Our People

Collectively, the Commission employs 731 full-time permanent employees that compute to 690 full-time equivalents (FTE)¹ in FY 2015. CFTC staff are comprised of 75 percent direct mission staff (attorneys, economists, auditors, risk and trade analysts, and other financial specialists) and 25 percent management and support staff to accomplish four strategic goals and one management objective in the regulation of commodity futures, options, and swaps.

Attorneys across the CFTC’s divisions and offices represent the Commission in administrative and civil proceedings, assist U.S. Attorneys in criminal proceedings involving violations of the CEA, develop regulations and policies governing clearinghouses, exchanges and intermediaries, and monitor compliance with applicable rules.

Auditors, Investigators, Risk Analysts, and Trade Practice Analysts examine records and operations of derivatives exchanges, clearinghouses, and intermediaries for compliance with the provisions of the CEA and the Commission’s regulations.

Economists and Data Analysts monitor trading activities and price relationships in derivatives markets to detect and deter price manipulation and other potential market disruptions. Economists also analyze the economic effect of various Commission and industry actions and events, evaluate policy issues and advise the Commission accordingly.

Management Professionals support the CFTC mission by performing strategic planning, information technology, human resources, staffing, training, accounting, budgeting, contracting, procurement, and other management operations.

¹ In the U.S. Federal government, FTE is defined by the Government Accountability Office, as the number of total hours worked divided by the maximum number of compensable hours in a full-time schedule as defined by law. (back to text)

CFTC Regulatory Landscape – Part 1

The Commission administers the CEA, 7 U.S.C. section 1, et seq. The 1974 Act brought under Federal regulation futures trading in all goods, articles, services, rights and interests; commodity options trading; leverage trading in gold and silver bullion and coins; and otherwise strengthened the regulation of the commodity futures trading industry. The Commission’s mandate has been renewed and expanded several time since then, most recently by the 2010 Dodd-Frank Act.

In carrying out this mission and to promote market integrity, the Commission polices the derivatives markets for various abuses and works to ensure the protection of customer funds. Further, the agency seeks to lower the risk of the futures and swaps markets to the economy and the public.

Derivatives first began trading in the United States before the Civil War, when grain merchants came together and created this new marketplace. When the Commission was founded in 1974, the majority of derivatives trading consisted of futures trading in agricultural sector products. These contracts gave farmers, ranchers, distributors, and end-users of products ranging from corn to cattle an efficient and effective set of tools to hedge against price risk.

The Commission construes the definition of a futures contract broadly, but it is an agreement to purchase or sell a commodity for delivery in the future: 1) at a price that is determined at initiation of the contract; 2) that obligates each party to the contract to fulfill the contract at the specified price; 3) that is used to assume or shift price risk; and 4) that may be satisfied by delivery or offset. The CEA generally requires futures contracts to be traded on regulated exchanges, with futures trades cleared and settled with clearinghouses, referred to as derivatives clearing organizations (DCOs). To that end, futures contracts are standardized to facilitate exchange trading and clearing.

Although a futures contract agreement is set today, the person selling (for example, a farmer marketing bushels of wheat) will not receive payment and the buyer (in this case a bakery) will not receive goods purchased until the predetermined delivery date agreed to in the contract, which is November 1 in the following example. The farmer benefits from this agreement because he is certain as to the amount of money he will earn from the farming operation, even if the price of wheat changes between today and November 1. Similarly, the bakery buying the wheat also benefits by knowing how much the wheat will cost on November 1 and it will be better positioned to estimate its baking costs and set prices for its products. Finally, even though the actual price of wheat on November 1 (when the contract is fulfilled) may be greater or less than the pricing in the November 1 contract, the price is fixed and both the farmer and the bakery are bound by the price agreed to when they entered into the agreement. Most futures contracts are not settled with the actual physical delivery of the commodity, but by the purchase of opposite (offsetting) futures contracts, which serve to close out the original positions, with profits or losses dependent on the direction in which the price of the contracts have moved relative to those positions.

Speculators may also buy or sell such futures contracts. The speculator buying a futures contract for November wheat believes the value of the wheat in November will be higher than the price he is paying for the contract today. As time passes, and November draws closer, people may try to estimate whether the cost of November wheat will rise or fall, and may cause the value of that futures contract to fluctuate. For example, if people expect there to be an especially bad harvest in November, then the price of November wheat will rise, and the speculator may sell that futures contract for November wheat for even more (or less) than he or she paid.

Over the years, the futures industry has become increasingly diversified. Futures based on other physical, such as metals and energy products were developed. Highly complex financial contracts based on interest rates, foreign currencies, Treasury bonds, security indexes, and other products have far outgrown the agricultural contracts in trading volume.

Over a 35 year span, the share of on-exchange commodity futures and option trading activity in the agricultural sector decreased 55 percentage points, while the share of the financial sector commodity futures and option contracts increased 44 percentage points.

Electronic integration of cross-border markets and firms, as well as cross-border alliances, mergers and other business activities have transformed the futures markets and firms into a global industry. With the passage of the Dodd-Frank Act, the Commission was tasked with bringing regulatory reform to the swaps marketplace. Swaps, which had not previously been regulated in the United States, formed a collective global trading market valued in the hundreds of trillions of dollars when measured by notional amount.

The notional value of the U.S. swaps markets, as reported in the October 30, 2015 CFTC weekly swaps report, is almost eight times larger than the U.S. futures markets the Commission has historically overseen.

Generally speaking, a swap is an exchange of one asset or liability for a similar asset or liability for the purpose of, inter alia, shifting risks, where the value of those payments is determined in the future based on some previously agreed measure. With a swap, counterparties agree to exchange future cash flows at regular intervals, with each cash flow calculated on a different (previously agreed-upon) basis. Before the Dodd-Frank Act, swaps were, for the most part, traded over-the-counter (also called bilaterally), which means that swaps were not traded on regulated derivatives exchanges and many were not cleared through DCOs. Swaps are tools for hedging risks associated with, among other things, interest rates, currency fluctuations, and the cost of energy products, such as oil and natural gas. The value of a swap is derived from the value of the underlying asset or rate that serves as the basis for each (or both) legs of the exchange.

