Keeping Pace with Change

Commodity Futures Trading Commission

Strategic Plan

2004-2009

February 2004

KEEPING PACE WITH CHANGE

STRATEGIC PLAN OF THE COMMODITY FUTURES TRADING COMMISSION

FY 2004-FY 2009

Table of Contents

MESSAGE FROM THE CHAIRMAN.......................................................................................3

INTRODUCTION.................................................................................................................5

MISSION STATEMENT, STRATEGIC GOALS & OUTCOMES....................................................6

Mission Statement............................................................................................................6

Strategic Goals & Outcomes..............................................................................................6

Strategic Goal OneEnsure the economic vitality of the commodity futures and option

markets.........................................................................................................................................6

Strategic Goal TwoProtect market users and the public.........................................................7

Strategic Goal ThreeEnsure market integrity in order to foster open, competitive, and

financially sound markets............................................................................................................8

KEEPING PACE WITH CHANGE: PRIORITIES FOR 2004 2009.........................................9

ACHIEVING SUCCESS: BUSINESS PROCESSES, EXPERTISE & TECHNOLOGIES.....................15

KEY FACTORS AFFECTING SUCCESS: EXTERNAL CHALLENGES.........................................20

Challenges in the Marketplace.....................................................................................................20

Legislative Challenges...................................................................................................................20

Technological Challenges.............................................................................................................20

COORDINATION ON CROSS-CUTTING ISSUES.....................................................................21

MEASURING SUCCESS: NEW PERFORMANCE STRUCTURE................................................24

PROGRAM EVALUATIONS: PAST, PRESENT & FUTURE.....................................................27

APPENDIX.......................................................................................................................28

U.S. Commodity Exchanges & Derivatives Clearing Organizations..............................28

Volume of Trading............................................................................................................31

Number of Registered Commodities Professionals........................................................32

Actively Traded Futures & Option Contracts.................................................................33

Managed Funds...............................................................................................................34

Outcomes & Business Processes by Strategic Goal........................................................35

CFTC Offices....................................................................................................................37

Publications & Information............................................................................................38

MESSAGE FROM THE CHAIRMAN

Keeping pace with change has never been more significant than it is today at the

Commodity Futures Trading Commission (CFTC or Commission). The

unprecedented growth and complexity of the futures and options industry has

not only been an exciting challenge, it has validated the last three years of hard

work and dedication to providing the most flexible and responsive oversight

structure possible.

When we last submitted our strategic plan, the Commission was hard at work

with Congress to reauthorize the agency for another five years. Incorporating the

new oversight regulatory vision into the reauthorization legislation was our

primary goal. The Commodity Futures Modernization Act (CFMA), passed in

December 2000, reflects this vision through three key objectives: 1) modernizing

rules 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.

Despite the unexpected challenges the industry and the Commission faced

following the September 11, 2001 terrorist attacks, in the nearly three years since

the passage of the CFMA, the Commission has successfully begun to implement

the objectives of the CFMA by:

.. Reorganizing and modernizing the structure of the CFTC to make the most

effective use of our resources in overseeing these important and dynamic

markets.

.. Working with the U.S. Securities and Exchange Commission (SEC) to put into

place the rules and other mechanisms to allow the launch of trading in

domestic security futures.

.. Designating six new contract markets and accepting the registration of five

additional derivatives clearing organizations, including the London Clearing

House.

.. Moving from a compliance-based approach to conducting audits toward a

risk-based approach and developing an appropriate oversight framework for

futures clearinghouses.

.. Achieving pay parity with other financial regulators.

Today, as we submit our strategic plan for FY 2004 through FY 2009, we

recognize that the CFMA opened the door for great change in the markets as well.

Total volume rose by more than 33 percent from 2000 to 2001, and again by

more than a third from 2001 to 2002, as increasing numbers of companies and

investors avail themselves of the risk management tools offered by these markets.

Financial contracts represent the largest portion of the market and continue to

grow in volume. Of the 10 most widely traded contracts, which together represent

more than 80 percent of U.S. futures volume, seven are financial contracts (based

on Eurodollars, Treasury instruments, the S&P 500, and the Nasdaq 100). The

other three top-10 contracts are crude oil, natural gas, and corn. (Soybeans are

close behind corn in the eleventh spot.) While the traditional U.S. futures

exchanges are enjoying record volumes, not all the growth is taking place there.

Newly designated contract markets that have been approved by the Commission

since passage of the CFMA are achieving significant trading volumes with new

products and platforms.

Other key trends in the futures markets include the continued migration of

trading activity from open-outcry trading on the exchange floors to all-electronic

trading from widely dispersed geographic locations, the transition from purely

member-owned exchanges to publicly held trading facilities, continued

globalization of all financial markets, and, of particular note since passage of the

CFMA, the decoupling of the trading activities hosted by exchanges from the

clearance and settlement functions performed by clearinghouses.

Keeping pace with these trends will be our challenge over the next five years. To

be successful through 2009, the CFTC must ensure that keeping pace with

change does not compromise the gains we have made in building a solid, yet

flexible regulatory oversight structure. The Commission stands ready to work

with the Congress, other regulators, and market participants to ensure that our

regulatory structure keeps up with the marketplace.

Chairman James E. Newsome

INTRODUCTION

The Commodity Futures Trading Commission was created as an independent agency

by Congress in 1974 under the authorization of the Commodity Exchange Act1 (Act)

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

Act 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 through FY 2005.

Futures contracts for agricultural commodities have been traded in the U.S. for 150

years and have been under Federal regulation since the 1920s. In recent years,

futures trading has expanded rapidly into many new markets, beyond the domain of

traditional physical and agricultural commodities. Futures and option contracts are

now offered on a vast array of financial instruments, including foreign currencies,

U.S. and foreign government securities, and U.S. and foreign stock indices.

Today, as the futures industry experiences unprecedented growth and as trading

instruments and mechanisms increase in complexity, the CFTC is responsible for

overseeing the economic utility of futures markets by encouraging their

competitiveness, efficiency, and integrity and by protecting market participants

against manipulation, abusive trade practices, and fraud. Through effective oversight

regulation, the CFTC enables the commodity futures markets to serve their important

function in the Nations economy by providing a mechanism for price discovery and a

means of offsetting price risk.

Key Facts about Todays U.S. Futures Industry

.. There are 21 commodity exchanges and 13 derivatives clearing organizations

located in eight cities in the United States and one city in the United

Kingdom. Subject to CFTC oversight, these self-regulatory organizations

(SROs) are responsible for the operation of the exchanges and the business

conduct and financial responsibility of their member firms.

.. For the first time in history in 2002, futures contract trading volume topped

one billion contracts traded.

.. CFTC regulates the activities of over 67,800 registered commodities

professionals.

.. In 2003, there are an estimated 500 actively traded futures and option

contracts.

1 Commodity Exchange Act, as amended

(7 U.S.C., Section 1, et seq.)

MISSION STATEMENT, STRATEGIC GOALS & OUTCOMES

Mission Statement

In December 2000, the CFMA transformed the Commission from a front-line

regulatory agency to an oversight regulator. Although the Commissions approach

to regulation has consequently changed, its mission remains the same.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.

