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Effecting Success: Coordination On Cross-Cutting Issues

Table Of Contents

The Commission benefits from established intergovernmental partnerships, sharing information, and consulting on issues of importance to the Commission and other Federal organizations.

President’s Working Group on Financial Markets

The PWG is a forum for the coordination of Federal financial regulation across markets. It brings together the leaders of the Federal financial regulatory agencies, including the Secretary of the Treasury, who chairs the group, and the chairs of the Federal Reserve Board, the CFTC, and the SEC. In addition to the four primary financial regulators, regular staff meetings of the PWG also include staff members from the National Economic Council (NEC), the Council of Economic Advisors, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Bank of New York, and the Office of Thrift Supervision (OTS).

Issues considered by the PWG and staff have included individual and coordinated Agency initiatives concerning risk assessment, capital requirements, internal controls, disclosure, accounting, market practices relating to trading in derivative instruments, bankruptcy law revisions, security futures products (SFPs), portfolio margining, futures on security indexes, and contingency planning for market emergencies. Commission staff participate in PWG staff meetings on a regular basis to discuss ongoing issues.

In support of Goal One, Commission staff coordinate initiatives on contingency planning for market emergencies and participate in regular conference calls with the staff of the PWG. In support of Goal Three, the group: 1) coordinated initiatives concerning risk assessment, capital requirements, internal controls, disclosure, accounting, market practices relating to derivatives instruments, hedge funds, bankruptcy law revisions, and contingency planning for market emergencies; and 2) participated in the “Joint Report on Retail Swaps” issued in 2001. In 2007, the PWG issued “Principles and Guidelines Regarding Private Pools of Capital” to provide a framework for addressing risk management and other issues associated with hedge funds.

The Securities and Exchange Commission

Title II of the CFMA repealed the longstanding ban on single-stock futures, and the CFTC and the SEC implemented a joint regulatory framework for SFPs, which include single-stock and narrow-based stock index futures. Trading of such futures products began during 2002. More recently, in 2006, the CFTC and the SEC together promulgated rules governing the trading of futures on debt indexes and debt securities on futures exchanges, subject to the exclusive jurisdiction of the CFTC, and in 2007 negotiated an agreement that allows credit event option products to trade on both securities and futures exchanges.

The Federal Energy Regulatory Commission

The CFTC and the FERC have worked together to monitor trading activity in the natural gas and electricity cash and futures markets. During FY 2003, the CFTC and FERC issued a joint statement finding no evidence of manipulation as the cause of a spike in natural gas prices that occurred in late February 2003. The CFTC and FERC also jointly participated in three technical conferences concerning clearing and credit issues and price-reporting issues in the natural gas and electricity markets.

The CFTC and FERC cooperate under the terms of a Memorandum of Understanding (MOU) entered into in October 2005, as mandated by the Energy Policy Act of 2005, regarding the sharing of information and the confidential treatment of proprietary energy trading data. To that end, Commission staff maintain regular contact and meetings with FERC counterparts to coordinate their activities on issues and matters of mutual interest.

U.S. Department of Agriculture

Consistent with the mandate of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996, the Commission and its staff have been working with the USDA Risk Management Agency; the USDA Cooperative State Research, Education, and Extension Service; and the USDA Office of Outreach in an educational effort on risk management. The FAIR Act initiated a phase-out of the price support programs that had provided a safety net for U.S. agriculture since the 1930s. Recognizing that the disappearance of these programs would force producers to become more self-reliant in risk management, the FAIR Act required the Secretary of Agriculture, “in consultation with the Commodity Futures Trading Commission,” to provide producers with appropriate “. . . education in management of the financial risks inherent in the production and marketing of agricultural commodities . . . .”

This risk management educational effort has continued despite subsequent farm legislation that has partially reestablished an agricultural “safety net.” The effort continues to be broad in scope and content, focusing on integrating basic information from all relevant sectors, including crop insurance, futures, and options. Recent initiatives include development of educational materials and programs for ultimate delivery to farmers through the funding of a number of grants for risk management education projects as well as planning and conducting a number of regional risk management education conferences and seminars. Longer term strategies for the delivery of educational materials to producers currently are being developed and implemented and include the establishment of Web site tutorials, the use of television and radio infomercials, and local meetings and seminars. Acting Chairman Lukken serves as the Commission’s principal contact point for this risk management education effort and periodically meets with the Administrators of the previously mentioned USDA offices in order to exchange information of relevance to the effort. In addition, Commission staff provide frequent assistance to those offices in carrying out risk management education initiatives.