For example, two people may agree to swap the cost of a fixed interest rate on a $100,000 mortgage for a variable interest rate on a $100,000 mortgage. Person A agrees to pay a fixed interest rate of five percent to Person B, every month for a year. In exchange, Person B agrees to pay Person A variable interest rate based on the prime rate (currently 3.25 percent) plus 1.75 percent. Because these two interest rates equal each other at the time the swap is agreed, neither person owes anything to the other. If, however, the prime rate rises, then Person B will owe more money to Person A. Thus, at the time the swap is agreed, Person A is assuming interest rates will rise, whereas Person B is hoping interest rates will fall.

In normal times, these markets create substantial, but largely unseen, benefits for American families. During the recent financial crisis, however, their effect was just the opposite. It was during the financial crisis that many Americans first heard the word derivatives. That was because over-the-counter swaps accelerated and intensified the crisis. The government was then required to take actions that today still stagger the imagination: for example, largely because of excessive swap risk, the government committed $182 billion to prevent the collapse of a single company—AIG—because its failure at that time, in those circumstances, could have caused our economy to fall into another Great Depression.

It is hard for most Americans to fathom how this could have happened. While derivatives were just one of many things that caused or contributed to the crisis, the structure of some of these products created significant risk in an economic downturn. In addition, the extensive, bilateral transactions between the largest banks and other institutions meant that trouble at one institution could cascade quickly through the financial system like a waterfall. The opaque nature of this market meant that regulators did not know the level of exposure that any one institution or the financial system faced.

CFTC Regulatory Landscape – Part 2

Dodd-Frank Act: Enhanced Regulatory Environment

On July 21, 2010, the Dodd-Frank Act was enacted and the CEA was significantly amended to establish a comprehensive new regulatory framework to include swaps, as well as enhanced authorities over historically regulated entities.

The purpose of the derivatives provisions of the Dodd-Frank Act was to implement the commitments made by the United States at the G20 summit in Pittsburgh in 2009. The members of the G20 made four commitments: 1) require regulatory oversight of the major market players; 2) require clearing of standardized transactions through regulated DCOs; 3) require more transparent trading of standardized transactions; and 4) require regular reporting so that regulators and market participants would have an accurate picture of what is going on in the market.

Regulatory Oversight

Five years ago, swap dealers (SDs) had no specific requirement to their swap dealing activity. The first of the major directives Congress gave to the CFTC was to create a framework for the registration and regulation of SDs and major swap participants (MSPs). The Commission has done this. As of September 30, 2015, there are 104 SDs and one MSP provisionally registered with the CFTC.

Registered Professionals
as of September 30, 2015

Type of Registered Professional	Number
Associated Persons (AP) (Sales People)	56,003
Commodity Pool Operators (CPOs)	1,719
Commodity Trading Advisors (CTAs)	2,377
Floor Brokers (FBs)	4,191
Floor Traders (FTs)	764
Futures Commission Merchants (FCMs)2	71
Introducing Brokers (IBs)	1,306
Major Swap Participant (MSP)	1
Retail Foreign Exchange Dealer (RFEDs)	5
Swap Dealer (SDs)	104
TOTAL	66,541
Companies and individuals who handle customer funds, solicit or accept orders, or give trained advice must apply for CFTC registration through the National Futures Association (NFA), a self-regulatory organization (SRO) with delegated oversight authority from the Commission. The Commission regulates the activities of over 66,000 registrants.

The Commission has adopted rules requiring strong risk management by SDs and MSPs. It will be carrying out periodic examinations to assess risk and compliance at these registered entities. The new framework requires registered SDs and MSPs to comply with various business conduct requirements. These include strong standards for documentation and confirmation of transactions, as well as dispute resolution processes. The regulations include requirements to reduce risk of multiple transactions through what is known as portfolio reconciliation and portfolio compression. In addition, SDs are required to make sure their counterparties are eligible to enter into swaps, and to make appropriate disclosures to those counterparties of risks and conflicts of interest.

As directed by Congress, the Commission has worked with the U.S. Securities and Exchange Commission (SEC), other U.S. regulators, and our international counterparts to establish this framework. The Commission will continue to work with them to achieve as much consistency as possible. It will also look to make sure these rules work to achieve their objectives, and fine-tune them as needed where they do not.

Clearing

A second directive of the Dodd-Frank Act was to require clearing of standardized transactions at DCOs. DCOs reduce the risk that one market participant’s failure could adversely impact other market participants or the public, by standing in between the two original counterparties to a transaction—as the buyer to every seller and the seller to every buyer—and maintaining financial resources to cover potential defaults. DCO’s value positions daily and require parties to post adequate margin on a regular basis. “Margin” is the collateral that holders of financial instruments have to deposit with DCOs to cover some or all of the risk of the positions. Collateral must be in the form of cash or highly liquid securities.

The use of DCOs in financial markets is commonplace and has been around for over one hundred years. The idea is simple: if many participants trade standardized products on a regular basis, the tangled, hidden web created by thousands of private two-way trades can be replaced with a more transparent and orderly structure, like the spokes of a wheel, with the DCO at the center interacting with market participants. The DCO is required to monitor the overall risk and positions of each participant.

The CFTC was the first of the G-20 nations’ regulators to implement a regime for mandatory clearing of swaps. The Commission has required clearing for certain types of interest rate swaps denominated in U.S. dollars, Euros, Pounds and Yen, as well as CDS on certain North American and European indices. Based on CFTC analysis of data reported to SDRs, as of September 2015, measured by notional value, 75 percent of all outstanding transactions were cleared. This is compared to estimates by the International Swaps and Derivatives Association (ISDA) of only 16 percent in December 2007. With regard to index CDS, most new transactions are being cleared—85 percent of notional value, as of September 2015.