Strategic Goals & Outcomes

The mission of the Commodity Futures Trading Commission is accomplished

through three strategic goals, each focusing on a vital area of regulatory

responsibility. Accomplishing the three strategic goals results in a number of key

outcomes.

Strategic Goal OneEnsure the economic vitality of the commodity

futures and option markets.

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. Through direct market 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 Commissions direct market surveillance is a large-trader

reporting system, under which clearing members of exchanges, futures

commission merchants (FCMs), and foreign brokers 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 because a customer may

control more than one account, the Commission routinely collects information

that enables its surveillance staff to aggregate information across FCMs and for

related accounts.

Using these reports, the Commissions surveillance staff closely monitors the

futures 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

expiration 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

problem.

The Commissioners and senior staff are kept apprised of market events and

potential problems at weekly surveillance meetings and more frequently when

needed. At these meetings, surveillance staff briefs the Commission on broad

economic and financial developments and on specific market developments in

futures and option markets of particular concern.

2 Commodity Exchange Act, as amended

(7 U.S.C., Section 1, et seq.)

If indications of attempted manipulation are found, the Commission investigates

and prosecutes alleged violations of the Act or regulations. Subject to such

actions are all individuals who are or should be registered with the Commission,

those who engage in trading on any domestic exchange, and those who

improperly market commodity futures or option contracts. The Commission has

available to it a variety of administrative sanctions against wrongdoers, including

revocation or suspension of registration, prohibitions on futures trading, cease

and desist orders, civil monetary penalties, and restitution orders. The

Commission may seek Federal court injunctions, restraining orders, asset freezes,

receiver appointments, and disgorgement orders. If evidence of criminal activity

is found, matters may be referred to state authorities or the Department of

Justice 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.

Outcomes for Strategic Goal One are:

.. Markets that accurately reflect the forces of supply and demand for the

underlying commodity and are free of disruptive activity.

.. 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.

Strategic Goal TwoProtect market users and the public.

The focus of the second goal is protection of the firms and individualsmarket

userswho 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

marketplace, and they must be confident that the marketplace is free of fraud,

manipulation, and abusive trading practices.

The Commission has promulgated requirements that mandate appropriate

disclosure 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

proficiency testing, continuing education, and supervision of these persons.

Extensive record-keeping of all futures transactions is also required. The

Commission also monitors compliance with those requirements and supervises

the work of the exchanges and National Futures Association (NFA) in enforcing

the requirements.

The Commission also plays an important role in deterring behavior that could

affect market users confidence by investigating and taking action against

unscrupulous commodity professionals who engage in a wide variety of

fraudulent sales practices against the public.

Outcomes for Strategic Goal Two are:

.. Violations of Federal laws concerning futures and option contracts are

detected and prevented.

.. Commodity professionals meet high standards.

.. Customer complaints against persons or firms registered under the Act are

handled effectively and expeditiously.

Strategic Goal ThreeEnsure market integrity in order to foster open,

competitive, and financially sound markets.

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 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) requiring that

market participants post margin to secure their ability to fulfill obligations; 2)

requiring participants on the losing side of trades to meet their obligations, in

cash, through daily (sometimes intraday) margin calls; and 3) requiring FCMs to

segregate customer funds from their own funds.

The Commission also works with the exchanges and the 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 annual 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.

The Commission investigates and prosecutes FCMs alleged to have violated

financial and capitalization requirements or to have committed other supervisory

or compliance failures in connection with the handling of customer business.

Such cases can result in substantial remedial changes in the supervisory

structures and systems of FCMs and can influence the way particular firms

conduct business. This is an important part of fulfilling the Commissions

responsibility for ensuring that sound practices are followed by FCMs and 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 alleging unlawful trade allocations,

trading ahead of customer orders, misappropriating customer trades, and non-

competitive trading.

Outcomes for Strategic Goal Three are:

.. Clearing organizations and firms holding customer funds have sound

financial practices.

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

.. Markets are free of trade practice abuses.

.. Regulatory environment is flexible and responsive to evolving market

conditions.

KEEPING PACE WITH CHANGE: PRIORITIES FOR 2004 2009

The Commission has identified the following priorities3, which will serve as key

indicators of its success in its effort to keep pace with the many changes affecting

the futures and option markets:

Complete energy investigations. Since the fall of Enron, the Commission

has conducted a number of investigations concerning potential misconduct by

participants in the energy markets. To date, the Commission has filed 10

matters. Eight of those cases have been settled and resulted in a total of $130

million civil monetary penalties and other sanctions. The other two cases are

currently in active litigation in Federal district court. We remain actively engaged

in other energy sector investigations, which may result in further charges being

filed. The Commissions aggressive enforcement actions in the energy sector

reflect an approach to market oversight that emphasizes tough enforcement

actions against wrongdoers without creating overly burdensome regulations. The

Commission is fully committed to resolving the ongoing energy investigations as

expeditiously as possible so that, in addition to identifying the wrongdoers, we

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.

Finalize rules for intermediaries. The Commission is well underway with

efforts to modernize the rules affecting futures commission merchants, managers

of pooled investment vehicles or individual accounts, and other intermediaries in

the futures markets. Through hearings, studies, and roundtables, the

Commission has, as directed by Congress, undertaken a concerted examination of

the rules currently imposed on intermediaries, and we have adopted several rule

changes.such as 1) providing financial institutions that are primarily overseen

by another regulator (such as banks, insurance companies, and mutual funds)

with an opportunity to use the risk management tools offered in the futures

markets without subjecting themselves to unnecessary duplicative regulation; 2)

providing appropriate registration relief to managers of pooled investment

vehicles that restrict participation to highly sophisticated persons who use

futures on a limited basis; and 3) affording FCMs greater operational flexibility so

that they can provide their customers with more efficient trade executions. The

Commission will continue with efforts to enhance an effective oversight

framework for intermediaries, as envisaged by the CFMA.

Implement risk-based oversight program for DCOs. The Commission

will continue to refine its risk-based approach to the oversight review of

derivative clearing organizations (DCOs). The oversight reviews will assess the

DCOs continued compliance with core principles with particular focus on risk

management and financial integrity. The Commission will monitor changes in

the pronouncements and accounting practices of the American Institute of

Certified Public Accountants (AICPA), the Financial Accounting Standards Board

(FASB), and other related organizations; developments within the industry; and

comments from the public that may affect the operations of DCOs.

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

3 The priorities listed herein are also referred to as general goals, which are described in OMB Circular A-

11 as one that allows a future assessment to be made on whether or not the goal was or is being achieved.

each DSRO with an identification of its activities and the risks arising therefrom,

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 probability and severity of potential risks to market integrity and to

market participants.

Continue collaborative regulatory efforts regarding security futures

products (SFPs). The Commission will continue in its efforts to coordinate

with the Securities and Exchange Commission (SEC) in implementing 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 also will respond to inquiries 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

surrounding the trading of SFPs.

Complete SRO Study. The industry has long relied on self-regulation, with

exchanges and the NFA performing direct regulation of participants and

intermediaries. With so many fundamental changes in recent years, including

new technologies, demutualization of exchanges and clearing organizations, and

the advent of new models of competition, the Chairman directed Commission

staff to undertake a study of the roles, responsibilities, and capabilities of SROs.