U.S. Department of Energy

In recent years, with the continued development of trading in energy-related derivatives, the Commission and its staff have established working relationships with the staff of the U.S. Department of Energy (DOE). For example, Commission staff assisted the Energy Information Administration of the DOE with a study of energy markets. The study generally described the structure and activity in the cash and derivative markets for oil, gas, and electricity and described the nature of Federal oversight of firms in these industries and the markets for these commodities.

Corporate Fraud Task Force

By Executive Order signed by President Bush on July 9, 2002, the CFTC was named as a member of the Corporate Fraud Task Force. This task force was established with the objective of strengthening the efforts of the DOJ and Federal, state, and local agencies to investigate and prosecute significant financial crimes, recover the proceeds of such crimes, and ensure just and effective punishment of those who perpetrate financial crimes. Since 2002, the CFTC has been involved, together with the DOJ and other regulators, in dozens of corporate fraud enforcement cases through the cooperative sharing of information and mutual assistance. For example, in the energy area, since 2002, the CFTC has filed 37 enforcement actions; and CFTC-DOJ cooperation has resulted in 18 criminal energy cases filed by DOJ. In the commodity pool and hedge fund arena, the CFTC has filed 45 enforcement cases since June 2002.

Agricultural Advisory Committee

The Agricultural Advisory Committee (AAC) represents a vital link between the Commission, which regulates agricultural futures and option markets, and the agricultural community, which depends on those markets for hedging and price discovery. The 34 member organizations of the AAC represent a major portion of the U.S. agricultural community. Since 1985, the meetings of the AAC have fostered an ongoing dialogue between that community and the Commission. The AAC met in July 2004 and last met in August 2006. These meetings focused on topics such as: implementation of the CFMA of 2000; Federal speculative position limits; off-exchange risk management products for producers; the “Commitment of Trader” reports; and economic and market implications of thinly traded price discovery markets.

Technology Advisory Committee

The Technology Advisory Committee (TAC) advises the Commission on the impact and implications of technological innovation in the financial services and commodity markets. Its objectives include: 1) identifying new technologies utilized by financial services and commodity markets and their participants; 2) analyzing the application of new technologies in financial services and commodity markets as well as by market professionals and market users, particularly in the areas of system capacities and readiness, order flow practices, and clearing and payment activities; 3) reviewing the CEA, as amended by the CFMA, and the regulations promulgated thereunder in light of new technologies employed by market participants and ensuring the Commission’s ability to exercise appropriate fraud and manipulation authority; and 4) examining ways that the Commission may respond to the use of technology in financial services and commodity markets through appropriate legislative proposals and/or regulatory reform. The 27-member TAC met in October 2004 and last met in April 2005. These meetings focused on matters such as: the surveillance of electronic trading; how exchanges deal with disruptions to market operations; industry-wide disaster recovery tests; the emerging significance of patent claims; piracy of data markets; and the questions of what is prior art in today’s environment and whether prices can be property.

Global Markets Advisory Committee

The Global Markets Advisory Committee (GMAC) was created by the Commission on February 25, 1998, for the purpose of obtaining input on international market issues that affect the integrity and competitiveness of U.S. markets and firms engaged in global business. As stated in GMAC’s charter, “[t]he objectives and scope of activities of [GMAC] shall be to conduct public meetings and to submit reports and recommendations on matters of concern to the exchanges, firms, market users, and the Commission regarding the regulatory challenges of a global marketplace . . . including . . . avoiding unnecessary regulatory or operational impediments faced by those doing global business.” Membership of GMAC consists of 24 individuals representing U.S. futures exchanges, self-regulators, financial and commodity intermediaries, market users, and traders. The GMAC met in January and December of 2005. These meetings focused on topics such as: developments regarding the currency regime of China; segregated/secured funds; CFTC reauthorization; market access issues between the United States and Europe; and regulatory reforms that might help facilitate trans-Atlantic business in financial services.