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PERFORMANCE MEASURE 2.1.1.1 Review systemically important DCOs annually. Percentage of systemically important DCOs reviewed.

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: Division Reviews Spreadsheet Verification: Engagement Letters; Documents submitted by systemically important DCO's, and memoranda to the Commission
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
75%	75%	100%	100%	100%	100%

The performance target was met for FY 2011. During FY 2011, CFTC reviewed 3 of 4 DCOs that the Commission believes to be systemically important. The Commission made this initial determination because in FY 2011, no DCOs were designated as systemically important by the Financial Stability Oversight Council (FSOC), and CFTC felt it could not wait for this determination to initiate reviews. The Dodd-Frank Act establishes that the FSOC will make the formal determination that a DCO is systematically important, and as CFTC is the primary regulator, its examinations staff will execute and complete reviews on these entities on an annual basis.

The Commission also finalized regulations that further clarify the requirements all DCOs must comply with regarding core principles. Development of procedures designed to be used when assessing compliance with the core principles under the newly adopted regulations has begun.

Title VIII of the Dodd-Frank Act mandated that the CFTC, the Securities and Exchange Commission (SEC), and the Board of Governors of the Federal Reserve System prepare and submit to Congress a report that addresses jointly developed risk management supervisory programs for Designated Clearing Entities (DCEs) and to make recommendations in four areas:

1. Improve consistency in the DCE's oversight programs of the agencies;
   
   
2. Promote robust risk management by DCEs;
   
   
3. Promote robust risk management oversight by regulators of DCEs; and,
   
   
4. Improve regulators' ability to monitor the potential effects of DCE's risk management on the stability of the financial system of the U.S.

Congress required the report to be written and submitted by July 18, 2011. This goal was accomplished and the report was submitted to Congress (see http://www.federalreserve.gov/publications/other-reports/risk-management-supervision-report-201107.htm).

PERFORMANCE MEASURE 2.1.1.2 On a risk-based basis, review all other DCOs annually to assess compliance with DCO core principles and Commission requirements. Percentage of all other DCOs reviewed.

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: Division Reviews Spreadsheet Verification: Engagement Letters; Documents submitted by systemically important DCO's, and memoranda to the Commission
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
44%	100%	100%	100%	100%	100%

The performance target was not met for FY 2011. Insufficient staffing continued to be a major challenge in conducting reviews of DCOs throughout the fiscal year. For nine months of the review period, the Examinations Branch responsible for DCO reviews had only six staff to review 10 DCOs. Senior management had anticipated hiring staff early in fiscal year 2011, but budgetary restrictions imposed due to a series of continuing resolutions that spanned nearly seven months prevented such action. The continuing resolutions also had a significant impact on the travel budget, allocating insufficient travel funds to conduct DCO reviews. As a result, the Commission reviewed only a subset of the "all other" DCO community. It was also determined that one DCO was to be excluded from the eligible population, having not performed a clearing transaction during the FY 2011 reporting period, leaving 9 "all other" DCOs eligible for review during the fiscal year. Risk-based assessments helped determine that four reviews would be required for minimally sufficient coverage of this DCO community.

In FY 2011, eight core principles were selected for review purposes, based on a risk evaluation, and consisted of the following: financial resources, membership, risk management, settlement, treatment of funds, default, reporting, and record keeping. This approach allowed staff to compare policies and procedures consistently across all DCOs that were examined. Results revealed an issue with documentation within the prospectuses of some money market mutual funds regarding the redemption clause. The DCOs continue working with fund managers to correct this matter in the prospectuses, ultimately improving the protection of customer funds.

The outlook for FY 2012 remains uncertain, as budgetary constraints and a limited workforce continue. However, additional laptops provided to the Examination staff of DCR in October 2011, has supported an improvement in efficiency and effectiveness. The core principles require that staff undertake complex analysis and make assessments as to whether or not the DCOs procedures are adequate to capture risk. Staff should be supported with a laptop and appropriate software to aid in these analyses. From the management perspective, computer hardware and software are also essential for improved collaboration, a requirement to effectively complete fieldwork. The additional laptops, a change from 50 to 80 percent staff coverage, also provide better tracking and monitoring of progress in an environment known for complexity.

PERFORMANCE MEASURE 2.1.1.3 Percent of requests for Commission orders that are completed following review under the applicable provisions of the CEA.

