jurisdiction: US

text: b'M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n \x18\n\x0cCOMMODITY FUTURES TRADING COMMISSION\n\nReuben Jeffrey III\nChairman\nMadge Bolinger Gazzola\nExecutive Director\nMark Carney\nChief Financial Officer\n\nNovember 2005\n\nThis report is in the public domain. Authorization to reproduce it in whole or in part is granted.\nWhile permission to reprint this publication is not necessary, the citation should be:\nCommodity Futures Trading Commission, FY 2005 Performance and Accountability Report,\nWashington D.C., 20581.\n\nAll photographs in this document are proprietary and prior permission from the photographer\nis required for any use or reproduction of the photographs.\n\x0c In the Tradition of Quality Reporting,\nthe Commodity Futures Trading Commission\n Proudly Presents the FY 2005\n Performance and Accountability Report\n\x0c Table of Contents\n\n\t Message from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1\n\t FY 2005 Commissioners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2\n\t How This Report is Organized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3\n\n\nMANAGEMENT\xe2\x80\x99S DISCUSSION AND ANALYSIS\n\t CFTC 2005 Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5\n\t CFTC Celebrates 30 Years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7\n\t Commission at a Glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8\n\t Performance Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12\n\t Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18\n\t Management Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23\n\n\nPERFORMANCE SECTION\n\t Mission Statement and Agency Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27\n\t Introduction to the Performance Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28\n\t Program Assessment Rating Tool. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30\n\t Strategic Goal One: Economic Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31\n\t Strategic Goal Two: Market User and Public. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37\n\t Strategic Goal Three: Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46\n\t Methodology for Collecting, Maintaining, and Analyzing Performance Data. . . . . . . . . . . . . . . . . . . . . 57\n\n\nFINANCIAL SECTION\n\t Message from the Chief Financial Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61\n\t Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62\n\t Principal Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64\n\t Required Supplementary Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79\n\t Report of the Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80\n\t Other Statutorily Required Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93\n\n\nAPPENDICES\n\t Inspector General\xe2\x80\x99s Assessment of Management Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98\n\t Enforcement Litigation by Strategic Goals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102\n\t Glossary of Abbreviations and Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115\n\x0c A Message from the Chairman\n\n\nThirty years have passed since Congress established the guidelines established in OMB Circular A-136, Financial\nCommodity Futures Trading Commission (CFTC or Com- Reporting Requirements. It satisfies our statutory requirements\nmission). The CFTC is an independent agency with the for financial and performance management reporting.\nmandate to regulate commodity futures and option markets \t Most importantly, this report is a testament to the\nin the United States. During that time, the Agency\xe2\x80\x99s man- CFTC\xe2\x80\x99s dedication to regulating the markets under our juris-\ndate has been renewed and expanded several times, most diction and achieving management excellence while doing\nrecently by the Commodity Futures Modernization Act of so. Of particular note are the leadership contributions\n2000 (CFMA). made by Commissioner Brown-Hruska serving as Acting\n\t Today, because of the far reaching changes envisioned Chairman. Her steady hand and good judgment served the\nby the CFMA, trading in futures contracts has expanded rap- Commission well during a transitional year. Thanks to all\nidly beyond traditional physical and agricultural commodi- our Commissioners and the dedicated staff for their suc-\nties into a vast array of financial instruments, including cesses, many of which are highlighted in the Management\xe2\x80\x99s\nforeign currencies, U.S. and foreign government securities, Discussion and Analysis section of this document.\nand U.S. and foreign stock indices. As regulators, we play an \t Therefore, it is with pride and confidence in the\nimportant role in ensuring the vitality and innovativeness Commission staff that I certify with reasonable assurance\nof the futures markets. With effective CFTC oversight, the that our agency\xe2\x80\x99s systems of management control, taken\nfutures markets serve the important functions of price dis- as a whole, comply with the Federal Managers\xe2\x80\x99 Financial\ncovery and offsetting price risk. As this report chronicles, the Integrity Act of 1982, and that our agency is in substantial\nCommission works very hard to assure the integrity of the compliance with applicable Federal accounting standards\nfutures markets by encouraging their competitiveness and and the U.S. Standard General Ledger at the transaction\nefficiency, protecting market participants against manipula- level. The CFTC\xe2\x80\x99s financial and performance data is reliable,\ntion, abusive trading practices, and fraud, and ensuring the accurate, and consistent.\nfinancial integrity of the clearing process.\n\t We also work to ensure that resources we are entrusted\nwith are used wisely and that we focus on results. That is Reuben Jeffrey III\nwhy we are pleased to present our second Performance and Chairman\nAccountability Report. It has been prepared following the November 15, 2005\n\n\n\n\n \x18\n\x0c Fiscal Year 2005 Commissioners\n\n\n\n\nFrom left; Sharon Brown-Hruska, Commissioner; Walter L. Lukken, Commissioner; Reuben Jeffery III, Chairman; Frederick W.\nHatfield, Commissioner; Michael V. Dunn, Commissioner\n\n\n\n\n\x18\n\x0c How This Report is Organized\n\n\nThe CFTC\xe2\x80\x99s FY 2005 Performance and Accountability Report is the second such report published by the\nCommission. This document is comprised of three primary sections:\n\n\nManagement\xe2\x80\x99s Discussion and Analysis\n M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\nThe Management\xe2\x80\x99s Discussion and Analysis (MDA) is an\n \xe2\x80\x9c\n \xe2\x80\x9c\noverview of the entire Report, as supported and detailed in\nthe Performance Section and Financial Section. The MDA\n I expect the CFTC to continue to protect successfully the\n public from fraud, manipulation, and abusive trading practices and\n to foster open, competitive,and financially sound futures and option markets.\n\n \xe2\x80\x94Chairman reuben Jeffery iii\n\n\n\n\npresents performance and financial highlights for FY 2005,\nin addition to compliance with legal and regulatory require-\nments and existing or possible effects and challenges facing\nthe Commission in the future.\n \x18\n\n\n\n\nPerformance Section\n PERFORMANCE SECTION\n\n\n\n\nThe Performance Section compares the Commission\xe2\x80\x99s\nperformance to the annual goals as set forth in the CFTC\n\n \xe2\x80\x9c\nStrategic Plan. For more information on this section,\n [The CFTC Enforcement Program] is well designed to meet\n objectives and to maximize the use of its resources.\n Through cooperative enforcement with other government and private\n \xe2\x80\x9c\n organizations, the program enhances the impact of its efforts.\n\n\n\nplease contact Emory Bevill, Deputy Director for Budget\n \xe2\x80\x94Office Of ManageMent and Budget\n\n\n\n\nand Planning, at 202-418-5187.\n\n 26\n\n\n\n\nFinancial Section\nThe Financial Section is comprised of the Commission\xe2\x80\x99s FINANCIAL SECTION\n\n\n\nfinancial statements and related Independent Auditors\xe2\x80\x99\nreport. For more information on this section, please contact\n \xe2\x80\x9c\n \xe2\x80\x9c\nJeanne Ring, Deputy Director for Accounting and Financial\n We continue to strive for excellence in the\n\n\nSystems, at 202-418-5185. financial management of the Commission as illustrated\n throughout this Performance and Accountability Report.\n\n \xe2\x80\x94Mark Carney, Chief finanCial OffiCer\n\n\n\n\nQuestions and comments about this document can be directed to Mark Carney, Chief Financial\n 60\n\n\n\n\nOfficer, at 202-418-5477 or, via e-mail at mcarney@cftc.gov.\n\nAn electronic version of this document is available on the Internet at www.cftc.gov/cftc/cftcreports.htm.\nThe Commission\xe2\x80\x99s strategic and performance plans are also available at this Web site.\n\n\n\n\n \x18\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n \xe2\x80\x9c\n \t\n\n \xe2\x80\x9c I expect the CFTC to continue to protect successfully the\n public from fraud, manipulation, and abusive trading practices and\n to foster open, competitive,and financially sound futures and option markets.\n\n \xe2\x80\x94Chairman Reuben Jeffery III\n\n\n\n\n\x18\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n CFTC 2005 Highlights\n\n\nMajor Power Company Reaches Global from the United States and the European Union. Under\nSettlement the terms set forth in the work program, a task force\n drawn from the CFTC and CESR will review issues relating\n\xe2\x80\x9cThe $81 million penalty assessed today against Ameri-\n to enhanced transparency and clarity of regulatory devel-\ncan Electric Power Company, Inc., (AEP) and AEP Energy\n opments, simplified access or recognition procedures, and\nServices, Inc., reflects the gravity of the defendant\xe2\x80\x99s illegal\n targeted consultation on cross-border issues, as well as\nconduct in the natural gas markets. I applaud the extensive\n issues raised by the derivatives industry and end-users.\nefforts of our enforcement staff to expose the company\xe2\x80\x99s\nwrongdoing, as well as their efforts in assisting the Depart-\nment of Justice and Federal Energy Regulatory Commis- Enforcement Actions\nsion. Over the last three years, Corporate Compliance The Commission\xe2\x80\x99s Enforcement program serves to\ndepartments have changed their controls and the way they protect markets, market users, and the public. In fulfill-\nreport sensitive market information. It is obvious that our ing that mandate, the Division of Enforcement seeks to\ndiligent enforcement actions in this area have had a posi- detect violations quickly, bring immediate action to cease\ntive impact on the veracity of traders,\xe2\x80\x9d stated Director of violative conduct, interact with other State and Federal\nEnforcement, Gregory Mocek. January 26, 2005 regulators as a force multiplier, and publicize its actions\n in order to educate the public about possible miscon-\nFinal Communiqu\xc3\xa9 on Common Work duct and deter future violators. To that end, during FY\nProgram to Facilitate Trans-Atlantic 2005, the Commission\xe2\x80\x99s Enforcement program filed 69\nDerivatives Business enforcement actions against more than 200 respondents/\nOn June 28, 2005, the CFTC and the Committee of Eu- defendants, and obtained over $160 million in restitu-\nropean Securities Regulators (CESR) published the final tion, disgorgement, and penalties in pending cases.\nCommuniqu\xc3\xa9, which sets out a common work program\nto facilitate trans-Atlantic derivatives business and reflects Approval of New Exchange\nconsiderable industry input. \t The Commission approved the application of the Chicago\n\t The work program incorporates the views of orga- Climate Futures Exchange, L.L.C., (CCFE) for designation\nnized derivatives markets, intermediaries, and end-users as a contract market. CCFE is an innovative new market\n\n\n\n\n \x18\n\x0cthat offers trading of standardized and cleared futures New Products Pose New Challenges\ncontracts based on emission allowances. For example,\n The Commission has faced the challenge of performing\nthe Sulfur Financial Instrument (SFI) futures contract is\n surveillance on a record number of actively traded futures\nbased on the Environmental Protection Agency\xe2\x80\x99s sulfur\n and option contracts\xe2\x80\x93over 900 contracts were listed by\ndioxide emission allowance trading program. CCFE SFI\n U.S. futures exchanges during 2005.\nfutures contracts are also financially guaranteed. These\n \t The proliferation of new offerings reflects the con-\nemission allowance futures contracts provide utilities and\n tinuing evolution of the futures industry in responding\nother firms with low-cost, financially guaranteed tools for\n to the risk management and price discovery needs of the\nmanaging the exposure to price volatility in the emission\n international economy.\nallowance market.\n \t Examples of new futures and option contracts include\n energy swaps, retail gasoline, weather derivatives, local\nUnqualified Audit Opinion\n housing markets and complex financial instruments, as\nCFTC earned an unqualified or clean audit opinion on well as new contracts based on the more traditional com-\nits FY 2005 Financial Statements\xe2\x80\x93the second year that its modities such as ethanol, wood pulp, freight rates, and\nstatements were audited pursuant to the Accountability corn and soybean production.\nof Tax Dollars Act. This achievement validates the Com-\nmission\xe2\x80\x99s commitment to financial integrity and effective\n NEW FEDERAL GOVERNMENT\nprogram management. Maintaining accounting integrity\n FINANCIAL EDUCATION WEBSITE\nand quality stewardship of federal funds is tantamount to\nfulfilling its fiduciary responsibility to the public.\n\n\nRule Enforcement Review of Regulatory\nCompliance Programs\nThe Commodity Futures Trading Commission notified the\nNew York Board of Trade (NYBOT) of the results of its rule\nenforcement review. Commission staff found that NYBOT\nmaintains an adequate market surveillance program to\nprevent manipulations and enforce its speculative position\nlimits and position accountability levels.\n\t The review, which was recently completed by the\nCommission\xe2\x80\x99s Division of Market Oversight, covered the\n Through a partnership with 19 other Federal agen-\ntarget period from January 1, 2004, to December 31, 2004.\n cies, the CFTC helped launch a new financial edu-\n cation Web site and toll-free hotline number.\t\nGlobal Markets\n \t The mymoney.gov Web site and the 1-888-my-\nObtaining input on international market issues that affect\n money toll-free hotline were established to provide\nthe integrity and competitiveness of U.S. markets and\n Americans easy access to information that can help\nfirms engaged in global business is a necessity.\n them better understand their money \xe2\x80\x93 how to save\n\t In FY 2005, the CFTC worked cooperatively with the\n it, invest it, and manage it wisely to meet important\nU.S. Treasury Department in the continuing efforts to as-\n personal goals.\nsist China in developing its financial markets.\n\n\n\n\n\x18\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n CFTC Celebrates 30 Years\n\n\nCFTC Celebrates 30 Years of Service to the \t At that time, the vast majority of futures trading took\nAmerican People place in the agricultural sector and only on the trading\n floors of major exchanges.\nOn April 21, 1975, with around 200 staff transferred from\nthe Commodity Exchange Authority of the Department \t Today, the Commodity Futures Trading Commission\nof Agriculture, the newly established independent agency has nearly 500 employees who continue to dedicate\nopened its doors to regulate the commodity futures and themselves to achieving the agency\xe2\x80\x99s mission in a world\noption markets of the United States. of change.\n\n\n\n CFTC CHARTER MEMBERS\n\nThere are 26 employees who are deserving of special mention on CFTC\xe2\x80\x99s 30th anniversary. They are charter members who\nhave been with the CFTC since its first day on April 21, 1975. Congratulations and thank you for your dedication!\n\n\n\xe2\x80\xa2 Allen Cooper \xe2\x80\xa2 Donald Nash\t \xe2\x80\xa2 Judi Payne \xe2\x80\xa2 Ralph Der Asadourian\n\xe2\x80\xa2 Alfonso Holston \xe2\x80\xa2 Duane Schambach \xe2\x80\xa2 Keith Day \xe2\x80\xa2 Richard Shilts\t\n\xe2\x80\xa2 Carol Ceropski \xe2\x80\xa2 Elverse Alexander\t \xe2\x80\xa2 Lee Smith \xe2\x80\xa2 Thomas Purcell\n\xe2\x80\xa2 Charlotte Ohlmiller Frank Zimmerle\n \xe2\x80\xa2 \xe2\x80\xa2 Loraine Leonard \xe2\x80\xa2 Vickie Evans\n\xe2\x80\xa2 Charles Ricci \xe2\x80\xa2 James Lammle \xe2\x80\xa2 Marshall Horn\t \xe2\x80\xa2 Walter Maksymec\t\n\xe2\x80\xa2 David Kass \xe2\x80\xa2 Jon Hultquist \xe2\x80\xa2 Marvin Jackson \t\n\xe2\x80\xa2 David Rosenfeld \xe2\x80\xa2 Josiane Branch\t Philip Rix\n \xe2\x80\xa2 \t\n\n\n\n\n \x18\n\x0c Commission at a Glance\n\n\n CFTC Mission \t In February 2004, the Commission issued Keeping\n Pace with Change, a strategic plan for FY 2004-FY 2009.\n The mission of the CFTC is to protect market users and the\n This plan reflects the new direction of the agency, driven\n public from fraud, manipulation, and abusive practices\n by the CFMA, including three key objectives: 1) moderniz-\n related to the sale of commodity futures and options and\n ing rules affecting trading platforms and market inter-\n to foster open, competitive, and financially sound com-\n mediaries; 2) permitting futures based on single stocks\n modity futures and option markets.\n or narrow-based stock indices; and 3) providing legal\n certainty for over-the-counter derivatives.\n Keeping Pace with Change\n \t The plan also reflects the enormous and continuing\n During FY 2005, the Commission continued to focus its changes in the markets, including rapid growth in volume,\n actions on modernizing regulation and keeping pace with globalization, and the movement from open outcry on ex-\n rapidly changing markets. change trading floors to all-electronic trading from widely\n dispersed geo-graphic locations.\n INDICATORS OF INDUSTRY GROWTH COMPLEXITY\n 2500\n Growth in Volume of Futures & Option Contracts Traded & FTEs CFTC History and Transformation\nCO NT R A CT T R A DIN G VO LU ME (M IL L ION S )\n\n\n\n\n 2000\n Futures contracts for agricultural commodities have been\n In the past 12 years, trading volume has doubled while traded in the U.S. for more than 150 years and have been\n staffing levels have on average decreased in recent years.\n under Federal regulation since the 1920s. Congress cre-\n 1500\n ated the CFTC in 1974 as an independent agency with the\n mandate to regulate commodity futures and option mar-\n 1000\n kets in the U.S. At the time of the Commission\xe2\x80\x99s found-\n ing, the vast majority of futures trading took place in the\n 500\n agricultural sector. These contracts gave farmers, ranchers,\n distributors, and end-users of everything from corn to\n 0\n 94 95 96 97 98 99 00 01 02 03 04 05 06 cattle an efficient and effective set of tools to hedge against\n (est) (est)\n FTE (STAFF YEARS) price movements.\n\n Sources: National Finance Center for FTE data and, Futures Industry Association for Contract Volume data\n\n\n\n\n \x18\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n 1,200\n ACTIVELY TRADED FUTURES & OPTION CONTRACTS Organization and Locations\n The Commission consists of five Commissioners who are\n 1,000\n The number of actively traded contracts traded on U.S. exchanges\n appointed by the President to serve staggered five-year\n has almost quadrupled in the last decade, 1993\xe2\x80\x932004.\n terms. All Commissioners are confirmed by the Senate. No\n 800\nCO N TR A CTS\n\n\n\n\n more than three Commissioners at any one time may be\n\n 600\n from the same political party. With the advice and consent\n of the Senate, the President designates one of the Com-\n 400 missioners to serve as Chairman.\n \t The Commission\xe2\x80\x99s organization chart is aligned with\n 200\n its 2004\xe2\x80\x932009 Strategic Plan, and its functions are divided\n between program policy and internal management. The\n 0\n 93 94 95 96 97 98 99 00 01 02 03 04 05\n (est)\n 06\n (est)\n Office of the Chairman oversees the Commission\xe2\x80\x99s princi-\n FISCAL YEAR pal divisions and offices that administer the policies, regu-\n lations, and guidance regarding the Commodity Exchange\n Source: CFTC Permanent Records\n Act (CEA). The Office of the Executive Director, by delega-\n \t Over the years, however, the futures industry has tion of the Chairman, directs the internal management\n become increasingly complex. While farmers and ranch- of the Commission, ensuring that funds are responsibly\n ers continue to use the futures markets as actively as ever accounted for and that program performance is measured\n to effectively lock in prices for their crops and livestock and improved effectively.\n months before they come to market, highly complex \t Attorneys at the Commission work on complex and\n financial contracts based on interest rates, foreign cur- novel legal issues in litigation, regulation, and policy\n rencies, Treasury bonds, stock market indices, and other development. They participate in administrative and\n products have far outgrown agricultural contracts in trad- civil proceedings, assist U.S. Attorneys in criminal pro-\n ing volume. The latest statistics show that approximately ceedings involving futures law violations, and provide\n five percent of on-exchange derivatives activity occurs in legal advice to the Commission on policy and adjudica-\n the agricultural sector, while financial derivatives make tory matters.\n up approximately 86 percent, and other contracts, such as \t Auditors examine records and operations of futures\n those on metals and energy products, make up about nine exchanges and firms for compliance with the CFTC rules\n percent. In recognition of this changing environment, on financial requirements and trade practices.\n Congress and the President reauthorized the Commission \t Economists evaluate filings for new futures and op-\n through FY 2005 with the passage of the CFMA in De- tion contracts and amendments to existing contracts to\n cember 2000. The CFMA repealed the ban on single stock ensure they meet the Commission\xe2\x80\x99s regulatory standards.\n futures and instituted a regulatory framework for such Economists also analyze and advise the Commission on\n products to be administered jointly by the CFTC and the the economic effect of various Commission and industry\n Securities and Exchange Commission (SEC). It codified actions and events. In addition, economists monitor trad-\n the principal provisions of a new regulatory framework ing activity and price relationships in futures markets to\n adopted earlier by the Commission. It also brought legal detect and deter price manipulation and other potential\n certainty to bilateral and multilateral trading in over-the- market disruptions.\n counter markets and clarified the CFTC\xe2\x80\x99s jurisdiction over \t Futures Trading Specialists perform regulatory and\n the retail, off-exchange foreign currency market. It gave the compliance oversight of alleged fraud, market manipula-\n CFTC authority to regulate clearing organizations in a way tions, and trade practice violations.\n which enables the CFTC to more effectively foster open,\n competitive, and financially sound markets.\n\n\n\n \x18\n\x0c \t The CFTC is headquartered in Washington, D.C. \t Additional information about the Commission\xe2\x80\x99s history\n Regional offices are located in Chicago and New York; with and its divisions can be obtained from the Commission\xe2\x80\x99s\n smaller offices in Kansas City and Minneapolis. Office of External Affairs or through its Web site, www.cftc.gov.