Letter of Transmittal to the U.S. Congress
FY 2000 was a period of sustained effort to reform the way in which the CFTC regulates futures markets and their participants and customers, to repeal the statutory prohibition against trading single-stock futures, and to affirm that over-the-counter (OTC) financial transactions between institutions do not require regulation under the Commodity Exchange Act. Parallel initiatives to achieve these goals proceeded both within the CFTC and by the 106th Congress, as it considered legislation to reauthorize the agency.
The Commission developed a comprehensive regulatory framework that (1) replaces "one-size-fits-all" rules with flexible core principles and (2) establishes levels of regulation geared to the nature of particular instruments and the kind of persons trading them. In addition, the Commission reached an agreement with the Securities and Exchange Commission to lift the statutory ban on single-stock and narrow-based stock index futures, allowing these instruments to be traded under the joint supervision of the two agencies. The agreement also provides objective standards for determining whether a particular group of securities constitutes a broad-based stock index. The Commission has exclusive jurisdiction over broad-based stock index futures.
The parallel reform initiatives of the Commission and Congress culminated in the Commodity Futures Modernization Act of 2000 (CFMA). The new legislation, signed by President Clinton in December 2000, repealed the ban on single-stock futures and implemented a regulatory framework for these instruments based on the agreement between the CFTC and SEC; enacted the principal provisions of the Commission's new regulatory framework; brought legal certainty to bilateral and multilateral trading in OTC financial markets; confirmed the CFTC's jurisdiction over certain aspects of the retail market in foreign exchange trading; and gave the CFTC authority to regulate clearing organizations. The CFMA also reauthorized the Commission for five years.
During FY 2000, the CFTC approved three new electronic exchanges and granted no-action relief to two electronic trading facilities for energy products; authorized substantial regulatory relief for market intermediaries; and moved aggressively to combat Internet commodity fraud. The Commission also approved demutualization plans submitted by two exchanges to convert from membership organizations to stock corporations, and plans from a third exchange for the first-phase of a multi-step demutualization process. In addition, the Commission monitored various exploratory moves into electronic trading by open-outcry exchanges
FY 2000 marks the CFTC's transition from front-line regulator to oversight agency. The work of the past year, however, does not signal the end of the reform process at the Commission. Much work lies ahead. On a personal note, I would like to thank my colleagues Barbara P. Holum, David D. Spears, James E. Newsome, and Thomas J. Erickson for their invaluable assistance and support. I extend thanks and admiration to the members of the staff of the CFTC for their unflagging creativity, professionalism and hard work. With pleasure, I submit this Annual Report of the Commodity Futures Trading Commission to the U.S. Congress.
William J. Rainer