality.

Goal Two Protect market users and the public.

Outcomes

1. Violations of Federal commodities laws are detected and prevented.

2. Commodities professionals meet high standards.

3. Customer complaints against persons or firms falling within the jurisdiction of the Commodity Exchange Act are handled effectively and expeditiously.

Goal Three Ensure market integrity in order to foster open, competitive, and financially sound markets.

Outcomes

1. Clearing organizations and firms holding customer funds have sound financial practices.

2. Commodity futures and option markets are effectively self-regulated.

3. Markets are free of trade practice abuses.

4. Regulatory environment is responsive to evolving market conditions.

Table 11: Summary of CFTC Mission, Goals, and Outcomes

Commission Strategies to Influence Outcomes

Strategic Goal One - Ensure the Economic Vitality of the Commodity Futures and Option Markets.

Background and Context

In order for commodity futures and option markets to fulfill their vital role in the national and global economy, they must operate efficiently, accurately reflect the forces of supply and demand, and serve market users by fulfilling an economic need, typically price discovery or risk management. Through direct market and trade practice surveillance, and through oversight of the surveillance efforts of the exchanges themselves, the Commission works to ensure that markets operate free of manipulation or congestion.

The heart of the CommissionÆs direct market surveillance is a large-trader report¡ing system, under which clearing members of exchanges, FCMs, and foreign bro¡kers electronically file daily reports with the Commission. These reports show all trader positions above specific reporting levels set by CFTC regulations. Because a trader may carry futures positions through more than one FCM, and due to the possibility that a customer may control more than one account, the Commission routinely collects information that enables its surveillance staff to aggregate in¡formation across FCMs for related accounts.

Using these reports, the CommissionÆs surveillance staff closely monitors the fu¡tures and option market activity of all traders whose positions are large enough to potentially impact the orderly operation of a market. For contracts, which at ex¡piration are settled through physical delivery -- such as contracts in the energy complex -- staff carefully analyze the adequacy of potential deliverable supply. In addition, staff monitor futures and cash markets for unusual movements in price relationships, such as cash/futures basis relationships and inter-temporal futures spread relationships, which often provide early indications of a potential prob¡lem.

The Commissioners and senior staff are kept apprised of market events and po¡tential problems at weekly surveillance meetings, and more frequently when nec¡essary. At these meetings, surveillance staff briefs the Commission on broad eco¡nomic and financial developments and on specific market developments in fu¡tures and option markets of particular concern.

If indications of attempted manipulation are found, the Commission investigates and prosecutes alleged violations of the CEA or regulations. Subject to such ac¡tions are all individuals who are or should be registered with the Commission, those who engage in trading on any domestic exchange, those who engage in ille¡gal cash market activities that affect or could affect the futures markets, and those who improperly market commodity futures or option contracts. The Com¡mission has available to it a variety of administrative sanctions against wrongdo¡ers, including revocation or suspension of registration, prohibitions on futures trading, and cease and desist orders. The Commission may seek Federal court injunctions, restraining orders, asset freezes, receiver appointments, and dis¡gorgement orders. In both administrative and federal court actions, the Commis¡sion can seek civil monetary penalties and restitution if evidence of criminal ac¡tivity is found, and may refer matters to state authorities or the Department of Justice (DOJ) for prosecution of violations not only of the Act, but also of state or Federal criminal statutes such as mail fraud, wire fraud, and conspiracy. Over the years, the Commission has brought numerous enforcement actions and imposed sanctions against firms and individual traders for attempting to manipulate prices, including the well-publicized attempted manipulation cases by several energy companies and the market power manipulation of worldwide copper prices.

***

MILLIONS

CFTC Strategy Mapping FY 2008 Goal One Resource Investment by Outcome Objective

Figure 7: Goal One Resource Strategy Mapping

55 50 45 40 35 30 25 20 15 10 5 0

5% Investment 25% Investment

0 20 40 60 80 100 120 140 160 180 200 220

FULL TIME EQUIVALENTS

Outcome 1.1 - Markets Accurately Reflect Supply and Demand

Outcome 1.2 - Markets That Can be Monitored

Outcome Objectives and Annual Performance Goals

Outcome 1.1 û Markets that accurately reflect the forces of supply and demand for underlying commodity and are free of disruptive activity.

F Annual Performance Goal: No price manipulation or other disruptive activities that would cause loss of confidence or negatively affect price discovery or risk shifting.

Outcome 1.2 û Markets that are effectively and efficiently monitored so that the Commission receives early warning of potential problems or issues that could adversely affect their economic vitality.

F Annual Performance Goal: To have an effective and efficient market surveillance program.