\n\n\n\n\n NUMBER OF CFTC REGISTERED DERIVATIVES CLEARING ORGANIZATIONS 2000\xe2\x80\x932005\n\n \t CLEARING ORGANIZATIONS\t DEC. 21, 2000\t SEP. 30, 2001\t SEP. 30, 2002\t SEP. 30, 2003\t SEP. 30, 2004\t JUL. 20, 2005\n\n \t AE Clearinghouse\t \t\t\t\t\t \xe2\x9c\x93\n \t BTEX\t \t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t\n \t CCorp\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t CBOT\t \t\t\t\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t CME\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t Energy Clear\t \t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t FCOM\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t GCC\t \t\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t Hedge Street\t \t\t\t\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t ICC\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t KCBT\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t LCH\t \t\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t MGE\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t NYCC\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t NYMEX\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t OCC\t\t\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n \t ONXCC\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\t \xe2\x9c\x93\n\n \t TOTAL\t 9\t 11\t 14\t 14\t 10\t 11\n\n\n\n\n10\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n COMMODITY FUTURES TRADING COMMISSION ORGANIZATION STRUCTURE\n\n\n\n\nCommissioner Commissioner CHAIRMAN Commissioner Commissioner\n\n\n\n\n Office of the Equal Employment\n Inspector General Opportunity\nOffice of General Counsel Office of Executive Director\n\n Office of the Office of\n Secretariat External Affairs\n\n\n\n Office of\n International Affairs\n\n\n\n\n Division of Clearing & Division of Division of Office of\n Intermediary Oversight Market Oversight Enforcement Chief Economist\n\n\n Eastern Region Eastern Region Eastern Region\n (New York) (New York) (New York)\n\n\n Central Region Central Region Central Region\n (Chicago) (Chicago) (Chicago)\n\n\n Kansas City Kansas City Kansas City\n Office Office Office\n\n\n\n Minneapolis\n Office\n\n\n\n\n 11\n\x0c Performance Highlights\n\n\n Commission Goals and Objectives Desired Outcomes of Goal One:\n The Commission ensures, through effective oversight, \xe2\x80\xa2\t Markets that accurately reflect the forces of supply and\n the economic vitality of the commodity futures and op- demand for the underlying commodity and are free of\n tion markets and their important function of providing a disruptive activity.\n mechanism for price discovery and a means of offsetting \xe2\x80\xa2\t Markets that are effectively and efficiently monitored\n price risk. to ensure early warning of potential problems or issues\n \t The mission of the CFTC is accomplished through that could adversely affect their economic vitality.\n pursuing three strategic goals, each focusing on a vital area\n Performance Summary Highlights for Goal One\n of regulatory responsibility:\n \xe2\x80\xa2\t Conducted daily surveillance of 669 active futures and\n 1. Ensure the economic vitality of commodity futures and option contracts. Particularly close monitoring was\n option markets. conducted on the energy futures markets, which expe-\n 2. Protect market users and the public. rienced periods of high prices and high price volatility\n 3. Ensure market integrity in order to foster open, com- due to, among other things, low stocks, tight production\n petitive, and financially sound markets. capacity, geopolitical tension in the Middle East, strong\n world economic demand, and natural disasters.\n Goal Overviews \xe2\x80\xa2\t Reviewed, under the Commission\xe2\x80\x99s certification pro-\n cedures for listing new products, 286 new contracts,\n Goal One: Ensure the Economic Vitality of\n including 91 security futures products (SFPs), and under\n Commodity Futures and Option Markets\n its certification procedures, 125 product rule changes.\n The focus of this goal is the marketplace. If the U.S. com-\n Staff reviewed the terms and conditions of contracts\n modity futures markets are protected from and are free of\n submitted under certification procedures to ensure that\n abusive practices and influences, they will better operate\n statutory and regulatory anti-manipulation require-\n to fulfill their vital role in the nation\xe2\x80\x99s market economy\n ments were met and to provide essential background\n and the global economy, accurately reflecting the forces of\n information in order to conduct market surveillance.\n supply and demand and serving market users by fulfilling\n \xe2\x80\xa2\t Filed ten enforcement actions against a total of 19 in-\n an economic need.\n dividual traders and companies alleging their participa-\n tion in false reporting and attempted manipulation in\n\n\n\n12\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n the energy markets. Four energy-related enforcement referred to state or Federal authorities for prosecution under\n actions were settled in FY 2005 therein imposing $45.6 criminal statutes.\n million in civil monetary penalties. Through FY 2005, \t Over the years, the Commission has taken action in\n the Commission\xe2\x80\x99s activity in this program area has a number of cases involving manipulation or attempted\n resulted in 32 enforcement actions, charging 49 defen- manipulation of commodity prices. The Sumitomo copper\n dants and 24 settlements that included a total of nearly case and the Hunt brothers silver case are well known ex-\n $300 million in civil monetary penalties. amples. A variety of administrative sanctions, such as bans\n\xe2\x80\xa2\t Provided economic and statistical analysis for enforce- on futures trading, civil monetary penalties, and restitution\n ment cases involving foreign currencies, energy prod- orders, is available to the Commission. The Commission\n ucts, and several recently developed derivatives prod- may also seek Federal court injunctions, asset freezes, and\n ucts, and an examination of the appropriate role for orders to disgorge ill-gotten gains.\n Federal oversight of event-type markets.\n Desired Outcomes of Goal Two:\n\xe2\x80\xa2\t Conducted 72 market move reviews. Such reviews met\n the objectives of: assuring that registrants and financial \xe2\x80\xa2\t Violations of Federal commodities laws are detected\n intermediaries are not impaired by market volatility or and prevented.\n disruptions to meet financial obligations; and detecting \xe2\x80\xa2\t Commodity professionals meet high standards.\n any failure by a DCO to meet its obligations or other \xe2\x80\xa2\t Customer complaints against persons or firms\n impairment of a registrant. registered under the Act are handled effectively and\n\xe2\x80\xa2\t Collected and analyzed approximately 44,000,000 line expeditiously.\n items of data regarding large trader activity and approxi-\n Performance Summary Highlights for Goal Two\n mately 16,000 reports identifying the large traders.\n \xe2\x80\xa2\t Typically, the Commission has more than 250 active\n\xe2\x80\xa2\t Reviewed three filings by entities that notified the Com-\n litigation and investigation matters open at any time.\n mission of their intention to operate as exempt markets\n During FY 2005, two-thirds of the Commission\xe2\x80\x99s en-\n under the CEA; and reviewed 10 rule amendment ap-\n forcement actions were filed in this performance area.\n proval requests for existing futures and option contracts.\n For example, the Commission filed an action closing\n In addition, staff: 1) reviewed the terms and conditions\n down Philadelphia Alternative Management, which had\n of contracts submitted for approval to ensure that the\n hidden trading losses in excess of $100 million. The\n contract terms and conditions were in compliance with\n CFTC also participated in the joint agency enforcement\n Commission regulations and policies and did not raise\n action as a result of the Bayou hedge fund collapse. The\n any public interest issues; 2) reviewed 262 exchange\n Enforcement program further continued to combat\n rule submissions that contained 1,237 separate new\n retail foreign currency (forex) \xe2\x80\x9cbucket shops\xe2\x80\x9d bringing\n rule amendments; 3) and reviewed six applications of\n its total, post-passage of the CFMA accomplishments in\n entities seeking to become a designated contract market.\n this area to 79 enforcement actions filed with approxi-\nGoal Two: Protect Market Users and the Public mate sanctions of $115 million in restitution and $170\nWhile our country reaps the rewards of an explosive growth million in civil monetary penalties.\nin the futures industry, the risk of fraud and manipula- \xe2\x80\xa2\t Filed nine enforcement actions related to commod-\ntion is always present. The trend toward electronic trading ity pools (including \xe2\x80\x9chedge funds\xe2\x80\x9d), and commodity\nplatforms and the expanding complexity of trading instru- pool operators (CPOs); filed eight enforcement actions\nments have challenged the Commission to reconfigure related to fraud involving commodity trading advisors\nits ability to identify, investigate, and take action against (CTAs), managed accounts, and trading systems; filed 11\nparties involved in violating applicable laws and regula- enforcement actions related to futures commission mer-\ntions. If evidence of criminal activity is found, matters are chants (FCMs), introducing brokers and their associated\n\n\n\n\n 13\n\x0c persons; and filed a total of 17 enforcement actions in- customers of CTAs and working with other agencies to\n volving foreign currency trading. The Commission also complete information-sharing agreements.\n filed two enforcement actions involving other illegal \xe2\x80\xa2\t Consumer education and outreach is an acknowledged\n off-exchange trading. goal of the Commission and part of its effort to protect\n\xe2\x80\xa2\t Obtained dismissal of one significant case before the public from possible wrongdoing on the part of\n the U.S. Supreme Court. The result in that case, R.J. firms and industry participants. The Commission\xe2\x80\x99s\n Fitzgerald & Co. v. CFTC, 125 S. Ct. 808 (Dec. 13, 2004) Web site is continuously updated with consumer\n (Mem.), preserved the ruling obtained by the Com- protection advisories and enforcement bulletins to\n mission in the U.S. Court of Appeals for the Eleventh alert and educate the public. The Web site is www.cftc.\n Circuit in an important anti-sales fraud prosecution. gov/cftc/cftccustomer.htm\n See e.g., CFTC v. Wall Street Underground, 128 Fed. Appx.\n 726 (10th Cir. 2005); CFTC v. Fremer, 128 Fed. Appx. Goal Three: Ensure Market Integrity in Order\n 104 (11th Cir. 2005); CFTC v. Gibralter Monetary Corp., to Foster Open, Competitive, and Financially\n No. 04-13828-I (11th Cir. May 9, 2005). Sound Markets\n\xe2\x80\xa2\t Took part in a variety of domestic and international ef- The Commission also focuses on issues of market integ-\n forts, including task forces and working groups designed rity, seeking to protect: 1) the economic integrity of the\n to keep market participants abreast of new develop- markets so that they may operate free from manipulation;\n ments in financial crimes and to coordinate governmen- 2) the financial integrity of the markets so that the insol-\n tal responses to common issues including the Corpo- vency of a single participant does not become a systemic\n rate Fraud Task Force, anti-money laundering efforts, problem affecting other market participants; and 3) the\n Telemarketing and Internet Fraud Working Group, the operational integrity of the markets so that transactions\n Consumer Protection Initiatives Committee, and the are executed fairly and proper disclosures to existing and\n Securities and Commodities Fraud Working Group. prospective customers are made.\n\xe2\x80\xa2\t Issued 37 opinions and other orders (including orders\n issued pursuant to delegated authority), 19 of which Desired Outcomes of Goal Three:\n were final dispositions of cases pending on the Com- \xe2\x80\xa2\t Clearing organizations and firms holding customer\n mission\xe2\x80\x99s docket. funds have sound financial practices.\n\n\xe2\x80\xa2\t Initiated a review of the National Futures Association\xe2\x80\x99s \xe2\x80\xa2\t Commodity futures and option markets are effectively\n (NFA) program for the oversight of CPOs and CTAs for self-regulated.\n compliance with Commission and NFA rules and regu- \xe2\x80\xa2\t Markets are free of trade practice abuses.\n lations. The review specifically focused on: registration \xe2\x80\xa2\t The regulatory environment is flexible and responsive\n of CPOs and CTAs; review of CPO and CTA disclosure to evolving market conditions.\n documents; and review of CPO annual financial state-\n ments, sales practices, and disciplinary process. Staff is Performance Summary Highlights for Goal Three\n currently finalizing its report, which is expected to be \xe2\x80\xa2\t Performed 11 audits (one DCO and 10 FCMs) to test\n presented to the Commission by the close of the first compliance with the Commission\xe2\x80\x99s financial require-\n quarter of FY 2006. ments for the safekeeping of customer funds. In addition,\n\xe2\x80\xa2\t Consulted with staff of the U.S. Treasury Department staff processed approximately 2,700 financial reports filed\n and various Federal financial regulators to develop anti- by registrants. As a result of on-going program efforts\n money laundering regulations required under the USA such as these, no regulated customer funds were lost in\n PATRIOT Act, including, providing guidance to certain FY 2005, meeting the program\xe2\x80\x99s objective of ensuring\n\n\n\n\n14\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n sound financial practices of clearing organizations and trading on non-U.S. markets) in FY 2005. The Commis-\n firms holding customer funds. sion issued an order to NFA authorizing NFA to confirm\n\xe2\x80\xa2\t Filed 12 actions in this performance area during FY 2005 exemptive relief to certain firms acting in the capacity\n including an action imposing restitution and a civil of an FCM that are subject to regulation by a foreign\n monetary penalty against an accounting firm for failure futures authority or that are members of a foreign SRO\n to detect fraud perpetrated by a CPO and several statu- in a particular jurisdiction. These firms are referred to in\n tory disqualification actions against registrants. In addi- the order as cross-border futures brokers (CBFBs). The\n tion, the Commission assisted in the successful criminal Commission previously had authorized NFA to confirm\n prosecution of a registered floor broker who illegally exemptive relief solely to firms subject to regulation by\n converted customer funds in violation of the CEA. a single foreign futures authority or that are members of\n\xe2\x80\xa2\t Completed two rule enforcement reviews of self-regula- a foreign SRO.\n tory organization (SRO) compliance programs. One \xe2\x80\xa2\t Continued work on the International Organization\n of the rule enforcement reviews completed during FY of Securities Commissions (IOSCO) Multilateral\n 2005 was a review of OneChicago\xe2\x80\x99s market surveillance, Memorandum of Understanding concerning Consulta-\n audit trail, trade practice surveillance, disciplinary, and tion, Cooperation and the Exchange of Information\n dispute resolution programs. The other rule enforce- (MMOU), which is an important and meaningful\n ment review completed during FY 2005 was a review of undertaking for regulators to expand cooperation by\n the Chicago Board of Trade\xe2\x80\x99s (CBOT) audit trail, trade establishing specific minimum standards for securities\n practice surveillance, disciplinary, and dispute resolu- and futures regulators in the area of information-shar-\n tion programs. Staff found that both OneChicago and ing. During FY 2005, Belgium, with which the Commis-\n CBOT maintain adequate programs with respect to the sion previously did not have an information-sharing\n areas reviewed. arrangement, became a signatory to the MMOU.\n\xe2\x80\xa2\t\x07Worked with NFA staff regarding retail foreign currency \xe2\x80\xa2\t Issued or reviewed requests for no-action relief in con-\n trading by FCMs and their affiliates. The NFA submit- nection with: 1) foreign exchange-traded foreign stock\n ted additional rules concerning retail foreign currency index futures contracts; 2) the offer and sale of foreign\n on August 22, 2005, which the Commission approved exchange-traded foreign stock index futures contracts\n on September 15, 2005. These rules are intended to in the U.S. requests by foreign boards of trade to\n address on-going problems in the off-exchange retail permit placement of electronic terminals in the U.S.\n forex market by allowing NFA to impose stricter net without requiring contract market designation for\n capital requirements on certain persons registered those boards of trade; 3) relief from the Commission\xe2\x80\x99s\n as FCMs engaging in retail forex transactions, and default contract reporting levels for futures and option\n to extend certain antifraud and customer protection contracts so that Eurex U.S.\xe2\x80\x99s new 3-Year U.S. Treasury\n rules to a greater number of off-exchange retail forex Notes (3-Year T-Notes) contract would be subject to a\n transactions, where NFA members act as intermediaries reporting level of 750 contracts, rather than the default\n but the counterparty is not an NFA member. Members level of 25 contracts; and 4) easing the burden of\n are also required to provide customers with informa- reporting on market participants, while preserving the\n tion about NFA\xe2\x80\x99s registrant database (BASIC) so that Commission\xe2\x80\x99s ability to effectively surveil trading in\n they may review the registration status and disciplinary the 3-Year T-Note contract.\n history of those who solicit them. \xe2\x80\xa2\t Provided technical assistance to foreign regulators from 14\n\xe2\x80\xa2\t Furthered the development of the offer and sale of foreign jurisdictions visiting the U.S. and to on-site visits\n foreign futures and option transactions (U.S. customers to foreign jurisdictions. Sharing information enhances the\n\n\n\n\n 15\n\x0c knowledge of other regulators and facilitates the develop- as a whole and for the statutorily authorized programs\n ment of high levels of global regulatory protections. that it administers.\n\xe2\x80\xa2\t The Commission had two advisory committee meet- \t For the end of FY 2005, this Performance and Accountabil-\n ings in FY 2005. On January 12, 2005, the Global Mar- ity Report shows the extent to which these actions translated\n kets Advisory Committee (GMAC) met, and on April into meaningful results and successful investment of public\n 28, 2005, the Technology Advisory Committee (TAC) funds. This report also includes a discussion of how the\n met. The GMAC was created by the Commission for Commission will refine our policy and management activi-\n the purpose of obtaining input on international mar- ties during FY 2006 to enable us to achieve greater success.\n ket issues that affect the integrity and competitiveness \t For example, as outlined in the Commission\xe2\x80\x99s FY\n of U.S. markets and firms engaged in global business. 2007 Budget Estimate to the Office of Management and\n The January 2005 GMAC meeting agenda included Budget (OMB), a fourth goal, \xe2\x80\x9cOrganizational and\n developments regarding the currency regime of China, Management Excellence\xe2\x80\x9d will be added to the CFTC\xe2\x80\x99s\n with presentations by officials of the U.S. Treasury Strategic Plan in FY 2006. It will clearly articulate goals\n Department and a representative of the Chicago Mer- for ensuring the Commission has the right people, in\n cantile Exchange; segregated/secured funds discussion the right place, at the right time, doing the right work.\n lead by the GMAC Subcommittee on Bankruptcy; and The plan sets up a framework for how information\n CFTC reauthorization, with updates by House and Sen- technology investments can improve the work processes\n ate staff. The TAC was created by the Commission in of the Commission and the services for its customers\n October 1999 to obtain input on emerging technolo- and partners. The plan also focuses the Commission\xe2\x80\x99s\n gies, the impact of technology on financial services and efforts to ensure that appropriate internal controls and\n commodity markets, and the appropriate legislative financial systems are in place to provide managers with\n or regulatory response to increasing use of technology accurate and timely financial and performance informa-\n in the markets. TAC members represent U.S. desig- tion for managing day-to-day operations.\n nated contract markets, SROs, financial intermediaries, \t The accurate and timely financial and performance\n market users, and traders. The April 2005 TAC meeting information will allow the Commission to integrate\n agenda included discussion of: 1) what constitutes performance expectations and funding requirements\n \xe2\x80\x9cprior art\xe2\x80\x9d in the patents process; 2) intellectual prop- effectively. Key target results for the proposed fourth goal\n erty in trading and settlements technology; 3) restric- include the following:\n tions on the usage of exchange settlement prices; and \xe2\x80\xa2 The Commission will improve internal controls and\n 4) market data piracy. data integrity, as reflected in three sequential clean\n audit opinions and the ability to use financial data on\nStrategic Planning and Reporting a day-to-day basis to help inform management and\nThe three goals of the Strategic Plan 2004\xe2\x80\x932009 establish programmatic decisions Commission-wide.\nappropriate priorities for the Commission in enabling a very \xe2\x80\xa2\t The Commission will improve the way it exchanges\nsmall organization to be an effective regulator in a rapidly data and interacts with customers by enhancing the use,\nchanging marketplace. The preceding overviews demonstrate management, and security of information technology\na coordinated set of objectives and actions flowing from the investments.\ngoals that shape our work into a cohesive whole. \xe2\x80\xa2 The Commission will identify and refine performance\n\t The Government Performance and Results Act measures for its programs, using data and analysis to\n(GPRA) requires the Commission to establish meaningful inform funding recommendations and focusing on the\nperformance standards for activities for the Commission results expected from the programs.\n\n\n\n\n16\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n\xe2\x80\xa2\t The Commission will employ top-notch professionals \t In December 2004, the Commission\xe2\x80\x99s Enforcement\n with strong academic records and excellent analytical program was evaluated by OMB and the Commission. The\n and problem-solving skills for its important work. program received top scores for purpose and design\n\t It will continue to implement Section 10702 of Public as well as management. Opportunities for improvement\nLaw 107-171, the Farm Security and Rural Investment Act existed in the areas of strategic planning and program\nof 2002, which removes the CFTC from coverage under results measurement.