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Outcome Objective 1.1

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Outcome Objective 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.

Performance Measure 1.1.1


Performance Measure 1.1.1: Percentage growth in market volume.
Status: Adequate
Data Source: Exchange’s Trading Volume Data.
Verification: Exchange Data compared to Futures Industry Association (FIA) Report.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
26% 27% 12.8% -19.5% 24%

Lead Program Office

Division of Market Oversight

Performance Analysis & Review

The percentage growth in the market volume decreased 19.5 percent, in FY 2009, due to the severe downturn in the economy. Although many new products were introduced by the exchanges, the low trading volume for these products did not make up for the heavy decrease in the trading of the major existing contracts. The FY 2009 plan was based upon historical trends. These trends were disrupted by the economy and not by any policy changes of the CFTC. No attempt was made to predict the growth rate of the economy which was a huge factor in FY 2009 trading activity.

Performance Highlights

None to report.

Performance Measure 1.1.2


Performance Measure 1.1.2: Percentage of novel or innovative market proposals or requests for CFTC action addressed within six months to accommodate new approaches to, or the expansion in, derivatives trading, enhance the price discovery process, or increase available risk management tools.
Status: Moderately Effective
Data Source: Formal filings and signed letter responses by the Commission.
Verification: Formal filing and disposition dates maintained in internal tracking system.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
100% 100% 100% 75% 75%

Lead Program Office

Division of Market Oversight

Performance Analysis & Review

DMO handled a number of formal and informal proposals or requests for Commission action during the fiscal year that included newer approaches to formal and informal derivatives trading or enhancements to the price-discovery process. The items, which included innovative products and exchange processes, were all addressed within six months of formal receipt.

Performance Highlights

DMO issued a December 5, 2008, no-action letter to BNP Paribas confirming that the Division would not recommend that the Commission initiate enforcement action against BNP Paribas or Fortis Bank, for violation of Commission or exchange speculative position limits in connection with BNP Paribas’ acquisition of Fortis Bank. The no-action relief applied only to aggregated positions created by the acquisition and was subject to a sunset provision under which the relief lapsed on January 15, 2009.

In connection with its administration of the foreign board of trade no-action regime, DMO reviewed and processed the proposed listing of 30 new contracts to ensure that the submitting exchange had appropriate market surveillance and additional information sharing measures in place. The 30 contracts were submitted by seven different exchanges: MexDer (20-Year Fixed Interest Rate Government Development Bonds futures contract), the Sydney Futures Exchange (30 Day Interbank Cash Rate option contract, Thermal Coal futures and option contracts, New Zealand Electricity futures and option contracts, and Victorian Wholesale Gas futures and option contracts), BM&F Bovespa (Corn futures contract, Corn Price Basis futures contract, Put and Call options on Corn futures, Structured Transactions Products based on Arabica Coffee Rollover and U.S. Dollar Rollover, and Forward Rate Agreements on the General Market Price Index and on the Extended Consumer Price Index), Eurex Deutschland (Gold futures and option contracts, IPD Annual All Property Index futures contract, Silver futures and option contracts, European Processing Potatoes futures contract, London Potatoes futures contract, Hogs futures contract and Piglets futures contract) LIFFE (Two Year Mid-Curve option on the three Month Sterling (Short Sterling) Interest Rate futures contract and Two Year Mid-Curve option on the Three Month Euro (EURIBOR) Interest Rate futures contract), ICE Futures Europe (globalCOAL Newcastle Coal futures contract, ECX EUA Daily futures contract and ECX CER Daily futures contract) and Nord Pool ASA (Nordic Power option contract).

Performance Measure 1.1.3


Performance Measure 1.1.3: Percentage increase in number of products traded.
Status: Effective
Data Source: Exchanges submit data on trading volume, open interest, delivery notices, exchange of futures and prices for all products traded.
Verification: Data is validated by internal program edits and quality checks in central database.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
25% 20% 11.4% 22.7% 10%

Lead Program Office

Division of Market Oversight

Performance Analysis & Review

The number of products traded grew by approximately 22.7 percent, in FY 2009. Despite the severe economic downturn, the growth in the number of new products offered on the exchanges, in FY 2009, continued because exchanges remained innovative and rolled out many new contracts, most of which were either slight variations of existing contracts or attempts to duplicate existing products in the OTC arena. Futures innovation in energy products and the introduction of a large number of new security futures products (SFPs) drove the increase.

Performance Highlights

None to report.

Performance Measures 1.1.4(a) & 1.1.4(b)


Performance Measure 1.1.4(a): Percentage of new exchange or clearinghouse organization applications completed within expedited review period: New Exchange Applications.
Status: Effective
Data Source: New exchange application(s).
Verification: Filings and Actions automated database tracks and calculates processing time from receipt date through to date of designation or registration. Agency files containing applications, staff reviews, memoranda to the Commission, and proposed Orders.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
100% 100% 100% N/A1 25%
1The applicants of two fast track submissions were taken off the fast track review. (back to text)
Performance Measure 1.1.4(b): Percentage of new exchange or clearinghouse organization applications completed within expedited review period: New Clearinghouse Organization Applications.
Status: Effective
Data Source: New DCO application(s).
Verification: Filings and Actions automated database tracks and calculates processing time from receipt date through to date of designation or registration. Agency files containing applications, staff reviews, memoranda to the Commission, and proposed Orders.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
100% 100% 100% N/A1 100%
1The applicants of two fast track submissions voluntarily requested to be taken off the fast track for review. A third application did not qualify for fast track review. (back to text)

Lead Program Offices

Division of Clearing and Intermediary Oversight
Division of Market Oversight

Performance Analysis & Review

The expedited processing time for an application is 90 days.