Means and Strategies for Achieving Objectives

Means:

Directly monitor the markets to detect and protect against price manipu¡lation and abusive trading practices to ensure that the markets are per¡forming the vital economic function of price discovery and risk transfer or hedging.

Perform market surveillance and trade practice oversight by conducting examinations of exchange programs to ensure that the exchange is ap¡propriately monitoring daily trading activity, positions of large traders and the supply and demand factors affecting prices.

Review products listed by exchanges and rules and rule amendments submitted by exchanges to ensure compliance with the Act and to de¡velop, implement and interpret regulations that are designed to protect the economic functions of the market, protect market participants, pre¡vent trading abuses, and facilitate innovation.

Strategies:

Collect and analyze trading data. On a daily basis, CFTC collects and analyzes U.S. futures and option data for all actively traded contracts to detect congestion and/or price distortion. Economists analyze the activi¡ties of traders, key price relationships, and relevant supply and demand conditions for nearly 1100 contracts representing major agricultural commodities, metals, energy, financial instruments, equity indices, and foreign currencies. CFTC staff also analyzes markets to determine how conditions and factors observed may impact individual registrants or the markets in general to deter potentially negative situations and to take appropriate action, responding quickly to potentially disruptive situa¡tions.

Review products and rules. Properly designed futures and option mar¡kets serve vital price discovery and hedging functions, which are essential to a healthy, capital-based economy. Business, agricultural, and financial enterprises use the futures markets for pricing information and to hedge against price risk. The participants in commercial transactions rely ex¡tensively on the prices established by futures markets that affect trillions of dollars in commercial activity. Moreover, the prices established by the futures markets directly or indirectly affect all Americans. They affect what Americans pay for food, clothing, and shelter, what we pay to heat our homes and fuel our cars, as well as other necessities. Deficiencies in the terms and conditions of futures and option contacts increase the like¡lihood of cash, futures, or option market disruptions, and also decrease the economic usefulness and efficiency of a contract. To meet its statu¡tory mission of ensuring market integrity and customer protection, the Commission places greater reliance on its existing oversight authorities in permitting exchanges to list contracts for trading without prior Com¡mission approval. Commission staff conducts a due diligence review of each contract to ensure compliance with the CEA and the CommissionÆs regulations, while the Commission relies on its authority to then alter, or supplement exchange rules or to take emergency action, as appropriate, if a violation is discovered.

Analyze markets and provide expert analysis. Each week, reports are prepared on special market situations and on market conditions for all contracts approaching their critical expiration periods. Potential prob¡lems detected in preparing these reports are shared with the Commis¡sioners and senior staff. The Commission shares pertinent information with other regulatory agencies and works with the affected exchange to develop and to administer responsive measures as necessary. Economists and futures trading specialists track innovation in the marketplace in technology, trading strategies, trading instruments, and methods to en¡sure an understanding of how the markets are functioning and to develop a flexible, effective regulatory response to market conditions as they evolve.

Coordinate with other financial regulators. The Chairman participates in the PresidentÆs Working Group on Financial Markets to ensure coor¡dination of information and efforts among U.S. financial regulators. The Working Group brings together the leaders of the federal financial regu¡latory agencies, including the Secretary of the Treasury, who chairs the group, and the chairs of the Board of Governors of the Federal Reserve System, the CFTC, and the Securities and Exchange Commission (SEC). In addition to the four primary financial regulators, the Working Group also includes the heads of the National Economic Council, the Council of Economic Advisors, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, Federal Reserve Bank of New York, and the Office of Thrift Supervision. Issues considered by the Working Group and its staff have included individual and coordinated agency initiatives concerning risk assessment, capital requirements, in¡ternal controls, disclosure, accounting, market practices relating to trad¡ing in derivative instruments, bankruptcy law revisions, securities futures product (SFP) portfolio margining, futures on security indexes, and con¡tingency planning for market emergencies. Every two weeks, Commis¡sion staff participates in the Steering Committee to discuss ongoing is¡sues.

Provide information on the functions of the marketplace. Commission staff prepare and provide materials and information on the functions and utility of the markets to the public through public Commission meetings, public roundtables, advisory committee meetings, symposia, publica¡tions, press releases, advisories, and publication of the Commitment of Trader reports. Staff also participates as appropriate in seminars spon¡sored by other Federal and state government organizations and industry-sponsored conferences. The CommissionÆs Web site plays a significant role in providing information to the public.

Investigate and prosecute wrongdoing. Commission attorneys and in¡vestigators conduct investigations and institute enforcement actions against potential violators. Violators are sanctioned. The sanctions are publicized and enforced. The administrative law judges hear and decide administrative enforcement cases brought by the Commission.