\ncertain provisions of Title V of the U.S. Code that govern \t Alignment of Financial Data and Performance\nbasic pay, benefits, and compensation in all pay systems Priorities. This Performance and Accountability Report\nand removes the CFTC from the Senior Executive Service. strengthens the alignment of financial data and perfor-\n\t This authority allows the Commission to compete mance priorities by again identifying appropriations and\nwith the six agencies subject to the Financial Institu- net costs for the goals of the CFTC Strategic Plan. Each\ntions Reform, Recovery, and Enforcement Act (FIRREA) Commission program is aligned with the same strategic\nof 1989 (12 U.S.C.1833b (a)) for the scarce talent\n 1 goal(s) as a year ago, enabling both our appropriations\nrequired to meet its mission. and our estimated net costs to clearly reflect the discrete\n priorities of the CFTC Strategic Plan.\nIntegration of Performance with Budget \t Integrating Performance Plan into Budget. Dur-\nand Finance ing the past year, the Commission incorporated its perfor-\n mance plan into its submission of the Commission\xe2\x80\x99s FY\nFocusing on results and accountability with performance\n 2007 Budget Estimate to OMB. For the FY 2007 budget cycle,\nmonitoring and financial reporting is sound practice. One\n the budget and annual performance plan were formulated\ncritical gauge of how well taxpayer dollars are being used\n concurrently and are increasingly integrated.\nis for an agency to link the performance of its programs to\nsubsequent budget determinations. \t Measurement Challenges. Commission\xe2\x80\x99s chal-\n lenges of linking performance results to the budget are\n\t The Commission constantly seeks to strengthen the\n complicated by the fact it is difficult to separate the\nlinkage between financial investments and program quality.\n Commission\xe2\x80\x99s impact from other events affecting futures\nWe do this not only through the development of program\n and option markets.\nmeasures, but also through various reporting mechanisms\nand effective budget management. This report is one\nexample of how we provide comprehensive, accurate in-\nformation to the American public in a timely manner. The\nfollowing are some other major activities related to budget\nand performance integration.\n\t Program Assessment Rating Tool (PART). The\nOMB has systematically assessed the quality of government\nprograms over the past three years. Through the PART, OMB\nworks with Federal agencies to judge the effectiveness of\nprograms with regard to their stated purpose, strategic plan-\nning, internal management, and results and accountability.\nAlthough primarily a diagnostic tool for programs, PART\nreviews provide critical information that can be used to\nestablish funding priorities for the subsequent budget cycle.\n\n\n\n\n1\n The FIRREA agencies are the Federal Deposit Insurance Corporation, the Comptroller\nof the Currency, the National Credit Union Administration Board, the Federal Housing\nFinance Board, the Farm Credit Administration, and the Office of Thrift Supervision.\n\n 17\n\x0c Financial Highlights\n\n\nFinancial Overview \t Improved management reporting, in turn, enables\n managers to be accountable and supports the concepts of\nWith U.S.-based jurisdiction for regulating the commod-\n the GPRA and the principles of the President\xe2\x80\x99s Manage-\nity futures and options trading industry, the CFTC covers\n ment Agenda. Both GPRA and the President\xe2\x80\x99s Manage-\na great deal of ground \xe2\x80\x93 both domestically and abroad.\n ment Agenda require the Commission to: 1) establish a\nUnlike many other financial regulators, the Commission\n strategic plan with programmatic goals and objectives;\nrelies solely on appropriations to cover salaries, expenses,\n 2) develop appropriate measurement indicators; and 3)\nand on-going operations. Any fees or other monies, total-\n measure performance in achieving those goals.\ning many millions of dollars, collected during the year are\ndeposited into U.S. Treasury accounts and flow into its \t During FY 2005, we improved our management\n\ngeneral fund. reporting to include monthly fiscal reporting for program\n managers. Improved reporting capabilities enable the Com-\n\t Operations in FY 2005 achieved marked improve-\n mission to integrate program results with fiscal costs that\nments in our financial management and reporting capa-\n assist in measuring program results against performance.\nbilities. Key enhancements were achieved with account\nrelationship analysis, timely reporting, and the intro- \t Our financial reporting capabilities have become rou-\n\nduction of new management reports. The Commission tine, enabling us to extend our financial analysis for both\n\nderived maximum benefits from these enhancements as program management and fiscal reporting in less time;\n\nthey helped streamline reconciliation processes. Moreover, thereby utilizing Commission resources more efficiently\n\nmore timely data led us to generate new executive man- and effectively.\n\nagement reports to monitor the progress of our programs.\n\t The Commission\xe2\x80\x99s ability to demonstrate that effective Lines of Business\ncontrols were in place over financial reporting ensured that The Commission managed an appropriation of approxi-\nan unqualified audit opinion was rendered. The Com- mately $93.5 million in FY 2005, of which 34 percent\nmission is confident that this will be sustained through went primarily toward market oversight activities. The\neffective stewardship. Management recognizes the need futures markets continue to grow rapidly, with the 2006\nfor accountability, and fully supports the culture change trading volume expected to be twice that of 2000, the year\nnecessary to implement more thorough assessments of risk the CFMA was passed.\nfactors that can have an impact on financial reporting.\n\n\n\n\n18\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\nIn 2000, there were 12 U.S. futures exchanges. Today, there institutions and another of which is an overseas institu-\nare 20 designated contract markets and another 13 trading tion. Clearinghouses, as central counterparties in the\nplatforms covered by the CFMA. The number of markets futures markets, are critical to the financial integrity of\nsubject to some level of Commission oversight has tripled. markets and intermediaries. Their proper supervision\nSimilarly, more than 600 new products have been brought requires the Commission to devote about 26 percent of its\nto market since 2000, versus fewer than 200 in the three resources executing oversight programs.\nyears preceding the CFMA\xe2\x80\x99s passage. \t In addition, the USA PATRIOT Act of 2001 assigned to\n\t These are very positive developments for market us- the Commission new responsibilities to work with other\ners, but they challenge the human capital resources of the Federal financial regulators to develop and then implement\nCommission. Moreover, as derivatives markets generally rules and practices geared toward effectively enforcing key\nbecome more global in nature, the Commission is increas- provisions, such as anti-money laundering protections. Ful-\ningly called upon to register overseas clearinghouses and filling this important new national security responsibility\nfutures firms, to approve complex cross-border trading and requires the Commission to devote resources to developing\nclearing linkages, and to then perform effective on-going new workforce competencies, practices, and procedures.\nsupervision. This requires the Commission to invest re- \t As noted earlier, unlike most other Federal financial\nsources in developing and maintaining effective relation- regulators who receive fees or other monies collected during\nships with foreign regulatory authorities. the year, the Commission relies on appropriations for 100\n\t Of the Commission\xe2\x80\x99s three strategic goals, the largest percent of its total operating budget. Therefore, management\nportion of the Commission\xe2\x80\x99s resources, 42 percent, was must be diligent in its allocation and administration of\nallocated towards Goal Two, with activities designed to resources. This is a key driver behind the adoption of a new\nprotect market users and the public. The Commission\xe2\x80\x99s fourth goal in FY 2006 addressing management excellence.\naggressive enforcement actions in the energy sector reflect\nan approach to market oversight that emphasizes tough Financial Position\nenforcement actions against wrongdoers without creating\n The Commission\xe2\x80\x99s financial statements, which begin on\noverly burdensome regulations.\n p. 64, received an unqualified audit opinion, issued by\n\t As energy price escalations impact the U.S. economy, the independent accounting firm of KPMG LLP. In FY\nthe Commission must do its part to ensure that market 2004, KPMG was only able to render an opinion on the\nusers and the public are protected. Moreover, retail foreign Commission\xe2\x80\x99s balance sheet because the other statements\ncurrency fraud has become an increasing problem particu- were dependent on prior year activity that had not been\nlarly with the growth of the Internet, which enables access audited. Preparing these statements is part of the Commis-\nto foreign scam artists and parties who would evade our sion\xe2\x80\x99s continuing efforts to achieve financial management\nsafeguards and shift funds to off-shore locations. excellence and to provide accurate and reliable informa-\n\t The Commission needs to calibrate its resources to tion that is useful for assessing performance and allocating\nactively pursue increasingly sophisticated and global fraud resources. Commission management is responsible for\nthat may have implications on national security as well as the integrity and objectivity of the financial information\ncustomer protection. No less important, but using a rela- presented in the financial statements.\ntively few number of people, activities to ensure market \t The financial statements presented in this report have\nintegrity in nonexempt markets require the Commission been prepared from the accounting records of the CFTC in\nto rely on self-regulation and to leverage technology. conformity with generally accepted accounting principles\n\t With the CFMA, the Commission was, for the first (GAAP) in the United States. GAAP for Federal entities\ntime, assigned separate supervisory responsibility over are the standards proscribed by the Federal Accounting\nfutures clearinghouses. Since 2000, seven clearinghouses Standards Advisory Board.\nhave been designated, three of which are completely new\n\n\n\n\n 19\n\x0c TOTAL ASSETS VS. TOTAL LIABILITIES collection of accounts receivable and analysis of outstand-\n 80\n ing balances. Accounts are re-estimated quarterly based\n 70 on account reviews and determination that changes to the\n $62.2\n net realizable value are needed.\n 60\n $54.2\n \t Several factors influenced the change in the Com-\nI N MI L L I ON S\n\n\n\n\n 50\n $44.4 mission\xe2\x80\x99s net position during FY 2005. This includes the\n $39.1\n 40 timing of the execution of prior year write-offs of old debt\n and the overall case management and analysis of debt by\n 30\n the Division of Enforcement.\n 20 \t Statement of Net Cost. The statement of net cost is\n 10\n designed to present the components of the net cost of the\n Commission. Net cost is the gross cost incurred less any\n $0\n FY 2005 FY 2004 revenues earned from Commission activities. The state-\n Total Assets Total Liabilities ment of net cost is categorized by the Commission\xe2\x80\x99s stra-\n tegic goals. The Commission experienced a four percent\n \t Balance Sheet. The balance sheet presents, as of a increase in total net costs during FY 2005.\n specific point in time, the economic value of assets and \t Goal 1, which tracks activities related to Market\n liabilities retained or managed by the Commission. The Oversight, experienced a nine percent increase in costs\n difference between assets and liabilities represents the net over FY 2004.\n position of the Commission. \t Goal 2 is representative of efforts to protect market\n \t The balance sheet displayed on p. 64 reflects total as- users and the public. Costs are spread across three out-\n sets of $54.2 million, a 13 percent decrease from FY 2004. comes. However, the majority of costs are related to detect-\n This decrease is attributable to custodial fines and interest ing and preventing violations of Federal commodity laws.\n receivables from the Civil Monetary Sanctions Program.\t These programs experienced a five percent cost increase in\n \t The majority of the liabilities, 73 percent, consist FY 2005.\n of custodial liabilities. Custodial receivables (non-entity \t Goal 3, which is representative of efforts to ensure\n assets) are those for which fines and penalties have been market integrity, spreads costs across the achievement of\n assessed and levied against businesses for violation of law. four outcomes. The distribution of costs for maintain-\n The CFTC litigates against defendants for alleged viola- ing self-regulated markets was that of costs incurred for\n tions of the CEA, as amended. Violators may be subject other outcomes. Overall, a one percent cost decrease was\n to a variety of sanctions including fines, injunctive orders, incurred in FY 2005.\n bars or suspensions, rescissions of illegal contracts, dis- \t Statement of Budgetary Resources. This statement\n gorgement, and restitution to customers. provides information about the provision of budgetary\n \t Historical experience has indicated that a high resources and their status as of the end of the report-\n percentage of custodial receivables prove uncollectible. ing period. Information in this statement is consistent\n The methodology used to estimate the allowance for with budget execution information and the information\n uncollectible amounts related to custodial accounts is reported in the Budget of the United States Government.\n that custodial receivables are considered 100 percent \t The statement displayed on p. 67 shows that the\n uncollectible unless otherwise noted in the judgment. An Commission had $101.8 million in budgetary resources,\n allowance for uncollectible accounts has been established $0.77 million of which remained unobligated, with $3\n and included in \xe2\x80\x9caccounts receivable\xe2\x80\x9d on the balance million not available at year-end. The $3 million is only\n sheet. The allowance is based on past experience in the available for making upward and downward adjustments\n\n\n\n\n 20\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\nto obligations. The Commission had $96 million in net broad-based changes on the horizon which will have a\noutlays for FY 2005. dramatic impact on our markets.\n\t Statement of Financing. This statement demon- \t Additionally, 20 percent of the Commission\xe2\x80\x99s workforce,\nstrates the relationship between an entity\xe2\x80\x99s proprietary and including 28 percent of its leadership positions, are eligible\nbudgetary accounting information. It links the net cost of to retire during FY 2006. The Commission must take im-\noperations (proprietary) with net obligations (budgetary) mediate steps to preserve its intellectual human capital and\nby identifying key differences between the two statements. expertise in a rapidly changing industry. The Commission\nThis statement is structured to identify total resources used must also strive to fully coordinate its strategic technology\nduring the fiscal year, and then makes adjustments based investments with human capital management.\non whether the resources were used to finance the net \t Rapid development in foreign economies will lead to\nobligations or net cost. competition for U.S. exchanges and further lead to cross-bor-\n\t This statement, displayed on p. 69, identifies $95.2 der trade in derivatives-related financial services between the\nmillion of resources used to finance activities, $4.9 million U.S. and other countries or multi-nation unions.\nof resources used to finance items not part of the net cost of \t Continued technological developments will continue\noperations, and $0.043 million of components of net cost to reduce floor-based trading and increase use of electronic\nof operations that will not require or generate resources. trading systems. The same technology advancement and in-\n\t Statement of Custodial Activity. This statement creased globalization will lead to an even greater number of\nprovides information about the sources and disposition of exchanges and blurring of jurisdictional lines distinguishing\nnon-exchange revenues. Non-exchange revenue at the CFTC foreign and domestic boards of trade.\nis primarily represented by fines, penalties, and forfeitures \t Increasingly diversified U.S. economic activity will result\nassessed and levied against businesses and individuals for in added use of exchange-traded and off-exchange derivatives\nviolations of the CEA, as amended. Other non-exchange with proliferation of contract-types, trading platforms, and\nrevenue includes registration, and filing and appeal fees, as clearing methods.\nwell as general receipts. The statement of custodial activity \t In recent years, the Commission has been able to\ndisplayed on p. 70 reflects total non-exchange revenue col- operate at a level needed to ensure that it has the tools and\nlected (cash collections) of $35 million and a transfer of the resources necessary to do the job expected of it by the Con-\ncollections to the U.S. Treasury in the same amount. gress, the Administration, and the American people.\n \t Many of the choices the Commission must make about\nLook Ahead \xe2\x80\x93 Possible Effects of Existing how it will use its limited resources are extremely difficult.\nEvents and Conditions Future trends in the market indicate rapid overall growth\nThe commodity futures and option markets are burgeoning in trading, computer-based trading, complex contracts, use\nand dynamic. These trillion dollar markets, of vital impor- of international transactions and exchanges, and exploding\ntance to the economy, are expanding steadily in both volume over-the-counter markets.\nand new users, and their complexity is rapidly evolving with \t The Commission primarily uses its resources to\nnew technologies, globalization, product innovation, and enforce the law aggressively and to pursue wrongdoing in\ngreater competition. The integrity of these markets is an es- the marketplace. To continue to be an effective regulator,\nsential defense against economic disruption of the market- the Commission will need to continue to rely on part-\nplace and, by extension, the American economy. nerships and leveraging its resources with those of other\n\t Almost everything in the futures industry has funda- agencies and industry groups. That will greatly assist the\nmentally changed over the last 20 years \xe2\x80\x93 from the products Commission to confront the jurisdictional challenges\nthat are trading to the platforms on which they are traded. created by innovation and the worldwide adoption of\nAs the Commission looks ahead, there are even more futures and option markets. This, coupled with a wide\n\n\n\n\n 21\n\x0carray of new surveillance issues, will consume significant network. To ensure success, the strategic technology\nCommission resources. investment plan will be coordinated with human capital\n\t From an operational perspective, the Commission management and planning.\nmust diligently deploy its resources to fulfill its regulatory \t Human Capital Transformation. A results-oriented\nmandate. To do so, the Commission seeks to transform itself enterprise requires that an organization clearly identify and\nalong the following dimensions. achieve valuable goals. Our goals continue to reflect the\n\t Institutional Transformation. Activities and pro- placement of strategic management of human capital at\ncesses centering on governance, risk management, and the top of the five key initiatives on the President\xe2\x80\x99s Manage-\ncompliance with laws and regulations are converging. To ment Agenda.\nbe effective, the Commission must excel in all three areas. \t Specifically, the Commission is focusing significant re-\nThese long-term management issues require continued sources on a consistent approach for the development and\nfocus and sustained management commitment to ensure implementation of a human capital management plan. The\nfuture success. plan integrates human capital management with competi-\n\t The Commission will concentrate on the costs of tive sourcing and restructuring requirements, and has the\nidentifying and controlling institutional risks, specifically, solid foundation of data from its first strategic workforce\nthe risk of impairment to the Commission\xe2\x80\x99s operations planning competency-based gap analysis and workforce\nmodel, reputation, and financial condition from failure to forecasting overview. Along with a talent management ac-\nfully comply with laws and regulations, internal controls, tion plan, the human capital management plan provides\nand taxpayer expectations. The value of adopting such an a narrative and literal template for creating a customized,\napproach far outweighs the costs of implementation. Senior prioritized action plan for the strategic management of hu-\nmanagement will build long-term value by making invest- man capital in each organizational unit of the CFTC.\nments to comply with relevant regulations, embed compli- \t As noted in the Technology Transformation section,\nance within the organization, manage the costs associated this planning will continue to be coordinated with other\nwith compliance, and identify and address regulatory strategic infrastructure investments.\nchange. Our progressive focus on compliance will ensure \t The Commission\xe2\x80\x99s continued commitment to strategic\nthat fewer resources are necessary for remediation activity. investments in both systems and human capital will result\n\t Technology Transformation. Technology improve- in a robust, cost-effective environment. This, in turn, pro-\nments will continue to empower the Commission in the vides taxpayers with an improved return on their invest-\nfuture by increasing the availability of our most critical ment in the Commission.\nresource \xe2\x80\x93 time. Through these improvements, executive\nmanagement may spend additional time on policy analy-\nsis and decision-making rather than on the processing\nand compiling of key data. This trend at the Commis-\nsion will continue to accelerate at an increasing rate as\nmany of our investments in systems and E-Government\ncontinue to mature.\n\t Major Commission investments currently include\nreplacing the existing financial accounting system and\nfull participation in the on-going E-Government initia-\ntive. This model will create public value by optimizing\ngovernment operations and providing effective oversight\nin the most efficient manner through a unified data\n\n\n\n\n22\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\n Management Challenges\n\n\nManagement Challenges and property management, and procurement. The agency\n will face many challenges in making the migration to ESC\nThe major management challenges facing the Commission\n and successfully implementing an integrated system to\ninclude:\n better meet and serve our financial management needs.\n\t Financial Management. The Commission has faced\n \t Information Technology. The challenges that face the\nmany challenges in the past few years related to finan-\n Commission relating to information technology include\ncial management, including regulatory compliance with\n investment management, security, critical infrastructure\nAccountability of Tax Dollars Act, requiring the agency\n protection, and contingency planning. The Commission\nto develop financial statements and undergo an annual\n has made significant strides relating to its information\nindependent audit.