Letter of Transmittal to the U.S. Congress

Letter of Transmittal to the U.S. Congress

FY 2000 was a period of sustained effort to reform the way in which the CFTC regulates futures markets and their participants and customers, to repeal the statutory prohibition against trading single-stock futures, and to affirm that over-the-counter (OTC) financial transactions between institutions do not require regulation under the Commodity Exchange Act.� Parallel initiatives to achieve these goals proceeded both within the CFTC and by the 106th Congress, as it considered legislation to reauthorize the agency.

The Commission developed a comprehensive regulatory framework that (1) replaces "one-size-fits-all" rules with flexible core principles and (2) establishes levels of regulation geared to the nature of particular instruments and the kind of persons trading them.� In addition, the Commission reached an agreement with the Securities and Exchange Commission to lift the statutory ban on single-stock and narrow-based stock index futures, allowing these instruments to be traded under the joint supervision of the two agencies.� The agreement also provides objective standards for determining whether a particular group of securities constitutes a broad-based stock index.� The Commission has exclusive jurisdiction over broad-based stock index futures.

The parallel reform initiatives of the Commission and Congress culminated in the Commodity Futures Modernization Act of 2000 (CFMA).� The new legislation, signed by President Clinton in December 2000, repealed the ban on single-stock futures and implemented a regulatory framework for these instruments based on the agreement between the CFTC and SEC; enacted the principal provisions of the Commission's new regulatory framework; brought legal certainty to bilateral and multilateral trading in OTC financial markets; confirmed the CFTC's jurisdiction over certain aspects of the retail market in foreign exchange trading; and gave the CFTC authority to regulate clearing organizations.� The CFMA also reauthorized the Commission for five years.

During FY 2000, the CFTC approved three new electronic exchanges and granted no-action relief to two electronic trading facilities for energy products; authorized substantial regulatory relief for market intermediaries; and moved aggressively to combat Internet commodity fraud.� The Commission also approved demutualization plans submitted by two exchanges to convert from membership organizations to stock corporations, and plans from a third exchange for the first-phase of a multi-step demutualization process.� In addition, the Commission monitored various exploratory moves into electronic trading by open-outcry exchanges

FY 2000 marks the CFTC's transition from front-line regulator to oversight agency.� The work of the past year, however, does not signal the end of the reform process at the Commission.� Much work lies ahead.� On a personal note, I would like to thank my colleagues Barbara P. Holum, David D. Spears, James E. Newsome, and Thomas J. Erickson for their invaluable assistance and support.� I extend thanks and admiration to the members of the staff of the CFTC for their unflagging creativity, professionalism and hard work. With pleasure, I submit this Annual Report of the Commodity Futures Trading Commission to the U.S. Congress.

Sincerely,

William J. Rainer

Chairman