The CFTC rules for clearing swaps were patterned after the successful regulatory framework used for many years in the futures market. The Commission requires that clearing occurs through CFTC-registered or exempt DCOs that meet certain standards—a comprehensive set of core principles and regulations that ensures each DCO is appropriately managing the risk of its members, and monitoring its members for compliance with important rules.

Of course, central clearing by itself is not a panacea. DCOs do not eliminate the risks inherent in the swaps market. The Commission must therefore be vigilant. It must do all it can to ensure that DCOs have financial resources, robust risk management tools, systems that minimize operational risk, and all the necessary standards and safeguards consistent with the core principles to operate in a fair, transparent and efficient manner. DCOs must also have tools in place to address a wide range of situations that may arise if a clearing member defaults. They must develop plans to deal with losses to the DCO in non-default situations. The Commission must also make sure that DCO contingency planning to deal with operational events, such as cyber-attacks, is sufficient.

Trading

The third area for reform under the Dodd-Frank Act was to require more transparent trading of standardized derivatives products. In the Dodd-Frank Act, Congress provided that certain swaps must be traded on a SEF or a designated contract market (DCM) exchange. The Dodd-Frank Act defined a SEF as “a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants.” The trading requirement was designed to facilitate a more open, transparent and competitive marketplace, benefiting, among others, commercial end-users seeking to lock in a price or hedge risk.

The CFTC finalized its rules for SEFs in June 2013. Twenty-three SEFs have been temporarily registered with the CFTC, and one application is pending. These SEFs are diverse, but each will be required to operate in accordance with the same core principles. These core principles provide a framework that includes obligations to establish and enforce rules, as well as policies and procedures that enable transparent and efficient trading. SEFs must make trading information publicly available, put into place system safeguards, and maintain financial, operational and managerial resources to discharge their responsibilities.

Trading on SEFs began in October 2013. As of February 2014, specified interest rate swaps and CDSs were required to be traded on a SEF or other regulated exchange. As of July 2015, 60 percent of client trading by notional volume is now electronic, up from nine percent in 2010. Notional value executed on SEFs has generally been in excess of $1 trillion monthly. It is important to remember that trading of swaps on SEFs is still new. SEFs are still developing best practices under the new regulatory regime. The new technologies that SEF trading requires are likewise being refined. Additionally, other jurisdictions have not yet implemented trading mandates, which has slowed the development of cross-border platforms. There will be issues as SEF trading continues to mature. The Commission will need to work through these to fully achieve the goals of efficiency and transparency SEFs are meant to provide.

Data Reporting

The fourth G20 reform commitment implemented by the Dodd-Frank Act was to require ongoing reporting of swap activity. Having rules that require oversight, clearing, and transparent trading is not enough. The Commission must have an accurate, ongoing picture of what is going on in the marketplace to achieve greater transparency and to address potential systemic risk. Title VII of the Dodd-Frank Act assigns the responsibility for collecting and maintaining swap data to SDRs, a new type of entity necessitated by these reforms. All swaps, whether cleared or uncleared, must be reported to SDRs. There are currently four SDRs that are provisionally registered with the CFTC.

The collection and public dissemination of swap data by SDRs helps regulators and the public. It provides regulators with information that can facilitate informed oversight and surveillance of the market and implementation of our statutory responsibilities. Dissemination, especially in real-time, also provides the public with information that can contribute to price discovery and market efficiency. While the Commission has accomplished a lot, much work remains. The task of collecting and analyzing data concerning this marketplace requires intensely collaborative and technical work by industry and the agency’s staff. Going forward, it must continue to be one of the CFTC’s chief priorities.

There are three general areas of activity. The CFTC must have data reporting rules and standards that are specific and clear, and that are harmonized as much as possible across jurisdictions. The Commission is leading the international effort in this area. It is an enormous task that will take time. The Commission must also make sure the SDRs collect, maintain, and publicly disseminate data in the manner that supports effective market oversight and transparency. Finally, market participants must live up to their reporting obligations. Ultimately, the market participants bear the responsibility to make sure that the data is accurate and reported promptly.

Guiding Principles

A few core principles must motivate the Commission’s work in implementing the Dodd-Frank Act. The first is that the CFTC must never forget the cost of the financial crisis to American families, and it must do all it can to address the causes of that crisis in a responsible way. The second is that the United States has the best financial markets in the world. They are the strongest, most dynamic, most innovative, most competitive and transparent. They have been a significant engine of U.S. economic growth and prosperity. The Commission’s work should strengthen U.S. markets and enhance those qualities in a way that does not place unnecessary burdens on the dynamic and innovative capacity of the industry.

² Includes FCMs registered as RFEDs. (back to text)

Evolving Industry Trends and Their Implications for CFTC – Part 2

Exponential Growth in Data Must be Acquired, Validated, Warehoused, and Analyzed to Fulfill the Commission’s Regulatory Responsibilities

The Commission continues to enhance its software and automated tools to accommodate its enhanced surveillance responsibilities and access to data, including that generated by the swap data reporting rules, enhanced customer protection rules, chief compliance officer annual reports, risk exposure reports, Volcker Rule³, other regulatory changes, increasing number of participants, and increasing number and complexity of data sources relevant to surveillance. The technology (data and processes) required for surveillance of swaps markets differs from that required for futures and options markets, and differs across asset classes. In addition, the ability to view risk across asset classes and in combination with futures is an overarching requirement that must also be automated and the Commission must continue to work closely with the SDRs, SROs and other Federal and international regulators (as appropriate) to harmonize how this data is recorded, organized, and stored. In response to the influx of new types of data from new and existing registrants, the CFTC must build its own information infrastructure and analytical capabilities to support its responsibilities as a first line regulator.