Staff are obtaining input from a wide variety of sources, including conducting

interviews of exchanges, clearing organizations, NFA, and a number of

intermediaries, academics, and others. Staff are moving expeditiously to

complete the information gathering and analysis portions of this process and are

scheduled to present a report to the Commission in the first quarter of FY 2004.

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) futures commission merchants (FCMs), introducing brokers (IBs),

unregistered investment companies (such as commodity pools and hedge funds),

and commodity trading advisors to establish AML compliance programs; 2) FCMs

and IBs to report suspicious transactions; and 3) FCMs and IBs to establish

customer identification and verification programs (CIPs). In addition to finalizing

AML rules that already have been proposed, the Commission and Treasury 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 developed by an inter-agency working group with

representatives from Treasury, the CFTC, the SEC, and several Federal banking

agencies. The Commissions role includes making sure that futures industry

registrants are not placed at a disadvantage relative to other financial service

providers. Moreover, Treasury recently proposed to delegate its AML examination

authority to the Commission with respect to futures entities. While much of the

front-line examination work may be performed by NFA and other SROs, this

delegation, when it becomes effective, will require the development and

implementation of an appropriate audit and compliance program. The Commission

repeatedly has requested, and Treasury is considering, a similar delegation of

Treasurys AML enforcement authority to the Commission with respect to futures

firms. This delegation would bring additional responsibilities to the Commission for

investigating and pursuing charges against those who do not have proper

supervision, reporting, and record-keeping programs in place to combat money

laundering and terrorist financing.

Prepare for Commission reauthorization. Legislative activities in FY

2005 will include ongoing proceedings conducted by Congress to reauthorize the

Commission for the seventh time. The current authorization for the

Commissions appropriations extends through the end of FY 2005. This

reauthorization will raise particularly complex issues since it will be the first

reauthorization after the enactment of the CFMA and comes as the industry is

undergoing rapid development in innovative trading systems, new business

models, and novel products. The reauthorization process requires a

comprehensive review of the Act, including its underlying purposes and

objectives, and the regulatory structure implementing the Act. It also requires

analysis of proposals to amend the Act advanced by industry participants, as well

as analysis of legislation proposed by members of Congress. The Commission

will evaluate the legal and programmatic implications of such legislative

initiatives and prepare legislative proposals of its own for submission to

Congress.

Coordinate with foreign regulatory authorities. The inter-linkage of

securities and derivatives firms on a worldwide basis creates, in the words of one

former financial regulator, operational liquidity and credit interdependences

that stagger the imagination. In addition, the increased use of electronic

markets means that national boundaries are largely irrelevant to the owners,

users, and products of such markets. Such international linkages, while

beneficial overall, create a number of challenges, including greater inter-

connectedness that can exacerbate or amplify poor policy or risk management

decisions. In addition, the fact that regulators must continually revise and refine

their regulatory structures in order to keep up with industry practices requires

that they have the expertise and ability to keep apprised of ongoing developments

amongst the large international securities and derivatives firms.

While regulatory issues related to financial crises and market abuse (such as

market manipulation and money laundering), cannot be eliminated, the number,

duration, and spread of such episodes can be mitigated through the enhancement

of international cooperation amongst regulators and market authorities. It is

therefore critical that the CFTC continue to foster productive and cooperative

working relationships with its foreign counterparts. In particular, the

Commission will: 1) facilitate cross-border transactions through the removal or

lessening of any unnecessary legal or practical obstacles; 2) endeavor to enhance

international supervisory 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 practice.

The CFTC will also continue to undertake measures to ensure that it maintains a

high visibility in the international community and undertake a leading role in the

development of international financial policy affecting the futures and option

markets.

Develop and implement a new Commission trade surveillance

system. The Division of Market Oversight has two electronic oversight

systems.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 todays futures

marketplace require development and implementation of a new trade

surveillance system (TSS). By supporting the Commissions efforts to protect

market participants from abusive trading practices and the integrity of the

markets as a price discovery mechanism, the Commissions trade practice

investigation (TPI) program helps the Commission maintain public confidence in

the markets and in the Commission as their regulator. The TSS identifies

possible trading abuses for referral to exchanges and the Division of

Enforcement, supports Commission investigations and litigation involving

manipulation and trade practice abuses, and is an important adjunct to

Commission rule enforcement reviews of contract markets. A new, robust

Commission TSS 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 exchanges own electronic surveillance

systems. In designing and implementing the new TSS, Commission staff will

combine custom-built components with available off-the-shelf software to give

the Commission unqualified, immediate, and confidential access to all exchange-

supplied data. The new TSS will cost an estimated $3.5 to $4.5 million, take

approximately two and one-half years to implement fully, and be rolled out

incrementally. The necessary funding has already been appropriated. After

completion, the new system will reduce ongoing maintenance costs by

approximately $100,000 per year as compared with the current system.

Re-engineer both the Commissions trade surveillance and market

surveillance systems so that they remain effective and robust as

trading migrates from 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 Chicago Board of Trades

and Chicago Mercantile Exchanges screen-based volume currently accounts for

almost 50 percent of total exchange volume. While electronic trading brings

certain regulatory benefits, such as very precise audit trails, it also increases the

opportunity for certain types of abuses, such as trading ahead of customers. In

order to re-engineer our systems, we are first embarking on a study of the various

effects the growth of electronic trading is having on market participants ability to

engage in trading abuses and market manipulations. The Commission will

examine the electronic trading systems and automated surveillance systems used

by U.S. designated contract markets, as well as those used by foreign futures

exchanges with significantly more experience in electronic trading. The

Commission will also interview foreign regulatory officials in the jurisdictions

visited with respect to their mechanisms for oversight of electronic markets.

Once this analysis is complete, we will incorporate changes in Commission

oversight systems and, where necessary, recommend alterations to systems of our

designated contract markets to ensure that customers continue to be protected

against trading abuses and manipulations.

Establish a financial surveillance unit and fully implement financial

surveillance information system (FSIS).The Commission will establish

within the Division of Clearing and Intermediary Oversight 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

indications of financial difficulty. This capability will be built upon a dedicated

team and the use of new FSIS component systems, including the RSR Express

system that compiles FCM financial statements and the SPARK system that

utilizes large trader information to allow the tracking of risk at market, firm, and

account levels and permit what if analyses.

Design and implement Project eLaw. The Commission will

continue its efforts 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 Commissions continued reliance

on manual processes and automated tracking systems to manage cases

and the approximately one million paper documents received or created

annually, Project eLaw will provide the automated tools to assist staff in

performing their work more efficiently and effectively, both in the office

and in the courtroom facing opposing counsel. Specifically, Project eLaw

will enable staff to: efficiently query and retrieve information about

investigations and litigation provided to the Commission by outside

parties; develop documents in a collaborative electronic work

environment across geographically dispersed locations; improve

management of investigation leads and trial schedules; track time and

resources expended on investigations and cases; and access and present

documentary and analytic evidence in court settings. Now that the

Commission has secured the integration support and technical expertise

to assist with Project eLaw, the plans are in place to complete a

requirements analysis, a technology assessment, a business impact

analysis, the identification and installation of hardware and software, and

pilot implementation followed by full implementation of Project eLaw.