Division of Clearing and Intermediary Oversight: Two DCO applications submitted under the fast track mode (90 days) were removed upon the request of the applicants. As such, DCIO reviewed these two DCO applications in approximately 120 days. Another DCO application submitted in FY 2009 was taken off the fast track as non-qualifying and placed on the 180 day track, the normal processing time for an application. This application was subsequently stayed. A fourth DCO application was filed in the fourth quarter of FY 2009, and staff review of this DCO application will not be completed until FY 2010.

Division of Market Oversight: During FY 2009, DMO staff reviewed two formal DCM applications. Both applications were removed from expedited review due to incomplete applications as well as novel issues requiring extra staff time. One market was designated within the statutory time period. One application is still under review waiting for the market to respond to staff concerns in light of novel issues and questions as well as the need for staff to utilize more time to complete its review of materials provided.

Performance Highlights

None to report.

Performance Measure 1.1.5


Performance Measure 1.1.5: Percentage of new contract certification reviews completed within three months to identify and correct deficiencies in contract terms that make contracts susceptible to manipulation.
Status: Effective
Data Source: Exchange certification filings, certified rule amendments, and agency memoranda.
Verification: Filings and Actions automated database tracks and calculates processing time from receipt date through to date of designation or registration.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
81% 82% 82% 71% 82%

Lead Program Office

Division of Market Oversight

Performance Analysis & Review

In FY 2009, as in the previous fiscal year, an unusually large proportion of new contract certifications concerned weather indexes and SFPs. Those contracts typically are easier to review than other contracts. However, there also were a high number of niche energy and power contracts that raised significant regulatory concerns, and a number of environmental contracts that appeared to suffer contract design flaws. Coupled with an increasing backlog of new product certifications, and added responsibilities to review contracts traded on ECMs to determine whether each contracts perform a significant price discovery function, the percentage of completed reviews declined in FY 2009 and, thus, the percentage was significantly lower than anticipated.

U.S. exchanges continued to innovate in FY 2009. The NYMEX and CCFE expanded their product lines of pollution allowances, including additional contracts based on the Regional Greenhouse Gas Initiative (RGGI) and NOx and SO2 allowances. RGGI is a cap-and-trade program among 10 Northeastern and Mid-Atlantic States designed to reduce greenhouse gas emissions from power plants. The CCFE also introduced futures contracts based on the California Climate Action Registry allowance, and various state renewable energy certificates (RECs). RECs are tradable certificates that represent electricity generated by wind, solar, or other renewable energy source. The Nasdaq OMX certified a futures contract based on the three-month US Dollar Libor Swap that is designed to closely replicate OTC swap contracts. It is reasonable to expect that exchanges will continue to introduce novel and complex products in the future.

Performance Highlights

Commission staff completed reviews of over 681 new contract certifications, identified several exchange-certified SFPs that were based on securities that failed to meet listing standards, and identified contract design flaws in several other contracts. In addition, Commission staff completed economic reviews of 11 foreign stock index futures contracts to ensure that the contracts meet the Commission’s cash-settlement price standards, are not readily susceptible to manipulation, and are based on broad-based security indexes.

Commission staff implemented rules, adopted by the Commission in FY 2009, under which the Commission determines whether contracts listed for trading on an ECM perform a significant price discovery function. Commission staff have identified one such SPDC and another 41 possible SPDCs that have been, or will be, published for comment. ECMs that list SPDCs are subject to increased regulatory oversight by the CFTC.

Performance Measure 1.1.6


Performance Measure 1.1.6: Percentage of rule change certification reviews completed within three months, to identify and correct deficiencies in exchange rules that make contracts susceptible to manipulation or trading abuses or result in violations of law.
Status: Effective
Data Source: Exchange certification filings and agency memoranda.
Verification: Filings and Actions automated database tracks and calculates processing time from receipt date through to date of designation or registration.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
86% 82% 86% 73% 86%

Lead Program Office

Division of Market Oversight

Performance Analysis & Review

The percentage of trading rule amendment certification reviews completed within three months of receipt by the Commission decreased over last year. This decrease in performance is due to the fact that DMO did not have sufficient staff to keep up with the influx of submissions and added responsibilities resulting from the Farm Bill, in spite of the support this year of several temporary interns.

For much of FY 2009, the Division was understaffed relative to the volume of reviews it is required to accomplish. At times completion of certain rule amendment reviews, for example, those regarding contracts with very low trading volume or changes to trading rules that did not seem to make a large change, were delayed to allow staff to focus on more important matters, such as rule changes that might create risk to the markets. It is unlikely, given the submission of complex contracts and multifaceted trading rule submissions, and in light of the additional review responsibilities included in the Farm Bill, that performance will improve in the absence of increased staffing.

Performance Highlights

Commission staff completed reviews of 71 substantive product rule amendments and 214 substantive trading rule amendments.