\n technology challenges. The Commission accredited its\n\t In addition, regulatory reporting requirements\n mission-critical systems in July 2005 and is on track to ac-\ncontinue to rapidly change through OMB\xe2\x80\x99s revisions to\n credit its general support systems by December 31, 2005.\nfinancial reporting requirements (OMB Circular A-136,\n \t In addition, the Commission completed a manage-\nFinancial Reporting Requirements) and management\xe2\x80\x99s\n ment study on mission-essential infrastructure protection\nresponsibility for internal control (OMB Circular A-123,\n that will test critical infrastructure interdependencies\nManagement\xe2\x80\x99s Responsibility for Internal Control). The need\n within the Commission. The Commission has also initi-\nto comply with these requirements has been extremely\n ated several modernization efforts, including eLaw, to\ndifficult and labor intensive to maintain in its existing\n increase enforcement case management efficiency.\nfinancial management system environment.\n \t Program Performance and Accountability. The Com-\n\t In September 2005, the CFTC entered into an agree-\n mission has several challenges involving data reliability,\nment with the Department of Transportation Enterprise\n program monitoring, and program accountability and com-\nServices Center (ESC), an OMB-approved Center of Excel-\n pliance. As indicated in this report, the Commission will\nlence, to use their systems and services. During the next\n address this issue in the newly proposed fourth goal of the\nyear, the CFTC will migrate to ESC\xe2\x80\x99s integrated financial\n Strategic Plan, and has made accountability a key priority.\nmanagement system, Delphi. ESC and its Delphi sys-\ntem will provide the agency with a system that supports \t Human Capital. To address the challenge of manag-\n\neTravel, financial transaction processing, and financial ing and maintaining an appropriately skilled workforce,\n\nreporting \xe2\x80\x93 including monthly financial statements, asset the Commission has undertaken a comprehensive human\n\n\n\n\n 23\n\x0c capital management initiative. This initiative includes ef- \t Integration of Commission strategic, budget, and per-\n fective planning for future needs, recruitment, hiring, and formance data permits management to make individual\n the development of the current workforce. It has identified assurance statements with confidence. Moreover, data-\n and addressed training gaps and mission-critical leadership driven reporting provides the foundation for Commission\n positions. The Commission is aware that it still has much to staff to monitor and improve its control environment.\n do and is diligently working to achieve its goals..\n Federal Managers\xe2\x80\x99 Financial Integrity Act\n Management Overview During FY 2005, in accordance with the Federal Managers\xe2\x80\x99\n The CFTC is committed to management excellence and Financial Integrity Act (FMFIA), and using the guidelines\n recognizes the importance of strong financial systems and of the OMB, the Commission reviewed key components\n internal controls to ensure accountability, integrity, and of its management and internal control system.\n reliability. This operating philosophy has permitted the \t The objectives of our internal controls are to provide\n Commission to make significant progress in preparing for reasonable assurance that:\n an expanded audit of its internal controls over financial re- \xe2\x80\xa2\t Obligations and costs are in compliance with appli-\n porting next year, as called for under OMB Circular A-123, cable laws;\n Management\xe2\x80\x99s Responsibility for Internal Control. \xe2\x80\xa2\t Our assets are safeguarded against waste, loss, unau-\n \t The Commission relies on its performance manage- thorized use or misappropriation;\n ment and internal control framework depicted below to: \xe2\x80\xa2\t The revenues and expenditures applicable to Com-\n \xe2\x80\xa2\t Ensure that its divisions and mission support offices mission operations are properly recorded and ac-\n achieve their intended results efficiently and effectively. counted for to permit the preparation of accounts\n \xe2\x80\xa2\t Ensure the maintenance and use of reliable, complete, and reliable financial and statistical reports and to\n and timely data for decision-making at all levels. maintain accountability over the assets; and\n \t The Commission strongly believes that the rapid \xe2\x80\xa2\t All programs are efficiently and effectively carried out in\n implementation of audit recommendations is essential accordance with applicable laws and management policy.\n to improving its operations. \t The efficiency of the Commission\xe2\x80\x99s operations is\n continually evaluated using information obtained from re-\n Internal Control Process views conducted by the Government Accountability Office\n (GAO) and the Office of Inspector General, specifically\n IN\n\n\n\n\n requested studies, or observations of daily operations.\n FO\n RM\n\n\n\n\n \t These reviews ensure that the Commission\xe2\x80\x99s systems\n AT\n IO\n\n\n\n\n MONITORING\n and controls comply with the standards established by\n N\n\n\n\n\n FMFIA. Moreover, managers throughout the Commission\n &\n CO\n\n\n\n\n are responsible for ensuring that effective controls are\n MM\n\n\n\n\n CONTROL ACTIVITIES\n implemented in their areas of responsibility. Individual\n N\n\n\n\n\n UN\n IO\n\n\n\n\n IC\n AT\n\n\n\n\n assurance statements from division and office heads\n AT\n IC\n\n\n\n\n IO\n\n\n\n\n serve as a primary basis for the Chairman\xe2\x80\x99s assurance that\n UN\n\n\n\n\n N\n MM\n\n\n\n\n RISK ASSESSMENT management controls are adequate. The assurance state-\n CO\n\n\n\n\n ments are based upon each office\xe2\x80\x99s evaluation of progress\n &\n\n\n\n\n made in correcting any previously reported problems, as\n N\n IO\n AT\n\n\n\n\n CONTROL ENVIRONMENT\n well as new problems identified by the Office of Inspector\n RM\nFO\nIN\n\n\n\n\n 24\n\x0c M A N A G E M E N T \xe2\x80\x99 S D I S C U S S I O N A N D A N A LY S I S\n\n\n\n\nGeneral, the GAO, and other management reports, and FMFIA Section 4, Financial Management\nthe management environment within each office. Systems\n\t Commission organizations that have material weak- Substantial corrective action has been taken to address\nnesses are required to submit plans for correcting those the material nonconformance reported in the FY 2004\nweaknesses. The plans, combined with the individual as- Annual Assurance Statement on the agency\xe2\x80\x99s information\nsurance statements, provide the framework for continually asset management program. Therefore, this program is no\nmonitoring and improving the Commission\xe2\x80\x99s manage- longer considered to be in material nonconformance. This\nment and internal controls. matter was originally reported in the FY 2002 FMFIA Re-\n\t The items presented below are illustrative of the port, and updated in the FY 2003 and 2004 Reports. The\nreview work we performed during FY 2005: Commission did not declare any new material systems\n\xe2\x80\xa2\t Implemented key areas of the President\xe2\x80\x99s Manage- nonconformance under FMFIA during FY 2005.\n ment Agenda initiatives for strategic management of\n human capital;\n\xe2\x80\xa2\t Assessed gaps in compliance with the pay and ben-\n efits provisions called for in Section 10702 of Public\n Law 107-171, Farm Security and Rural Investment Act\n of 2002;\n\xe2\x80\xa2\t Improved financial performance, expanding electronic\n government, and integrating budget and performance;\n\xe2\x80\xa2\t Complied with the Federal Information Security Re-\n form Act; and\n\xe2\x80\xa2\t Corrected material weaknesses and reportable condi-\n tions identified in the FY 2004 independent auditors\xe2\x80\x99\n report of the agency\xe2\x80\x99s financial statements and related\n internal controls.\n\n\nFMFIA Section 2, Management Control.\nThe Commission has not declared material weaknesses\nunder FMFIA for FY 2005. However, substantial corrective\naction has been taken for the three material weaknesses\nreported in the FY 2004 Financial Statement Audit, and\nthey are no longer considered material:\n\xe2\x80\xa2\t Improvements needed in recording accruals and prepar-\n ing financial statements;\n\xe2\x80\xa2\t Improvements needed in financial accounting process\n over journal vouchers; and\n\xe2\x80\xa2\t Financial management systems need improvement.\n\n\n\n\n 25\n\x0c PERFORMANCE SECTION\n\n\n\n\n \xe2\x80\x9c\n [The CFTC Enforcement Program] is well designed to meet\n objectives and to maximize the use of its resources.\xc2\xa0\n Through cooperative enforcement with other government and private\n \xe2\x80\x9c\n organizations, the program enhances the impact of its efforts.\n \t\n \xe2\x80\x94Office of Management and Budget\n\n\n\n\n26\n\x0c P\n PEER\n R FF O\n ORRM\n MAAN\n NCCE\n E D\n S\n D EE C\n TTA\n AT III LLOS\n SN\n\n\n\n\n Mission Statement and Agency Goals\n\n\n THE U.S. COMMODITY FUTURES TRADING COMMISSION\xe2\x80\x99S\n MISSION STATEMENT, STRATEGIC GOALS AND OUTCOME OBJECTIVES\n\n\nMISSION STATEMENT\nThe mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale\nof commodity futures and options, and to foster open, competitive, and financially sound commodity futures and option markets.\n\n\n\n\nGOAL ONE: Ensure the economic vitality of the commodity futures and option markets.\n\nOutcomes\n1. Markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity.\n2. M\n \x07 arkets that are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely\n affect their economic vitality.\n\n\nGOAL TWO: Protect market users and the public.\n\nOutcomes\n1. Violations of Federal commodities laws are detected and prevented.\n2. Commodities professionals meet high standards.\n3. C\n \x07 ustomer complaints against persons or firms falling within the jurisdiction of the Commodity Exchange Act are handled effectively\n and expeditiously.\n\n\nGOAL THREE: Ensure market integrity in order to foster open, competitive, and financially sound markets.\n\nOutcomes\n1. Clearing organizations and firms holding customer funds have sound financial practices.\n2. Commodity futures and option markets are effectively self-regulated.\n3. Markets are free of trade practice abuses.\n4. Regulatory environment is responsive to evolving market conditions.\n\n\n\n\n 27\n\x0cIntroduction to the Performance Section\n\n\nStrategic Planning Framework \t In addition, the Commission will continue to scru-\n tinize the current performance metrics to ensure that the\nThe mission of the CFTC is accomplished through three\n metrics adequately challenge the programs to reach the\nstrategic goals, each focusing on a vital area of regula-\n desired results, ensure accountability, and provide infor-\ntory responsibility.\n mation that can be used to make financial decisions and\n\t Accomplishing the three long-term strategic goals is\n develop future budgets.\nevidenced by the progress of nine key outcome objectives.\nIn most cases, due to the broad economic functions that\nthe Commission oversees, it is not a simple task to iden-\n How the Commission Reports Performance\ntify specific detailed objectives that will be accomplished\n Results\neach year; however, it is possible to identify conditions Performance results are discussed throughout this report.\nthat, if present, are indicators that the Commission\xe2\x80\x99s Commission-wide strategic performance measures are dis-\nactivities are contributing successfully to the health of the cussed at a summary level in the executive summary. They\nindustry it regulates. are further amplified in the discussion of each strategic\n\t Commission programs strive to achieve the three goal in the Performance Detail section.\nperformance goals supporting nine outcome objectives \t Although OMB Circular A-11, Preparation and Submis-\nthrough various means and strategies described in the sion of Strategic Plans, Annual Performance Plans, and Annual\nPerformance Detail section. Annually, the performance Program Performance Reports, suggests reporting more\nmetrics are analyzed to determine the measure of suc- than three prior fiscal years of performance metrics, new\ncess the program\xe2\x80\x99s activities have in accomplishing the measurement data was developed in 2004 rendering 2002\nCommission\xe2\x80\x99s overall strategic mission. performance data obsolete and is, therefore, not included\n\t To ensure this level of success, the Commission is in this report. In 2004, the Commission modified the\ncommitted to a continual in-depth assessment of the 2004 strategic measures and targets to better align our\nagency and its strategic planning structure. In early No- measures to our objectives and to adopt replacement mea-\nvember 2005, the Commission conducted strategic plan- sures where data is not available for prior measures. In the\nning sessions to reassess the agency\xe2\x80\x99s strategic planning Performance Detail section, the 2005 replacement targets,\nstructure and probe basic fundamental questions, such as: modified in 2004, are identified as \xe2\x80\x9cN/A,\xe2\x80\x9d not available.\nWhere are we going? How will we get there? How has our \t Each strategic goal, in the Performance Detail section,\nenvironment changed to adapt to external changes? reports the percentage of performance measures met. The\n\n\n\n28\n\x0cperformance statistics in this document represent the\nbest assessment of Commission performance obtainable\nthrough the use of existing performance measures. Per-\nformance data that is still pending is identified as \xe2\x80\x9cTBD,\xe2\x80\x9d\nto be determined. Once the performance metrics are final-\nized, the \xe2\x80\x9cTBD\xe2\x80\x9d data will be replaced with the final metrics\nin the FY 2006 Performance and Accountability Report.\n\t The Performance Details section also sets the national\ncontext for each of our goals and describes the accom-\nplishments of our programs over the past year. This discus-\nsion is followed by the results on the strategic measures.\nThe Commission believes, however, that significant revi-\nsions to these measures are necessary to more meaning-\nfully assess its performance.\n\n\n\n\n 29\n\x0c Program Assessment Rating Tool\n\n\nThe President\xe2\x80\x99s Office of Management and Budget has sys- Assessment Findings:\t\ntematically assessed the quality of government programs The OMB found the CFTC Enforcement program is:\nover the past three years. Through the Program Assessment \t \xe2\x80\x9cWell designed to meet objectives and to maximize the use\nRating Tool (PART), the OMB works with Federal agen- of its resources. Through cooperative enforcement with other\ncies to judge the effectiveness of programs with regard to government and private organizations, the program enhances\ntheir stated purpose, strategic planning, internal manage- the impact of its efforts.\nment, and results and accountability. Although primarily a \t Demonstrates through its performance measures that it\ndiagnostic tool for programs, PART reviews provide critical brings substantive cases in a timely manner. CFTC successfully\ninformation that can be used to establish funding priori- resolved 99 percent of the cases it closed in the past year.\nties for the subsequent budget cycle.\n \t Lacks performance measures that illustrate whether the\n\t OMB did not undertake a PART review of any CFTC program meets its overall objective. Like other enforcement\nprogram in FY 2005, and the findings of OMB\xe2\x80\x99s PART programs, it faces challenges in establishing overall perfor-\nreview of the Enforcement program in FY 2004 were mance measures to indicate the percentage of violative activity\nreleased in December 2004, after the FY 2004 Performance deterred, since no way has been devised to measure the total\nand Results Report was published; therefore, we are includ- amount of fraud that exits. Thus, while current measures show\ning these results here for the first time: that markets have been growing, which could demonstrate that\n they are \xe2\x80\x98open, competitive, and financially sound,\xe2\x80\x99 it cannot be\nPROGRAM ASSESSED: Enforcement\n determined how free they are from \xe2\x80\x98fraud, manipulation, and\nRATINGS: Results not Demonstrated\n abusive practice\xe2\x80\x99.\xe2\x80\x9d\n \t\t\t SCORING\t In response to these findings, OMB has requested that\n Purpose\t 100 the Commission:\n Planning\t 71 \xe2\x80\x9cWork with other similar programs in the government to\n Management\t 100 develop measures that better reflect program effectiveness. The\n Results/Accountability \t 67 program will consider developing a novel way of measuring\n results, for instance, surveying industry experts.\n\t By way of comparison, the Commission understands \t Develop a measure that quantifies increased efficiencies.\nthat the category scoring for the Division of Enforcement \t Develop measures and targets for the collections of fines.\xe2\x80\x9d\nwas the highest of the three Enforcement programs that \t The Commission is preparing its response to the OMB\nunderwent the 2004 PART. recommendations for submission in December 2005.\n\n\n30\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\n Goal One\n\n\nEnsure the economic vitality of the\ncommodity futures and option markets\n\nPublic Benefit:\nProperly functioning futures markets collect informa-\ntion from around the world, digest it, and respond with\njudgments about the likely price of commodities at some\n FY 2005 GOAL ONE RESOURCES\nfuture time. For example, such judgments could, in turn,\ntrigger decisions to sell a commodity at a certain price; Plan vs. Appropriation\n 35 $31.5\nraise capital through an equity rather than a debt offer- $29.2 (166 FTEs)\n (169 FTEs)\ning; increase inventories of various commodities (i.e., 30\n\ncopper, soybeans, etc.); use corn syrup rather than sugar\n 25\n IN MILLIONS\n\n\n\n\nor sweetener; or to hold receivables in Deutsche marks\nrather than British pounds. Thus, futures markets help 20\n\nus plan and make decisions, so that market users avoid\n 15\nuncontrolled risk.\n 10\nResource Investment:\n 5\nIn FY 2005, the Commission requested $29.2 million and\n169 full time equivalents (FTEs) and was appropriated $0\n FY 2005 FY 2005\n$31.5 million and 166 FTEs for Goal One. BUDGET/PERFORMANCE PLAN A P P R O P R I AT I O N\n\n\n\n\n 31\n\x0cGoal One\nEnsure the economic vitality of the commodity futures and option markets.\n\n\n GOAL ONE: HISTORY OF PERFORMANCE RESULTS 1\n\n\n OUTCOME OBJECTIVE 1.1\n Futures and option markets that accurately reflect the forces of supply and demand for the underlying commodity are free of\n disruptive activity.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Percentage growth in market volume 20% 24% 26%\n\n Percentage of novel or innovative proposals or requests for CFTC 100% 100% 100%\n action addressed within six months to accommodate new approaches\n to, or the expansion in, derivatives trading, enhance the price discovery\n process or, increase available risk management tools\n\n Percentage increase in number of products traded 25% 12% 43%\n\n Percentage of new exchange or clearinghouse organization 100% 100% 100%\n applications completed within expedited review period\n\n Percentage of new contract certification reviews completed 21% 53% 54%\n within three months to identify and correct deficiencies in\n contract terms that make contracts susceptible to manipulation\n\n\n Percentage of rule change certification reviews completed within 70% 70% 84%\n three months to identify and correct deficiencies in exchange rules\n that make contracts susceptible to manipulation or trading abuses\n or result in violations of the law\n\n\n\n\t OUTCOME OBJECTIVE 1.2\n\t Markets that are effectively and efficiently monitored to ensure early warning of potential problems or issues that could affect their\n\t economic vitality.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Percentage of DCO applications demonstrating compliance 100% 100% 100%\n with core principles\n\n Ratio of contracts surveilled per economist 8 10 11\n\n Percentage of contract expirations without manipulation 99.9% 99.9% 99.9%\n\n\n\n1\n The performance metrics included in this document represent the best current estimate of\nCommission performance. Additional work is needed to devise better measures and valid current\nperformance measures in order to effectively illustrate program success in meeting overall objectives.\n\n\n\n\n32\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nReturn on Investment\nThe Commission\xe2\x80\x99s 2005 Annual Performance Plan supports two outcome objectives for Goal One.\n\n\n OBJECTIVE 1.1: NO PRICE MANIPULATION\n\n\nFY 2005 Appropriation: $25.3 Million\nFY 2005 Results: Performance results are positive and generally indicate the achievement of results. However, performance\nplan targets were not developed at the time of the FY 2005 Budget submission in February 2004, as a result of the contemporaneous \t\nadoption of the 5-year strategic plan in February 2004.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 6 0 0 0 6 0%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n1.1.1 Percentage growth in market volume N/A 26%\n\n1.1.2 Percentage of novel or innovative market proposals or requests for CFTC N/A 100%\n action addressed within six months to accommodate new approaches to,\n or the expansion in,derivatives trading, enhance the price discovery process\n or, increase available risk management tools\n\n\n1.1.3 Percentage increase in number of products traded N/A 43%\n\n1.1.4 Percentage of new exchange and clearinghouse organization N/A 100%\n applications completed within the expedited review period\t\n\n1.1.5 Percentage of new contract certification reviews completed within N/A 54%\n three months to identify and correct deficiencies in contract terms\n that make contracts susceptible to manipulation\t\n\n1.1.6 Percentage of rule change certification reviews completed within N/A 84%\n three months to identify and correct deficiencies in exchange rules\n that make contracts susceptible to manipulation or trading abuses\n or violations of law\n\n\n\n\n 33\n\x0c OBJECTIVE 1.2: EFFECTIVE AND EFFICIENT MARKET SURVEILLANCE\n\n FY 2005 APPROPRIATION: $6.2 Million\n FY 2005 RESULTS: 67 Percent of Performance Results are on target. Performance plan target for Outcome Measure 1.2.2\n was not developed at the time of the FY 2005 Budget submission in February 2004, as a result of the contemporaneous adoption\n of the 5-year strategic plan in February 2004.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 3 0 2 0 1 67%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n 1.2.1 Percentage of DCO applications demonstrating compliance with 100% 100%\n core principles\n\n 1.2.2 Ratio of contracts surveilled per economist N/A 11\n\n\n 1.2.3 Percentage of contract expirations without manipulation 99.9% 99.9%\n\n\n\n\nProgram Contributions to Strategic futures markets, which experienced periods of high prices\nGoal One: and high price volatility due to, among other things, low\n stocks, tight production capacity, geopolitical tension in\nIn 2005, the explosive growth in the futures and option\n the Middle East, strong world economic demand and\nmarkets continued; total volume in FY 2005 was up 26\n natural disasters. In addition, very close monitoring was\npercent from FY 2004 with over 2 billion contracts traded.