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: FILAC Verification: Records maintained at the Office of Secretary
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
N/A	90%	92%	94%	96%	98%

The performance target was not met for FY 2011. Three DCOs submitted petitions for relief to be granted through the issuance of Commission Orders: the Options Clearing Corporation submitted a request for approval to amend its cross-margining program (March 2011); ICE Clear Europe requested an exemption that would permit commingling of customer funds (June 2011); and the Minneapolis Grain Exchange requested approval to clear agricultural swaps and commingle customer funds (September 2011).

Due to staff limitations, and in light of the fact that none of the requests are subject to a statutory or regulatory time frame, only one of the petitions has been processed and submitted to the Commission for approval (the Commission has not yet acted on that petition). Senior management had anticipated hiring staff early in the fiscal year, but budgetary restrictions imposed due to continuing resolutions that spanned nearly seven months prevented the hiring actions.

It is anticipated that staff will continue to be limited in their ability to process requests for Orders (processing includes analyzing relevant legal and risk management issues, preparing a memorandum that documents the staff's analysis, preparing the final Order, and briefing Commissioners regarding DCR's analysis and recommendations). Even after staff members have completed the necessary work, issuance of an Order is dependent upon Commission approval.

PERFORMANCE MEASURE 2.1.2.1 Applications are reviewed and a determination made regarding compliance with financial integrity provisions of the CEA within statutory time frames. Percent in compliance with financial integrity provisions.

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: Designation Order for Eris Exchange, LLC Verification: Publication of Designation Order on the CFTC website
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
100%	100%	100%	100%	100%	100%

The performance target was met for FY 2011. During the fiscal year, the Commission participated on one designation team, reviewing the application of Eris Exchange, LLC; an exempt board of trade which applied to become a designated contract market (DCM). The Commission engaged in a timely review of the application for compliance with the financial integrity provisions of the CEA and as of the end of the fiscal year on schedule to complete the review within statutory time frames. The DCM designation was formally approved on October 28, 2011.

PERFORMANCE MEASURE 2.1.3.1 All material exceptions in monthly and annual financial filings by FCMs and RFEDs and notices of noncompliance with respect to minimum capital and segregation are reviewed and assessed within one business day. Percent completed within one business day.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: RSR Star System Verification: Query Comparison
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
100%	100%	100%	100%	100%	100%

The performance target was met for FY 2011. The Commission received 14 notifications (one being a combined 1.12(a)-1.12(h) notification) and reviewed all 14 within the targeted time of one business day. A follow-up was performed with the filers to ensure that the fiscal integrity of the markets was maintained.

As segregated and secured funds are integral to maintaining the fiscal integrity of the marketplace for customers, and key to providing customer financial protection, the ability to meet this target is vital to the CFTC's financial oversight program. However, with continued budgetary and staffing constraints, it will be necessary to develop more efficient and effective methods of following up on the receipt of notices in FY 2012 and beyond.

PERFORMANCE MEASURE 2.1.3.2 On a risk-based basis, conduct direct examinations of FCMs and RFEDs, identify deficiencies, and confirm that all deficiencies identified are corrected within the specified period of time. Percent corrected within specified time period.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: DSIO Regional Database Verification: Internal Data Review
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
100%	90%	92%	94%	96%	98%

The performance target was exceeded for FY 2011. The Commission conducted limited-scope, risk-based examinations of all 31 FCMs or RFEDs. All deficiencies identified were corrected within the specified time period. As FCMs and RFEDs are the principal repository for funds used to margin commodity trading by both customers and proprietary accounts, they are a primary focal point for maintaining the financial integrity of the marketplace and thus, resources should be directed toward meeting and, as in FY 2011 exceeding the target. However, with the ongoing staffing and budgetary constraints, it will be necessary to continue reviewing the balance of effort dedicated to those areas that present the greatest financial risk when determining allocation of resources.

PERFORMANCE MEASURE 2.1.5.1 Reviews of DCO rules submitted to the Commission are completed within statutory and regulatory deadlines.

