Letter of Transmittal to the U.S. Congress

During FY 1999, the Commission witnessed dramatic changes in the futures and option markets. The evolution of financial instruments, the growth of international markets, and the advance of technology all continued to affect the regulatory environment. The challenge to the Commission is to ensure that its regulatory structure responds to and accommodates these changes while fulfilling its mission to protect the price discovery function, prevent manipulation of commodities through corners, squeezes and similar schemes, and assure an effective vehicle for risk transference. The agency must also provide customers with suitable protection from abusive trade practices and fraud.

The Commission made several definitive shifts in its regulatory scheme during FY 1999. In recognition of the changing nature of the industry and increasing competition, the Commission reformed the process by which new contract markets are designated and amendments to the terms and conditions of these contracts are reviewed. The reevaluation of the designation process will continue in FY 2000. The Commission also proposed significant revisions to the rules governing the market for over-the-counter agricultural trade options, which came to fruition in FY 2000.

In response to the increasingly international nature of the markets, the Commission lifted the moratorium on placement of trading terminals in the United States by foreign exchanges. In addition, the Commission published proposed rules that would clarify when members of a foreign board of trade must register with the Commission. The Commission also amended rules governing registration, exemption, and disclosure by registrants trading foreign futures and option contracts on behalf of U.S. customers and pool participants.

The Commission prepared for the Year 2000 transition by providing further guidance to the industry, working with the exchanges and industry associations, and ensuring that the agency's physical plant and systems will continue to operate in the new year. The Commission continued to evaluate and respond to the impact of technology on the industry, and in FY 1999, amended its recordkeeping requirements to allow records to be kept in electronic storage media and proposed a rule to allow electronic signatures in lieu of written signatures by customers.

Throughout the year, the Commission brought administrative and injunctive actions to enforce the Commodity Exchange Act and the Commission's regulations. Many of these cases affected customers on a national and international scale. The Commission and CFTC staff, as always, provided diligent and committed effort on behalf of the agency's mission. It is with pleasure that I submit this Annual Report of the Commodity Futures Trading Commission to the U.S. Congress.


William J. Rainer