\n conducted on the cattle futures markets as prices were\n(See measure 1.1.1)\n volatile due to the countervailing pressures of strong\n\t Market Surveillance. Monitoring market activity rep-\n demand and the effects of discovery of Bovine Spongiform\nresents one of the ways the Commission seeks to protect\n Encephalopathy (BSE) or \xe2\x80\x9cMad Cow\xe2\x80\x9d disease in a single\nthe economic functions of the markets. Market surveil-\n cow in the state of Washington. The surveillance included\nlance is conducted to detect attempted manipulation and\n collecting and analyzing approximately 44 million line\nother abusive practices that could undermine the capacity\n items of data regarding large trader activity and approxi-\nof these markets to perform their economic function. The\n mately 16,000 reports identifying the large traders. In the\nCommission takes preventive measures to ensure that\n course of the year, economists prepared approximately\nmarket prices accurately reflect fundamental supply and\n 1,500 weekly surveillance reports and compiled 23 special\ndemand conditions, including the routine daily monitor-\n market reports. (See measure 1.2.2)\ning of large trader positions, futures and cash prices, price\n \t Commission staff reviewed six applications of entities\nrelationships, and supply and demand factors in order to\n seeking to become a designated contract market. Staff also\ndetect threats of price manipulation.\n reviewed three filings by entities that notified the Com-\n\t In FY 2005, the Commission conducted daily surveil-\n mission of their intention to operate as exempt markets\nlance of 669 active futures and option contracts. Par-\n under the CEA. (See measure 1.1.4)\nticularly close monitoring was conducted on the energy\n\n\n\n34\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\n\t Commission staff reviewed 10 rule amendment ap- annually because market volatility cannot be predicted.\nproval requests for existing futures and option contracts Nevertheless, such events are expected to occur. Commis-\nin FY 2005. Staff reviewed the terms and conditions of sion staff conducted 72 market move reviews in FY 2005.\ncontracts submitted for approval to ensure that contract Such reviews met the objectives of assuring that registrants\nterms and conditions were in compliance with Commis- and financial intermediaries are not impaired by market\nsion regulations and policies and did not raise any public volatility or disruptions to meet financial obligations; and\ninterest issues. Under the Commission\xe2\x80\x99s certification detecting any failure by a DCO to meet its obligations or\nprocedures for listing new products, 286 new contracts other impairment of a registrant. (See measure 1.2.3)\nwere filed, including 91 SFPs, and under its certification \t Economic and Statistical Analyses. Commission\nprocedures, 125 product rule changes were filed. Staff staff performed economic and empirical analyses to evalu-\nreviewed the terms and conditions of contracts submitted ate the performance of futures markets and to evaluate the\nunder certification procedures to ensure that statutory and impact of changes in trading rules and in contract speci-\nregulatory anti-manipulation requirements were met and fications on the performance of the futures markets. For\nto provide essential background information in order to example, staff empirically examined the effects of partici-\nconduct market surveillance. (See measures 1.1.1, 1.1.2, pation by managed money traders in certain U.S. futures\n1.1.3, 1.1.5, 1.2.1) markets. Economists in the Office of the Chief Economist\n\t The Commission\xe2\x80\x99s review of exchange rules is a key also provided economic and statistical consulting services\naspect of the statutory framework for self-regulation under to Commission staff and offered economic and financial\nCommission oversight. The staff reviewed exchange rule research seminars and short courses in futures, options,\nsubmissions with a view toward maintaining the fair- and financial economics.\nness and financial integrity of the markets, protecting \t Staff also provided economic and statistical analysis\ncustomers, accommodating and fostering innovation, and on a number of cases involving foreign currencies and\nincreasing efficiency in self-regulation consistent with the energy products, conducted an examination of the ap-\nCommission\xe2\x80\x99s statutory mandates. During FY 2005, staff propriate role for Federal oversight of event-type markets,\nreviewed 262 exchange rule submissions containing 1,237 and of several recently developed derivatives products. In\nseparate new rule amendments. Commission staff are addition, Commission staff presented research findings\nalso responsible for providing exemptive, interpretive, or relating to price discovery, hedging, and market micro-\nother relief to various markets and market participants to structure and development issues at industry or academic\nfacilitate the continued development of an effective, flex- and industry conferences, as well as through publications\nible regulatory environment responsive to evolving market available to the public.\nconditions. (See measure 1.1.6) \t Manipulation, Attempted Manipulation and False\n\t Derivatives Clearing Organization Oversight. The Reporting. Manipulation investigations and litigations\nCommission monitors the potential for, and instances tend to be among the most complex and resource-intensive\nof, market volatility, market disruptions or emergencies matters handled by Enforcement staff. During FY 2005, the\nwhich have the potential to impact: 1) the proper capi- Commission\xe2\x80\x99s Enforcement efforts in this program area\ntalization of firms; 2) the proper segregation of customer are reflected in its handling of alleged misconduct in the\nfunds; 3) the ability of financial intermediaries to make agriculture and energy markets. (See Appendices)\npayments to a DCO in a timely manner; and 4) issues \t Office of the General Counsel. In FY 2005, the\nwith respect to systemic risk. Commission staff monitor Commission continued to review for legal sufficiency and\ncases of volatile markets in order to advise the Commis- for conformance with the CEA and Commission policy\nsion of any potential financial impairment of a registrant and precedent contract market designation applications\nor potential systemic risk. It is not possible to estimate and applications for registration as DCOs. In addition,\nin advance the number of such events that will occur Commission staff continued to advise the Commission\n\n\n\n\n 35\n\x0cconcerning implementation of the rules and regulations\nissued pursuant to the CFMA. Staff have been instrumen-\ntal in advising the Commission as it comprehensively\nmodernizes its rules, and particularly the rules governing\nmarket intermediaries such as FCMs, CPOs, CTAs and\nother registrants in light of the study completed by the\nCommission and submitted to Congress under Section\n125 of the CFMA.\n\t Staff also reviewed in excess of 100 proposed enforce-\nment actions, including those alleging manipulation and\nother abusive trading practices, during FY 2005, to assure\ntheir legal sufficiency and conformance with Commission\npolicy and precedent.\n\t Integrated Surveillance System. In FY 2005, the\nCommission\xe2\x80\x99s primary mission critical application to\nsupport futures and option data market surveillance, the\nIntegrated Surveillance System (ISS), was significantly\nenhanced to address changes and growth in the futures\nindustry. This year, those changes included the automa-\ntion of the collection and review of data from exempt\ncommercial markets. In addition, a number of notewor-\nthy enhancements were established in the ISS that will\nimprove the efficiency of market monitoring and analysis.\nThese modifications include integrated document storage\ncapabilities in support of large trader reporting, consoli-\ndated market queries that allow related markets to be\ngrouped together for better market analysis, full search\ncapabilities throughout the application, and comprehen-\nsive graphing capability.\n\n\n\n\n36\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\n Goal Two\n\n\nProtect market users and the public\n\nPublic Benefit:\n FY 2005 GOAL TWO RESOURCES\nMarket users must be protected from possible wrongdo- Plan vs. Appropriation\ning on the part of firms and commodity professionals 45\n $39.7\nwith whom they deal to access the marketplace, and they (202 FTEs) $37.4\n 40 (195 FTEs)\nmust be confident that the marketplace is free of fraud,\n 35\nmanipulation, and abusive practices. The Commission\n IN MILLIONS\n\n\n\n\nplays a crucial role in deterring behavior that could af- 30\n\nfect market users\xe2\x80\x99 confidence by investigating and taking 25\naction against unscrupulous commodity professionals\n 20\nwho engage in a wide variety of fraudulent sales practices\nagainst the public. 15\n\n\n 10\nResource Investment:\nIn FY 2005, the Commission requested $39.7 million 5\n\nand 202 FTEs and was appropriated $37.4 million and $0\n FY 2005 FY 2005\n195 FTEs for Goal Two. BUDGET/PERFORMANCE PLAN A P P R O P R I AT I O N\n\n\n\n\n 37\n\x0cGoal Two\nProtect market users and the public.\n\n\n GOAL TWO: HISTORY OF PERFORMANCE RESULTS 2\n\n\n OUTCOME OBJECTIVE 2.1\n Violations of Federal commodities laws are detected and prevented.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Number of enforcement investigations opened during the fiscal year 172 215 131\n\n Number of enforcement cases filed during the fiscal year 65 83 69\n\n Percentage of enforcement cases closed during the fiscal year in 99% 99% 100%\n which the Commission obtained sanctions\n\n Cases filed by other criminal and civil law enforcement authorities 20 23 20\n during the fiscal year that included cooperative assistance from\n the Commission\n\n\n\n\t OUTCOME OBJECTIVE 2.2\n\t Commodity professionals meet high standards.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Percentage of SROs that comply with core principles 100% 100% TBD\n\n Percentage of DCOs that comply with core principles 100% 100% TBD\n\n Percentage of professionals compliant with standards regarding 100% 100% 100%\n testing, licensing, and ethics training\n\n\n Percentage of SROs that comply with requirement to enforce their rules 100% 100% TBD\n\n Percentage of total requests receiving CFTC responses for guidance 90% 90% 90%\n and advice\n\n\n\n\t OUTCOME OBJECTIVE 2.3\n\t Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Percentage of filed complaints resolved within one year of the filing date 50% 41% 50%\n\n Percentage of appeals resolved within six months\t 35% 35% 46%\n\n2\n The performance metrics included in this document represent the best current estimate\nof Commission performance. Additional work is needed to devise better measures and\nvalid current performance measures in order to effectively illustrate program success in\nmeeting overall objectives.\n\n\n38\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nReturn on Investment\nThe Commission\xe2\x80\x99s 2005 Annual Performance Plan supports three outcome objectives for Goal Two.\n\n\n OBJECTIVE 2.1: VIOLATORS DETECTED & SANCTIONED\n\n\n FY 2005 Appropriation: $28.0 Million\n FY 2005 Results: Results achieved or slightly below target. It is impractical and infeasible to predict with a degree of precision the \t\n exact number of investigations opened, cases filed, cases closed with sanctions obtained, and cases filed with cooperative assistance. \t\n Outcome measure 2.1.3 is arguably the strongest measure and the planned results were achieved\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 4 1 1 2 0 50%\n\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n2.1.1 Number of enforcement investigations opened during the fiscal year 135 131\n\n\n2.1.2 Number of enforcement cases filed during the fiscal year 65 69\n\n\n2.1.3 Percentage of enforcement cases closed in which the Commission 100% 100%\n obtained sanctions\n\n\n2.1.4 Cases filed by other criminal and civil law enforcement authorities during 21 20\n the fiscal year that included cooperative assistance from the Commission\n \t\n\n\n\n\n 39\n\x0c OBJECTIVE 2.2: COMMODITY PROFESSIONALS MEET HIGH STANDARDS\n\n\n FY 2005 Appropriation: $5.8 Million\n FY 2005 Results: Results achieved or \xe2\x80\x9cto be determined.\xe2\x80\x9d Oversight is still on-going and program staff have not completed\n its review and assessment on measures 2.2.1, 2.2.2, and 2.2.4 to provide sufficient data to report on the percentages that comply\n with core principles.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 5 0 2 0 3 40%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n 2.2.1 Percentage of SROs that comply with core principles 100% TBD\n\n 2.2.2 Percentage of DCOs that comply with core principles 100% TBD\n\n\n 2.2.3 Percentage of professionals compliant with standards regarding testing, 100% 100%\n licensing and ethics training\n\n\n 2.2.4 Percentage of SROs that comply with requirement to enforce their rules 100% TBD\n\n\n 2.2.5 Percentage of total requests receiving CFTC responses for guidance 90% 90%\n and advice\n\n\n\n\n OBJECTIVE 2.3: CUSTOMER COMPLAINTS RESOLVED\n\n\n FY 2005 Appropriation: $3.6 Million\n FY 2005 Results: Slightly above and on target.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 2 1 1 0 0 100%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n 2.3.1 Percentage of filed complaints resolved within one year of the filing date 50% 50%\n\n\n 2.3.2 Percentage of appeals resolved within six months 35% 46%\n\n\n\n\n40\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nProgram Contributions to Strategic activities are designed to protect market participants and\nGoal Two: the public interest by assuring that persons who deal\n directly with customers and those who handle customer\nOversight of Sales Practices and Registered Futures\n orders and funds meet the standards for fitness, integrity,\nAssociations. A core part of the Commission\xe2\x80\x99s mission is to\n and training established under the CEA. Persons who\noperate a program that protects market users and the public\n cannot meet these standards may be subject to statutory\nfrom fraud and abusive practices related to the offer and\n disqualification from registration and may have their\nsale of commodity futures and options. Commission staff\n registration denied, conditioned, or revoked.\nconduct on-going oversight related to screening market pro-\nfessionals for fitness and assuring that DCOs have appro- \t The Commission seeks to protect market users and\npriate risk management programs. The Commission also the public by requiring futures industry professionals to\ndevelops disclosure standards, particularly for managed fu- meet high standards through registration and passing of a\ntures and option products, to assure that market users and proficiency exam by salespersons. When Commission staff\npotential market users are appropriately and consistently uncover persons who are not registered but should be, a\ninformed of the risks of futures and option trading, and are letter is sent to the person, and/or the matter is referred\nprovided with information about trading managers. for enforcement action. (See measure 2.2.3.)\n\n\t During FY 2005, the Commission initiated a review \t The Commission chaired the Registration Working\nof the NFA\xe2\x80\x99s program for the oversight of CPOs and CTAs Group (RWG), which is composed of Commission and\nfor compliance with Commission and NFA rules and NFA representatives. The RWG was created as a means for\nregulations. This review has focused on the following the Commission and NFA staff to share ideas and con-\nNFA programs: registration of CPOs and CTAs, review cerns about issues that are not tied to any specific pending\nof CPO and CTA Disclosure Documents, review of CPO registration case. Commission staff participated in four\nannual financial statements, sales practices, and disciplin- meetings of the RWG during FY 2005, in which the group\nary process. Staff is currently finalizing its report, which is discussed, among other things: 1) registration holds; 2)\nexpected to be presented to the Commission in early FY conditional registrations; 3) augmentation of the registra-\n2006. (See measures 2.2.1 and 2.2.2.) tion database to include a name for regulatory contacts;\n and 4) fingerprint processing.\n\t Oversight of Intermediary Fitness. In FY 2005,\nthere were 71,264 industry registrants. These registrants \t Anti-Money Laundering. Commission staff continue\nincluded 215 futures commission merchants (15 of which to work with other Federal financial regulators on various\nwere securities broker-dealers registered with the SEC aspects of a program to combat money laundering and\nthat \xe2\x80\x9cnotice-registered\xe2\x80\x9d with the CFTC because their only terrorist financing. Specifically, staff continues to participate\nfutures-related activity involved SFPs), 1,701 introducing in developing rules implementing the USA PATRIOT Act\nbrokers (IBs) (42 of whom were notice-registered), 1,791 and in developing and issuing guidance concerning the\nCPOs, and 2,661 CTAs. These firms employ 54,823 sales application of these rules. For example, staff worked with\npersonnel, known as associated persons. In addition, there the SEC and other agencies in drafting a no-action position\nare 8,524 individuals registered as floor brokers and 1,549 concerning the customers of certain CTAs and investment\nindividuals registered as floor traders executing trades on advisors that was issued on March 14, 2005. Commission\nU.S. exchanges. staff also continues to work with the U.S. Treasury to share\n information about possible terrorist financiers and money\n\t The Commission is responsible for formal oversight\n launderers. As part of this process, staff maintains and\nof the NFA registration program. This oversight involves\n updates a list of FCMs and contact persons, which the U.S.\ninspection of records and interviews with NFA staff as\n Treasury then uses when issuing a biweekly list of possible\nwell as numerous informal contacts between NFA and\n money launderers and terrorist financiers.\nthe Commission staff on a weekly basis. These oversight\n\n\n\n\n 41\n\x0c\t Commodity Pools (including \xe2\x80\x9cHedge Funds\xe2\x80\x9d), is unlawful to offer off-exchange foreign currency futures\nCommodity Pool Operators, and Commodity Trading or option contracts to retail customers unless the counter-\nAdvisors. Investors continue to fall prey to unscrupulous party to the contract is a regulated financial entity enumer-\nCPOs and CTAs, including CPOs and CTAs operating ated in the CFMA, such as an FCM or financial institution.\nself-described hedge funds. In many of these cases, the In addition, even if the counterparty is appropriate, the\ndefendants have pre-existing business, social, religious, Commission has jurisdiction to investigate and prosecute\nor ethnic ties to the individual investors. These personal retail foreign currency futures or options fraud. Forex\nrelationships enable the defendants to gain the investors\xe2\x80\x99 trading scams often attract customers through advertise-\ntrust and then lull them into a false sense of confidence. ments in local newspapers, radio promotions, or online.\nThe Commission addresses this violative conduct through These advertisements often tout purportedly high-return,\na combination of enforcement actions and investor low-risk investment opportunities in foreign currencies.\neducation. Some of the scams are operated as \xe2\x80\x9cPonzi The Commission has brought enforcement actions against\nschemes\xe2\x80\x9d in which early investors are paid purported both registered firms (for fraud and for other CEA viola-\n\xe2\x80\x9cprofits\xe2\x80\x9d with newer investor funds. The schemes generally tions, such as failure to maintain net capital requirements)\ninvolve fraud in soliciting the general public to invest in and unregistered \xe2\x80\x9cbucket shops.\xe2\x80\x9d (See Appendices.)\nthe pools operated by the CPO or CTA, fraudulent state- \t During FY 2005, the Commission filed 17 enforce-\nments concerning the results being achieved by the pool ment actions against firms and individuals selling illegal\nfor its investors, and/or outright misappropriation of pool foreign currency futures and option contracts, bringing the\nfunds by the CPO. During FY 2005, the Commission filed total of such actions to 79 since enactment of the CFMA\nnine enforcement actions in this program area, and also in December 2001. During FY 2005, the Commission also\nachieved significant litigation results in six actions filed in achieved significant litigation results in eight actions filed\nthis practice area during previous fiscal years. Examples of in this practice area during previous fiscal years. Since the\nthese successes are provided in the Appendices. enactment of the CFMA, the Commission has obtained in\n\t Commodity Trading Advisors, Managed Accounts, and its 79 forex enforcement actions approximate monetary\nTrading Systems. During FY 2005, the Commission filed sanctions of $170 million in civil monetary penalties and\neight enforcement actions in this program area and achieved $115 million in restitution. (See Appendices.)\nsignificant litigation results in four actions filed in this prac- \t Precious Metals and Other Illegal Off-Exchange\ntice area during previous fiscal years. (See Appendices.) Cases. During FY 2005, the Commission\xe2\x80\x99s Enforcement\n\t Futures Commission Merchants, Introducing program prosecuted two actions that alleged non-forex,\nBrokers, and Their Associated Persons. The Commission illegal off-exchange trading. (See Appendices.)\ndiligently redresses misappropriation and other violative \t Violation of Commission Orders. The Commission\nconduct by futures commission merchants, introducing filed one enforcement action in this program area during\nbrokers, and their associated persons. During FY 2005, the FY 2005. (See Appendices.)\nCommission filed 11 enforcement actions in this practice \t Quick-Strike Cases. The Commission is committed\narea, and also achieved significant litigation results in to responding quickly to enforcement investigations that\none action filed in this practice area during previous fiscal uncover on-going fraud. Quick-strike cases are civil injunc-\nyears. (See Appendices.) tive actions that generally are filed in Federal district courts\n\t Foreign Currency Cases. The Commission continued within days or weeks of the discovery of the illegal activity,\nto battle fraud perpetrated on the retail public by firms enabling the Commission to stop fraud at an early stage\noffering trading in off-exchange forex. While much foreign and to attempt to preserve customer funds. During FY\ncurrency trading is legitimate, numerous companies have 2005, the Commission prosecuted 13 quick-strike cases,\nfraudulently solicited and traded customer foreign curren- which were all filed within four months of opening the\ncy futures or option trading accounts. Under the CFMA, it related investigation.\n\n\n\n\n42\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\n\t Domestic Cooperative Enforcement. The Commis- \xe2\x80\xa2\t \x07Corporate Fraud Task Force. By Executive Order,\nsion\xe2\x80\x99s cooperative enforcement efforts are an important signed by President Bush on July 9, 2002, the CFTC was\npart of its ability to promote compliance with and deter named a member of the Corporate Fraud Task Force.