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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 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
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 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
$0 $0 $0 $0 $0

Lead Program Office

Division of Clearing and Intermediary Oversight

FY 2010 Performance Results

3.1.1(a): 0
3.1.1(b): $0

Performance Analysis & Review

Performance target was met for FY 2010. During FY 2010, 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, 2010, 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 2010.

Performance Measures 3.1.2



Performance Measure 3.1.2: Number of rulemakings to ensure market integrity and financially sound markets.
Status: 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 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
1 0 4 4 4

Lead Program Office

Division of Clearing and Intermediary Oversight

FY 2010 Performance Results

4

Performance Analysis & Review

DCIO met the performance target for FY 2010. 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 adopted four final rulemakings that are designed to ensure market integrity and financially sound markets. One rulemaking addressed the minimum net capital that IBs and FCMs must maintain. The rulemaking amended the Commission’s net capital rule 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 FCM minimum net capital computation to include all customer and noncustomer OTC contracts that are submitted for clearing by the FCM to U.S. or foreign clearing organizations; and 3) increasing the amount of net capital an FCM must hold under the risk-based capital computation for noncustomer positions. The overall effect of the rulemaking is generally to require IBs and FCMs to hold additional capital as a cushion against losses and to ensure that the firms can meet their obligations to customers and to the markets.

Another rulemaking addressed amendments to the regulations governing the electronic filing of FCM financial information and notices with the Commission, and the adoption of a requirement to file a statement of income as part of the FCM’s monthly financial statement filings. A third rulemaking amended the regulations governing the periodic account statements and annual financial reports that commodity pool operators are required to provide to pool participants and file with the National Futures Association. The amendments specify detailed information that must be included in the periodic account statement and annual reports for commodity pools with more than one ownership series.

Performance Measures 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 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
100% 100% 100% 100% 100%

Lead Program Office

Division of Clearing and Intermediary Oversight

FY 2010 Performance Results

100%

Performance Analysis & Review

Performance target was met for FY 2010. Three reviews to assess compliance with certain DCO core principles were completed during FY 2010. Based on its reviews, staff determined that the DCO programs met the applicable requirements of the CEA 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, 58 rule submissions, many containing multiple rules, were filed by DCOs under the self-certification provisions of the CEA. Staff reviewed each of the submissions and found none that violated core principles.

Performance Highlights

Completed reviews of DCOs focused on core principles for financial resources, risk management, and treatment of funds. Based on its reviews, staff determined that the DCO programs met the applicable requirements of the CEA and Commission regulations.

 

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