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: FILAC Verification: CFTC website; Industry Filings; Clearing Organization Rules
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
100%	100%	100%	100%	100%	100%

The performance target was met for FY 2011. The Commission implemented new procedures for timely rule review/analysis and posting of DCO rule submissions. These new procedures were further adapted to reflect changes to the SRO rule self-certification process by the Dodd-Frank Act. Staff actively participated on the rule writing team (and on the FILAC/OPERA team) in order to reflect the Dodd-Frank Act changes to the CEA and the corresponding changes to Part 40 (and Part 39) of the Commission's regulations.

During FY 2011, the Commission reviewed 110 DCO rule submissions, almost all of which were rule self-certifications pursuant to CFTC Reg. 40.6. Five of the rule submissions were for rule approval pursuant to CFTC Reg. 40.5. Of those five, two were approved. Due to the complex and novel nature of these rules, and inadequate staffing resources, none of the rule approvals were completed within the initial 45-day review period established by CFTC Reg. 40.5. However, statutory and regulatory deadlines include provisions for extensions. Currently five rule approval submissions are pending approval (three from FY 2011 and two from FY 2010) and have been subject to extensions.

The Commission also improved interactions with DCOs regarding rule submission through more effective communication. For example, on August 29, 2011, CFTC issued a letter to all registered DCOs with the purpose of (1) providing guidance with respect to self-certification of new rules and rule amendments pursuant to CFTC Reg. 40.6 (in light of recent changes to Part 40); (2) requesting that DCOs perform a rule self-assessment; and (3) requesting that DCOs provide a description of their margin-setting methodologies. The Commission received positive feedback about the letter. In addition, all DCOs that were required to submit margin-setting methodologies did so in a timely manner. Quality of the DCO rule filings has also improved. In particular, DCOs are including in their rule submissions a more detailed analysis of the purpose and effect of the rule and its impact, if any, on the DCO's ability to comply with the Core Principles.

PERFORMANCE MEASURE 2.1.6.1 Perform risk analysis and stress testing on large trader and clearing member positions to ascertain those with significant risk and confirm that such risks are being appropriately managed. Number of positions analyzed. (Number of Positions)

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: Large Trader Reporting System Verification: Stress testing procedures (By commodity grouping and all DCOs)
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
500,000	500,000	550,000	600,000	650,000	700,000

The performance target was met for FY 2011. Staff at the Commission conducted daily stress tests of energy, interest rate, equities, agricultural, soft agricultural and metals account and firm positions. Stress tests are performed at a variety of levels (i.e., all time move and 150% of product margin requirements) and results are compared to a variety of metrics (i.e., excess net capital and margin on deposit). Stress tests are also performed across multiple commodity groups.

The Commission also conducted a wide variety of risk analysis on large trader and clearing member positions, as well as financial analysis of clearing members, using a vast array of technology (Integrated Surveillance System, SPARK, SPAN® software, and RSR Express). Staff used this technology to identify traders with the greatest overall market risk and identified those traders that posed a material risk to their clearing members.

As a result of the high levels of market volatility across several commodities, CFTC performed heightened surveillance. Holders of short option positions suffered large losses. As a result, CFTC created a short options team to generate a series of stress tests identifying the riskiest short options position holders.

A major challenge the Commission faced during FY 2011 was the establishment and integration of a program to analyze the risks associated with the clearing of interest rate swaps. Interest rate swaps and credit default swaps analysis is challenging because staff cannot rely on the current tools used in the analysis of futures and options. Interest rate swaps analysis requires new methods of data collection and risk analysis. At present, staff is collaborating with clearing organizations to develop the best data collection and risk analysis solutions.

PERFORMANCE MEASURE 2.1.6.2 On a risk-based basis, meet with large traders, FCMs, swap dealers, and other industry participants to discuss risk management issues. Number of entities met with and risk issues reviewed. (Number of Entities)

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: Internal Memoranda Verification: Memoranda Filings
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
110	110	122	132	143	154

The performance target was met for FY 2011. The Commission's Risk Surveillance staff conducted risk reviews of a variety of market participants including traders (hedgers/speculators), futures commission merchants, commodity pool operators and commodity trading advisors. The risk reviews were conducted both on-site and telephonically. Staff managed to carry out all its reviews on a voluntary basis, targeting traders with large overall risk positions with a special emphasis on sellers of option premium. Through internal analysis, the Commission was able to target several risk reviews of large traders that suffered material losses during the periods of extreme market volatility.