Increase staffing. The arrival of pay parity authority promises to greatly

enhance the Commissions opportunity to have planned organizational change,

rather than reacting to the undesired loss of staff with the most mission-critical

competencies. The Commission is moving to utilize the newest flexibilities in

Federal staffing, including category ranking, so that priority recruitments for any

shift in program emphasis or unexpected losses begin immediately and conclude

rapidly. At the same time, our pay rates now allow us to compete for a broader

range of experience levels, such as among new graduates. This is allowing the

Commission to address issues such as our workforce demographics through

succession planning. By developing revised competencies on a job function or

series basis, such as with auditors moving to risk-based reviews, we are building a

revised foundation of job requirements and skills analysis that makes both our

near-term recruitment more targeted and our long-range workforce planning

more efficient. Performing this agency-wide review of our staffing efforts is

producing complementary effects in the form of a workforce with a broader range

of the most needed training and skills, resulting in the most efficient and

responsive market oversight activities presently feasible.

Upgrade training for Enforcement investigators. Expert enforcement

investigators are vital to the effectiveness of the Commissions Enforcement

program. The Commission will upgrade the training of its enforcement

investigators in order to ensure that their level of expertise keeps pace with the

challenges posed by technological advancements, increasing cross-border

participation in the financial markets, and new or growing markets. Training will

include advanced investigative techniques, especially with respect to trade

practice investigations of electronic exchanges and the tracking of international

money flows, and in-depth analysis of growing markets, with emphasis on the

over-the-counter energy markets.

Achieve full funding for pay parity. With the implementation of a new pay

schedule on April 20, 2003, CFTC closed the major part of the gap between its

pay rates and those of the other Federal financial regulators. This transitional

step has resulted in a substantive improvement in the agency recruitment and

retention trends, including evident indicators of employee morale. To begin a

corresponding upgrade in its benefits program, the Commission expects to

implement an employee dental benefit in FY 2004. In terms of total

compensation, the Commissions conservative initial approach to using its

authority to make these pay and benefits changes has, as expected, closed just

under 80 percent of the gap in aggregate compensation relative to the benchmark

agencies practices. With most of those agencies adjusting their rates in the first

quarter of the calendar year, we expect the gap to grow without funding for

appropriate pay and benefits increases, including variable compensation centered

on the concept of pay for performance. Commission senior staff will continue to

seek appropriate funding through discussions with oversight committees and

OMB.

ACHIEVING SUCCESS: BUSINESS PROCESSES, EXPERTISE &

TECHNOLOGIES

Business Processes

Commission staff perform key business processes.collections of specific

activities and strategies.in order to produce the desired outcomes and achieve

the Commissions strategic goals.

While each outcome of the Commissions three strategic goals is supported by a

specific set of business processes, there are instances in which the same business

processes are executed in order to reach more than one outcome. For example,

the business process, Investigate, file, and prosecute cases is executed for the

Goal Two outcome, Commodity professionals meet high standards as well as for

the Goal Three outcomes, Clearing organizations and firms holding customer

funds have sound financial practices and Markets free of trade practice abuses.

Below are detailed explanations of each business process.

Conduct Economic Research

.. Maintain a current understanding of market functions and developments

through studies and research.

.. Collect data from futures and option large traders, intermediaries, and SROs

and for all actively traded contracts to support dissemination of information

to the public, and futures market studies and research by Commission staff

and others.

Conduct Financial Surveillance

.. Monitor and address the financial effects of unusual or prolonged market

moves on customers, firms, and clearing organizations.

.. Identify possible violations of the Act and/or regulations involving record-

keeping, financial, capitalization, and segregation requirements for

investigation and possible prosecution.

.. Collect data from futures and option large traders, intermediaries, and SROs

and for all actively traded contracts to support financial surveillance by

Commission staff and others.

.. Conduct direct audits of clearing organizations and intermediaries to ensure

compliance with capitalization, segregation, disclosure, record keeping, and

reporting rules.

Conduct Market Surveillance

.. Monitor the markets to detect and respond quickly to potentially disruptive

situations, such as market congestion and/or potential price manipulation.

.. Collect data from futures and option large traders, intermediaries, and SROs

and for all actively traded contracts to support market surveillance,

enforcement of speculative position limits, and dissemination of information

to the public by Commission staff and others.

Conduct Trade Practice Surveillance

.. Monitor the markets to detect possible abusive trading practices.

.. Collect data from futures and option large traders, intermediaries, and SROs

and for all actively traded contracts to support trade practice surveillance by

Commission staff and others.

Cooperative Enforcement

.. Cooperate with SROs, other Federal agencies, state governmental agencies,

law enforcement entities and foreign authorities to gain information for law

enforcement purposes, coordinate prosecutions, share technical expertise

and provide enforcement assistance as necessary and appropriate.

Coordinate with Domestic Regulators

.. Participate in the President's Working Group on Financial Markets to ensure

coordination of information and efforts among U.S. financial regulators.

Coordinate with Foreign and International Regulators

.. Coordinate and cooperate with foreign financial services regulators to

develop appropriate global standards and arrangements in the commodities

industry as markets emerge and evolve and to share vital information

concerning markets, intermediaries and regulatory structure.

.. Participate in IOSCO and represent the commission at international meetings

concerning financial services regulation.

Investigate Violations

.. Identify and investigate possible instances of fraud, manipulation, and

abusive trading practices, and other violations of the Act and or regulations

including those relating to registration, financial, capitalization, segregation,

and supervision requirements.

File and Prosecute Cases

.. Bring administrative and injunctive cases involving fraud, manipulation,

abusive trading practices, and other violations of the Act and/or regulations

including those relating to financial, registration, capitalization, segregation,

and supervision requirements.

.. Where appropriate, use "quick-strike" efforts to protect assets and to stop

egregious conduct.

.. Impose sanctions and collect civil monetary penalties against violators.

Draft, Review, and Comment on Legislation

.. Draft, review, and comment on pending legislation.

Manage Reparations Program

.. Manage a reparations program for commodity futures and option market

users to make claims relating to violations of the Act.

Regulate Business, Financial and Sales Practices

.. Promulgate regulations to ensure sound business, financial, and sales

practices by persons participating in the commodity futures and option

industry.

Represent Commission in Litigation or Other Disputes

.. Represent the Commission in disputes or litigation in which the Commission

has an interest.

Resolve Administrative Cases

.. Hear and resolve administrative enforcement cases.

Resolve Appeals

.. Resolve appeals in administrative enforcement matters, self-regulatory

organization adjudicatory actions, and reparation cases.

.. Inform the public and the industry of the reasons for the Commission's

decisions concerning allegations of wrongdoing through published opinions

describing the alleged violations and the Commission's legal and policy

analysis.

Review Exchange Applications, Contracts and Rules

.. Conduct timely reviews of applications for new contract markets, DTEFs, and

clearing organizations to determine if they comply with the Commissions

approval criteria, core principles, and regulations.

.. Conduct timely reviews of requests for approval of products and rules.

.. Conduct reviews of submissions filed under certification procedures to

determine if they comply with statutory and regulatory requirements and do

not pose a likelihood of disruption of the cash, futures, or option markets.

Review SRO Enforcement

.. Conduct rule enforcement reviews of self-regulatory organizations (including

financial practices, sales practices, trade practices, market surveillance,

arbitration programs, and audit trail).