The CFTC is required to perform a comprehensive function that cannot be done by any single SRO and needs to see data from all industry participants in the swaps and futures markets. In response to the influx of new types of data from new and existing registrants, the CFTC must continue to enhance and adjust its information infrastructure and analytical capabilities to support its responsibilities as a first line regulator. Only by providing advanced tools and enriched data for staff to connect, analyze, and aggregate data can the Commission apply its unique view of the derivatives market toward effective market and risk surveillance. With each additional set of data collected there are data, technology, and usage requirements:

• Defining data standards (e.g., FIXML, FpML) to collect data;
• Architecting data repositories to facilitate data loading and integration;
• Developing software to load new data;
• Developing data validation mechanisms to report errors and metrics to submitters;
• Providing operations support to facilitate timely submission of data;
• Developing data profiles on data submissions, submitters, markets, etc. (not currently done); and
• Analyzing data in a wide variety of ways to support mission functions.

The Commission will continue to adapt its data architecture and data management practices to manage the exponential growth in the size and complexity of mission data and facilitate continuous improvements in data quality and the ability to isolate anomalous market activity and complex financial and systemic risk.

There is heightened attention, both domestically and internationally, to cyber-security and the risk of cyber-attacks against DCOs, DCMs, SEFs, and the Commission itself. The CFTC will utilize and collaborate with FS-ISAC, ChicagoFIRST, CYWATCH™, and NIST and other regulatory bodies to ensure that current information and trends can be used when monitoring compliance with the systems safeguards core principle applicable to registered entities. The Commission also continues to increase its own cyber-security protections over the data collected from market participants for surveillance and enforcement.

Comparison of Reported Public Sector and Financial Services Sector⁶ Cyber-Security Breaches⁷

Year	Confirmed Breaches	Records Compromised	Public Sector	Financial Services Sector
2010	75	4 million	4%	22%
2011	855	174 million	7%	28%
2012	621	44 million	5%	8.1%
2013	1,367	200 million	13%	34%
2014	2,122	700 million	14%	13%
As a Federal government agency, the CFTC is a public sector entity that provides regulatory oversight for parts of the financial services sector, or marketplace. Both sectors are a magnet for those looking for economic advantage or wishing harm to the Federal government, therefore the Commission’s due diligence in ensuring systems safeguards for CFTC-registered entities and its own cyber-security protections is critical.

³ The Volcker Rule refers to refers to § 619 (12 U.S.C. § 1851) of the Dodd-Frank Act, originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict U.S. banks from making certain kinds of speculative investments that do not benefit their customers. Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank’s own accounts, although a number of exceptions to this ban were included in the Dodd-Frank law. (back to text)

⁴ Swaps data include Part 20 and Part 39 interim records reporting files, additional by-rule development, Part 45 swaps data reporting, OCR-ownership and control reporting, and Volcker data. (back to text)

⁵ CFTC Form 40, Statement of Reporting Trader, is a reporting requirement for every person that holds a reportable position in accordance to Section 1804 of the CEA. The information requested is used generally in the Commission’s market surveillance activities to provide information concerning the size and composition of the commodity futures or option markets, and to permit the Commission to monitor and enforce the speculative position limits that have been established. The complete listing of routine uses, in accordance with the Privacy Act, 5 U.S.C. §522a, and the Commission’s rules thereunder, 17 CFR Part 146, of the information contained in these records is found in the Commission’s annual notice of its system of records. (back to text)

⁶ Public sector is defined as Federal government entities and the financial services sector encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds and some government sponsored enterprises. (back to text)

⁷ Data Source: Verizon Data Breach Investigation Reports 2010–2014, http://www.verizonenterprise.com/dbir. The 2015 Cyber Security Breach report has not been published, to date. (back to text)

Evolving Industry Trends and Their Implications for CFTC – Part 3

Growth and Complexity of the Market the Commission Enforces

The CFTC will continue to use the resources it has to engage in robust enforcement, including using its anti-manipulation authority for the futures and swaps markets and the statutory prohibition on disruptive trading, including the provision outlawing “spoofing”. The Commission continues to investigate cases of high-frequency trading and spoofing tactics, however the analytics required to interpret the “layering algorithms” are an issue, particularly given the resource-intensive nature of the matters. Without adequate resources, the Commission may be limited in its ability to prevent fraud from use of algorithms, high-frequency trading, and other automated trading.

Growth and Complexity of the Markets and Schemes

The CFTC continues to devote significant resources to investigate and prosecute trading schemes that threaten the integrity of the markets and place market participants at risk. With the increase of markets and products that the Commission oversees and growing complexity and interrelated nature of the markets, the CFTC will see a commensurate increase in the complexity of its investigations of manipulative, fraudulent and disruptive trading practices. For example, while the Commission continues to investigate cases of spoofing tactics by high-frequency traders and other market participants, the Commission needs to ensure it has the requisite expert capabilities and analytical resources to efficiently and effectively investigate.

Maintaining Integrity of Benchmarks

The integrity of benchmarks remains a priority for the Commission. Over the last two years, the Commission has imposed civil monetary penalties of $4.7 billion for manipulation and attempted manipulation of global benchmark rates, including: $1.9 billion for misconduct relating to foreign exchange benchmarks; and over $2.8 billion for misconduct relating to International Swaps and Derivatives Association Fix (ISDAFIX), London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (Euribor), and other interest rate benchmarks. These benchmarks are an essential valuation tool for thousands upon thousands of derivatives across financial markets, including: options on interest rate swaps, or swaptions; cross-currency swaps; foreign exchange swaps; spot transactions; forwards; options; and futures. These investigations are global in nature and continue to require a significant allocation of enforcement resources.

Protecting Customers from Fraud

Anti-fraud enforcement remains a core commitment of the CFTC’s enforcement program. During FY 2015, the Commission prosecuted wrongdoers for a wide range of fraudulent schemes, including Ponzi schemes that preyed upon the retail public’s hopes to participate in foreign exchange (forex) trading, precious metals speculation, and commodity pools. The Commission’s experience with fraudsters is that they gravitate towards, and flourish in, financial markets that are not “policed.” Therefore, the Commission must continue to devote significant resources to “walk the beat” of the financial markets within its jurisdiction and protect the retail public that wants to participate in them.