\nviolations of Federal commodities laws. Cooperative en- This task force was established with the objective of\nforcement enables the Commission to maximize its ability strengthening the efforts of DOJ, Federal, State, and\nto detect, deter, and impose sanctions against wrongdoers local agencies to investigate and prosecute significant\nin cases involving U.S. markets, registrants, and customers. financial crimes, recover the proceeds of such crimes,\nThe benefits of cooperative enforcement include: 1) The and ensure just and effective punishment of those who\nuse of resources from other sources to support Commis- perpetrate financial crimes.\nsion enforcement actions; 2) coordination in filing actions \xe2\x80\xa2\t\x07Anti-Money Laundering (AML). The Commission par-\nwith other authorities to further the impact of enforce- ticipates in domestic and international AML cooperative\nment efforts; and 3) development of consistent and clear enforcement efforts. On the domestic front, the Com-\ngovernmental responses and avoidance of duplication of mission is a member of the Money Laundering Strategy\nefforts by multiple authorities. Working Group and the U.S. Treasury Department\xe2\x80\x99s\n\t As in the past, staff have coordinated with numerous Bank Secrecy Act Advisory Group. Internationally, the\nFederal, State, and self-regulatory authorities. Historically, Commission has aided the U.S. delegation to the\nprogram staff have sought assistance from or provided Financial Action Task Force on issues including efforts\nassistance to various Federal agencies, such as the Depart- to combat global terrorist financing.\nment of Justice (DOJ), Federal Trade Commission (FTC), \xe2\x80\xa2\t\x07Telemarketing and Internet Fraud Working Group. This\nFederal Energy Regulatory Commission (FERC), Federal Group consists of representatives from Federal, State, and\nBureau of Investigation (FBI), SEC, and the U.S. Postal international regulatory and criminal authorities.\nInspection Service. Similarly, Commission staff have pro- \xe2\x80\xa2\t\x07Securities and Commodities Fraud Working Group.\nvided assistance to and/or received assistance from State The Securities and Commodities Fraud Working Group\nauthorities, such as agencies responsible for the regulation is a vehicle for public and private sector participants to\nof corporations, securities, and banking. The Commission discuss current trends in financial crime in the securi-\nalso provided Federal and local law enforcement authori- ties, futures, and option industries and to exchange\nties with testimony or other assistance in connection ideas about enforcement techniques. The group, orga-\nwith criminal investigations. Enforcement program staff nized by the Fraud section of the Criminal Division of\nworked with the DOJ and various U.S. Attorney\xe2\x80\x99s offices the DOJ, meets on a quarterly basis, and its members\nthroughout the nation, the FBI, the offices of numerous include criminal and regulatory authorities from State\nState attorneys general, local police authorities, and task and Federal agencies and representatives from various\nforces focusing on areas such as corporate fraud and for- exchanges and other SROs.\neign currency fraud. \t Proceedings. The Commission provides a forum for\n\t In addition to direct cooperation with domestic law effectively and expeditiously handling customer com-\nenforcement and regulatory authorities, the Enforcement plaints against persons or firms registered with the Com-\nprogram also represents the Commission in a variety of mission at the time of the alleged wrongdoing or at the\ndomestic and international efforts, including task forces time the complaint is filed.\nand working groups designed to keep market participants \t During FY 2005, 46 percent of the reparations com-\nabreast of new developments in financial crimes and to plaints were disposed of within one year from the date\ncoordinate governmental responses to common issues. the complaint was filed. The remaining complaints were\nSeveral examples of the efforts of the Enforcement pro- not resolved within one year as a result of issues beyond\ngram in this area follow: the Commission\xe2\x80\x99s control. For example, parties requested\n\n\n\n\n 43\n\x0cadditional time for one or more of the following reasons: consequent capacity to pay a penalty. The Commission\n1) to submit supplementation to their cases; 2) to prepare elected not to remand the case. Instead, the Commission\npleadings; 3) to complete extensive discovery documents; issued an opinion in which it announced that it would\nor 4) to deal with personal or professional responsibilities. conduct direct fact finding itself. The outcome was that the\n(See measure 2.3.1.) respondent paid a civil monetary penalty of $200,000. In\n\t The Commission\xe2\x80\x99s administrative law judges (ALJs) re Nikkhah (CFTC Mar. 25, 2005).\nare responsible for hearing and rendering decisions in \t The Commission refused to find that a closely-held\nadministrative enforcement cases brought by the Com- FCM, its owner and his wife violated speculative position\nmission against alleged violators of the CEA or related limits. The owner, his family and several close friends trad-\nregulations. The Commission decided 23 administrative ed profitably during a corn bull market. The Commission\nenforcement cases in FY 2005. held that similarities in their trading were insufficient to\n\t Opinions and Review. Through its Opinions pro- establish either that the owner controlled his wife\xe2\x80\x99s trad-\ngram, the Commission drafts opinions and orders in ing or that an express or implied agreement existed among\nmatters appealed to the Commission. The Commission\xe2\x80\x99s the owner and his daughters and friends, all of whom had\njurisdiction in adjudicatory matters includes: substantial trading experience and independent financial\n\xe2\x80\xa2\t\x07Administrative cases prosecuted by the Enforcement resources. In re Bielfeldt, Docket No. 96-1 (CFTC Dec. 2,\n program against alleged violators of the CEA or related 2004) (affirming in part and reversing in part the initial\n regulations; decision, and dismissing the complaint).\n\n\xe2\x80\xa2\t\x07Reparations cases brought by customers to recover mon- \t Office of General Counsel. Through the litigation\n etary damages from industry registrants; and program, Commission staff represents the Commission\n\n\xe2\x80\xa2\t Adjudicatory actions taken by industry SROs. in the U.S. District Courts and the Courts of Appeals and\n assists the Solicitor General in representing the Commis-\n\t Through mid-September 2005, the Commission issued\n sion before the U.S. Supreme Court. Commission staff\n37 opinions and other orders (including orders issued\n also monitors litigation of interest to accomplishing the\npursuant to delegated authority), 19 of which were final\n Commission\xe2\x80\x99s mission, including the Commission\xe2\x80\x99s coop-\ndispositions of cases pending on the Commission\xe2\x80\x99s docket.\n eration with other Federal financial regulators through the\nAmong other decisions, in an appeal from an exchange\n President\xe2\x80\x99s Working Group on Financial Markets and the\nproceeding, the Commission affirmed the default judgment\n President\xe2\x80\x99s Corporate Fraud Task Force.\nentered against a respondent who challenged a 10-year\naccess denial imposed because he engaged in unlawful trad- \t The Commission succeeded in obtaining dismissal\n\ning to cover a mistake in handling a customer order. The of one significant case before the U.S. Supreme Court.\n\nCommission rejected the argument that the sanction was The result in that case, R.J. Fitzgerald & Co. v. CFTC, 125 S.\n\nunfair because the co-respondent in the exchange proceed- Ct. 808 (Dec. 13, 2004) (Mem.), preserved the successful\n\ning, who settled, faced no access denial. The Commission ruling obtained by the Commission in the U.S. Court of\n\nalso found no error in the exchange\xe2\x80\x99s decision to impose Appeals for the Eleventh Circuit in an important anti-sales\n\nan access denial period twice as long as the period recom- fraud prosecution. The Eleventh Circuit held that a televi-\n\nmended by the exchange\xe2\x80\x99s compliance officials, because the sion commercial was fraudulent when its overall message\n\nperiod imposed was permitted by exchange rules. Caruselle suggested that profits of 200 to 300 percent could be\n\nv. NYMEX, Docket No. 05-E-1 (June 21, 2005). gained by investing in options by looking at known and\n expected weather patterns. The Court held that the adver-\n\t In another administrative enforcement case, the Com-\n tising overemphasized profit potential and downplayed\nmission appealed from the ALJ\xe2\x80\x99s refusal to impose a civil\n the risk of loss. 310 F.3d 1321 (11th Cir. 2002).\nmonetary penalty on the respondent. Upon review of the\nrecord, the Commission determined that it was unable \t Before U.S. Courts of Appeals, the Commission ob-\n\nto reliably determine the respondent\xe2\x80\x99s net worth and his tained favorable rulings upon a variety of issues. Foremost,\n\n\n\n\n44\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nthe Commission succeeded in demonstrating that it was Commission and the Merit Systems Protection Board and\nsubstantially justified in defending the statutory registra- represents the Commission in contract matters before the\ntion scheme established under Section 4m of the CEA, General Services Board of Contract Appeals.\nTaucher v. Brown-Hruska, 396 F.3d 1168 (D.C. Cir. 2005), \t Commission staff also monitors bankruptcy cases in-\nand in defending the mechanism for evaluating registra- volving futures industry professionals and, as appropriate,\ntion applications provided by Congress through Section assists courts, trustees, and customers in implementing\n8(a) of the Act, Hirschberg v. CFTC, 414 F.3d 679 (7th Cir. special bankruptcy code provisions that pertain to com-\n2005). The Commission also succeeded in the appellate modity firms. In FY 2005, Commission staff analyzed the\ncourts in its defense of challenges brought against injunc- Commission\xe2\x80\x99s interests in 22 bankruptcy cases and for-\ntions issued by district courts aimed at preventing sales mally appeared before various bankruptcy courts through-\nsolicitation fraud. CFTC v. Wall Street Underground, 128 out the country to protect both the Commission\xe2\x80\x99s interest\nFed. Appx. 726 (10th Cir. 2005); CFTC v. Fremer, 128 Fed. in recovering penalties owed due to market misconduct\nAppx. 104 (11th Cir. 2005); CFTC v. Gibralter Monetary and the interest of public customers in having their funds\nCorp., No. 04-13828-I (11th Cir. May 9, 2005). recovered and returned in 12 such cases.\n\t In support of its oversight of the activities of SROs, \t Finally, through its amicus curiae program, Com-\nthe Commission succeeded on appeal in defending its mission staff supported the Commission in assisting the\naffirmance of an exchange\xe2\x80\x99s handling of an altercation that courts in resolving difficult or novel questions arising\narose at the exchange. Piccolo v. CFTC, 388 F.3d 387 (2nd under the CEA or Commission regulations with the intent\nCir. 2005). In another matter, the Commission was not suc- of making significant contributions to the development\ncessful in persuading the Court of Appeals for the Seventh of consistent and accurate legal precedent. In FY 2005, the\nCircuit of the correctness of the Commission\xe2\x80\x99s interpreta- Commission participated in Board of Trade of the City of\ntion of a core jurisdictional issue regarding the definition New York v. Klein & Co. Futures, Inc., No. 00Civ.5563GBD\nof a futures contract in CFTC v. Zelener, 373 F.3d 861 (7th (S.D.N.Y.), a case involving the rights and duties of par-\nCir.), reh\xe2\x80\x99g denied, 387 F.3d 624 (2004). The result in that ties subject to the Act upon the incidence of a customer\xe2\x80\x99s\ncase brought to the fore the need for legislative action to financial default.\nclarify the Commission\xe2\x80\x99s ability to combat fraud in the sale \t Regulatory and Legislative Matters. In FY 2005,\nof foreign currency exchange investments. Commission staff continued to advise the Commission\n\t In several cases before the U.S. District Courts, Com- concerning the implementation of rules and regulations\nmission staff defended the Commission\xe2\x80\x99s interests in the issued pursuant to the CFMA. Commission staff assisted\nhandling of records it collects while investigating possible the Commission in new regulatory initiatives to further\nviolations of the CEA. One case, In re Application of Wil- carry out CFMA mandates, including providing regulatory\nliam R. Tacon, Misc. No. 05MS00083 (D.D.C.), involved relief to market intermediaries, such as amendments to\nthe Commission\xe2\x80\x99s defense of the statutory prescriptions the CFTC\xe2\x80\x99s Large Trader Reporting rules and revised FCM\napplication to the Commission\xe2\x80\x99s receipt of information. In reporting requirements for risk-based capital.\nanother case, In re Subpoena Issued to CFTC, 370 F. Supp. 2d. \t The Commission consulted with staff of the U.S.\n201 (D.D.C. 2005), Commission staff continues to defend Treasury and various Federal financial regulators to develop\nthe Commission\xe2\x80\x99s interests where an issue of government- anti-money laundering regulations required under the USA\nwide interest has been posed, specifically, whether the PATRIOT Act, including in FY 2005, providing guidance to\nappellate court should recognize a federal common law certain customers of CTAs and working with other agencies\nright to withhold from third parties records pertaining to to complete information-sharing agreements.\nsettlement under a federal \xe2\x80\x9csettlement privilege.\xe2\x80\x9d \t During FY 2005, the Commission presented testimo-\n\t Commission staff represents the Commission in ny before Congressional committees on the Commission\xe2\x80\x99s\npersonnel cases before the district courts and before adminis- reauthorization.\ntrative agencies, such as the Equal Employment Opportunity\n\n\n 45\n\x0c Goal Three\n\n\nEnsure market integrity in order to\nfoster open, competitive, and financially\nsound markets\n FY 2005 GOAL THREE RESOURCES\nPublic Benefit:\n Plan vs. Appropriation\nThe U.S. commodity futures markets must be protected\n 30\nfrom and free of abusive practices and influences to better $26.4\n (134 FTEs) $24.7\noperate and fulfill their vital role in the nation\xe2\x80\x99s economy, (130 FTEs)\n 25\nas well as the global economy. The CFTC works diligently\n IN MILLIONS\n\n\n\n\nto ensure that futures markets do function properly so\n 20\nthat the marketplace may be used with confidence by the\nfarmer who wishes to hedge his crop or feed, or the pen- 15\nsion fund manager who desires to guarantee a set return\non money entrusted for investment. 10\n\n\nResource Investment: 5\nIn FY 2005, the Commission requested $26.4 million\nand 134 FTEs and was appropriated $24.7 million and $0\n FY 2005 FY 2005\n130 FTEs for Goal Three. BUDGET/PERFORMANCE PLAN A P P R O P R I AT I O N\n\n\n\n\n46\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nGoal Three\nEnsure market integrity in order to foster open, competitive, and financially sound markets.\n\n\n\n HISTORY OF PERFORMANCE RESULTS 3\n\n\n OUTCOME OBJECTIVE 3.1\n Clearing organizations and firms holding customer funds have sound financial practices.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Lost Funds\n Percentage decrease in number of customers losing funds 0% 0% 0%\n Amount of funds lost $0 $0 $0\n\n Number of rulemakings to ensure market integrity and financially 1 1 3\n sound markets\n\n Percentage of self-regulatory organizations that comply with requirment 100% 100% TBD\n to enforce rules\n\n\n\n\t OUTCOME OBJECTIVE 3.2\n\t Commodity futures and option markets are effectively self-regulated.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Percentage of intermediaries who meet risk-based capital 100% 100% 100%\n requirements\n\n\n Percentage of clearing organizations that comply with requirement 100% 100% TBD\n to enforce their rules\n\n\n\n\t OUTCOME OBJECTIVE 3.3\n\t Markets are free of trade practice abuses.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n Percentage of exchanges deemed to have adequate systems for 100% 100% 100%\n detecting trade practice abuses\n\n\n Percentage of exchanges that comply with requirement to enforce 100% 100% 100%\n their rules\n\n\n\n\n3\n The performance metrics included in this document represent the best current estimate of\nCommission performance. Additional work is needed to devise better measures and valid current\nperformance measures in order to effectively illustrate program success in meeting overall objectives.\n\n\n\n\n 47\n\x0c\t OUTCOME OBJECTIVE 3.4\n\t Regulatory environment is flexible and responsive to evolving market conditions.\n\n\n PERFORMANCE MEASURES FY 2003 FY 2004 FY 2005\n\n 100% 100% 100%\n Percentage of CFMA Section 126(b) objectives addressed\n\n\n Number of rulemakings, studies, interpretations, and guidance to 8 6 6\n ensure market integrity and exchanges\xe2\x80\x99 compliance with regulatory\n requirements\n\n\n Percentage of requests for no-action or other relief completed within 100% 100% 100%\n six months related to novel market or trading practices and issues to\n facilitate innovation\n\n\n Percentage of requests receiving CFTC responses for guidance 90% 90% 90%\n and advice\n\n\n\n\n48\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nReturn on Investment\nThe Commission\xe2\x80\x99s 2005 Annual Performance Plan supports four outcome objectives for Goal Three.\n\n\n OBJECTIVE 3.1: NO LOSS OF CUSTOMER FUNDS BY DERIVATIVE CLEARING ORGANIZATIONS\n\n\nFY 2005 Appropriation: $5.9 Million\nFY 2005 Results: Slightly above and on target. Measure 3.1.3 is \xe2\x80\x9cto be determined;\xe2\x80\x9d program staff have not completed its review and\nassessment to provide sufficient data to report on the percentages of derivatives clearing organizations that comply with core principles.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 4 1 2 0 1 75%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n3.1.1 Lost Funds\n 1) Percentage decrease in number of customers who lose funds 50% 0%\n 2) Amount of funds lost $0 $0\n\n\n3.1.2 Number of rulemakings to ensure market integrity and financially sound markets 1 3\n\n\n3.1.3 Percentage of self-regulatory organizations that comply with requirements to 100% TBD\n enforce rules\n\n\n\n\n OBJECTIVE 3.2: NO LOSS OF CUSTOMER FUNDS BY SELF-REGULATORY ORGANIZATIONS\n\n\n FY 2005 Appropriation: $10.6 Million\n FY 2005 Results: On target. Measure 3.2.2 is \xe2\x80\x9cto be determined;\xe2\x80\x9d program staff have not completed its review and\nassessment to provide sufficient data to report on the percentages of derivatives clearing organizations that comply with core principles.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 2 0 1 0 1 50%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n 3.2.1 Percentage of intermediaries who meet risk-based capital requirements 100% 100%\n\n\n 3.2.2 Percentage of clearing organizations that comply with requirement to 100% TBD\n enforce their rules\n\n\n\n\n 49\n\x0c OBJECTIVE 3.3: MARKETS FREE OF TRADE PRACTICE ABUSES\n\n\n FY 2005 Appropriation: $5.1 Million\n FY 2005 Results: On target.\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 2 0 2 0 0 100%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n 3.3.1 Percentage of exchanges deemed to have adequate systems for detecting 100% 100%\n trade practice abuses\n\n\n 3.3.2 Percentage of exchanges that comply with requirement to enforce their rules 100% 100%\n\n\n\n\n OBJECTIVE 3.4: REGULATORY ENVIRONMENT IS FLEXIBLE\n AND RESPONSIVE TO EVOLVING MARKET CONDITIONS\n\n\n FY 2005 Appropriation: $3.1 Million\n FY 2005 Results: Slightly above and on target\n\n\n Number of Exceeded Goal Met Goal Did Not Meet Goal To Be Determined Percent Meeting or\n Measures or Not Available Exceeding Goal\n\n 4 1 2 0 1 75%\n\n\n\n PERFORMANCE MEASURES FY 2005 PLAN FY 2005 RESULTS\n\n 3.4.1 Percentage of CFMA Section 126(b) objectives addressed 100% 100%\n\n\n 3.4.2 Number of rulemakings, studies, interpretations, and guidance to ensure 2 6\n market integrity and exchanges\xe2\x80\x99 compliance with regulatory requirements\n\n 3.4.3 Percentage of requests for no-action or other relief completed within N/A 100%\n six month related to novel market or trading practices and issues to\n facilitate innovation\n\n\n 3.4.4 Percentage of total requests receiving CFTC responses for guidance 90% 90%\n and advice\n\n\n\n\n50\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nProgram Contributions to Strategic example, in FY 2005, the Commission issued an interpre-\nGoal Three: tative letter to the Australian Wheat Board (AWB) which\n found that AWB\xe2\x80\x99s proposal to have its wholly-owned\nMarket Surveillance. The Commission staff completed\n subsidiary, AWB (USA), Inc., conduct over-the-counter\ntwo rule enforcement reviews of SRO compliance pro-\n trading, both as an offeror and an offeree of agricultural\ngrams. Periodic review of SRO compliance programs is a\n trade option contracts, fell within the exemptive provi-\ncomponent of the program\xe2\x80\x99s oversight activity to promote\n sions of regulation 32.13(g). The Commission continued\nand enhance effective self-regulation and ensure that SROs\n the policy initiated in FY 1999 of issuing no-action letters\nenforce compliance with their rules.\n in response to requests by foreign boards of trade to per-\n\t One of the rule enforcement reviews completed dur-\n mit placement of electronic terminals in the U.S. without\ning FY 2005 was a review of OneChicago\xe2\x80\x99s market surveil-\n requiring contract market designation for those boards of\nlance, audit trail, trade practice surveillance, disciplinary,\n trade. In FY 2005, the Commission issued a no-action let-\nand dispute resolution programs. The other rule enforce-\n ter to the European Energy Exchange and issued amended\nment review completed during FY 2005 was a review of the\n no-action letters to Eurex Deutschland and Eurex Zurich,\nCBOT\xe2\x80\x99s audit trail, trade practice surveillance, disciplinary,\n Ltd., to permit, subject to Commission approval, the\nand dispute resolution programs. Market Compliance\n clearing of Euro products traded on the two exchanges\nstaff found that both OneChicago and CBOT maintain\n to be cleared by the Clearing Corporation (CCorp) as a\nadequate programs with respect to the areas reviewed.\n special clearing member of Eurex Clearing AG. In FY 2005,\n\t The Commission\xe2\x80\x99s review of exchange rules is a key\n the Market and Product Review subprogram also issued\naspect of the statutory framework for self-regulation.\n an amended no-action relief letter to the Sydney Futures\nMarket and Product Review subprogram staff review\n Exchange Limited (SFE) to permit non-clearing SFE\nexchange rule submissions with the goals of: 1) maintain-\n members that carry U.S. customer accounts to place SFE\ning the fairness and financial integrity of the markets; 2)\n terminals with those customers, conditioned on the non-\nprotecting customers; 3) accommodating and fostering\n clearing member giving up those trades to a guaranteeing\ninnovation; and 4) increasing efficiency in self-regulation\n FCM or rule 30.10 firm.\nconsistent with the Commission\xe2\x80\x99s statutory mandates. To\n \t In FY 2005, the Commission issued a no-action let-\nthese ends, staff reviewed 262 exchange rule submission\n ter to U.S. Futures Exchange, LLC (Eurex U.S.) to afford\npackages and, within those packages, staff reviewed 1,237\n it relief from the Commission\xe2\x80\x99s default contract report-\nnew rules and rule amendments. (See measures 3.2.1,\n ing levels for futures and option contracts so that Eurex\n3.2.2, 3.3.1 and 3.3.2.)