Review regulations and amend or abolish as appropriate. In order to ensure that the regulations enforced by the CFTC are reflective of the needs of the industry and the public, the Commission reviews and adapts its regulations with evolving conditions and changes in the industry.

Resource Priorities and Return on Investment:

Reengineer the CommissionÆs trade practice surveillance system and modernize the market surveillance system so that they remain effective and robust as trading migrates from the floors to electronic platforms. Markets regulated by the Commission have experienced a dramatic shift from floor to screen-based trading over the past several years. The Chi¡cago Board of TradeÆs (CBOT) and the Chicago Mercantile ExchangeÆs (CME) screen-based volume currently accounts for approximately 75 percent of total exchange volume. While electronic trading brings certain regulatory benefits, such as precise audit trails, it also increases the op¡portunity for certain types of abuses, such as trading ahead of customers. In order to re-engineer our systems, we have examined the electronic trading systems and automated surveillance systems used by U.S. desig¡nated contract markets, as well as those used by foreign futures ex¡changes that have significantly more experience in electronic trading. We are also incorporating changes in the CommissionÆs oversight sys¡tems and, where necessary, recommending alterations to systems of our designated contract markets to ensure the integrity of the markets and to ensure that customers continue to be protected against trading abuses and manipulations.

Continue collaborative regulatory efforts regarding SFPs. The Com¡mission will continue in its efforts to coordinate with the SEC in imple¡menting those sections of the CFMA related to the trading of SFPs. These areas include: SFP definitions; registration requirements and functions; treatment of customer funds; margin rules; the offering of foreign SFPs to U.S. customers; possible further exemptions for notice registrants; the listing of options; and coordinated clearing. The Commission will also re¡spond to inquires from intermediaries, their counsel and accountants, and the general public concerning operational issues as the market for SFPs develops. Further, the Commission will work with the exchanges in developing sound business, financial and sales practices concerning the trading of SFPs.

Complete energy investigations. Since the fall of Enron, the Commission has conducted a significant number of investigations concerning poten¡tial misconduct by participants in the energy markets. To date, the Com¡mission has filed 35 enforcement actions in this program area charging a total of 55 respondents/defendants (31 companies and 24 individuals). The Commission has obtained $303,413,500 in civil monetary penalties in settlement of these enforcement actions. Eight Commission energy market related enforcement actions remain in active litigation in Federal district court. The Commission is actively engaged in other energy sector investigations which may result in further prosecutions. The Commis-sionÆs aggressive enforcement actions in the energy sector reflect an ap¡proach to market oversight that emphasizes tough enforcement actions against wrongdoers without creating overly burdensome regulations. The Commission is fully committed to resolving the on-going energy investi¡gations as expeditiously as possible so that, in addition to identifying wrongdoers, it can exonerate those who were not involved and allow these important risk management markets to work toward restoring the confidence of market participants and the public.

Summary of Goal One Performance Indicators

Goal One: Ensure the economic vitality of the commodity futures and option markets.

Outcome 1.1: Futures and option markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity.

Annual Performance Goal: No price manipulation of other disruptive activities that would cause loss of confidence or negatively affect price discovery or risk shifting.

Performance Measures FY 2005 Actual FY 2006 Actual FY 2007 Plan FY 2008 Plan

Percentage growth in market volume Percentage of novel or innovative market proposals or re¡quests for CFTC action addressed within six months to ac¡commodate new approaches to, or the expansion in, deriva¡tives trading, enhance the price discovery process, or in¡crease available risk management tools Percentage increase in number of products traded Percentage of new exchange and clearinghouse applications completed within expedited review period Percentage of new contract certification reviews completed within three months to identify and correct deficiencies in contract terms that make contracts susceptible to manipula¡tion Percentage of rule change certification reviews completed within three months, to identify and correct deficiencies in exchange rules that make contracts susceptible to manipula¡tion or trading abuses or result in violations of law 26% 100% 36% 100% 54% 84% 26% 100% 25% 100% 81% 86% 25% 100% 10% 100% 75% 85% 25% 100% 10% 100% 80% 90%

Outcome 1.2: Markets are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely affect their economic vitality.

Annual Performance Goal: To have an effective and efficient market surveillance program.