Share Information Externally

.. Manage requests for information from Congress and responses to those

requests.

.. Provide materials and information on the functions and utility of the markets

to the public through public Commission meetings, public roundtables and

panels, advisory committee meetings, symposia, U.S. Department of

Agriculture publications, routine reports on large trader activity, consumer

advisories and alerts, news releases, and the Commission's Web site.

.. Manage requests for information from the public and responses to those

requests (includes FOIA and Officer of the Day programs).

Take Appropriate Remedial or Punitive Action

.. Utilize a broad range of tools and strategies for procuring compliance with

the Act and regulations.

.. Provide exemptive, interpretive, or other relief as appropriate to foster the

development of innovative transactions, trading systems, and similar

arrangements.

Expertise

The Commissions principal resource is the expertise of its staff. The complexity of

the work demands highly skilled employees, many of whom have advanced

educational degrees. This is especially true of the Commissions two regulatory

units.the Division of Market Oversight and Division of Clearing and Intermediary

Oversight.and the Commissions Division of Enforcement. The Division of Market

Oversights highly trained economists and attorneys conduct ongoing market

surveillance to detect and prevent price distortion and manipulation and perform

other key functions, such as processing applications from new exchanges and

reviewing new contracts and exchange rules. The Division of Clearing and

Intermediary Oversights expert auditors and attorneys monitor the financial and

operational integrity of the clearing organizations and intermediaries to protect

customer funds and prevent the financial problems of a single entity from spreading

throughout the system. The Division of Enforcements specially trained attorneys and

investigators are charged with investigating potential violations of the Act and

regulations and with prosecuting wrongdoers in either administrative actions before

the agency or in Federal court proceedings.

Supplementing the expertise of these three divisions are the Chief Economists Office,

whose staff economists and visiting economic academicians conduct highly complex

research on important policy issues facing the Commission and provide sophisticated

expert economic analysis to the Commission and the other divisions; and the Office of

General Counsel, the Office of External Affairs, and the Office of the Executive

Director, all of whose staff expertise in legal, managerial, and information technology

areas contribute to the successful achievement of Commission priorities.

To keep pace with industry trends, Commission staff will continue to invest in

improving their knowledge of developing economic trends, new trading

instruments, trading strategies, technological advancements, and the

interrelationship of domestic and global markets. Without such continued

investment in skill and information building, staff may not be fully capable of

understanding the marketplace, the economic influences on it, and its changing

needs and uses. The level of skill and knowledge will need to increase over the

next five years as new markets emerge around the world and market users seek

new hedging and risk management strategies.

Technologies

Perhaps more so than many other Federal agencies, the Commission is

dependent on a significant level of advanced technology to manage the volume

and complexity of financial information it collects and analyzes. Data are

voluminous, require timely handling, and must be thoroughly analyzed for

anomalies in trading patterns, relationships, and strategies.

Over the years, the Commission has developed and maintained an impressive

technological infrastructure and has employed automation when feasible to

enhance its work product and to enhance productivity in light of a static level of

staffing.

The sophisticated market surveillance and market analyses the Commission

performs are accomplished through the use of databases and econometric

modeling. Fact patterns for enforcement investigations are supported by

computer programs, and many other critical tasks could not be accomplished

without the significant level of information technology at the CFTC. In addition,

the design and implementation of Project eLaw, the 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, will

further enhance the Commissions ability to apply technology to its efforts. The

need for this level of support will increase over the coming five years as

technology continues to evolve and to offer new capabilities.

Commission staff must be knowledgeable as to current technologies in order to

perform adequate oversight and investigations of the exchanges as they increase

their use of technology. This technological trend has been reflected in the

increasing linkage of global markets and the introduction of overnight trading

capabilities by major U.S. exchanges linked to foreign counterparts. Advances in

technology will improve the ability of the exchanges to handle their work

electronically. The Commission must be knowledgeable in these technologies to

fulfill its mission of fostering innovation and a flexible and responsive regulatory

environment.

KEY FACTORS AFFECTING SUCCESS: EXTERNAL CHALLENGES

The Commission faces challenges external to the organization that may

significantly alter its ability to meet its mission, goals, and outcomes, depending

on the weight of their influence and the timing of their occurrence. There are

three broad areas of external challenges that may impact the Commissions

achievement of its strategic goals and planned accomplishments for FY 2004

through FY 2009:

Challenges in the Marketplace

The continuing growth in the number of actively traded contracts on U.S.

exchangesnearly triple the number available just a decade agoposes a

significant external challenge. In the last decade, 815 new futures and option

contracts were approved or certified. In FY 2003 alone, 351 new futures and

option contracts were approved or certified. Since the passage of the CFMA, the

Commission has designated six new contract markets and approved five

additional derivatives clearing organizations.

For the first time in history last year, over 1 billion contracts were traded on

futures and option exchanges. The CFTC must monitor the increases in volume

and the complexity of trading activity in order to ensure that market users are

able to trust the safety, fairness, and transparency of trading on U.S. exchanges.

Events that could destabilize commodity markets in particular and financial

markets in general, such as attempts to manipulate prices and the loss of investor

confidence caused by recent events in the energy and financial sectors, also

present significant challenges to the Commission.

Legislative Challenges

The Commissions mission performance continues to be affected by changes in

Federal laws and policies, such as the deregulation of the energy industry and

changes in farm subsidy policies, spawning change and innovation, new types of

crop insurance, structural changes permitted in the financial services industry,

the diversification into overseas markets and the convergence of the securities,

commodities, insurance, and banking industries.

Technological Challenges

The advancements in technology continue to introduce challenges in many areas:

alternatives to the open-outcry method of trading commodity futures on the

exchange floor; enhanced methods for timing and tracking trading transactions;

online filing of financial information by market users; solicitations to the retail

market via the Internet; electronic marketing and trading of financial and risk-

hedging products; and trading commodity futures and options on a global, 24-

hour real-time basis. The extraordinary increase in electronic trading systems

and Internet trading has allowed markets to respond to information and the

needs of their users 24 hours a day, but also has presented new opportunities for

fraudulent activity.

COORDINATION ON CROSS-CUTTING ISSUES

The Commission benefits from established intergovernmental partnerships,

sharing information and consulting on issues of importance to the Commission

and other Federal organizations.

Presidents Working Group on Financial Markets

The PWG is a forum for the coordination of Federal financial regulation across

markets. It brings together the leaders of the Federal financial regulatory

agencies, including the Secretary of the Treasury, who chairs the group, and

chairs of the FRB, the CFTC, and the SEC. In addition to the four primary

financial regulators, the PWG also includes the heads of the National Economic

Council (NEC), the Council of Economic Advisors, the Office of the Comptroller

of the Currency, the Federal Deposit Insurance Corporation (FDIC), the Federal

Reserve Bank of New York, and the Office of Thrift Supervision (OTS). Issues

considered by the PWG and its staff have included individual and coordinated

agency initiatives concerning risk assessment, capital requirements, internal

controls, disclosure, accounting, market practices relating to trading in derivative

instruments, bankruptcy law revisions, and contingency planning for market

emergencies.