\n U.S.\xe2\x80\x99s new 3-Year U.S. Treasury Notes (3-Year T-Notes)\n\t Commission staff also work to facilitate indus-\n contract would be subject to a reporting level of 750\ntry innovations and new trading methods and market\n contracts, rather than the default level of 25 contracts.\nstructures, thereby meeting the Commission\xe2\x80\x99s objective\n (Subsequently, the Commission adopted a rulemaking\nof promoting and enhancing effective self-regulation and\n formally establishing a 750-contract reporting level for\ncompetition. During FY 2005, staff was involved in a\n 3-Year T-Notes.) The no-action relief eased the burden\nnumber of significant matters including issues related to\n of reporting on market participants while preserving the\nnew exchanges and exempt markets, exchange mergers,\n Commission\xe2\x80\x99s ability to effectively surveil trading in 3-\nnovel trading procedures and contract designs, and new\n Year T-Note contract. The Commission also continued the\nautomated trading systems.\n policy initiated in FY 1999 of issuing no-action letters in\n\t Issuing Exemptive, Interpretive, and No-Action\n response to requests by foreign boards of trade to permit\nRelief. The Commission is responsible for providing\n placement of electronic terminals in the U.S. without\nexemptive, interpretive, or other relief to facilitate the con-\n requiring contract market designation for those boards\ntinued development of an effective, flexible regulatory en-\n of trade. In FY 2005, the Division\xe2\x80\x99s Chief Counsel Office\nvironment responsive to evolving market conditions. For\n\n\n\n 51\n\x0cissued three new no-action letters to the European Energy Interpretation No. 10-1 to prohibit FCMs from deposit-\nExchange, the Winnipeg Commodity Exchange, Inc. and ing, holding, or maintaining margin funds for customer\nEuronext Amsterdam N.V. In addition, amended no-ac- accounts in third-party custodial accounts, with limited\ntion letters were issued to Eurex Deutschland (Eurex) and exception for FCMs not eligible to hold the assets of their\nthe SFE. The letter to Eurex permitted, among other things, RIC customer (i.e., due to their affiliation with the RIC or\nparticipants of CCorp to carry positions in Eurex prod- its adviser). The ban against the use of third-party accounts\nucts pursuant to the Euro-link agreement between CCorp is intended to prevent potential delay or interruption in\nand Eurex Clearing. On the other hand, the letter to SFE securing required margin payments that, in times of signifi-\npermitted the exchange to make its electronic trading and cant market disruption, could magnify the impact of such\norder matching system, known as SYCOM\xc2\xae, available to market disruption and impair the liquidity of other FCMs\nnon-exchange participants in the U.S. and clearinghouses. (See measures 3.4.3 and 3.4.4.)\n\t The Commission responded to a high number of \t Fostering Sound Business Practices: Oversight of\nformal and informal requests for guidance concerning SROs, Market Intermediaries, and DCOs. A key aspect of\nthe application of regulatory requirements to specific assuring effective self-regulation is oversight by the Com-\ntransactions, new products, and market circumstances. mission of SRO programs to assure compliance by their\nStaff issued 170 responses to written requests, including members with customer and market protection standards.\nelectronic responses, from members of the public and the Toward this end, the DCIO oversees, reviews, and reports\nregulated industry to provide guidance concerning the to the Commission concerning statutorily required self-\napplication of Commission regulations and to provide ex- regulatory programs directed at maintaining the financial\nemptions. Staff also responded to 1,773 telephone inqui- integrity of the markets and deterring improper sales\nries concerning the application of Commission require- practices and other wrongful conduct.\nments to commodity professionals. These responses aided \t The DCIO staff administer a financial surveillance\nmarket participants and the public by providing guidance and audit program that buttresses periodic audit, daily\nconcerning the manner in which they may conduct their financial surveillance, and other self-policing programs\nactivities to comply with relevant requirements and by administered by the exchanges and NFA to promote\ngranting relief from requirements where application of the and enhance effective self-regulation of the commodity\nrules would not serve the public interest. futures and option markets. The objective of this program\n\t Financial and Segregation Interpretation No. 10 is to assure sound financial practices of DCOs and firms\n(Interpretation No. 10), issued in 1984, effectively per- holding customer funds. The effort includes oversight of\nmitted customer margins to be deposited at a bank in a financial compliance programs of SROs and direct quality\nsafekeeping or custodial account (otherwise known as control audits to assess the efficacy of their programs. The\n\xe2\x80\x9csafekeeping account\xe2\x80\x9d or \xe2\x80\x9cthird-party custodial account\xe2\x80\x9d), oversight of SRO programs is necessary to ensure that SRO\nin lieu of posting such funds directly with a FCM, without member firms are properly capitalized and maintain ap-\nbeing deemed to violate the customer funds segregation propriate risk management capabilities, and that customer\nprovisions of Section 4d(a)(2) of the CEA and related funds are held in segregation by appropriate custodians\nCommission regulations. Through analysis and discus- and are protected from misappropriation.\nsions with industry participants, it was determined that \t This oversight function of the Clearing and Intermedi-\nthird-party custodial accounts are no longer necessary or ary Oversight program has taken on increased importance\njustified in light of developments since the issuance of with the Commission\xe2\x80\x99s new regulatory framework under\nInterpretation No. 10 and may present significant cost and the CFMA. The CFMA defined a new category of regis-\nburdens for market participants. Accordingly, the Division tered entity, DCOs, and set forth certain core principles\nof Clearing and Intermediary Oversight (DCIO) withdrew governing such entities. Similar to the approach of other\nInterpretation No. 10 in May 2005 and issued an amended Federal financial regulators and certain overseas financial\n\n\n\n\n52\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nsupervisors \xe2\x80\x93 indeed, in close consultation with several pursuant to 4d of the CFMA permitting CCorp, a DCO,\nsuch peers \xe2\x80\x93 the DCIO program has begun enhancing and its member FCMs to clear trades executed on Eurex, a\nits supervision of exchanges, clearinghouses, and other foreign market, and commingle such positions and associ-\nSROs with risk-based examination cycles and risk-focused ated funds with other positions and funds required to be\nreviews. Both the scheduling and scope of the DCIO\xe2\x80\x99s segregated. The Commission also issued an interpretation\nsupervisory reviews are now based on careful analysis of clarifying the treatment in insolvency of funds held in\nthe underlying risks to which an institution is exposed and segregation pursuant to such an order. In December 2004,\nthe controls that it has in place to address those risks. the Commission issued an amended order permitting\n\t The Major Review unit of the DCIO was created to HedgeStreet, a DCO, to clear additional products. In Sep-\nplan, coordinate, schedule, monitor, and assess major tember 2005, the Commission issued an order pursuant to\nrisk-focused reviews. During FY 2005, program staff initi- 4d permitting New York Mercantile Exchange (NYMEX),\nated a review of the Minneapolis Grain Exchange (MGE) a DCO, and its member FCMs to clear trades executed on\nin its capacity as a DCO registered with the Commission NYMEX Europe, an affiliated exchange located in London,\npursuant to Section 5b of the CEA. The purpose of the and commingle such positions and associated funds with\nreview was to determine whether MGE had demonstrated other positions and funds required to be segregated.\ncompliance with the core principles for DCOs set forth \t The DCIO staff prepared six rulemaking actions\nin Section 5b(c)(2) of the Act and with Part 39 of the during the fiscal year. Two of these were corrections of\nCommission\xe2\x80\x99s Rules. While program staff looked initially previously published rule changes, one of which related\nat compliance with the core principles, generally its risk to closing out of offsetting positions and the other to\nassessment and scope-setting phases effort led to a focus delegation of authority to the DCIO division director. One\non MGE\xe2\x80\x99s abilities to demonstrate fulfillment of its re- order expanded the authority of NFA to exempt certain\nsponsibilities as a risk-managing central counterparty. The firms that act as FCMs and that are regulated by multiple\nDCIO staff is currently preparing a report of its review for foreign futures authorities or foreign SROs from registra-\nCommission consideration. tion under the CEA in accordance with guidelines set forth\n\t The DCIO staff performed 11 audits (one DCO in the order by the Commission. A rule change simplified\nand 10 FCMs) in FY 2005 to test compliance with the the signature requirements for acknowledgment by non-\nCommission\xe2\x80\x99s financial requirements for the safekeep- institutional customers of FCMs and IBs of required risk\ning of customer funds. In addition, program staff pro- disclosure statements and consent for the firms to take the\ncessed about 2,700 financial reports filed by registrants. opposite side of customer trades. An interpretation by the\nAs a result of on-going program efforts such as these, no predecessor of the DCIO regarding segregation of cus-\nregulated customer funds were lost in FY 2005, thereby tomer funds was amended to prohibit the use of so-called\nmeeting the program\xe2\x80\x99s objective of ensuring sound finan- third-party safekeeping accounts, except in cases where\ncial practices of clearing organizations and firms holding customers were required by the SEC to use such accounts.\ncustomer funds. (See measures 3.1.1, 3.1.2 and 3.1.3.) Finally, rules were issued that further expanded the range\n\t Ensuring a Flexible and Responsive Regulatory En- of permissible investments of customer funds by FCMs\nvironment. In FY 2005, the DCIO supported the Commis- and DCOs subject to appropriate safeguards.\nsion\xe2\x80\x99s on-going regulatory reform program, as well as ac- \t In September 2005, the Commission published in the\ntions required by or appropriate to the implementation of Federal Register a notice of proposed rulemaking to define\nthe CFMA. In April 2005, the Commission issued an order the term \xe2\x80\x9cclient\xe2\x80\x9d as it relates to a CTA. The proposed defi-\nregistering AE Clearinghouse as a DCO. AE Clearinghouse nition provides that a \xe2\x80\x9csubscriber\xe2\x80\x9d is one type of \xe2\x80\x9cclient,\xe2\x80\x9d\nprovides an innovative method for clearing transactions thus clarifying apparent inconsistencies in the Act and in\nexecuted on an exempt board of trade or over-the-coun- the Commission\xe2\x80\x99s regulations concerning the advisees\nter. In October 2004, the Commission issued an order of CTAs. The proposal also clarifies the Commission\xe2\x80\x99s\n\n\n\n\n 53\n\x0clongstanding view that its antifraud authority extends to \t Foreign Futures and Option Transactions. The\nall CTAs, irrespective of whether they provide advice on Commission also furthered the development of the offer\na personalized or non-personalized basis. (See measures and sale of foreign futures and option transactions (U.S.\n3.4.1 and 3.4.2.) customers trading on non-U.S. markets) in FY 2005. The\n\t Remote Clearing. In a matter of first impression, Commission issued an order to NFA authorizing NFA\n(commonly referred to as \xe2\x80\x9cremote clearing,\xe2\x80\x9d) a foreign to confirm exemptive relief to certain firms acting in the\nfirm requested to become a full clearing member of a capacity of an FCM. Specifically, FCMs that are subject\ncombined DCM and DCO to clear trades only for non- to regulation by a foreign futures authority or that are\nU.S. located customers without first registering under the members of a foreign SRO in a particular jurisdiction to\nAct. The DCIO staff researched the legal question as to which an order under Commission Rule 30.10 has been\nwhether a remote clearing foreign firm that would clear issued, notwithstanding that such firms may be subject,\ntrades only for non-U.S. located customers would be in part, to joint regulation by a second regulator or SRO\nrequired to register with the Commission as an FCM, and in another jurisdiction. These firms are referred to in the\naddressed the material policy issues of remote clearing order as CBFBs. The Commission previously had au-\nwith respect to both customer protection and the financial thorized NFA to confirm exemptive relief solely to firms\nintegrity of the markets. After discussions with staff, the subject to regulation by a single foreign futures authority\nforeign firm decided to become registered with the Com- or that are members of a foreign SRO. This order extends\nmission as an FCM. the scope of that authority. Specifically, the Commission\n\t Foreign Currency. The DCIO continues to work authorized NFA to grant exemptive relief to any CBFB that\nwith the Division of Enforcement and NFA staff regarding solicits or accepts orders (and accepts money, securities\nretail foreign currency trading by FCMs and their affiliates. or property to margin the trades that result or may result\nNFA submitted additional rules concerning retail foreign therefrom) from U.S. foreign futures and options custom-\ncurrency on August 22, 2005, which the Commission ers and that is fully regulated, in the aggregate, by a host\napproved on September 15, 2005. These rules are in- and home country regulator, each of which has received a\ntended to address on-going problems in the off-exchange Rule 30.10 Order from the Commission, or is organized\nretail forex market by allowing NFA to impose stricter net in a home country and operating pursuant to certain\ncapital requirements on certain persons registered as FCMs European Union directives governing cross-border activity\nengaging in retail forex transactions, and to extend certain (known, collectively, as the European Passport) from a\nantifraud and customer protection rules to a greater branch located in a host country where the regulator or\nnumber of off-exchange retail forex transactions, where SRO has received a Rule 30.10 Order, notwithstanding\nNFA members act as intermediaries, but the counterparty that the Commission has not issued a Rule 30.10 Order to\nis not an NFA member. Members are also required to pro- the home country regulator. The Commission determined\nvide customers with information about NFA\xe2\x80\x99s registrant further to authorize NFA to maintain records pertaining\ndatabase (BASIC) so that they may review the registration to the functions described in this order and to serve as the\nstatus and disciplinary history of those who solicit them. official custodian of those Commission records.\n\n\t The DCIO staff has considered ways to provide addi- \t Hedge Funds. During FY 2005, the DCIO monitored\ntional formal guidance regarding compliance and registra- the SEC\xe2\x80\x99s implementation of new rules requiring registra-\ntion issues pertaining to entities involved in retail foreign tion of hedge fund advisers under the Investment Advisers\ncurrency trading and has met with other divisions to Act of 1940.\ndiscuss their concerns regarding issues that may be raised \t Security Futures Products and Cooperation with the\nin such an advisory. Staff has also discussed issues with SEC. The CFMA directs the Commission and the SEC to\nNFA concerning NFA examinations and required adjusted implement a joint regulatory framework for SFPs and nar-\nnet capital for firms engaged in retail forex transactions. row-based stock index futures. As part of the on-going SFP\n\n\n\n\n54\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nsupervisory and oversight process, the Commission and \t Financial, Supervision, Compliance and Record-\nthe SEC signed a Memorandum of Understanding (MOU) keeping. During FY 2005, the Commission filed one\nto clarify the ability of each agency to conduct inspec- enforcement action in this program area and also achieved\ntions of notice-registered intermediaries, exchanges, and significant litigation results in two actions filed in this\nlimited purpose national securities associations. The MOU practice area during previous fiscal years. (See Appendices.)\nprovides that the CFTC and SEC will notify each other of \t Statutory Disqualifications. During FY 2005, the\nany planned examinations, advise the other of reasons Commission filed five enforcement actions in this pro-\nfor an intended examination, provide each other with gram area. (See Appendices.)\nexamination-related information, and conduct examina- \t International Cooperative Enforcement. The Com-\ntions jointly, if feasible. The agencies will notify each other mission continues to coordinate enforcement activities\nof significant market issues and will share trading data and with foreign authorities. During FY 2005, the Division\nrelated market information. of Enforcement made 106 requests for assistance, and\n\t The DCIO permitted NFA in FY 2004 to postpone it received 18 requests from authorities in foreign juris-\nindefinitely updating the Series 3 and Series 30 examina- dictions. The Commission was successful in obtaining\ntions to include questions on SFPs. Staff has discussed assistance, including bank records, in several jurisdictions\nwith NFA and the National Association of Securities where we did not have prior cooperative relationships.\nDealers how to accomplish eventual updating of the \t Enforcement also has devoted time and resources to\nexaminations, but, for the time being, salespersons will be matters involving allegations that persons or entities have\npermitted to continue to offer SFPs following the taking of committed fraud or other misconduct in their cross-bor-\na Web-based training module. The SEC is in accord with der activities. Such misconduct can adversely affect U.S.\nthis approach. firms as well as customers located in the U.S. and overseas.\n \t Trade Practice. The legislative history of the CEA \t IOSCO\xe2\x80\x99s Screening and Approving MOU Appli-\nnotes that one of the fundamental purposes of the Act is cants. Commission staff, as members of a Multilateral\nto ensure fair practices and honest dealing in the futures Memorandum of Understanding Concerning Consulta-\nmarket and to control those forms of speculative activity tion, Cooperation and the Exchange of Information\nthat demoralize the market to the detriment of produc- (MMOU) Verification Team, evaluated the applications\ners, consumers, and the markets. Consistent with Con- of five IOSCO members to become signatories to the\ngress\xe2\x80\x99 mandate, the Commission periodically brings trade MMOU. The Commission also is a member of the Screen-\npractice cases to address a variety of unfair, abusive, or ing Group which makes recommendations to a decision\ndeceptive ploys by traders to avoid exposing their orders making body of IOSCO concerning whether to accept or\nto market risk. Such actions can create non-competitive reject specific MMOU applications.\nprices in the marketplace and have the potential to harm \t During FY 2005, the Commission continued its work\npublic customers, producers, and others. Improper trade on the IOSCO MMOU. The MMOU is an important and\npractices include a variety of activities, including trad- meaningful undertaking for regulators to expand coopera-\ning done in violation of exchange rules, such as trading tion by establishing specific minimum standards for se-\nahead of a customer order, wash trading, accommodation curities and futures regulators in the area of information-\ntrading, and fictitious trading. During FY 2005, the Com- sharing. During FY 2005, Belgium, which the Commission\nmission filed six enforcement actions in this program area did not have an information-sharing arrangement with\nand also achieved significant litigation results in one ac- previously, became a signatory to the MMOU.\ntion filed in this practice area during previous fiscal years.\n \t Standing Committee 4. During FY 2005, staff also\n(See Appendices.)\n continued to participate in the Standing Committee\n on Enforcement and Information-Sharing (SC4) of the\n\n\n\n\n 55\n\x0cTechnical Committee of IOSCO. SC4 considers issues and participants to discuss practical operational issues that\nformulates recommendations relating to international as- most affect their conduct of trans-Atlantic business in\nsistance in the detection, investigation, and prosecution of exchange-traded derivatives and by developing a work\nsecurities and futures violations. program to review issues relating to enhanced transpar-\n\t Standing Committee 5. Commission staff also con- ency, clarity of regulatory developments and simplified\ntinued to participate in IOSCO\xe2\x80\x99s Standing Committee 5 access or recognition procedures;\n(SC5) on Investment Management. Throughout 2005, SC5 \xe2\x80\xa2\t\x07\x07Providing assistance to the Financial Sector Assessment\ncontinued to consider and issue reports on several topics Program of the World Bank and International Monetary\nof importance to collective investment vehicles. Fund;\n\t Office of General Counsel (OGC). OGC continued \xe2\x80\xa2\t\x07Coordinating the Commission\xe2\x80\x99s provision of repre-\nits review of requests for no-action relief to allow the offer sentations and regulatory information to regulatory\nand sale of foreign exchange-traded foreign stock index authorities in Australia, Austria, Germany, Italy, the\nfutures contracts in the U.S. In FY 2005, OGC issued three Netherlands, Spain and Switzerland that supported the\nno-action letters for five of these foreign exchange-traded recognition of three U.S. futures exchanges electronic\nforeign stock index futures contracts. trading systems;\n\t OGC also advised the Commission with respect to \xe2\x80\xa2\t\x07\x07Coordinating the Commission\xe2\x80\x99s comments to the U.S.\nlegislative provisions affecting the Commission con- Treasury on various position papers including U.S.-In-\ntained in the Domenici-Barton Energy Policy Act of dia and U.S.-China dialogue;\n2005, which included provisions designed to clarify the \xe2\x80\xa2\t\x07Participating in and advising the Toronto Centre on\nCommission\xe2\x80\x99s exclusive jurisdiction over futures and leadership with respect to securities and derivatives sec-\noption markets and trading data. Furthermore, OGC tor programs; and\nadvised the Commission on the Energy Policy Act\xe2\x80\x99s re- \xe2\x80\xa2\t\x07Providing technical assistance to foreign regulators\nquirement that the Commission and the FERC enter into through visits with staff at the Commission by 89 for-\nan information-sharing arrangement. eign persons representing 14 foreign jurisdictions, two\n\t International Policy. The Commission formulates on-site visits by Commission staff to foreign jurisdic-\ninternational policy by: 1) coordinating with foreign tions, and a week-long seminar in Chicago that exam-\nregulatory authorities; 2) participating in international ined the techniques used to promote market, firm, and\nregulatory organizations and forums; and 3) providing customer protections.