CFTC also conducted trader risk reviews on a large variety of market participants. Most notably, several short option risk reviews were performed and stress tests were shared with traders. The stress test results showed potential losses in extreme market volatility and margin increases. All traders were supportive of the reviews and at least one trader altered the risk profile of his position after evaluating potential losses.

Overall, the Commission was successful in scheduling reviews with traders and clearing members on a voluntary basis, and was able to carry out the reviews in a timely manner and developed significant insight into risk management.

PERFORMANCE MEASURE 2.2.2.1 Under a risk-based approach, conduct reviews of selected programs of all RFAs to assess fulfillment of statutory and delegated responsibilities and confirm that any deficiencies identified are corrected within the specified period of time. Percent of deficiencies corrected within specified time period.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: Division Files Verification: N/A
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
N/A	90%	92%	94%	96%	98%

The performance target was not met for FY 2011. As a consequence of insufficient staff resources, there were no reviews of selected programs of any RFAs to assess fulfillment of statutory and delegated responsibilities. Thus, no deficiencies were identified nor corrected within any time period during the fiscal year. With the continued staffing and budgetary constraints it will be necessary to continue reviewing the balance between those areas that present the greatest financial risk when determining the deployment of Commission resources.

PERFORMANCE MEASURE 2.2.2.2 Percentage of RFA rules submitted for which determinations are made within statutory time frames.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: Division Files Verification: Internal Review compared to Logged Submissions
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
100%	90%	92%	94%	96%	98%

The performance target was exceeded for FY 2011. As part of the regular program, but also as an adjunct to the Dodd-Frank rulemaking process, the Commission reviewed and analyzed 4 of the 4 proposed NFA rule additions and amendments that required review within the statutory time frames. The nature of the proposed NFA rule additions and amendments were diverse and, in addition to the Dodd-Frank rulemakings, provided a challenge to have them completed in a timely manner given the workforce limitations. NFA rule submissions included:

7/7/11 – Approved

Failure to Pay an Arbitration Award or Settlement – Proposed Amendments to Code of Arbitration Section 10 and Member Arbitration Rules Section 10

7/7/11 – Approved

Forex Requirements – Proposed Amendments to Bylaws 301 and 306; Compliance Rules 2-10, 2-36 and 2-39; Code of Arbitration Section 1 and the Interpretive Notices Entitled Forex Transactions; Compliance Rule 2-40: Procedures for the Bulk Assignment or Liquidation of Forex Positions: Cessation of Customer Business; and Compliance Rule 2-36(e): Supervision of the Use of Electronic Trading Systems

12/17/10 – Approved

Forex Dealer Member Trade Reporting System – Proposed Adoption of Compliance Rule 2-48

11/23/10 – Withdrawn

Definition of a Forex Dealer Member: Proposed Amendments to Bylaw 306, Financial Requirements Section 11(a), and the Interpretive Notice Regarding Forex Transactions

PERFORMANCE MEASURE 2.2.3.1 On a risk-based basis, conduct direct examinations of non-FCM intermediaries, identify deficiencies, and confirm that any deficiencies identified are corrected within the specified period of time. Percent of time that deficiencies are corrected within specified time period.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: DSIO Regional Database Verification: Internal Data Review
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
N/A	90%	92%	94%	96%	98%

The performance target was not met for FY 2011. Inadequate staff resources continued to be the major obstacle throughout this fiscal year. As a result, no examinations of non-FCM intermediaries were performed to identify deficiencies. Thus, no deficiencies were corrected within any time period during the fiscal year. With the continued staffing and budgetary constraints leading into a new fiscal year, it will be necessary to continue reviewing the balance between those areas that present the greatest financial risk when determining allocation of Commission resources.

PERFORMANCE MEASURE 2.3.1.1 On a risk-based basis, review all SROs annually to assess compliance with CEA and Commission requirements, identify deficiencies, and confirm that any deficiencies identified are corrected within the specified period of time. Percent of time in which deficiencies are corrected within specified time period.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: Major Review Branch Files Verification: Internal Management Review
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
80%	90%	90%	95%	98%	100%

The performance target was not met for FY 2011. The Commission reviewed all SROs to assess compliance with the CEA and Commission requirements. Any deficiencies noted were communicated to the SRO in draft form only, leading to the actual performance being recorded at 80 percent. The Commission is currently following up with the SROs to determine if the deficiencies noted were corrected within the specified period of time. However, due to constraints on staff resources, the draft reviews have not been finalized and submitted in final form to the SROs as originally planned for the fiscal year.