During FY 2002, the PWG met regularly to share information regarding certain

market events, implementation of the CFMA, pending bankruptcy reform, and

financial netting legislation. Beginning on the morning of September 11, 2001,

the principals met frequently throughout the day and subsequent days to monitor

and assist the financial markets as they recovered from the terrorist attacks and

resumed trading.

In support of Goal One, Commission staff coordinate initiatives on contingency

planning for market emergencies and participate in biweekly conference calls

with the staff of the PWG. In support of Goal Three, the group coordinated

initiatives concerning risk assessment, capital requirements, internal controls,

disclosure, accounting, market practices relating to derivatives instruments,

hedge funds, bankruptcy law revisions, and contingency planning for market

emergencies, and participated in Joint Report on Retail Swaps.

The Securities and Exchange Commission

Title II of the CFMA repeals the longstanding ban on single-stock futures and

directs the CFTC and the SEC to implement a joint regulatory framework for

security futures products, which include single-stock and narrow-based stock

index futures. Trading of such futures products began during the first quarter of

FY 2003, and trading of options on these futures could begin three years after

enactment of the CFMA if the CFTC and the SEC jointly determine to permit such

trading. The CFTC and the SEC have worked together to promulgate rules,

including: 1) notice registration procedures for exchanges; 2) notice registration

procedures for intermediaries; and 3) rules related to offering and execution of

SFPs.

The Federal Energy Regulatory Commission

The CFTC and FERC have worked together to monitor trading activity in the

natural gas and electricity cash and futures markets. During FY 2003, the CFTC

and FERC issued a joint statement finding no evidence of manipulation as the

cause of a spike in natural gas prices that occurred in late February 2003. The

CFTC and FERC also jointly participated in three technical conferences

concerning clearing and credit issues and price reporting issues in the natural gas

and electricity markets.

U.S. Department of Agriculture

Consistent with the mandate of the Federal Agricultural Improvement & Reform

(FAIR) Act of 1996, the Commission and its staff have been working with the U.S.

Department of Agricultures (USDA) Risk Management Agency, the USDA

Cooperative State Research, Education, and Extension Service, and the USDA

Office of Outreach in a risk management education effort. The FAIR Act initiated

a phase-out of the price support programs that had provided a safety net for

American agriculture since the 1930s. Recognizing that the disappearance of

these programs would force producers to become more self-reliant in risk

management, the FAIR Act required the Secretary of Agriculture, in consultation

with the Commodity Futures Trading Commission, to provide producers with

appropriate education in management of the financial risks inherent in the

production and marketing of agricultural commodities.

This risk management education effort has continued despite subsequent farm

legislation that has partially reestablished an agricultural safety net. The effort

continues to be broad in scope and content, focusing on integrating basic

information from all relevant sectors, including crop insurance, futures, and

options. Recent initiatives include development of educational materials and

programs for ultimate delivery to farmers through the funding of a number of grants

for risk management education projects as well as planning and conducting a

number of regional risk management education conferences and seminars. Longer

term strategies for the delivery of educational materials to producers currently are

being developed and implemented and include the establishment of Web site

tutorials, the use of television and radio infomercials, and local meetings and

seminars. Chairman Newsome serves as the Commissions principal contact

point to this risk management education effort and periodically meets with the

Administrators of the previously mentioned USDA offices in order to exchange

information of relevance to the effort. In addition, Commission staff provide

frequent assistance to those offices in carrying out risk management education

initiatives.

U.S. Department of Energy

In recent years with the continued development of trading in energy-related

derivatives, the Commission and its staff have established working relationships

with the staff of the U.S. Department of Energy. Most recently, Commission staff

have been assisting the Energy Information Administration of the U.S.

Department of Energy with a study of energy markets. The study will generally

describe the structure and activity in the cash and derivative markets for oil, gas,

and electricity and will describe the nature of Federal oversight of firms in these

industries and the markets for these commodities.

Corporate Fraud Task Force

By Executive Order signed by President Bush on July 9, 2002, the CFTC was

named as a member of the Corporate Fraud Task Force. This task force was

established with the objective of strengthening the efforts of the Department of

Justice, Federal, state, and local agencies to investigate and prosecute significant

financial crimes, recover the proceeds of such crimes, and ensure just and

effective punishment of those who perpetrate financial crimes. Recent efforts of

this inter-agency cooperative task force have included the investigations of the

alleged improprieties in the energy markets.

Agricultural Advisory Committee

The Agricultural Advisory Committee (AAC) represents a vital link between the

Commission, which regulates agricultural futures and option markets, and the

agricultural community, which depends on those markets for hedging and price

discovery. The 25 member organizations of the AAC represent a major portion of

the American agricultural community. Since 1985, the meetings of the AAC have

fostered an ongoing dialogue between that community and the Commission.

Technology Advisory Committee

The Technology Advisory Committee (TAC) advises the Commission on the

impact and implications of technological innovation in the financial services and

commodity markets. Its objectives include: 1) identifying new technologies

utilized by financial services and commodity markets and their participants; 2)

analyzing the application of new technologies in financial services and

commodity markets as well as by market professionals and market users,

particularly in the areas of system capacities and readiness, order flow practices,

and clearing and payment activities; 3) reviewing the CEA, as amended by the

CFMA, and the regulations promulgated thereunder in light of new technologies

employed by market participants and ensuring the Commissions ability to

exercise appropriate fraud and manipulation authority; and 4) examining ways

that the Commission may respond to the use of technology in financial services

and commodity markets through appropriate legislative proposals and/or

regulatory reform.

Global Markets Advisory Committee

The Global Markets Advisory Committee (GMAC) was created by the

Commission on February 25, 1998, for the purpose of obtaining input on

international market issues that affect the integrity and competitiveness of U.S.

markets and firms engaged in global business. As stated in GMACs charter,

[t]he objectives and scope of activities of [GMAC] shall be to conduct public

meetings and to submit reports and recommendations on matters of concern to

the exchanges, firms, market users, and the Commission regarding the regulatory

challenges of a global marketplace including avoiding unnecessary

regulatory or operational impediments faced by those doing global business.

Membership of GMAC consists of 23 individuals representing U.S. futures

exchanges, self-regulators, financial and commodity intermediaries, market

users, and traders.

MEASURING SUCCESS: NEW PERFORMANCE STRUCTURE

In developing this strategic plan, the Commission worked in consultation with an

strategic planning expert, who assisted us in determining the best measures of

operational success. The process involved reexamining the outdated output-

based measures of past strategic plans in order to develop more outcome-based

measures. The new performance structure, a combination of meaningful output

and outcome measures listed below, reflects the Commissions best effort to date

at measuring its effectiveness as an oversight regulator.

Goal One Performance Measures

The following performance measures were designed to demonstrate the

Commissions success in reaching the Goal One desired outcomes of markets

that: 1) accurately reflect the forces of supply and demand for the underlying

commodity and are free of disruptive activity; and 2) are effectively and

efficiently monitored to ensure early warning of potential problems or issues that

could adversely affect their economic vitality.

