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Outcome Objective 3.4

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Outcome Objective 3.4: Regulatory environment is flexible and responsive to evolving market conditions.

Performance Measure 3.4.1


Performance Measure 3.4.1: Percentage of CFMA Section 126(b) objectives addressed.
Status: Effective
Data Source: Agency reports, files, and documentation.
Verification: Formal Memoranda of Understanding (MOUs) or seriatim approvals 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
100% 100% 100% 100% 100%

Lead Program Office

Office of International Affairs

Performance Analysis & Review

This performance measure has been met by: 1) engaging in discussions with foreign regulators, both on a bilateral basis and within Treasury’s country dialogues, on an “as needed” basis to address regulatory issues, as well as by carrying forward discussions with the Committee of European Securities Regulators (CESR); 2) participating in Task Forces, meetings and working groups organized by multi-lateral organizations such as IOSCO, and the Council of Securities Regulators of the Americas (COSRA); 3) organizing the annual Commission training symposium and international regulators meeting; and 4) coordinating technical assistance missions to foreign market authorities.

The recurring activities of OIA include participating in the IOSCO Technical Committee and its constituent working groups, participating in Treasury’s country dialogues, and organizing the annual training seminar and international regulators’ meeting. Other international matters are event-driven, such as the need to engage in bilateral discussions with a foreign regulator to negotiate a market surveillance arrangement, or ad hoc in nature, such as requests for technical assistance.

Recently, OIA’s activities have focused on the international community’s response to the global financial crisis and to heightened concerns with respect to volatility in energy and agricultural commodities. As discussed below, this focus has required OIA to staff a variety of international working groups, communicate with the European Commission on OTC initiatives, coordinate oil market surveillance policies with the U.K. FSA and coordinate with Treasury to develop a U.S. position on financial crisis responses within the G20 and G8 structure.

These varied activities reflect that no one regulator alone can successfully address global activities in the absence of coordinated global action. For example, efforts to close gaps in the regulation of Dodd-Frank Act or the trading of energy futures will be less effective if there are material differences in the policies of other jurisdictions that lead to regulatory arbitrage.

International coordination work is expected to increase due to issues that arise in the course of the ongoing electronic integration of global markets, cross-border mergers, market alliances and requests by foreign entities (such as clearing organizations) for regulated status under the CEA, as well as from increasing calls on the CFTC to participate in Treasury-organized dialogues with commercially important jurisdictions such as India and China.

To date, OIA has been able, within the limits of its staff resources, to provide international coordination, representation and technical assistance at acceptable levels as approved by the Chairman. Although we anticipate for the near term that these demands can be met by the additional staff resources that were allocated to OIA for FY 2009-2010, the failure to fund these resources will make it unlikely that OIA will be able to address the increasing demands resulting from the globalization of U.S. futures markets.

Performance Highlights

Response to Volatility in Energy and Agricultural Markets

Response to the Global Financial Crisis

International Financial Policy

International Regulatory Coordination

Technical Assistance

Performance Measure 3.4.2


Performance Measure 3.4.2: Number of rulemakings, studies, interpretations, and statements of guidance to ensure market integrity and exchanges’ compliance with regulatory requirements.
Status: Effective
Data Source: Federal Register, proposed and final amendments to regulations, notices and orders, and staff statements of guidance.
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
20 19 41 63 36

Lead Program Offices

Division of Clearing and Intermediary Oversight
Division of Market Oversight

Performance Analysis & Review

Division of Clearing and Intermediary Oversight: DCIO completed a combined total of 24 rulemakings, interpretations, orders, and statements of guidance that addressed regulatory efforts to ensure market integrity and exchanges’ compliance with regulatory requirements. The combined total of DCIO’s and DMO’s results in the amount of 63 exceeded the fiscal year plan of 36. The number of rulemakings, studies, orders, interpretations, and statements of guidance to ensure market integrity and exchanges’ compliance with regulatory requirements is not a number that can be precisely predetermined. The final number of these combined statistics reported by DCIO is driven, in part, by changes in the marketplace, or in the structure of the 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 the exchanges, clearing organizations, and intermediaries 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, study, interpretation, or guidance may not be known or may not have reached a decision-making point until further analysis and other actions or events have taken place. This also can account for a difference between the fiscal year plan and the actual outcome.

Division of Market Oversight: The number of rulemakings, studies, interpretations, and statements of guidance is not a number that can be forecasted precisely. The final number is driven, in part, by changes in the marketplace or in the operations of exchanges that may not be foreseeable at the time the performance estimate is prepared. DMO staff contributed to the Commission’s publication of 39 Federal Register notices including notices of proposed and final rulemaking.

Performance Highlights

Division of Clearing and Intermediary Oversight: The Commission amended Regulations 4.26 and 4.36 in order to require that CPOs and CTAs file Disclosure Documents electronically through NFA’s electronic Disclosure Document filing system. This action was in response to a petition filed by NFA with the Commission. NFA explained that although it had developed a new Internet-based Disclosure Document electronic filing system that will be significantly less resource intensive while also streamlining and enhancing the filing process for registrants, absent an electronic filing requirement, the proposed benefits would not be realized. DCIO prepared an interpretative statement issued by the Commission regarding the bankruptcy treatment of customer funds related to cleared-only contracts. The interpretation concluded that claims arising out of cleared-only contracts are properly included within the meaning of “net equity” for purposes of the U.S. Bankruptcy Code and Commission regulations.

