Table Of Contents

Means:

• Oversee market intermediaries and the self-regulatory programs and compliance activities of the futures industry SROs, which include the U.S. commodity exchanges, the NFA, and DCOs.
• Protect market users and financial intermediaries by developing regulations including requirements related to registration, record-keeping and reporting, financial adequacy, sales practices, protection of customer funds, and clearance and settlement activities.
• Address cross-border transactions, the coordination of policy with foreign market authorities, systemic risk, anti-money laundering programs, and procedures to address extraordinary events such as firm defaults.
• Monitor market movements for potential financial impact on clearing firms and DCOs.
• Monitor trading activity to detect abusive trading practices through examinations of audit trail data.

Strategies:

• Maintain a flexible regulatory environment responsive to evolving market conditions. In an effort to ensure that the regulatory framework under which futures and option contracts are traded remains current, Commission staff will continue to review the Commission’s regulations with the intention of: eliminating obsolete regulations; streamlining and coordinating regulations across markets; and fostering efficiency and competitiveness while assuring customer protection, sound financial practices, and market integrity. The Commission will also respond to requests for exemptions and other relief from regulatory requirements to address situations in which additional flexibility is warranted. The Commission also will issue advisories and other guidance concerning the application of Commission regulations.
• Oversight of SROs and DCOs. A key aspect of effective self-regulation is oversight by the Commission of SROs, NFA, and DCOs to ensure their fulfillment of responsibilities for monitoring and ensuring the financial integrity of market intermediaries and the protection of customer funds. This oversight program involves conducting risk-based reviews and examinations of SROs (including NFA) and DCOs to evaluate their compliance programs with applicable provisions of the Act and Commission regulations.
• Conduct financial surveillance. An important component of oversight of DCOs and SROs is the conduct of financial surveillance of market intermediaries by using automated tools for collecting, analyzing, and reporting upon the financial condition and risk exposures of FCMs and clearing organizations. Monitoring of broad-based stock-index futures and security futures margins was added to the financial surveillance functions now performed.
• Enhance risk assessment. To address changes in the operations and structures of multinational, multi-product financial firms, the Commission has implemented a risk assessment program by obtaining better information on such firms in the form of required organizational charts and internal control filings, consolidated and consolidating financial statements, identification of other regulators to whom such firms report, and descriptions of procedures in place to control risks associated with clearing of trades for affiliates of the regulated firm.
• Develop global cooperation to enhance financial safeguards. Internationally, recent market issues with global market impact have underscored the importance of developing international standards of best practice. The Commission has increased its efforts to achieve greater international coordination, and thereby enhance the effectiveness of financial safeguards applicable to U.S. markets and market participants, as well as those applicable internationally.
• Review SRO rule submissions. New rules and rule changes submitted by the exchanges, DCOs, and NFA to the Commission are reviewed with a view towards ensuring compliance with CFTC Core Principles and regulatory standards in order to maintain the fairness and integrity of the markets, protect customers, and accommodate and foster innovation and efficiency in self-regulation consonant with the Commission’s statutory mandates. Many of the rule submissions present complex new trading and clearing procedures, market structures, and financial arrangements that present novel issues and, in some cases, require amendments to or interpretations of Commission regulations to facilitate implementation of the SRO’s rule changes. The Commission has adapted its requirements to ensure, when approval is requested, quicker implementation of rule changes, and attempts, when carrying out due diligence reviews of new rules and rule changes submitted by exchange certification and immediately implemented, to complete the review as soon as possible to ensure that the implemented rules comply with the CEA and the Commission’s regulations. This due diligence review, when carried out in a timely fashion, allows the Commission to meet its statutory responsibility to ensure avoidance of systemic risks, protection of market participants, and the promotion of responsible innovation and fair competition.
• Respond to globalization of the markets. Electronic technology has integrated the world’s commodity futures and option markets, resulting in increased cross-border trading volume, cross-border participation, and cross-border exchange linkages. In these circumstances no one regulator will have the information or geographic reach to address all regulatory and enforcement issues. The recent financial crises, which included the failure of a major investment bank with positions on multiple markets, and the concerns raised with respect to volatility in the energy and agricultural markets, illustrate that markets are global and require the Commission to coordinate with foreign regulators and within multilateral organization such as IOSCO. The calls for global regulatory reform will also necessitate even greater engagement within IOSCO and the foreign regulators.

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