Ensuring that Markets, Firms and Participants Meet their Obligations

In protecting the markets and market participants, the Commission engages in investigations and takes enforcement action, when necessary, to make sure that firms maintain their financial integrity and that markets, firms and significant market participants fulfill their regulatory obligations, including reporting obligations. Commission registrants are required to meet standards for their capitalization and handling of funds, which standards are intended to safeguard against market disruption and abuse from imprudent practices or intentional misconduct and to protect customers. The reporting requirements for markets, firms and significant market participants are essential to the CFTC’s ability to conduct effective surveillance of the futures and derivatives markets that it regulates. With the Dodd-Frank Act’s expansion of the Commission’s responsibility, the Commission is doing all it can with its available resources to ensure that the markets, firms and significant market participants in the trillion dollar swaps marketplace uphold these essential obligations.

⁸ The sanctions ordered represent civil monetary penalties, disgorgement, and restitution. (back to text)

Strategic Goals and Key Results

The selected accomplishments described below demonstrate progress made in FY 2015 toward the achievement of the Commission’s mission and strategic goals. In order to provide better and more frequent assessments to leadership, the CFTC is monitoring the progress of these performance goals on a quarterly basis.

The Commission’s FY 2015 Annual Performance Report and FY 2017 Agency Performance Plan, issued in February 2016 as part of its Congressional Budget Justification in conjunction with the President’s Budget, presents more detailed analysis of the following performance results.

Strategic Goal One – Market Integrity and Transparency

Strategic Goal Two – Financial Integrity and Avoidance of Systemic Risk

Strategic Goal Three – Comprehensive Enforcement

Strategic Goal Four – Domestic and International Cooperation and Coordination

Summary of Audit and Management Assurances

Summary of FY 2015 Financial Statement Audit

Summary of Financial Statement Audit

Audit Opinion:	Qualified
Restatement:	No
Material Weakness	Beginning Balance	New	Resolved	Consolidated	Ending Balance
	0	1			1

Summary of Management Assurances

Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)

Statement of Assurance:	Qualified
Material Weakness	Beginning Balance	New	Resolved	Consolidated	Reassessed	Ending Balance
	0	1				1

Effectiveness of Internal Control over Operations (FMFIA § 2)

Statement of Assurance:	Unqualified
Material Weakness	Beginning Balance	New	Resolved	Consolidated	Reassessed	Ending Balance
	0	0				0

Conformance with Financial Management System Requirements (FMFIA § 4)

Statement of Assurance:	Systems conform to financial management system requirements
Non-Conformance	Beginning Balance	New	Resolved	Consolidated	Reassessed	Ending Balance
	0	0				0

DEFINITION OF TERMS

Beginning Balance: The beginning balance will agree with the ending balance if material weaknesses from the prior year.

New: The total number of material weaknesses that have been identified during the current year.

Resolved: The total number of material weaknesses that have dropped below the level of materiality in the current year.

Consolidation: The combining of two or more findings.

Reassessed: The removal of any finding not attributable to corrective action.

Ending Balance: The agency’s year-end balance.

5-Year Financial Summary

The table below presents trend information for each major component of the Commission’s balance sheets and statements of net cost for FY 2011 through FY 2015. The table is immediately followed by a discussion and analysis of the Commission’s major financial highlights for FY 2015.

CFTC Financial Highlights

Highlights	2015	2014	2013	2012	2011
Condensed Balance Sheet Data
Fund Balance with Treasury	$67,246,060	$47,070,343	$36,467,970	$82,557,690	$81,785,717
Investments	263,000,000	270,000,000	95,000,000	77,135,901	–
Accounts Receivable	18,614	11,112	13,252	20,976	59,226
Prepayments	2,473,459	1,712,871	1,541,681	1,803,497	1,109,626
Custodial Receivables, Net	4,696,176	4,218,788	69,744,626	4,140,347	2,574,173
General Property, Plant, and Equipment, Net	50,358,266	54,464,549	58,251,172	53,410,435	42,346,895
Deferred Costs	28,487	64,201	220,953	1,234,223	6,254,873
TOTAL ASSETS	$387,821,062	$377,541,864	$261,239,654	$220,303,069	$134,130,510
Accounts Payable	$8,607,890	$5,483,221	$5,092,410	$7,217,772	$7,092,349
FECA Liabilities	498,101	549,734	596,353	764,243	528,512
Accrued Payroll and Annual Leave	15,004,112	13,007,491	11,651,586	16,477,676	15,464,338
Custodial Liabilities	4,696,176	4,218,788	69,744,626	4,140,347	2,574,173
Depost Fund Liabilities	179,806	134,683	83,997	77,098	57,127
Deferred Lease Liabilities	25,673,457	25,961,973	25,241,114	24,808,042	21,974,782
Contingent Liabilities	300,000	85,000	–	–	–
Other	22,397	11,699	19,600	19,050	19,649
TOTAL LIABILITIES	$54,981,939	$49,452,589	$112,429,686	$53,504,228	$47,710,930
Unexpended Appropriations – All Other Funds	50,997,602	35,420,980	25,006,039	46,349,473	44,666,156
Cumulative Results of Operations – Funds from Dedicated Collections	267,612,410	274,315,312	99,904,291	99,996,749	23,755,000
Cumulative Results of Operations – All Other Funds	14,229,111	18,352,983	23,899,638	20,452,619	17,998,424
Total Net Position	332,839,123	328,089,275	148,809,968	166,798,841	86,419,580
TOTAL LIABILITIES AND NET POSITION	$387,821,062	$377,541,864	$261,239,654	$220,303,069	$134,130,510
Condensed Statements of Net Cost
Gross Costs	$249,861,126	$217,450,008	$218,155,538	$207,618,265	$187,648,360
Earned Revenue	(53,074)	(31,375)	(49,483)	(227,504)	(88,720)
TOTAL NET COST OF OPERATIONS	$249,808,052	$217,418,633	$218,106,055	$207,390,761	$187,559,640
Net Cost of Operations by Strategic Goal10
Goal One – Market Integrity and Transparency	$68,322,502	N/A	N/A	N/A	N/A
Goal Two – Financial Integrity and Avoidance of Systemic Risk	73,918,203	N/A	N/A	N/A	N/A
Goal Three – Comprehensive Enforcement	95,501,618	N/A	N/A	N/A	N/A
Goal Four – Domestic and International Cooperation and Coordination	12,065,729	N/A	N/A	N/A	N/A
Goal One – Market Integrity	N/A	$56,746,263	$62,225,658	$59,168,584	$48,390,387
Goal Two – Clearing Integrity	N/A	51,963,054	57,470,946	54,647,465	43,701,396
Goal Three – Robust Enforcement	N/A	71,530,730	64,123,179	60,972,883	61,144,442
Goal Four – Cross-Border Cooperation	N/A	11,740,606	7,306,553	6,947,591	8,440,184
Goal Five – Organizational and Management Excellence	N/A	25,437,980	26,979,719	25,654,238	25,883,231
	$249,808,052	$217,418,633	$218,106,055	$207,390,761	$187,559,640