Division of Market Oversight: In FY 2009, the Commission approved final rules that increased the Commission’s oversight of ECMs. These markets have become prominent energy related contract trading forums. The rules implement the provisions of the 2008 Farm bill that apply new requirements to ECMs listing, and trades involving, contracts that perform a significant price discovery function. The rules provide guidance with respect to compliance with nine statutory core principles for ECMs with SPDCs, introduce new and amend prior information-submission requirements, and establish the procedures and standards by which the CFTC will determine that an ECM contract performs a significant price discovery function. In July of 2009, in its first final action under the new rules, the Commission determined that the ICE Henry Financial LD1 Fixed Price contract performs a significant price discovery function under the material liquidity, price linkage and arbitrage criteria established in section 2(h)(7) of the CEA, as amended by the 2008 Farm Bill.

Performance Measure 3.4.3


Performance Measure 3.4.3: 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.
Status: Effective
Data Source: Applicant’s letter requesting relief and Commission letter of response.
Verification: Applicant’s letter and supporting documentations maintained in internal tracking system, FILAC1. Responses to formal request published on the Commission’s Web site.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
100% 100% 100% 100% 100%
1Refer to CFTC Information Technology Systems in the Appendix for a description of functionality. (back to text)

Lead Program Office

Division of Market Oversight

Performance Analysis & Review

In FY 2009, DMO withdrew two no-action letters that allowed the letters’ recipients to exceed Federal agricultural speculative position limits when acting as index traders. DMO also amended ICE Futures Europe’s foreign terminal no-action letter to enhance the CFTC’s ability to carry out its market surveillance responsibilities. ICE Futures Europe lists cash-settled contracts that settle to NYMEX contracts. DMO also responded to a BNP Paribas request for formal no-action relief from the Federal agricultural speculative position limits. DMO granted the requested relief within six months. The no-action relief is discussed further below.

Performance Highlights

In FY 2009, DMO issued a no-action letter to BNP Paribas confirming that the division would not recommend that the Commission initiate an enforcement action against BNP Paribas or Fortis Bank S.A./N.V., or their respective affiliates, for violation of Commission or exchange speculative position limits, to the extent any such violation results from the application of the Commission’s aggregation policy and rules to the acquisition by BNP Paribas of Fortis Bank. DMO granted this temporary relief in response to the credit crises and to facilitate BNP Paribas’ acquisition of Fortis Bank, a large financial institution that experienced severe credit related difficulties. The relief required BNP Paribas and Fortis Bank to promptly implement any measures following the acquisition that may be necessary to ensure compliance prospectively with any applicable position limit.

Performance Measure 3.4.4


Performance Measure 3.4.4: Percentage of total requests for guidance and advice receiving CFTC responses.
Status: Effective
Data Source: Signed letters (formal) and email and telephone responses (informal).
Verification: Agency files maintained in chronological files and responses to formal request are published on Commission’s Web site.
ACTUAL
FY 2006
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
PLAN
FY 2009
95% 95% 75% 93% 87%

Lead Program Offices

Division of Clearing and Intermediary Oversight
Division of Market Oversight

Performance Analysis & Review

Division of Clearing and Intermediary Oversight: DCIO met its performance target for FY 2009. DCIO staff respond to numerous requests for guidance and advice on the CEA and Commission regulations each year. Requests are received from members of the public, market participants, intermediaries, SROs, foreign entities, and others. These requests may be formal, such as written requests for no-action, interpretative, or exemption letters. DCIO also receives numerous informal requests for guidance and advice via e-mail and phone calls.

Although DCIO responds to all requests that it receives, it is not always possible for DCIO to respond within the fiscal year that it receives a request. DCIO estimates that up to 10 percent of requests may fall in this category. Some requests that raise novel or complex issues, or requests in the form of no-action letters, interpretations, or exemptions, take more time to research and to prepare a response. It should be noted, however, that the statistics on numbers of letters issued or e-mail responded to may not reflect the complexity of any particular matter or the resources necessary to address one issue versus another issue. In addition, matters commenced in one fiscal year may overlap, and be completed during a subsequent fiscal year, resulting in some imprecision in statistical measures for a given year. DCIO makes every effort to respond to requests as quickly as possible, but the timeliness of a response also is affected by the speed with which a requester provided additional information sought by staff, and the length of time required by other Commission divisions or offices to review a draft response, factors outside the control of DCIO.

Division of Market Oversight: DMO staff respond to numerous requests for guidance and advice on the CEA and Commission regulations each year. These requests may be informal, via email or phone calls, or formal in the form of requests for no-action, interpretative, or exemptive letters. Staff respond to informal guidance and advice requests in a very short period of time, usually no longer than a period of days. To the extent that staff are unable to provide an informal response to such requests, the requester is advised to submit a formal request for guidance. DMO staff strive to address such formal requests within six months of receipt.

Performance Highlights

Division of Clearing and Intermediary Oversight: In FY 2009, DCIO responded to numerous requests, both formal and informal, for interpretations of the Commission’s registration requirements and issued exemptive and no-action letters addressing various issues, including the circumstances under which general partners of commodity pools may be relieved from CPO registration requirements when a registered designee serves as the pool’s operator. Additionally, DCIO issued an exemptive letter granting relief from certain record-keeping and disclosure requirements to a registered CPO of a publicly offered commodity pool. The relief is predicated on substituted compliance with parallel requirements under securities laws.

DCIO also issued a letter in FY 2009 providing guidance to CPOs on complying with the financial reporting requirements set forth in Part 4 of the Commission’s regulations. The letter assisted CPOs in meeting their regulatory requirements by highlighting recent regulatory changes affecting the financial filings required of CPOs, and identified common deficiencies observed in prior year financial filings.