Directly monitor the markets to detect and protect against price manipulation and abusive trading practices to ensure that the markets are performing the vital economic function of price discovery and risk transfer or hedging.
Perform market surveillance and trade practice oversight by conducting examinations of exchange programs to ensure that the exchange is appropriately monitoring daily trading activity, positions of large traders, and the supply and demand factors affecting prices.
Review products listed by exchanges and rules and rule amendments submitted by exchanges to ensure compliance with the Act and to develop, implement, and interpret regulations that are designed to protect the economic functions of the market, protect market participants, prevent trading abuses, and facilitate innovation.
Collect and analyze trading data. On a daily basis, CFTC collects and analyzes U.S. futures and option data for all actively traded contracts to detect congestion and/or price distortion. Economists analyze the activities of traders, key price relationships, and relevant supply and demand conditions for nearly 1,400 contracts representing major agricultural commodities, metals, energy, financial instruments, equity indices, foreign currencies and emission allowances. CFTC staff also analyze markets to determine how conditions and factors observed may impact individual registrants or the markets in general to deter potentially negative situations and to take appropriate action, responding quickly to potentially disruptive situations.
Review products and rules. Properly designed futures and option markets serve vital price discovery and hedging functions, which are essential to a healthy, capital-based economy. Business, agricultural, and financial enterprises use the futures markets for pricing information and to hedge against price risk. The participants in commercial transactions rely extensively on the prices established by futures markets that affect trillions of dollars in commercial activity. Moreover, the prices established by the futures markets directly or indirectly affect all Americans. They affect what Americans pay for food, clothing, and shelter, what we pay to heat our homes and fuel our cars, as well as other necessities. Deficiencies in the terms and conditions of futures and option contracts increase the likelihood of cash, futures, or option market disruptions, and also decrease the economic usefulness and efficiency of a contract. Furthermore, deficiencies in market rules can increase the likelihood that the market will operate in an unfair manner or will not have appropriate safeguards in place for the protection of customers. To meet its statutory mission of ensuring market integrity and customer protection, the Commission places greater reliance on its existing oversight authorities in permitting exchanges to list contracts for trading without prior Commission approval and to amend contracts when necessary. Commission staff conducts a due diligence review of each contract and contract amendment to ensure compliance with the CEA and the Commission’s regulations, while the Commission relies on its authority to then alter, or supplement, exchange rules or to take emergency action, as appropriate, if a violation is discovered.
Analyze markets and provide expert analysis. Each week, reports are prepared on special market situations and on market conditions for all contracts approaching their critical expiration periods. Potential problems detected in preparing these reports are shared with the Commissioners and senior staff. The Commission shares pertinent information with other regulatory agencies and works with the affected exchange to develop and administer responsive measures as necessary. Economists and futures trading specialists keep abreast of innovation in the marketplace in technology, trading strategies, trading instruments, and methods to ensure an understanding of how the markets are functioning and to develop a flexible, effective regulatory response to market conditions as they evolve.
Coordinate with other financial regulators. The Chairman participates in the President’s Working Group on Financial Markets to ensure coordination of information and efforts among U.S. financial regulators. The Working Group brings together the leaders of the Federal financial regulatory agencies, including the Secretary of the Treasury, who chairs the group, and the chairs of the Board of Governors of the Federal Reserve System, the CFTC, and the Securities and Exchange Commission (SEC). In addition to the four primary financial regulators, the Working Group also includes the heads of the National Economic Council, the Council of Economic Advisors, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Bank of New York, and the Office of Thrift Supervision. Issues considered by the Working Group and its staff have included: 1) individual and coordinated agency initiatives concerning risk assessment; 2) capital requirements; 3) internal controls; 4) disclosure; 5) accounting; 6) private pools of capital, including hedge funds; 7) market practices relating to trading in derivative instruments; 8) bankruptcy law revisions; 9) security futures product (SFP) portfolio margining; 10) futures on security indexes; and 11) contingency planning for market emergencies. Every two weeks, Commission staff participates in the President’s Working Group to discuss ongoing issues.
Address specific CFTC-SEC cross-jurisdictional products and issues. The CFTC and SEC have entered into a Memorandum of Understanding (MOU) establishing a permanent regulatory liaison between the agencies to address areas of mutual interest, and providing a forum to discuss and address these issues on a timely basis. The agencies continue to address cross-jurisdictional issues as they arise, such as those presented by credit event products and commodity exchange-traded funds. The agencies’ cooperative efforts seek to avoid barriers to entry and reduce legal uncertainty.
Cooperate with FERC. The CFTC and the Federal Energy Regulatory Commission (FERC) cooperate under the terms of an MOU mandated by the Energy Policy Act of 2005 and entered into in October 2005, regarding the sharing of information and the confidential treatment of proprietary energy trading data.
Provide information on the functions of the marketplace. Commission staff prepare and provide materials and information on the functions and utility of the markets to the public through public Commission meetings, public roundtables, advisory committee meetings, symposia, publications, press releases, advisories, and publication of the Commitments of Traders reports. Staff also participates as appropriate in seminars sponsored by other Federal and state government organizations and industry-sponsored conferences. The Commission’s Web site plays a significant role in providing information to the public.
Investigate and prosecute wrongdoing. The Commission attorneys and investigators conduct investigations and institute enforcement actions against potential violators. Violators are sanctioned. The sanctions are publicized and enforced. The administrative law judges continue to hear and decide administrative enforcement cases brought by the Commission against persons or firms charged with violating the Act or Commission regulations.
Review regulations and amend or abolish as appropriate. In order to ensure that the regulations enforced by the CFTC are reflective of the needs of the industry and the public, the Commission reviews and adapts its regulations with evolving conditions and changes in the industry.