¹⁰ In FY 2015, the CFTC issued its FY 2014–2018 Strategic Plan. With this plan, the Commission changed Strategic Goal Five, Organizational and Management Excellence, into Management Objectives. (back to text)

Financial Discussion and Analysis

The CFTC prepares annual financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for Federal government entities and subjects the statements to an independent audit.

Management recognizes the need for performance and accountability reporting, and regularly assesses risk factors that could have an impact on the Commission’s ability to effectively report. Improved reporting enables managers to be accountable and supports the concepts of the Government Performance and Results Act (GPRA), which requires the Commission to: 1) establish a strategic plan with programmatic goals and objectives; 2) develop appropriate measurement indicators; and 3) measure performance in achieving those goals.

The financial summary as shown on the preceding page highlights changes in financial position between September 30, 2015, and September 30, 2014. This overview is supplemented with brief descriptions of the nature of each required financial statement and its relevance. Certain significant balances or conditions featured in the graphic presentation are explained in these sections to help clarify their relationship to Commission operations. Readers are encouraged to gain a deeper understanding by reviewing the Commission’s financial statements and notes to the accompanying audit report presented in the Financial Section of this report.

Understanding the Financial Statements

The CFTC presents financial statements and notes in accordance with accounting principles generally accepted in the United States of America and in the form and content requirements of OMB Circular A-136, Financial Reporting Requirements, which is revised annually by OMB in coordination with the U.S. Chief Financial Officers Council. The CFTC’s current year and prior year financial statements and notes are presented in a comparative format.

The chart below presents changes in key financial statement line items, as of and for, the fiscal year ended September 30, 2015, compared to September 30, 2014.

Changes in Key Financial Statement Line Items

Key Financial Statement Line Items	2015	2014	$ Change	% Change
Total Assets	$387,821,062	$377,541,864	$10,279,198	2.72%
Total Liabilities	$54,981,939	$49,452,589	$5,529,350	11.18%
Total Net Position	$332,839,123	$328,089,275	$4,749,848	1.45%
Transfers-In/Out Without Reimbursement	$–	$176,110,604	$(176,110,604)	(100.00)%
Spending Authority from Offsetting Collections	$230,746	$176,261,959	$(176,031,213)	(99.87)%
Total Budgetary Resources	$528,502,937	$496,899,396	$31,603,541	6.36%
Apportioned	$270,359,908	$13,437,561	$256,922,347	1,911.97%
Unapportioned	$(558,974)	$262,111,560	$(262,670,534)	(100.21)%
Gross Outlays	$(234,914,187)	$(204,693,512)	$(30,220,675)	14.76%
Actual Offsetting Collections	$(212,554)	$(176,466,655)	$176,254,101	(99.88)%
Custodial Receivables/Liabilities	$4,696,176	$4,218,788	$477,388	11.32%

Balance Sheet

The Balance Sheet presents, as of a specific point in time, the assets and liabilities retained or managed by the Commission. The difference between assets and liabilities represents the net position of the Commission.

Total Assets. For the year ended September 30, 2015, the Balance Sheet reflects total assets of $387.8 million. This is an increase of $10.3 million, or 2.7 percent, over FY 2014. The increase is primarily due to a $20.2 million increase in Fund Balance with Treasury offset by a $7 million decrease in Investments and a $4.1 million decrease in Property, Plant, and Equipment.

The $20.2 million, or 42.9 percent, increase in Fund Balance with Treasury was primarily due to the excess of appropriations of $250 million over appropriations used of $232.3 million due to the timing of cash payments.

The $7.0 million, or 2.6 percent, decrease in Investments is due to the redemption of investments to pay for eligible expenses of the CFTC Customer Protection Fund as no further collections of civil monetary sanctions can be deposited into the fund until the balance of the fund falls below $100 million.

The $4.1 million, or 7.5 percent, decrease in Property, Plant, and Equipment is due to a loss on the disposal of fixed assets of $664 thousand and accumulated depreciation and amortization of fixed assets of $12.7 million in excess of fixed asset purchases of $9.3 million.

Total Liabilities: For the year ended September 30, 2015, the Balance Sheet reflects total liabilities of $55.0 million. This is an increase of $5.5 million, or 11.2 percent, over FY 2014. The increase is primarily due to increases in Accounts Payable, Accrued Payroll, and Contingent Liabilities of $3.1 million, $1.8 million, and $215 thousand, respectively.

The combined $4.9 million increase in Accounts Payable and Accrued Payroll is reasonable given the $35 million increase in appropriations received in FY 2015, which resulted in an increase in contract obligations and the hiring of approximately 113 employees. In addition, one additional workday was accrued in the year-end payroll accrual in FY 2015.

The $215 thousand, or 252.9 percent, increase in Contingent Liabilities is due to a pending whistleblower payment that is expected to be paid in FY 2016 after the appeal period has ended.

Total Net Position: For the year ended September 30, 2015, the Balance Sheet reflects a total net position of $332.8 million. This is an increase of $4.7 million, or 1.5 percent, over FY 2014. The increase is the result of a $15.6 million increase in Unexpended Appropriations—All Other Funds, offset by decreases of $6.7 million in Cumulative Results of Operations—Funds from Dedicated Collections and $4.1 million in Cumulative Results of Operations—All Other Funds.