.. Percentage growth in market volume (Growth in market volume)

.. Increase in number of exchanges and clearinghouses (Expanding

infrastructure)

.. Percentage increase in number of products traded (Expanding number of

products)

.. Percentage of new exchange and clearinghouse clearing organization

applications completed within the statutory timeframe

.. Percentage of new contract certification reviews completed within three

months to identify and correct deficiencies in contract terms that make

contracts susceptible to manipulation

.. 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

.. Length of advance warning of significant economic trends and patterns that

require CFTC intervention (Quick and efficient identification)

.. Measure of technological currentness of surveillance tools, information, and

technology baselined against other similar surveillance organizations

.. Percentage of DCO applications demonstrating compliance with core

principles

.. Ratio of contracts surveilled per economist

.. Percentage of contract expirations without manipulation

Goal Two Performance Measures

The following performance measures were designed to demonstrate the

Commissions success in reaching the Goal Two desired outcomes of detection

and prevention of violations of Federal commodities laws concerning futures and

options violations; commodity professionals meeting high standards; and

effective and expeditious handling of customer complaints against persons or

firms registered under the Act.

.. 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

.. Percentage of SROs that comply with core principles

.. Percentage of DCOs that comply with core principles

.. Percentage of professionals compliant with standards regarding testing,

licensing, and ethics training (Professional compliance)

.. Percentage of self-regulatory organizations that comply with requirement to

enforce their rules

.. Percentage of total requests receiving CFTC responses for guidance and

advice

.. Percentage of filed complaints resolved within one year of the filing date

.. Percentage of appeals resolved within six months

Goal Three Performance Measures

The following performance measures were designed to demonstrate the

Commissions success in reaching the Goal Three desired outcomes of sound

financial practices of clearing organizations and firms holding customer funds;

effectively self-regulated commodity futures and option markets; markets free of

trade practice abuses; and a regulatory environment that is flexible and

responsive to evolving market conditions.

.. Lost funds:

a) Percentage decrease in number of customers who lose funds

b) Amount of funds lost

.. Number of rulemakings to ensure market integrity and financially sound

markets

.. Percentage of self-regulatory organizations that comply with requirement to

enforce rules

.. Percentage of intermediaries who meet risk-based capital requirements

.. Percentage of clearing organizations that comply with requirement to enforce

their rules

.. Percentage of exchanges deemed to have adequate systems for detecting

trade practice abuses

.. Percentage of exchanges that comply with requirement to enforce their rules

.. Percentage of CFMA Section 126(b) objectives addressed

.. Number of rulemakings, studies, interpretations, and guidances to ensure

market integrity and exchanges compliance with regulatory requirements

.. 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

.. Percentage of total requests receiving CFTC responses for guidance and

advice

The Commission is in the process of collecting baseline data for each measure

that will serve as the basis for future projections of performance.

PROGRAM EVALUATIONS: PAST, PRESENT & FUTURE

Program evaluations to determine how well the Commission is reaching its

desired outcomes are necessary to measure the effectiveness and efficiency of its

work. Many program priority and resource allocation decisions hinge on the

knowledge of program successes and failures. For the first three years of this

plan, the Commission will continue to use methods and processes already in

place to evaluate how we are progressing in our efforts to achieve the strategic

goals and outcomes as well as the priorities for FY 2004 through FY 2009

outlined in this strategic plan.

Management Accounting Structure Code System

Information concerning the distribution of labor at the Commission is captured

through the financial reporting system called MASCManagement Accounting

Structure Code System. This input data, provided by every employee on a bi-

weekly basis, reflects the hours they dedicate to various Commission activities

and projects. The information is intended for use by agency program managers in

their resource management activities, as well as to provide a database for

documentation and support of the CFTC fee structure for such fee-generating

activities as the designation of contract markets for trading on exchanges and

rule enforcement reviews of the exchanges.

The MASC system is being reengineered to conform to the strategic goal,

outcome, and business process structure defined by this strategic plan. The

revamped system will serve as an evaluation tool by enabling managers to assess

distribution of labor costs and realign resources as needed to contribute to the

successful achievement of Commission priorities.

Status of Funds Reporting Process

The Status of Funds, a financial management reporting process, executed from

the Commissions automated financial management system and presented to

executive management, is the basis for periodic reports of the agencys financial

condition and usage of staff-years. Beginning in FY 2004, the Commission will

begin to realign the status of funds reporting process to facilitate the reporting of

resource usage under the new framework of the strategic plan, i.e., by strategic

goal, outcome, and business process.

APPENDIX

U.S. Commodity Exchanges & Derivatives Clearing

Organizations

There are 21 commodity exchanges and 13 derivatives clearing organizations

located in eight cities in the United States and one city in the United Kingdom.

These SROs are responsible, subject to CFTC oversight, for the operation of the

exchanges and the business conduct and financial responsibility of their member

firms.

History

As the economy of the United States expanded during the early part of the

nineteenth century, the commodity exchanges evolved from unorganized club-

like associations into formalized exchanges. In 1848, the first formal exchange,

the Chicago Board of Trade, was established with 82 members. And on March 13,

1851, the first contract was traded on this exchange, encouraged by the trading

standards, inspections system, and weighing system prescribed by the board

members.

Trading on the Chicago Board of Trade was considerable, and by 1870 futures

trading also began on the New York Produce Exchange and the New York Cotton

Exchange. By 1885, the New York Coffee Exchange was actively trading futures

contracts. Since the second half of the nineteenth century, the growth of these

exchange institutions has been steady and continuousevolving into the 21 U.S.

commodity exchanges, designated as contract markets by the CFTC, that are used

today.

The total volume of futures contract and option trading on all exchanges in the

United States now has a notional value of billions of dollars per day. The

commodity exchanges have become an indispensable financial tool for the

worlds markets.

CFTC-Regulated Commodity Exchanges*

Amarillo, TX

FutureCom (FCOM)

Cambridge, MA

OnExchange Board of Trade (ONXBOT)

Chicago, IL

Chicago Board of Trade (CBT)

MidAmerica Commodity Exchange (MCE)

Chicago Mercantile Exchange (CME)

Merchants Exchange (ME)

OneChicago Futures Exchange (OCX)

Jersey City, NJ

BrokerTec Futures Exchange (BTEX)

Kansas City, MO

Kansas City Board of Trade (KCBT)

Minneapolis, MN

Minneapolis Grain Exchange (MGE)

New York, NY

Cantor Financial Futures Exchange (CFFE)

Island Futures Exchange (IFE)

Nasdaq LIFFE, LLC Futures Exchange (NQLX)

New York Board of Trade (NYBT)

Coffee, Sugar, and Cocoa Exchange (CSCE)

New York Cotton Exchange (NYCE)

New York Futures Exchange (NYFE)

Citrus Associates of the New York Cotton Exchange (CANYCE)

New York Mercantile Exchange (NYMEX)

Commodity Exchange Division (COMEX)

Philadelphia, PA

Philadelphia Board of Trade (PBT)

* CFTC-regulated commodity exchanges include only exchanges with non-dormant contracts.

