Follow Us:

Outcome Objective 3.4

Table of Contents >

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

Lead Program Office

Office of International Affairs

FY 2010 Performance Results

100%

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 (such as with China and the European Union (EU)), 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.

During FY 2010, 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, these concerns have resulted in the creation of numerous work-streams within international bodies such as IOSCO, the G20 and Financial Stability Board, and on-going regulatory developments have necessitated close coordination between the Commission and major international jurisdictions, most notably the European Union, in order to ensure a high level of regulatory development and the avoidance of opportunities for regulatory arbitrage. Moreover, OIA supported the Commission’s participation in two significant IOSCO Task Forces: OIA co-chairs, on behalf of the Commission, a Task Force on Commodity Futures Markets that is addressing concerns with respect to the lack of transparency in the oil markets, which may contribute to inadequate price formation in those markets; and coordinates the Commission’s activities within the newly created Task Force on OTC Derivatives, which is co-chaired by the Commission.

Performance Highlights

Response to the Global Financial Crisis:

Response to Volatility in Energy and Agricultural Markets:

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 and proposed and final orders are published in the Federal Register and posted on the Commission’s Web site. Staff letters are posted on the Commission’s Web site.
ACTUAL
FY 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
19 41 63 58 59

Lead Program Office

Division of Clearing and Intermediary Oversight

FY 2010 Performance Results

58

Division of Market Oversight

Performance Analysis & Review

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 and DMO 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 Clearing and Intermediary Oversight: DCIO completed a combined total of 36 rulemakings, interpretations, orders, and statements of guidance that addressed regulatory efforts to ensure market integrity and exchanges’ compliance with regulatory requirements.

Division of Market Oversight: DMO completed a combined total of 22 rulemakings, interpretations, orders, and statements of guidance that addressed regulatory efforts to ensure market integrity and exchanges’ compliance with regulatory requirements.

Performance Highlights

Division of Clearing and Intermediary Oversight: In September, the Commission published final rules concerning off-exchange retail foreign currency transactions that contribute to ensuring market integrity. (75 Fed. Reg. 55410, September 10, 2010.) The rules follow the passage of the Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, 122 Stat. 1651, 2189-2004 (2008), also known as the Farm Bill, and the Dodd-Frank Act, P.L. No. 111-203 (2010). In particular, the Farm Bill: 1) clarified the scope of the CFTC’s anti-fraud authority with respect to retail off-exchange foreign currency transactions; 2) provided the CFTC with the authority to register entities wishing to serve as counterparties to retail forex transactions as well as those who solicit orders, exercise discretionary trading authority and operate pools with respect to retail off-exchange foreign currency transactions; and 3) mandated minimum capital requirements for entities serving as counterparties to such transactions.

Pursuant to this authority, the Commission devised a comprehensive scheme that puts in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital, and other operational standards. Specifically, the regulations require the registration of counterparties offering retail foreign currency contracts as either FCMs, or retail foreign exchange dealers (RFEDs), a new category of registrant created by the Farm Bill. Persons who solicit orders, exercise discretionary trading authority and operate pools with respect to retail forex also are required to register, either as IBs, CTAs, CPOs, or as APs of such entities. The regulations also include robust customer protections and financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions.

The Commission also adopted a final rulemaking to ensure market integrity that addressed the minimum net capital that IBs and FCMs must maintain. The overall effect of the rulemaking is to generally 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. Commission staff issued a revised Financial and Segregation Interpretation No. 3-1 during 2010. Financial and Segregation Interpretation 3-1 addressed the appropriate net capital treatment of customer receivables secured by electronic warehouse receipts and shipping certificates. Staff also provided guidance to the industry including addressing the regulatory capital treatment of net foreign currency exposures for FCMs, and the capital implications of holding certain private placement securities.

Division of Market Oversight: In FY 2010, the Commission issued 47 separate orders concerning whether certain ECMs contracts are SPDCs under criteria established in section 2(h)(7) of the CEA. In 2008, the CEA was amended by the 2008 Farm Bill to apply new requirements to ECMs listing, and trades involving, contracts that perform a significant price discovery function. The CFTC’s rules provide guidance with respect to compliance with nine statutory core principles for ECMs with SPDC contracts, 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 implementing these new requirements, DMO’s first reviewed all of the contracts listed by ECMs and issued Federal Register notices seeking public comment regarding the contracts that were believed to be the most likely to be SPDC contracts. After further substantive analysis of the contracts and comments, DMO made SPDC recommendations for each such contract. Based upon those recommendations, the Commission in FY 2010 issued 47 SPDC orders; ultimately finding 13 contracts to be SPDC contracts and finding 34 contracts to not be SPDC contracts. The contracts deemed to be SPDCs are now subject to Commission oversight and the ECMs must adopt self regulatory responsibilities to oversee activity on those contracts. The other three rulemakings were two joint orders regarding trading in stock index futures and a withdrawal of the energy Federal speculative limits proposal.

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 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
100% 100% 100% 100% 75%
1Refer to CFTC Information Technology Systems in the Appendix for a description in functionality. (back to text)

Lead Program Office

Division of Market Oversight

FY 2010 Performance Results

100%

Performance Analysis & Review

In FY 2010, DMO issued one no-action letter. This letter was issued to an FBOT and is discussed more fully below. The letter was issued within six months of the Division’s receipt of the initiating relief request.

Performance Highlights

DMO issued an May 11, 2010 letter granting no-action relief to permit the International Maritime Exchange ASA (Imarex or the Exchange) to make its electronic trading and order matching system (Trayport), and its Application Program Interface (API), available via direct access to Exchange trading members in the United States without obtaining contract market designation or registration as a derivatives transaction execution facility pursuant to Sections 5 and 5a of the CEA.

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 2007
ACTUAL
FY 2008
ACTUAL
FY 2009
ACTUAL
FY 2010
PLAN
FY 2010
95% 75% 93% 95% 87%

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

FY 2010 Performance Results

95%

Performance Analysis & Review

Division of Clearing and Intermediary Oversight: DCIO met its performance target for FY 2010. 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-mails responded to may not reflect the complexity of any particular matter or the resources necessary to address one issue as compared to 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 which are 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 2010, 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. Among the issues addressed are 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; registration implications where employees of a foreign branch of a U.S. bank serve in the capacity of IBs; and disclosure, reporting and recordkeeping requirements for operators of exchange-traded commodity pools. In connection with the no-action relief provided to exchange-traded commodity pools, in September, the Commission published proposed rules that would “codify” past relief and simplify procedures for CPOs seeking comparable relief in the future. (75 Fed. Reg. 57794 (Sept. 9, 2010))

Additionally, DCIO issued an exemption from the disclosure document requirements for a CPO of a commodity pool operated as a Delaware Series Limited Liability Company. Because there was limited liability and segregation of assets amongst the various series of the pool, staff permitted the CPO to distribute multi-part disclosure documents to prospective participants wherein the first part of the document contained disclosures regarding the pool as a whole and the second part contained disclosures relevant to the offered series only.

DCIO also issued a letter in FY 2010 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’s financial filings.

 

< Previous Page | Table of Contents | Next Page >