As noted above, as a consequence of continued budgetary constraints, staff was unable to finalize the 3 reviews and submit them to the SROs. However, it should be noted that, reviews were completed in a thorough and timely manner. Had any significant issues arisen during the review process, they would have been communicated to the SROs immediately. As budgetary and staffing constraints continue in FY 2012, the Commission will seek innovative ways to complete the reviews and communicate any critical findings prior to the preparation of a final report.

PERFORMANCE MEASURE 2.3.1.2 Percentage of direct examinations of registered intermediaries that confirm proper execution of SRO programs.

Lead Program Office: Division of Swap Dealer and Intermediary Oversight (DSIO) Data Source: DSIO Regional Database Verification: Internal Data Review
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
100%	90%	90%	95%	98%	100%

The performance target was exceeded for FY 2011. The Commission performed 21 limited-scope (directed or "for cause") audits, that confirmed that the SROs were properly executing their programs. As the vast majority of these reviews were of FCMs who are the principal repository for funds used to margin commodity trading by both customers and proprietary accounts, they should be a primary focal point for maintaining the financial integrity of the marketplace and thus, staff resources have been directed toward meeting and, as in FY 2011 exceeding the target. However, achieving this level of performance required prioritizing staff and resources for these activities leaving less vital areas, such as conducting direct examinations of non-FCM intermediaries and identifying deficiencies, understaffed.

PERFORMANCE MEASURE 2.4.1.1 Program redesign to cover new registrants monitored by the regulatory statement review (RSR) and Stressing Positions at Risk (SPARK) systems. Percentage of system redesign accomplished.

Lead Program Office: Division of Clearing and Risk (DCR) Data Source: Annual Plan Verification: Comparison of year-end plan to actual status
ACTUAL FY 2011	PLAN FY 2011	PLAN FY 2012	PLAN FY 2013	PLAN FY 2014	PLAN FY 2015
80%	80%	90%	95%	98%	100%

The performance target was met for FY 2011. The Commission conducts risk surveillance activities through the use of automated financial and risk surveillance systems and applications such as RSR Express and SPARK. RSR Express is used to receive and review monthly futures commission merchant financial statements. SPARK is used to identify volatile markets, firms that have positions on the losing side of the market, and customers at the identified firms. Both RSR Express and SPARK applications were developed in house.

In FY 2011, CFTC identified priorities related to technology for new rule makings, enhanced surveillance techniques, enhanced DCO review techniques, and the surveillance of new asset classes. Both RSR Express and SPARK applications received enhancements during FY 2011. RSR Express enhancements related to the receipt and storage of new data fields and an upgrade of the code of the entire application. SPARK application received a number of upgrades and new capabilities:

• Enhanced variation margin data analysis capability
  
  
• Interactive position data for stress-testing
  
  
• Task automation (updating exchange rates, financial updates from RSR, and margin requirements reporting for all positions submitted to the Commission)
  
  
• Expanded "What-If" risk analysis capability for DCOs, FCMs, and traders
  
  
• New support mechanisms to aid analysts (risk array viewer, margin component, and risk reporter link to SPAN)
  
  
• New feature providing the able to utilize reports from for the following entities: New York Portfolio Clearing, ICE Clear Credit, CME Europe, and Nadex
  
  
• New reporting format for cash data (tested the accuracy of the new load program and incorporated the new data into the SPARK application)
  
  
• CSV file format downloads (the CSV file format will allow the user to more easily download large data sets for analysis)
  
  
• Upgraded account level download of reporting firms – so that users can now select up to 100 reporting firms when data is requested
  
  
• Downloadable New York Portfolio Clearing position data identified as NYL2 positions in the Integrated Surveillance System can be margined in SPAN
  
  
• Credit Default Swaps: Added save and load layout functionality; added filter and sort capabilities; fixed issues related to adding a new contract that eliminated the occurrence of error messages when saving a new termination date or adding a new contract; and enhanced the Notional Value by Contract feature such that if the 10 year tenor is selected then all results reflect only 10 year tenors

 

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