CFTC-Registered Derivatives Clearing Organizations

Cambridge, MA

OnExchange Clearing Corporation

Chicago, IL

Board of Trade Clearing Corporation (BOTCC)

Chicago Mercantile Exchange (CME) Clearinghouse

The Options Clearing Corporation (OCC)

Chicago Board of Trade (CBOT)

Houston, TX

EnergyClear Corporation

Jersey City, NJ

BrokerTec Clearing Company LLC (BCC)

Kansas City, MO

Kansas City Board of Trade (KCBT) Clearing Corporation

Minneapolis, MN

Minneapolis Grain Exchange (MGE) Clearinghouse

New York, NY

New York Clearing Corporation (NYCC)

New York Mercantile Exchange (NYMEX) Clearinghouse

Philadelphia, PA

Intermarket Clearing Corporation (ICC)

United Kingdom

London Clearing House (LCH)

Volume of Trading

Volume of trading is measured in number of contracts traded. The volume of

trading on the U.S. exchanges reached 1 billion contracts traded for the first time

in history in 2002.

Number of Registered Commodities Professionals

Companies and individuals who handle customer funds or give trading advice

must apply for registration through the NFA, an SRO to which the Commission

has delegated that responsibility subject to CFTC oversight.

The Commission regulates the activities of over 67,800 registrants:

Type of Registered Professional

Number in Sept 2003

Associated Persons (AP) (Sales People)

50,900

Commodity Pool Operators (CPOs)

2,059

Commodity Trading Advisors (CTAs)

2, 812

Floor Brokers (FBs)

8,756

Floor Traders (FTs)

1,452

Futures Commission Merchants (FCMs)

2054

Introducing Brokers (IBs)

1,6465

TOTAL

67,830

4 Includes 18 notice-registered FCMs.

5 Includes 42 notice-registered IBs.

Actively Traded Futures & Option Contracts

The Commission reviews the terms and conditions of proposed contracts, as well

as subsequent amendments to the terms and conditions of contracts, to ensure

their economic viability. Improperly designed contracts can increase the chance

of cash, futures, or option market disruptions and undermine the usefulness and

efficiency of a market.

The Commission has seen the introduction of new and novel trading instruments

to handle a variety of financial risks, such as currencies, inflation-indexed debt

instruments, contracts based on various domestic and foreign stock indices, as

well as the risks inherent in the agricultural, metals, mining, and energy sectors

of the economy. It is expected that this innovation will continue as firms,

companies, producers, processors, and others turn to the commodity futures

markets for hedge protection against financial risk.

There are currently over 250 separate actively traded contracts on the United

States exchanges. This number has nearly doubled over the number of contracts

traded just a decade ago and is expected to double yet again, reaching an

estimated 540 contracts by FY 2005.

Managed Funds

Investment management professionals have been using managed futures for

more than 30 years. Recently, there has been a surge in pooled and managed

money and an increasingly large segment of the population has money invested

in the futures markets, either directly through pension funds or indirectly

through other investment vehicles that participate in the markets. Institutional

investors such as corporate and public pension funds, insurance companies, and

banks are increasingly using managed futures to diversify their portfolios.

From 1995 through 2002, the amounts of money under management has more

than doubled from just over $30 billion to nearly $65 billion, with an estimated

increase to over $70 billion in 2003.

Over the past 15 years, the profile of the typical commodity pool has changed

significantly. Fifteen years ago, commodity pools were offered with the

expectation that maximum contributions would be $1 million. Most pools were

single-advisor pools, with the CPO acting as CTA for the pool. Pools were

designed for speculative trading, and there were no tiered pools or dynamically

managed pools.

Today, the pool universe is comprised of:

.. Single and multiple advisor pools;

.. Multi-media poolsthat is, pools that invest in securities and futures as well

as other investments, including hot issues of U.S. securities, off-exchange

instruments, and international markets;

.. Pools that use leverage and isolate particular forms of return, such as the

mortgage pre-payment option; and

.. Pools that invest in other pools.

Outcomes & Business Processes by Strategic Goal

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

markets.

Outcome

Business Process

1.1 Markets that

accurately reflect

the forces of supply

and demand for the

underlying

commodity and are

free of disruptive

activity.

1. Conduct financial surveillance

2. Conduct market surveillance

3. Conduct trade practice surveillance

4. Conduct economic research

5. Review trading facility filings and clearing organization

contracts and rules

6. Conduct cooperative enforcement

7. Investigate violations

8. File and prosecute cases

9. Take appropriate remedial or punitive action

1.2 Markets are

effectively and

efficiently

monitored to

ensure early

warning of

potential problems

or issues that could

adversely affect

their economic

vitality.

1. Conduct financial surveillance

2. Conduct market surveillance

3. Conduct trade practice surveillance

4. Conduct economic research

5. Review trading facility filings and clearing organization

contracts, and rules

6. Investigate violations

7. File and prosecute cases

8. Share information externally

9. Coordinate with domestic regulators

Goal Two: Protect market users and the public.

Outcome

Business Process

2.1 Violations of

Federal

commodities laws

are detected and

prevented.

1. Conduct financial surveillance

2. Conduct cooperative enforcement

3. Investigate violations

4. File and prosecute cases

5. Resolve administrative enforcement cases

6. Resolve appeals

7. Share information externally

8. Take appropriate remedial or punitive action

9. Represent Commission in litigation or other disputes

10. Collect monetary penalties from violators.

2.2 Commodity

professionals meet

high standards.

1. Provide guidance, advice, and regulate business,

financial, and sales practices

2. Review self-regulatory organizations and clearing

organizations

3. Investigate, file, and prosecute cases

2.3 Customer

complaints against

persons or firms

registered under

the Act are handled

effectively and

expeditiously.

1. Manage reparations program

2. Resolve appeals

3. Represent Commission in litigation or other disputes

Goal Three: Ensure market integrity in order to foster open, competitive,

and financial sound markets.

Outcome

Business Process

3.1 Clearing

organizations and

firms holding

customer funds have

sound financial

practices.

1. Conduct financial surveillance

2. Provide guidance, advice, and regulate business,

financial, and sales practices

3. Review self-regulatory organization enforcement

4. Investigate violations

5. File and prosecute cases

6. Take appropriate remedial or punitive action

3.2 Commodity futures

and option markets

are effectively self-

regulated.

1. Conduct financial surveillance

2. Provide guidance, advice, and regulate business,

financial, and sales practices

3. Review exchange applications, contracts, and rules

4. Review self-regulatory organization enforcement

3.3 Markets are free of

trade practice

abuses.

1. Investigate violations

2. File and prosecute cases

3.4 Regulatory

environment is

flexible and

responsive to

evolving market

conditions.

1. Coordinate with domestic regulators

2. Coordinate with foreign and international regulators

3. Draft, review, and comment on legislation

4. Provide guidance, advice, and regulate business,

financial, and sales practices

CFTC Offices

Headquarters

Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

Telephone: 202-418-5000

Eastern Regional Office

140 Broadway

19th Floor

New York, NY 10005

Telephone: 646-746-9700

Central Regional Office

525 West Monroe Street

Suite 1100

Chicago, IL 60661

Telephone: 312-596-0700

Southwestern Regional Office

4900 Main Street

Suite 721

Kansas City, Mo. 64112

Telephone: 816-931-7600

Sub-Office

510 Grain Exchange Building

Minneapolis, MN 55415

Telephone: 612-370-3255

Publications & Information

For a list of other CFTC publications or for more information on the CFTC, please

visit the CFTCs home page on the World Wide Web. The Commissions Web

address is http://www.cftc.gov.

Or contact the Office of External Affairs, Commodity Futures Trading Commission at:

Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

(202) 418-5080