Performance Measures FY 2005 Actual FY 2006 Actual FY 2007 Plan FY 2008 Plan

Percentage of DCO applications demonstrating compliance with core principles Ratio of markets surveilled per economist Percentage of contract expirations without manipulation 100% 11 99.9% N/A.F 8 12 99.9% 100% 13 99.9% 100% 13 99.9%

Breakout of Goal One Request by Program Activity

FY 2007 $ (000) Market Oversight $13,055

FY 2008 Change FTE $ (000) FTE $ (000) FTE 67 $15,217 68 $2,162 1

Clearing & Intermediary 775 Oversight Chief Economist 2,183 Enforcement 5,133 Proceedings 0

General Counsel 1,467 Executive Direction & 8,965 Support

4 926 4 1510 9 3,796 14 1,613 5 23 5,816 23 683 0 0 00 00 6 1,872 7 405 1 43 10,301 43 1,336 0

TOTAL: $31,578 152 $37,928 159 $6,350 7

Table 12: Breakout of Goal One Request by Program Activity

Executive Directio n &

M arket Oversight

Support

41%

27%

General Counsel

Clearing &5% Intermediary

Enforcement Chief Economist Oversight 15% 10% 2%

Figure 8: Breakout of Goal One Request by Program Activity

Breakout of Goal One Request by Outcome Objective

FY 2007 FY 2008 Change $ (000) FTE $ (000) FTE $ (000) FTE

GOAL ONE: Ensure economic vitality of commodity futures and option markets.

Outcomes

1.1 Futures and option markets that $25,797 125 $30,697 130 $4,900 5

accurately reflect the forces of supply

and demand for the underlying com¡

modity and are free of disruptive activ¡

ity.

1.2 Markets that can be monitored to 5,781 27 7,231 29 1,450 2

ensure early warning of potential

problems or issues that could ad¡

versely affect their economic vitality.

Total Goal One $31,578 152 $37,928 159 $6,350 7

Table 13: Breakout of Goal One by Outcome

Outcome Objecti

1.2

19%

Outcome Objective 1.1 81%

Figure 9: Breakout of Goal One Request by Outcome Objective

Strategic Goal Two û Protecting Market Users and the Public.

Background and Context

The focus of the second goal is protection of the firms and individualsùmarket usersùwho come to the marketplace to fulfill their business and trading needs. Market users must be protected from possible wrongdoing on the part of the firms and commodity professionals with whom they deal to access the market¡place, and they must be confident that the marketplace is free of fraud, manipula¡tion, and abusive trading practices.

The Commission has promulgated requirements that mandate appropriate dis¡closure and customer account reporting, as well as fair sales and trading practices by registrants. The Commission has also sought to maintain appropriate sales practices by screening the fitness of industry professionals and by requiring pro¡ficiency testing, continuing education, and supervision of these persons. Exten¡sive record-keeping of all futures transactions is also required. Likewise, the Commission monitors compliance with those requirements and supervises the work of the exchanges and NFA in enforcing the requirements.

The Commission plays an important role in deterring behavior that could affect market usersÆ confidence by investigating and taking action against unscrupulous traders, entities, and others who engage in a wide variety of illegal activity, in¡cluding but not limited to manipulation and fraudulent sales practices.

***

Means and Strategies for Achieving Objectives

Means:

Detect and prevent violations of Federal commodities laws.

Require commodity professionals to meet high standards.

Handle effectively and expeditiously customer complaints against firms and persons registered under the Act.

Strategies:

Investigate and prosecute wrongdoing. The Commission identifies and investigates possible fraudulent and other illegal activities relating to the commodity futures and option markets and their registrants and brings enforcement actions as necessary.

Inform the public concerning violators. Allegations of wrongdoing and associated legal actions are publicized and communicated to the industry and the public in order to ensure informed market users.

Provide a forum to bring complaints. The Commission provides a repa¡rations program for commodities market users to resolve complaints concerning possible violations of the Act. Approximately 80 reparations cases are filed per year. The cases are maintained in the Reparations Case Tracking System (Repcase), which houses all filings relating to the complaints as well as reparations sanctions information. Information re¡garding the Reparations program is also available on the CommissionÆs Web site and information regarding the various reparations documents that have filed or issued by a Presiding Officer or Commission is available internally to Commission staff.

Oversee the NFAÆs registration program. The Commission oversees the NFAÆs registration program, requiring testing, licensing, and ethics train¡ing for commodities professionals. CFTC maintains a strong working re¡lationship with the NFA, including joint representation on the Registra¡tion Working Group (RWG).

Review regulations and amend or abolish as appropriate. In order to ensure that the regulations enforced by the Commission are reflective of the needs of the industry and the public, the Commission reviews and adapts its regulations with the evolving conditions and changes in the in¡dustry.

Monitor media. The Internet and other media venues are monitored for fraudulent activities and other possible violations of the Act.

Maintain cooperative relationships. Strong working relationships with the exchanges, the NFA, other federal agencies, state governments and law enforcement entities, and foreign authorities maintain the Commis-sionÆs ability to gain information for law enforcement purposes and to provide enforcement assistance as necessary and appropriate.