The $15.6 million, or 44.0 percent, increase in Unexpended Appropriations—All Other Funds is primarily due to FY 2015 appropriations received of $250 million in excess of appropriations used of $232.3 million due to the timing of actual cash payments, less $2.2 million in canceled funds returned to Treasury.

The $6.7 million, or 2.4 percent, decrease in Cumulative Results of Operations—Funds from Dedicated Collections is due to the CFTC Customer Protection Fund expenses of $6.8 million offset by interest revenue of $58 thousand.

The $4.1 million, or 22.5 percent, decrease in Cumulative Results of Operations – All Other Funds is primarily due to an increase in unfunded liabilities of $62 thousand (e.g., accruals for annual leave and Federal Employees’ Compensation Act expenses and contingent liabilities), net disposal of fixed assets of $664 thousand, and accumulated depreciation and amortization of fixed assets of $12.7 million in excess of fixed asset purchases of $9.3 million.

Statement of Net Cost

This statement is designed to present the components of the Commission’s net cost of operations. Net cost is the gross cost incurred less any revenues earned from Commission activities. The Commission experienced a $32.4 million, or 14.9 percent, increase in the total net cost of operations during FY 2015.

This overall increase is made up of increases of $15.5 million in payroll, $15.4 million in technology and non-Federal service contracts, $618 thousand in intragovernmental expense, $1.0 million in leases, $1.2 million in travel, and $215 thousand in contingent liabilities. These increases were offset by a decrease of $1.5 million in depreciation. The $15.5 million increase in total payroll costs is primarily the result of an increase in the number of employees by approximately 113, or 17.3 percent. The $18.2 million increase in non-payroll expenses is reasonable given the $35 million, or 16.3 percent, increase in appropriations received in FY 2015.

The Commission implemented a new strategic plan in FY 2015 with slightly different goals; as a result, the FY 2015 and FY 2014 net costs by strategic goal are presented separately rather than comparatively. For FY 2015, the Statement of Net Cost is categorized by the following four strategic goals:

• The focus of Strategic Goal One, Market Integrity and Transparency, is to recognize that derivatives markets provide a means for market users to offset price risks inherent in their businesses and to serve as a public price discovery mechanism. In FY 2015, the net cost of operations for this goal was $68.3 million or 27.4 percent of total net cost of operations.
• The focus of Strategic Goal Two, Financial Integrity and Avoidance of Systemic Risk, is to strive to ensure that Commission-registered DCOs, SDs, MSPs, and FCMs have the financial resources, risk management systems and procedures, internal controls, customer protection systems, and other controls necessary to meet their obligations so as to minimize the risk that the financial difficulty of any of these registrants, or any of their customers has systemic implications. In FY 2015, the net cost of operations for this goal was $73.9 million or 29.6 percent of total net cost of operations.
• Through Strategic Goal Three, Comprehensive Enforcement, the CFTC enforces the CEA and Commission regulations, and works to promote awareness of and compliance with these laws. In FY 2015, the net cost of operations for this goal was $95.5 million or 38.2 percent of total net cost of operations.
• The focus of Strategic Goal Four, Domestic and International Cooperation and Coordination, is on how the Commission interacts with domestic and international regulatory authorities, market participants, and others affected by the Commission’s regulatory policies and practices. In FY 2015, the net cost of operations for this goal was $12.1 million or 4.8 percent of total net cost of operations.

Statement of Changes in Net Position

The Statement of Changes in Net Position presents the Commission’s cumulative net results of operations and unexpended appropriations for the fiscal year. The CFTC’s Net Position increased by $4.7 million, or 1.5 percent in FY 2015. As explained in the Total Net Position discussion in the Balance Sheet section, this increase is the result of a $15.6 million increase in Unexpended Appropriations—All Other Funds, offset by decreases of $6.7 million in Cumulative Results of Operations—Funds from Dedicated Collections and $4.1 million in Cumulative Results of Operations—All Other Funds.

The $15.6 million, or 44.0 percent, increase in Unexpended Appropriations—All Other Funds is primarily due to FY 2015 appropriations received of $250 million in excess of appropriations used of $232.3 million due to the timing of actual cash payments, less $2.2 million in canceled funds returned to Treasury.

The $6.7 million, or 2.4 percent, decrease in Cumulative Results of Operations—Funds from Dedicated Collections is due to the CFTC Customer Protection Fund expenses of $6.8 million offset by interest revenue of $58 thousand.

The $4.1 million, or 22.5 percent, decrease in Cumulative Results of Operations – All Other Funds is primarily due to an increase in unfunded liabilities of $62 thousand (e.g., accruals for annual leave and Federal Employees’ Compensation Act expenses and contingent liabilities), net disposal of fixed assets of $664 thousand, and accumulated depreciation and amortization of fixed assets of $12.7 million in excess of fixed asset purchases of $9.3 million.

Statement of Budgetary Resources

This statement provides information about the provision of budgetary resources and its status as of the end of the year. Information in this statement is consistent with budget execution information and the information reported in the Budget of the U.S. Government, FY 2015.

The Commission’s Total Budgetary Resources increased by $31.6 million to $250 million, or 6.4 percent, primarily due to an increase in appropriations of $35 million, which was 16.3 percent higher than the FY 2014 appropriated amount of $215 million.

Gross Outlays increased by $30.2 million, or 14.8 percent, due to more funds spent in FY 2015 then in FY 2014, primarily due to the $35 million, 0r 16.3 percent, increase in appropriations received.

Actual Offsetting Collections decreased by $176.3 million, or 99.9 percent, primarily due to a $176.1 million civil monetary sanctions collection recovered from the Treasury in FY 2014.

