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Outcome Objective 3.1

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Outcome Objective 3.1: Clearing organizations and firms holding customer funds have sound financial practices.

Performance Measures 3.1.1(a) & 3.1.1(b)


Performance Measure 3.1.1(a): Lost Funds: Number of customers who lost funds.
Status: Effective
Data Source: Agency database of financial information from 1-FR-FCM and FOCUS reports, and related regulatory notices.
Verification: Exchanges’ daily trading data and FCMs’ financial filings are maintained in Stressing Positions at Risk (SPARK1) and 1-FR data systems.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
0 0 0 0 0
1Refer to CFTC Information Technology Systems in the Appendix for a description of functionality. (back to text)
Performance Measure 3.1.1(b): Lost Funds: Amount of funds lost.
Status: Effective
Data Source: Agency database of financial information from 1-FR-FCM and FOCUS reports, and related regulatory notices.
Verification: Exchanges’ daily trading data and FCMs’ financial filings are maintained in SPARK and 1-FR data systems.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
$0 $0 $0 $0 $0

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis & Review

Performance target was met for FY 2009. During FY 2009, no customers who deposited funds with FCMs for trading on DCMs experienced any losses as a result of the FCM’s failure to adhere to Commission regulations. However, a registered FCM filed for bankruptcy protection in August 2007. DCIO is continuing to monitor the FCM’s bankruptcy proceedings and, as of September 30, 2009, no customers trading on DCMs have lost funds due to the FCM’s bankruptcy.

FCMs are required to segregate their own assets from all customer funds deposited for trading on DCMs in designated accounts with a bank, trust company, clearing organization, or other FCM. FCMs holding funds for customers trading on non-U.S. contract markets are required to comply with Part 30 of the Commission’s regulations with respect to the custody of the customers’ funds.

FCMs also are required to prepare daily calculations demonstrating compliance with the customer funds custody requirements. These calculations must be prepared by 12:00 noon and must demonstrate compliance as of the end of business on the previous business day.

DCIO conducts financial and risk surveillance activities to closely monitor the operations of FCMs in possession of customer funds. These surveillance activities include DCIO’s SPARK system, combined with required financial warning notices from the FCMs and constant market monitoring.

Performance Highlights

The Commission was successful in ensuring that no losses of regulated customer funds occurred due to firm failures or the inability of customers to transfer their funds from a failing firm to a sound firm in FY 2009.

Performance Measure 3.1.2


Performance Measure 3.1.2: Number of rulemakings to ensure market integrity and financially sound markets.
Status: Moderately Effective
Data Source: Code of Federal Regulations; proposed and final amendments to regulations.
Verification: Proposed and final regulations are published in the Federal Register and posted on the Commission’s Web site.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
3 1 0 4 3

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis & Review

Performance target was exceeded for FY 2009. The number of rulemakings to ensure market integrity and financial soundness is not a number that can be precisely predetermined. The final number of rulemakings is driven, in part, by changes in the marketplace, or in the structure of exchanges, clearing organizations, and intermediaries that operate within that marketplace. The number can be a function of what is needed to allow appropriate market interrelationships to be maintained and to allow registered entities to operate in the most efficient manner possible. These factors may not be foreseeable at the time the performance estimate is prepared. In addition, the need for a rulemaking may not be known, or may not have reached a decision-making point until further analysis, study, and other actions or events take place. This also can account for a difference between the fiscal year plan and the actual outcome.

Performance Highlights

The Commission has adopted a risk-based capital regulation for FCMs (i.e., an FCM’s minimum capital requirement is determined based upon the relative risk associated with customer and non-customer futures positions carried by the FCM). The Commission recently proposed amendments to the minimum capital requirements that FCMs and IBs must maintain. The proposed amendments would increase capital requirements by: 1) increasing the required minimum dollar amounts to $45,000 for IBs and $1 million for FCMs; 2) requiring risk-based (i.e., margin-based) calculations in the regulation to include all customer and noncustomer over-the-counter contracts that are submitted for clearing by the FCM to U.S. or foreign clearing organizations; and 3) increasing the applicable percentages specified in the regulation for such margin-based calculations.

Performance Measure 3.1.3


Performance Measure 3.1.3: Percentage of clearing organizations that comply with requirement to enforce their rules.
Status: Effective
Data Source: Documentation from DCOs under review, agency reports, files, and financial surveillance materials.
Verification: Review and analysis of systems, data, procedures, policies, practices, and manuals, including on-site visits at DCOs.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
100% 100% 100% 100% 100%

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis & Review

Performance target was met for FY 2009. Three reviews to assess compliance with certain CFTC Core Principles were completed during FY 2009. Based on its reviews, staff determined that the DCO programs met the applicable requirements of the Act and Commission regulations. In addition to conducting these reviews, DCIO staff conduct financial and risk surveillance of DCOs and clearing members on a daily basis, a central element of DCIO’s ongoing oversight. Staff have identified no instances of noncompliance. Another component of DCO oversight is the review of rules and rule changes of DCOs. During the past fiscal year, 68 rule submissions, many containing multiple rules, were filed by DCOs under the self-certification provisions of the Act. Staff reviewed each of the submissions and found none that violated CFTC Core Principles.

Performance Highlights

One review of a DCO focused on CFTC Core Principle of financial resources, and another review of several DCOs focused on CFTC Core Principle of default procedures. A third review, conducted jointly with DMO, focused on CFTC Core Principle of system safeguards of several DCOs. Based on its reviews, staff determined that the DCO programs met the applicable requirements of the Act and Commission regulation.