Resource Priorities and Return on Investment:

Design and implement Project eLaw. The Commission will continue its effort to design and implement Project eLaw, an automated law office that seamlessly integrates technology and work processes to support managers and staff across the Commission in their investigative trial and appellate work. Driven by the CommissionÆs continued reliance on man¡ual processes and automated tracking systems to manage cases and the millions of paper documents received or created annually, Project eLaw provides the automated tools to assist staff in performing their work more efficiently and effectively, both in the office and in the court room facing opposing counsel. Specifically, Project eLaw enables staff to: query and retrieve information about investigations and litigation pro¡vided to the Commission by outside parties, pursuant to subpoena or otherwise; develop documents in a collaborative electronic work envi¡ronment across geographically dispersed locations; manage client con¡tacts, investigation leads, and trial schedules; and present documentary and analytical evidence in court settings. The project achieved its final software application deployment throughout the Division of Enforcement in October 2006. In FY 2007, further enhancements will be imple¡mented along with expansion to other offices within the Commission.

Upgrade training for Enforcement investigators. Expert enforcement investigators are vital to the effectiveness of the CommissionÆs Enforce¡ment program. The Commission continues to upgrade the training of its enforcement investigators in order to ensure that their level of expertise keeps pace with the technological advancements, increasing cross-border participation in the financial markets, and new complex contracts and trading strategies. Training includes advanced investigative techniques, especially with respect to trade practice investigations of electronic ex¡changes, the tracking of international money flows, and in-depth analysis of growing markets with an emphasis on the over-the-counter (OTC) en¡ergy markets.

thorities. It is therefore critical that the CFTC continue to foster produc¡tive and cooperative working relationships with these foreign counter¡parts. In particular, the Commission will continue to: 1) facilitate cross- border transactions through the removal or lessening of any unnecessary legal or practical obstacles; 2) endeavor to enhance the international su¡pervisory cooperation and emergency procedures; 3) strengthen interna¡tional cooperation for customer and market protection; 4) improve the quality and timeliness of international information sharing; and, 5) pro¡mote the development of internationally accepted regulatory standards of best practices. The CFTC will also continue to undertake measures to en¡sure that it maintains a high visibility in the international community and undertakes a leading role in the development of international finan¡cial policy affecting the futures and options markets.

ò Implement USA Patriot Act. The Commission has actively supported and assisted the U.S. Treasury Department in developing anti-money laundering (AML) rules to implement the mandate of the USA Patriot Act with respect to the futures industry. These include various proposed and final rules requiring, among other things: 1) FCMs and IBs to report sus¡picious transactions; 2) FCMs and IBs to establish customer identifica¡tion and verification programs (CIPs); and 3) FCMs and IBs to establish due diligence programs for detecting and reporting money laundering through correspondent accounts for foreign financial institutions and private banking accounts for non-U.S. persons. In addition to finalizing AML rules that already have been proposed, the Commission and Treas¡ury will continue to effectuate the full extent of the protections against money laundering mandated by Congress (for example, extending the CIP rules to cover other futures firms as well). To assure consistency throughout the financial services industry, AML rules are being devel¡oped by an inter-agency working group with representatives from Treas¡ury, the CFTC, the SEC, and several Federal banking agencies. The CommissionÆs role includes making sure that futures industry registrants are not placed at a disadvantage relative to other financial service provid¡ers. Moreover, the Commission has been delegated AML examination authority with respect to FCMs and IBs. While much of the front-line ex¡amination work may be performed by NFA and other SROs, this delega¡tion requires the implementation of an appropriate audit and compliance program and Commission oversight of the direct supervision by NFA and other SROs. The Commission also has repeatedly requested, and Treas¡ury is considering, a similar delegation of TreasuryÆs AML enforcement authority to the Commission with respect to futures firms. This delega¡tion would bring additional responsibilities to the Commission for inves¡tigating and pursuing charges against those who do not have proper su¡pervision, reporting, and record-keeping programs in place to combat money laundering and terrorist financing.

***

Summary of Goal Two Performance Indicators Breakout of Goal Two Request by Program Activity

Goal Two: Protect market users and the public.

Outcome 2.1: Violations of Federal commodities laws are detected and prevented.

Annual Performance Goal: Violators have a strong probability of being detected and sanctioned.

Performance Measures FY 2005 Actual FY 2006 Actual FY 2007 Plan FY 2008 Plan

Number of enforcement investigations opened during the fiscal year Number of enforcement cases filed during the fiscal year 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) Cases filed by other criminal and civil law enforcement authorities during the fiscal year that included cooperative assistance from the Commission 131 69 100% 23 123 38 100% 23 85 40 95% 21 95 40 95% 22

Outcome 2.2: Commodity professionals meet high standards.