Statement of Custodial Activity

This statement provides information about the sources and disposition of collections. CFTC transfers eligible funds from dedicated collections to the CFTC Customer Protection Fund when the balance falls below $100 million and other non-exchange revenue to the Treasury general fund. Collections primarily consist of fines, penalties, and forfeitures assessed and levied against businesses and individuals for violations of the CEA or Commission regulations. They also include non-exchange revenues such as registration, filing, appeal fees, and general receipts. The Statement of Custodial Activity reflects total cash collections for FY 2015 in the amount of $2.8 billion, an increase of $1.9 billion, or 200.8 percent, over FY 2014. This increase in collections was expected due to nine large collections in FY 2015 ranging in amounts from $35 million to $800 million that resulted from the Commission’s enforcement cases related to attempted manipulation of global foreign exchange and LIBOR benchmark rates. Of the $2.8 billion in FY 2015 cash collections, all $2.8 billion was transferred to the Treasury because the CFTC Customer Protection Fund balance exceeded $100 million so no collections were eligible to be transferred to it.

Historical experience has indicated that a high percentage of custodial receivables prove uncollectible. An allowance for uncollectible accounts has been established and included in the accounts receivable on the Balance Sheet. The allowance is based on past experience in the collection of accounts receivables and an analysis of outstanding balances. Accounts are re-estimated quarterly based on account reviews and a determination that changes to the net realizable value are needed.

Limitations of Financial Statements

Management has prepared the accompanying financial statements to report the financial position and operational results for the CFTC for FY 2015 and FY 2014 pursuant to the requirements of Title 31 of the U.S. Code, section 3515 (b).

While these statements have been prepared from the books and records of the Commission in accordance with GAAP for Federal entities and the formats prescribed by OMB Circular A-136, Financial Reporting Requirements, these statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records.

The statements should be read with the understanding that they represent a component of the U.S. government, a sovereign entity. One implication of this is that the liabilities presented herein cannot be liquidated without the enactment of appropriations, and ongoing operations are subject to the enactment of future appropriations.

CFTC Consumer Protection: Fraud Awareness, Prevention and Reporting

Trading Futures and Options: Protection Against Fraud

The CFTC is the Federal agency that regulates the trading of futures, option and swaps contracts in the United States and takes action against firms or individuals suspected of illegally or fraudulently selling commodity futures, options, and swaps. The CFTC’s fraud awareness, prevention and reporting initiatives involve: developing an outreach effort designed to help individual investors/traders identify and avoid fraud, or encourage them to report known or suspected instances of it.

About the Futures Markets

• Individual investors/traders or “retail customers” rarely ever trade commodity futures and options.
• Trading commodity futures and options is a volatile, complex, and risky venture.
• Many individual traders lose all of their initial payment, and they could owe more than the initial payment.
• Some individual investors/traders unknowingly fall for completely fraudulent schemes which cause tremendous financial loss and emotional hardships.

Before you trade

What should you do?

Visit the our Web site for more information:
www.cftc.gov/ConsumerProtection

Report possible violations of commodity futures trading laws:

Call the CFTC’s Division of Enforcement at:
866-FON-CFTC (866.366.2382)

Submit our online form located at:
www.cftc.gov/ConsumerProtection/FileaTiporComplaint

Send us a letter addressed to:
Commodity Futures Trading Commission
Office of Cooperative Enforcement
1155 21st Street, NW, Washington, DC 20581

CFTC Whistleblower Program

How does the Whistleblower Program work?

• The CFTC will pay monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information about violations of the CEA that leads the CFTC to bring enforcement actions that result in more than $1 million in monetary sanctions.
• The CFTC can also pay whistleblower awards based on monetary sanctions collected by other authorities in actions that are related to a successful CFTC enforcement action, and are based on information provided by a CFTC whistleblower.
• The total amount of a whistleblower award will be between 10 and 30 percent of the monetary sanctions collected in either the CFTC action or the related action.

Who can be a whistleblower?

• A whistleblower can be any individual who voluntarily provides the CFTC original information, from a corporate officer or insider, to a trader or market observer, to an investor or fraud victim.

How can I become a whistleblower?

To become a whistleblower, you must complete and submit a Form TCR either electronically, by mail or by facsimile.

To submit a Form TCR electronically, visit http://www.cftc.gov, and click on the “File a Tip or Complaint” button on the right-hand side of the page. Use the first link under the description of the Whistleblower Program.

To submit a Form TCR by mail or facsimile, print a Form TCR from the “Whistleblower Program” webpage on http://www.cftc.gov, and use the following address or number:

Commodity Futures Trading Commission
Whistleblower Office
1155 21st Street, NW, Washington, DC 20581
Fax: 202.418.5975

Am I protected against retaliation?

The Dodd-Frank Act prohibits retaliation by employers against individuals who are whistleblowers who provide the CFTC with information about possible violations of the CEA, or who assist the CFTC in any investigation or proceeding based on such information.

Learn more about the anti-retaliation provisions by reading Appendix A to the Whistleblower Rules.

How can I learn more?

Visit the “Whistleblower Program” webpage at https://www.whistleblower.gov, which has copies of the Whistleblower rules, filing forms, notices, orders on award applications, and frequently asked questions.

Contacts and Acknowledgements

Contacts

Additional copies of the
Commodity Futures Trading Commission
FY 2015 Summary of Performance and Financial Information
are available by contacting the following:

Commodity Futures Trading Commission
Financial Management Branch
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581

Telephone: Mary Jean Buhler, 202.418.5089 or Lisa Malone, 202.418.5184
Fax: 202.418.5414
E-mail: [email protected] or [email protected]
Web: http://www.cftc.gov/About/CFTCReports/index.htm

Acknowledgements

This Summary of Performance and Financial Information was produced with the energies and talents of Commission staff. To these individuals, the Financial Management Branch would like to offer our sincerest thanks and acknowledgement.

We would also like to acknowledge the Office of the Inspector General and KPMG LLP for the professional manner in which they conducted the audit of the Fiscal Year 2015 Financial Statements.

We offer our special thanks to The DesignPond, in particular Sheri Beauregard and Michael James, for their outstanding contribution to the design of this report.