Annual Performance Goal: No unregistered, untested, or unlicensed commodity professionals.

Performance Measures FY 2005 Actual FY 2006 Actual FY 2007 Plan FY 2008 Plan

Percentage of SROs that comply with core principles Percentage of DCOs that comply with core principles Percentage of professionals compliant with standards re¡garding testing, licensing, and ethics training (Professional compliance) Percentage of SROs that comply with requirement to en¡force their rules Percentage of total requests receiving CFTC responses for guidance and advice 100% 100% 100% 100% 90% 100% 100% 100% 100% 95% 100% 100% 100% 100% 95% 100% 100% 100% 100% 95%

Outcome 2.3: Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.

Annual Performance Goal: Customer complaints are resolved within one year from the date filed and appeals are resolved within six months.

Performance Measures FY 2005 Actual FY 2006 Actual FY 2007 Plan FY 2008 Plan

Percentage of filed complaints resolved within one year of the filing date Percentage of appeals resolved within six months 50% 46% 39% 46% 50% 50% 50% 75%

FY 2007 FY 2008 Change

$ (000) FTE $ (000) FTE $ (000) FTE

Market Oversight $0 0 $0 0 $0 0

Clearing & Intermedi- 4,503 21 6,308 26 1,805 5

ary Oversight

Chief Economist 0 0 0 0 0 0

Enforcement 17,607 79 19,946 79 2,339 0

Proceedings 1,881 10 2,167 10 286 0

General Counsel 3,724 15 4,752 17 1,028 2

Executive Direction & 9,831 47 11,257 47 1,426 0

Support

TOTAL: $37,546 172 $44,430 179 $6,884 7

Table 14: Breakout of Goal Two Request by Program Activity

Clearing &

Intermediary Oversight

14%

Enforcement 45%

Executive Direction &

Support

25%

General Co unsel Proceedings

11% 5%

Figure 11: Breakout of Goal Two Request by Program Activity

Breakout of Goal Two Request by Outcome Objective

FY 2007 FY 2008 Change $ (000) FTE $ (000) FTE $ (000) FTE

GOAL TWO: Protect markets users and the public.

Outcomes

2.1 Violations of Federal com- $29,599 135 $33,692 135 $4,093 0

modities laws are detected and

prevented.

2.2 Commodities professionals 4,741 22 6,921 29 2,180 7

meet high standards.

2.3 Customer complaints against 3,206 15 3,817 15 611 0

persons or firms falling within the

jurisdiction of the Commodity

Exchange Act are handled effec¡

tively and expeditiously.

Total Goal Two $37,546 172 $44,430 179 $6,884 7

Table 15: Breakout of Goal Two by Outcome

Outcome Objective

2.3 9%

Figure 12: Breakout of Goal Two Request by Outcome Objective

Strategic Goal Three û Ensuring Market Integrity in Order to Foster Open, Competitive, and Financially Sound Markets.

Background and Context

In fostering open, competitive, and financially sound markets, the CommissionÆs priorities are to protect the markets from abusive trading practice and to avoid disruptions to the systems for trading, 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 financial difficulties of one trader becoming a systemic problem for other traders. Several aspects of the oversight framework help the Commission achieve this goal with respect to traders: 1) periodically reviewing exchangesÆ compliance with statutory and regulatory requirements, 2) directly overseeing activity on exchanges to detect and prosecute abusive trading, 3) requiring that market participants post margin to secure their ability to fulfill obligations; 4) requiring participants on the losing side of trades to meet their obligations, in cash, through daily (sometimes intraday) margin calls; and 5) requiring FCMs to segregate customer funds from their own funds.

The Commission devotes substantial resources to meet its oversight responsibil¡ity over futures industry SROs, including the NFA, and DCOs, to ensure their ful¡fillment of responsibilities for monitoring and ensuring the financial integrity of market intermediaries and the protection of customer funds. An important com¡ponent of this effort is conducting risk-based reviews of SROs and DCOs to evaluate their compliance programs with applicable provisions of the Act and Commission regulations. In addition, financial and risk surveillance of market intermediaries is conducted by the Commission to monitor actual and potential implications of market events and conditions for the financial integrity of the clearing system and to follow up on indications of financial difficulty. The Com¡mission also undertakes examinations of registrants such as FCMs to assess the adequacy of the SROsÆ and DCOsÆ compliance programs, to address compliance with specific Commission regulations, or on an as-needed basis.

With respect to intermediary oversight, the Commission can investigate and prosecute FCMs alleged to have violated financial and capitalization require¡ments or to have committed other supervisory or compliance failures in connec¡tion with the handling of customer business. Such cases result in substantial re¡medial changes in the supervisory structures and systems of FCMs, and can in¡fluence the way particular firms conduct business. This is an important part of fulfilling the CommissionÆs responsibility for ensuring that sound practices are followed by FCMs, and to ensure that markets remain financially sound. The Commission also seeks to ensure market integrity by investigating a variety of trade and sales practice abuses. For example, the Commission brings actions al¡leging unlawful trade allocations, trading ahead of customer orders, misappro¡priating customer trades, and non-competitive trading.

***

Means and Strategies for Achieving Objectives

Means:

Oversee market intermediaries and the self-regulatory programs and compliance activities of the futures industry SROs, which include the

U.S. commodity exchanges, the NFA, and DCOs.

Protect market users and financial intermediaries by developing regula¡tions including requirements related to registration, record-keeping and reporting, financial adequacy, sales practices protection of customer funds, and clearance and settlement activities.

Address cross-border transactions, the coordination of policy with for¡eign market authorities, systemic risk, anti-money laundering programs, and procedures to address extraordinary events such as firm defaults.

Monitor market movements for potential financial impact on clearing firms and DCOs.

Monitor trading activity to detect abusive trading practices through ex¡aminations of audit trail data.

Strategies:

Maintain a flexible regulatory environment responsive to evolving market conditions. In an effort to ensure that the regulatory framework under which futures and option contracts are traded remains current, Commission staff will continue to review the CommissionÆs regulations with the intention of: eliminating obsolete regulations; streamlining and coordinating regulations across markets; and fostering efficiency and competitiveness while assuring customer protection, sound financial practices, and market integrity. The Commission will also respond to re¡quests for exemptions and other relief from regulatory requirements to address situations in which additional flexibility is warranted. The Com¡mission also will issue advisories and other guidance concerning the ap¡plication of Commission regulations.

Oversight of SROs and DCOs. A key aspect of effective self-regulation is oversight by the Commission of SROs, NFA, and DCOs to ensure their fulfillment of responsibilities for monitoring and ensuring the financial integrity of market intermediaries and the protection of customer funds. This oversight program involves conducting risk-based reviews and ex¡aminations of SROs, NFA, and DCOs to evaluate their compliance pro¡grams with applicable provisions of the Act and Commission regulations.

Conduct Financial Surveillance. An important component of oversight of DCOs and SROs is the conduct of financial surveillance of market in¡termediaries by using automated tools for collecting, analyzing, and re¡porting upon the financial condition and risk exposures of FCMs and clearing organizations. Monitoring of broad-based stock-index futures and security futures margins was added to the financial surveillance functions now performed.

Enhance risk assessment. To address changes in the operations and structures of multinational, multi-product financial firms, the Commis¡sion has implemented a risk assessment program by obtaining better in-

formation on such firms in the form of required organizational charts and internal control filings, consolidated and consolidating financial statements, identification of other regulators to whom such firms report, and descriptions of procedures in place to control risks associated with clearing of trades for affiliates of the regulated firm.

Develop global cooperation to enhance financial safeguards. Interna¡tionally, recent market issues with global market impact have under¡scored the importance of developing international standards of best prac¡tice. The Commission has increased its efforts to achieve greater interna¡tional coordination, and thereby enhance the effectiveness of financial safeguards applicable to U.S. markets and market participants, as well as those applicable internationally.

Review SRO rule submissions. New rules and rule changes submitted by the exchanges, DCOs, and NFA to the Commission are reviewed with a view towards ensuring compliance with core principles and regulatory standards in order to maintain the fairness and integrity of the markets, protect customers, and accommodate and foster innovation and effi¡ciency in self-regulation consonant with the CommissionÆs statutory mandates. Many of the rule submissions present complex new trading and clearing procedures, market structures, and financial arrangements that present novel issues and, in some cases, require amendments or in¡terpretations by the Commission to facilitate implementation of the SROÆs rule changes. The Commission has adapted its requirements to ensure, when approval is requested, quicker implementation of rule changes.

Respond to globalization of the markets. Electronic technology is rap¡idly integrating the worldÆs commodities markets. These technology-driven changes will increase cross-border trading volume, cross-border participation, and cross-border exchange linkages. Markets, intermedi¡aries, and customers demand efficient access to these global markets with a minimum of regulatory borders. Because no one regulator will have the information or geographic reach to address regulatory and prac¡tical issues related to cross-border access, the Commission will increase its cooperative efforts with global regulators.

Investigate and prosecute wrongdoing. In order to foster open, com¡petitive, and financially sound markets, the Commission can investigate and brings enforcement cases involving trade practice abuses, financial capitalization and segregation violations, and supervision and compli¡ance failures by registrants authorized to handle customer business. The Administrative Law Judges will continue to hear and decide administra¡tive enforcement cases brought by the Commission against persons or firms charged with violating the Act or Commission rules and regula¡tions.

Resource Priorities and Return on Investment:

Implement risk-based oversight reviews of SROs and DCOs. The Com¡mission will refine its risk-based approach to conducting reviews and ex¡aminations of SROs and DCOs. This approach involves conducting cycli¡cal reviews of SROs and DCOs with an identification of their activities and risks, followed by an assessment of the appropriateness and ade¡quacy of the systems and procedures that are relied upon by the SROs and DCOs to fulfill their responsibilities under the Act and Commission regulations. This approach tailors oversight efforts to the relative prob¡ability and severity of potential risks.

Implement risk-based oversight of DSROs. The Commission will fully implement its risk-based approach to the oversight of designated self-regulatory organizations (DSROs) in which Commission staff approach the cyclical review of each DSRO with an identification of its activities and potential risks, followed by an assessment of the appropriateness and adequacy of the systems, procedures, and practices that the DSRO relies upon to fulfill its responsibilities under the core principles set forth in the CFMA. This risk-based approach, already being utilized by other Federal financial regulators and international counterparts such as the

U.K. Financial Services Authority, promises to make more effective use of Commission resources by tailoring oversight efforts to the relative prob¡ability and severity of potential risks to market integrity and to market participants.

Establish a financial surveillance unit and fully implement financial surveillance information system (FSIS). With the establishment of a fi¡nancial surveillance unit, the Commission has an enhanced capability to monitor market information, evaluate the impact of market moves on the financial integrity of market participants, and anticipate and act upon in¡dications of financial difficulty. This capability is built upon the imple¡mentation and use of the new FSIS component systems, including the RSR Express system that compiles FCM financial statements, the SPARK system that utilizes large trader information to allow the tracking of risk at market, firm, and account levels, and the SPAN Risk Manager system that will permit ôwhat ifö analyses.

Develop and implement a new Commission trade surveillance system. The Commission has two electronic oversight systems û one to monitor for trading abuses (such as trading ahead of customers and trading against customers and one to monitor for market manipulation utilizing the large trader reports). The first of these two systems is woefully out of date, and the Commission has concluded that the demands of todayÆs fu¡tures marketplace require development and implementation of a new approach. By supporting the CommissionÆs efforts to protect market par¡ticipants from abusive trading practices and the integrity of the markets as a price discovery mechanism, the Commission trade practice investi¡gation program helps the Commission maintain public confidence in the markets and in the Commission as their regulator.

The Commission seeks an approach that will allow identification of inter-exchange violations that individual exchanges lack the capacity to detect, allow quicker access to and more sophisticated and customizable analysis of the full range of data supplied by exchanges with respect to electronic as well as open outcry trading, and enable meaningful Commission evaluation of the exchangesÆ own electronic surveillance systems.

Coordinate with foreign regulatory authorities û cooperative enforcement. The number, duration and speed of regulatory issues related to fi¡nancial crises and market abuses can be mitigated through the enhance¡ment of international cooperation amongst regulators and market au¡thorities. It is therefore critical that the CFTC continue to foster produc¡tive and cooperative working relationships with these foreign counter¡parts. In particular, the Commission will continue to: 1) facilitate cross- border transactions through the removal or lessening of any unnecessary legal or practical obstacles; 2) endeavor to enhance the internal supervi¡sory cooperation and emergency procedures; 3) strengthen international cooperation for customer and market protection; 4) improve the quality and timeliness of international information sharing; and, 5) promote the development of internationally accepted regulatory standards of best practices. The CFTC will also continue to undertake measures to ensure that it maintains a high visibility in the international community and un¡dertakes a leading role in the development of international financial pol¡icy affecting the futures and options markets.

Reengineer the CommissionÆs trade practice surveillance system and update the market surveillance system so that they remain effective and robust as trading migrates from the floors to electronic platforms. Mar¡kets regulated by the Commission have experienced a dramatic shift from floor to screen based trading over the past several years. The CBOTÆs and the CMEÆs screen-based volume currently accounts for about 75 percent of total exchange volume. While electronic trading brings certain regula¡tory benefits, such as more precise audit trails, it also increases the op¡portunity for certain types of abuses, such as trading ahead of customers. In order to re-engineer our systems, we have examined the electronic trading systems and automated surv