\ntechnical assistance to foreign governmental bodies. In FY\n2005, the Commission contributed to this effort by:\n\xe2\x80\xa2\t\x07Coordinating Commission representation in the Coun-\n cil of Securities Commissions of the Americas (COSRA),\n including contributing a paper on the benefits of futures\n trading to the securitization of small business loans\n and participating on ways to advance COSRA\xe2\x80\x99s regional\n technical assistance and training initiatives;\n\xe2\x80\xa2\t\x07Providing expertise to the Committee of European\n Securities Regulators (CESR) related to their inquiry\n into acceptable market practices for commodity markets\n as part of its deliberations on possible expansion of the\n Investment Services Directive to commodity markets;\n\xe2\x80\xa2\t\x07\x07Promoting access to markets by organizing with CESR\n a round-table for U.S. and European futures industry\n\n\n\n56\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nMethodology for Collecting, Maintaining,\n and Analyzing Performance Data\n\n\nMarket Oversight ceived, the submission\xe2\x80\x99s ultimate disposition, the date of\n disposition, and the processing time.\nStatistics concerning the large trader and exchange data\ncollection systems are computer-generated based on the \t During FY 2004 and FY 2005, the Division of Market\n\nnumber of actual reports processed. Similarly, figures on Oversight (DMO) coordinated with DCIO staff and the\n\nnumbers of market trading reports prepared and new Office of Information Resources Management (OIRM) to\n\ncontract and rule change filings analyzed and completed develop a comprehensive database system for organiza-\n\nare derived from computer records. Performance data tions (trading facilities, clearing organizations, etc.), for-\n\nfrom regional offices and headquarters are collected eign terminal no-action relief, products, and rule amend-\n\nquarterly and combined into an overall report reflecting ments. This system ultimately will replace the DART\n\nperformance data included in the Annual Performance system and provide a more efficient and effective method\n\nPlan. Trends in volume, open interest, and number of for tracking the processing of various filings received by\n\ncontracts approved are used to project workload statistics DMO and DCIO.\n\nfor future periods. Compliance factors, such as audits \t The Market Compliance subprogram\xe2\x80\x99s performance\nand letters to traders and reporting firms, are reviewed data are continuously collected from regional and head-\nin the context of total reports processed for anomalous quarters staff and are maintained at headquarters for each\nrelationships. The number of market surveillance reports performance category. The adequacy of SROs\xe2\x80\x99 sanctions\nand special reports are viewed in the context of the num- and a comparison of sanctions across all exchanges are\nber of markets trading and analyses that are presented at conducted quarterly by regional staff and are also main-\nCommission meetings. These reports and comparisons tained at headquarters.\nwith indicators from previous periods are used to verify\ndata accuracy. Clearing and Intermediary Oversight\n\t The Market and Product Review subprogram calcu- Compliance and Registration. The Compliance and\nlates the performance data included in the Commission\xe2\x80\x99s Registration subprogram compiles data on discrete events,\nAnnual Performance Report and Annual Performance Plan such as letters written, rules promulgated or revised, and\nby querying its automated databases: the Filings (FILAC) RWG meetings held. It should be noted that statistics\nsystem and the Designation and Rule Tracking (DART) on numbers of letters issued or rules promulgated may\nsystems. For each new exchange, these systems record not reflect the complexity of any particular matter or the\nproduct, rule submission, information on the date re- resources necessary to address one issue versus another\n\n\n\n 57\n\x0cissue. In addition, matters commenced in one fiscal year \t Finally, additional data tracked by the Enforcement\nmay overlap into, and be completed during, a subsequent program particularly data reflecting investigation and litiga-\nfiscal year, resulting in some imprecision in statistical tion tasks come directly from the headquarters units and\nmeasures for a given fiscal year. Finally, the timeliness of regional offices performing the work. The Enforcement staff\na response is affected by the speed with which a requester from each subprogram and regional office submit monthly\nprovides additional information sought by staff and the status reports on all pending matters. In conjunction with\nlength of time required by other Commission divisions these monthly submissions, staff are required to fill out an\nor offices to review a draft response (factors outside the electronic form that provides specific information for each\ncontrol of the Compliance and Registration subprogram). matter. While every effort is made to ensure that the data\n\t Audit and Financial Review. Each branch of the Au- obtained from the investigation and litigation teams is\ndit and Financial Review subprogram prepares a monthly accurate, the integrity of this data is ultimately and\nreport that includes statistics for those projects that can be primarily the responsibility of the reporting teams.\nreported on a numerical basis and also describes special\nprojects, enforcement support, and all other noteworthy Office of Proceedings\nmatters that staff have worked on during the month. Sta- The Office of Proceedings uses \xe2\x80\x9cRepcase,\xe2\x80\x9d an integrated\ntistical summaries are also prepared on a quarterly basis. computerized case tracking system, to collect, maintain,\n\t Clearing Policy. The Clearing Policy subprogram and analyze performance information for each reparations\nmaintains an on-going status report of current and com- case. The reparations case reports are separated into two sec-\npleted projects. Separately, the Commission is close to tions: complaints and hearings. The data and information\ncompletion of development of an electronic database to collected in the complaints section consist of the number of\ntrack all exchange and clearinghouse rule filings. cases pending on the first day of the month, the number of\n cases received during the month, the number of cases dis-\nEnforcement posed of in complaints, and the number of cases pending at\nThe Enforcement program tracks several types of perfor- the end of the month. The data and information collected\nmance data. For example, the number of investigations for the hearings section consist of the number of cases\nand cases opened, closed, case type (e.g., fraud, manipu- pending with an ALJ or judgment officer (JO) at the begin-\nlation, etc.), results obtained, and matters pending is ning of the month, the number of cases assigned during the\ncollected and tabulated on a monthly basis and at the end month (including remands, reassignments, and motions to\nof each fiscal year. Case status information is then cross- vacate), the number and type of cases disposed of during\nchecked against status reports submitted by staff to the the month, and the number of cases pending with each ALJ\nOffice of the Director of the Enforcement program. This or JO at the end of the month.\ninformation is adapted for use in performance reporting \t A separate database, Administrative Enforcement Case\n(i.e., individual matters are identified by the goals and Tracking system, is used to track administrative cases, (e.g.,\nactivities under which they most reasonably fall). administrative/enforcement, exchange, statutory disqualifi-\n\t Other data that are routinely tracked and then adapt- cation, and Commission review cases). The Administrative\ned for use in performance reporting include sanctions Enforcement Case Tracking system records the number\nassessed in enforcement matters. In enforcement cases, of cases received during the month, the number and type\nsanctions can be assessed by resolution of: 1) Commission assigned during the month, and the number and type\nALJs; 2) the Commission in settlement or on appeal of an disposed of during the month. Case status information is\nALJ\xe2\x80\x99s decision; and 3) Federal district court actions. Upon checked on a monthly basis against status reports submit-\nfinal disposition of the enforcement action, unsatisfied ted by the ALJs, JOs, and proceedings clerk to the director of\njudgments are referred to the U.S. Treasury or the DOJ as the Office of Proceedings. This information is adapted for\nappropriate for collection. use in performance reporting.\n\n\n\n58\n\x0c P E R F O R M A N C E D E TA I L S\n\n\n\n\nOffice of the General Counsel which serves as a check against the data provided by the\n automated tracking system. All reports are reviewed and\nOGC uses Repcase to collect, maintain, and analyze per-\n approved by the General Counsel and/or Deputy General\nformance information for each reparations, enforcement,\n Counsel for the Opinions and Review section.\nexchange review, and NFA case on appeal to the Com-\nmission. Statistical data is collected and reported by the\ntotal number of: 1) Cases resolved (e.g., final disposition, Executive Direction & Support\nremand, interlocutory disposition, and miscellaneous dis- Office of Information Resources Management. OIRM\nposition); 2) matters received (e.g., merits appeals, inter- acts on the basis of the CFTC Strategic Plan and direction\nlocutory appeals, and miscellaneous); 3) matters pending; from the Executive Management Council. Performance\nand 4) drafts pending before the Commission. data is collected by comparing the products actually\n\t OGC collects and maintains case data on an on-going delivered against the requirements identified through the\nbasis. A legal program assistant uses this information to strategic planning of Commission priorities. The resources\nprepare periodic reports, which are used by management to used to deliver products based on Commission priori-\nmonitor and analyze all cases on appeal to the Commission. ties are recorded in the Commission time and attendance\n\t Biweekly Report. At the end of each biweekly period, data or equivalent OIRM internal records for internal FTEs\nthe legal program assistant prepares a report for the Gen- and the Commission\xe2\x80\x99s financial management system or\neral Counsel\xe2\x80\x99s signature for submission to the Chairman. equivalent OIRM internal records for purchased resources.\nThe information reported includes significant activity (e.g., The Commission\xe2\x80\x99s technology investment priorities are\nlegislative, regulatory, litigation-related, and opinions-re- reviewed through periodic Investment Review Board and\nlated) in the office that occurred during that period. Technology Review Board sessions involving key technical\n\n\t Monthly Opinions Report. At the end of each and business stakeholders. Analysis of performance data\n\nmonth, the legal program assistant prepares a report for involves comparison of resources expended on projects\n\nthe General Counsel\xe2\x80\x99s signature. The information reported with the planned expenditures to the products delivered\n\nincludes all activity (e.g., disposition of cases, matters with the products planned.\n\nreceived, and matters pending) in the Opinions program\nthat occurred during the month.\n\t Quarterly Report. At the end of each quarter, the\nDeputy General Counsel for Opinions and Review pre-\npares a report to the Commission outlining the status of\ncases pending on the Commission\xe2\x80\x99s docket.\n\t Annual Report. At the end of each fiscal year, the\nlegal program assistant prepares a statistical summary that\nshows activity in the program during the fiscal year. The\nreport lists by category the number of matters received,\nCommission orders and opinions issued, and the number\nof cases pending at the end of the year. All issued opinions\nand orders are maintained in binders filed alphabetically,\nmonthly, quarterly, and annually.\n\t In preparing these reports, the legal program assis-\ntant reviews the statistical data provided by the Repcase\ntracking system as well as issued opinions and orders\nmaintained in the binders. This staff member also main-\ntains a separate tracking system of the cases on appeal,\n\n\n\n 59\n\x0c FINANCIAL SECTION\n\n\n\n\n \xe2\x80\x9c\n \xe2\x80\x9c\n We continue to strive for excellence in the\n financial management of the Commission as illustrated\n throughout this Performance and Accountability Report.\n \t\n \xe2\x80\x94Mark Carney, Chief Financial Officer\n\n\n\n\n60\n\x0c FINANCIAL SECTION\n\n\n\n\nA Message From the Chief Financial Officer\n\n\n From the Chief Financial Officer \t We continue to strive for excellence in the financial\n management of the Commission as illustrated throughout\n The Performance and Accountability Report for FY 2005\n this Performance and Accountability Report. The Commission\n presents, to the Administration and the public, the status\n continues its efforts to correct our four reportable conditions.\n of the CFTC\xe2\x80\x99s program performance and fiscal opera-\n tions. This document is the principal report produced\n by the Commission delineating our improvements and\n progress for this year. The Commission recognizes the Mark Carney\n importance of public disclosure and accountability to Chief Financial Officer\n the Administration, to Congress, and to the American November 15, 2005\n taxpayer. This Performance and Accountability Report is a\n demonstration of our commitment to fulfill our fiduciary\n and reporting responsibilities.\n \t I am pleased to present the CFTC\xe2\x80\x99s financial state-\n ments for FY 2005 as a part of this report. For the first\n time, an independent public accounting firm, KPMG LLP,\n selected by our Inspector General, issued an unqualified\n or \xe2\x80\x9cclean\xe2\x80\x9d opinion on the Commission\xe2\x80\x99s consolidated fi-\n nancial statements, which is the best possible audit result.\n \t The financial statements fairly present the Commis-\n sion\xe2\x80\x99s financial position and were prepared in accordance\n with standards developed by the Federal Accounting Stan-\n dards Advisory Board and accounting principles generally\n accepted in the U.S. These statements are presented in the\n format required by the OMB and the Government Man-\n agement Reform Act of 1994.\n\n\n\n\n 61\n\x0c Financial Summary\n\n \t\t TOTAL ASSETS\n At End of Year \t % Change 2005/2004\t 2005\t 2004 80\n\n 70\n $62.2\n 60\n CONDENSED BALANCE SHEET DATA\t\t 50\n $54.2\n\n\n\n\n IN MILLIONS\n \t\t Fund Balance with Treasury\t -11%\t $ 23,464,887\t $ 6,304,227 40\n\n \t\t Property and Equipment\t 292%\t 1,919,650\t 489,638 30\n\n\n \t\t Accounts Receivable\t 476%\t 185,927\t 32,263 20\n\n 10\n \t\t Other (Custodial)\t -19%\t 28,663,845\t 35,402,939\n $0\n FY 2005 FY 2004\n TOTAL ASSETS\t -13%\t $ 54,234,309\t $ 62,229,067\n \t\t\n \t\n \t\t FECA Liabilities\t -11%\t $ 629,800\t $ 709,034\n \t\t Payroll, Benefits and Annual Leave\t 14%\t 8,082,514\t 7,079,766 50\n TOTAL LIABILITIES\n\n $44.4\n \t\t Contingent & Deposit Fund Liabilities\t -89%\t 20,094\t 182,426\n 40\n $39.1\n \t\t Accounts Payable\t 65%\t 1,692,411\t 1,025,643\n\n\n\n\n IN MILLIONS\n \t\t Custodial Liabilities\t -19%\t 28,663,845\t 35,402,939 30\n\n\n \t\t Total Liabilities\t -12%\t $ 39,088,664\t $ 44,399,808 20\n \t\t\t\n \t\t Cumulative Results of Operations\t -24%\t (3,939,565)\t (5,199,126) 10\n\n\n \t\t Unexpended Appropriations\t -17%\t 19,085,210\t 23,028,385 0\n FY 2005 FY 2004\n \t\t Total Net Position\t -15%\t 15,145,645\t 17,829,259\n\n TOTAL LIABILITIES AND NET POSITION\t -13%\t $ 54,234,309\t $ 62,229,067\n \t\t\n \t\n NET POSITION\n FULL-TIME EQUIVALENTS \t\t\t 20\n $17.8\n \t\t Market Oversight\t -3%\t 99\t 102 $15.1\n 15\n \t\t Clearing & Intermediary Oversight\t -10%\t 62\t 69\n IN MILLIONS\n\n\n\n\n \t\t Chief Economist\t -11%\t 8\t 9 10\n\n \t\t Enforcement\t -6%\t 135\t 144\n \t\t Proceedings\t -7%\t 13\t 140 5\n\n\n \t\t General Council\t -6%\t 32\t 34\n 0\n \t\t Chairman/Commissioners\t -7%\t 42\t 45 FY 2005 FY 2004\n\n\n \t\t Executive Direction & Support\t -6%\t 94\t 100\n\n TOTAL FULL-TIME EQUIVALENTS\t -6%\t 485\t 517\n\n FULL-TIME EQUIVALENTS\n 600\n 517 521\n 485 497\n 500\n\n\n 400\n\n\n 300\n\n\n 200\n\n\n 100\n\n\n 0\n FY 2005 FY 2004 FY 2003 FY 2002\n\n62\n\x0c FINANCIAL SECTION\n\n\n\n\n \t\t\n 2005\n For the Year \t % Change 2005/2004\t 2005\t 2004\n\n\n STATEMENT OF NET COST\t\t\t Goal Three Goal One\n \t\t Total Cost\t 4%\t $ 100,412,029\t $ 96,244,924 26% 34%\n\n \t\t Earned Revenue\t 91%\t (114,705)\t (60,147)\n\n TOTAL NET COST OF OPERATIONS\t 4%\t 100,297,324\t 96,184,777\n Goal Two\n \t 40%\n \t\t\n NET COST BY STRATEGIC GOAL\t\t\t\n \t\t Goal One - Economic Utility\t 9%\t $ 34,101,090\t $ 31,402,406\n 2004\n \t\t Goal Two - Market User and Public\t 5%\t 40,118,930\t 38,325,786\n \t\t Goal Three - Industry\t -1%\t 26,077,304\t 26,456,585\n\n \t\t\t 4%\t $ 100,297,324\t $ 96,184,777 Goal Three Goal One\n 28% 33%\n\n\n\n\n Goal Two\n\nLimitations of Financial Statement 39%\n\n\nManagement has prepared the accompanying financial\nstatements to report the financial position and operational\nresults for the CFTC for Fiscal Years 2005 and 2004 pursu-\nant to the requirements of Title 31 of the U.S. Code, section\n3515(b).\n\t While these statements have been prepared from the\nbooks and records of the Commission in accordance with\nGAAP for Federal entities and the formats prescribed by\nOMB Circular A-136, Financial Reporting Requirements, these\nstatements are in addition to the financial reports used to\nmonitor and control budgetary resources, which are pre-\npared from the same books and records.\n\t The statements should be read with the understanding\nthat they represent a component of the U.S. Government,\na sovereign entity. One implication of this is that the li-\nabilities presented herein cannot be liquidated without the\nenactment of appropriations, and on-going operations are\nsubject to the enactment of future appropriations.\n\n\n\n\n 63\n\x0c Principal Financial Statements\nCommodity Futures Trading Commission\n\n\n\nBalance Sheets\nAs of September 30, 2005 and 2004\n\n \t\t\t 2005\t\t 2004\n\n\n ASSETS\n Intragovernmental:\n \t Fund Balance with Treasury (Note 3)\t\t$ 23,464,887\t $\t 26,304,227\n \t Accounts Receivable (Note 4)\t\t 175,595\t\t 22,806\n \t Total Intragovernmental\t\t 23,640,482\t\t 26,327,033\n\n Custodial Fines and Interest Receivable, Net (Note 4)\t\t 28,663,845\t\t 35,402,939\n Accounts Receivable (Note 4) \t\t 10,332,\t\t 9,457\n Property and Equipment, Net (Note 5)\t\t 1,919,650\t\t 489,638\n\n TOTAL ASSETS\t\t$ 54,234,309\t $ \t62,229,067\n\n\n\n LIABILITIES\n Intragovernmental:\n \t FECA Liabilities\t $\t 138,496\t $\t 194,102\n \t Accounts Payable\t\t 90,950\t\t -\n \t Total Intragovernmental\t\t 229,446\t\t 194,102\n\n Accounts Payable\t\t 1,601,461\t\t 1,025,643\n Accrued Funded Payroll\t\t 2,852,389\t\t 2,282,462\n Annual Leave\t\t 5,230,125\t\t 4,797,304\n Actuarial FECA Liabilities (Note 8) \t\t 491,304\t\t 514,932\n Custodial Liabilities\t\t 28,663,845\t\t 35,402,939\n Contingent Liabilities (Note 10)\t\t -\t\t 182,426\n Deposit Fund Liabilities\t\t 20,094\t\t -\n Total Liabilities\t\t 39,088,664\t\t 44,399,808\n\n Commitments and Contingencies (Notes 9 And 10)\n\n NET POSITION\n Cumulative Results of Operations\t\t (3,939,565)\t\t (5,199,126)\n Unexpended Appropriations\t\t 19,085,210\t\t 23,028,385\n Total Net Position\t\t 15,145,645\t\t 17,829,259\n\n TOTAL LIABILITIES AND NET POSITION\t $\t 54,234,309\t $\t 62,229,067\n\n\nThe accompanying notes are an integral part of these financial statements.\n\n\n\n\n64\n\x0c FINANCIAL SECTION\n\n\nCommodity Futures Trading Commission\n\n\n\nStatements of Net Cost\nFor the Years Ended September 30, 2005 and 2004\n\t \t \t Unaudited\n\t\t 2005\t 2004\n\n\n GOAL ONE: Ensure the economic vitality of the commodity futures and option markets\n Intragovernmental Gross Costs\t $\t 5,839,022\t $\t 4,297,937\t\n Less: Earned Revenue\t\t (35,169)\t\t (10,605)\n Intragovernmental Net Cost of Operations\t\t 5,803,853\t\t 4,287,332\n\n Gross Costs With the Public\t\t 28,301,068\t\t 27,124,106\n Less: Earned Revenue\t\t (3,831)\t\t (9,032)\n Net Cost of Operations With the Public\t\t 28,297,237\t\t 27,115,074\n\n NET COST OF OPERATIONS - GOAL ONE\t\t 34,101,090\t\t 31,402,406\n\n\n\n GOAL 2: Protect market users and the public\n Intragovernmental Gross Costs\t\t 6,869,438\t\t 5,245,515\n Less: Earned Revenue\t\t (41,375)\t\t (12,943)\n Intragovernmental Net Cost of Operations \t\t 6,288,063\t\t 5,232,572\n\n Gross Costs With the Public\t\t 33,295,374\t\t 33,104,237\n Less: Earned Revenue\t\t (4,507)\t\t (11,023)\n Net Cost of Operations With the Public\t\t 33,290,867\t\t 33,093,214\n\n NET COST OF OPERATIONS - GOAL TWO\t\t 40,118,930\t\t 38,325,786\n\n\n\n GOAL 3: Ensure market integrity in order to foster open, competitive, and financially sound markets\n\n Intragovernmental Gross Costs\t\t 4,465,134\t\t 3,621,020\n Less: Earned Revenue\t\t (26,894)\t\t (8,934)\n Intragovernmental Net Cost of Operations\t\t 4,438,240\t\t 3,612,086\n\n\n Gross Costs With the Public\t\t 21,641,993\t\t 22,852,109\n Less: Earned Revenue\t\t (2,929)\t\t (7,610)\n Net Cost of Operations With the Public\t\t 21,639,064\t\t 22,844,499\n\n NET COST OF OPERATIONS - GOAL THREE\t\t 26,077,304\t\t 26,456,585\n\n\n\n GRAND TOTAL\n Intragovernmental Gross Costs\t\t 17,173,594\t\t 13,164,472\n Less: Earned Revenue\t\t (103,438)\t\t (32,482)\n Intragovernmental Net Cost of Operations\t\t 17,070,156\t\t 13,131,990\n\n Gross Costs With the Public\t\t 83,238,435\t\t 83,080,452\n Less: Earned Revenue\t\t (11,267)\t\t (27,665)\n Net Cost of Operations With the Public\t\t 83,227,168\t\t 83,052,787\n\n TOTAL NET COST OF OPERATIONS\t $\t 100,297,324\t $\t 96,184,777\n\n\nThe accompanying notes are an integral part of these financial statements.\n\n\n 65\n\x0c Commodity Futures Trading Commission\n\n\n\n Statements of Changes in Net Position\n For the Years Ended September 30, 2005 and 2004\n\n\n \t\t\t\t Unaudited\n \t\t September 30, 2005\t\t September 30, 2004\n\n \t\t Cumulative Results\t Unexpended\t Cumulative Results\t Unexpended\n \t\t Of Operations\t Appropriations\t Of Operations\t Appropriations\t\n \t\t\n BALANCES, OCTOBER 1\t $ (5,199,126)\t $ 23,028,385\t $ (2,957,781)\t $ (23,550,666)\n\n\n BUDGETARY FINANCING SOURCES \t\n Appropriations:\t\t\t\n \t Received\t -\t 94,327,000\t -\t 90,435,000\n Less: Rescinded\t -\t (754,616)\t -\t (533,567)\n Less: Canceled\t -\t (289,267)\t -\t (339,153)\n Used to Aquire and Provide\n Goods and Services\t 97,226,292\t (97,226,292)\t 90,084,561\t (90,084,561)\n\n\n OTHER FINANCING SOURCES\n Imputed Financing Sources\t 4,330,593\t -\t 3,858,871\t -\n Total Financing Sources\t 101,556,885\t (3,943,175)\t 93,943,432\t (522,281)\n\n Net Cost of Operations\t (100,297,324)\t -\t (96,184,777)\t -\n\n Net Change\t 1,259,561\t (3,943,175)\t (2,241,345)\t (522,281)\n\n BALANCES, SEPTEMBER 30\t $ (3,939,565)\t $ 19,085,210\t $ (5,199,126) \t $ 23,028,385\n\n\n\nThe accompanying notes are an integral part of these financial statements.\n\n\n\n\n66\n\x0c FINANCIAL SECTION\n\n\n\n\nCommodity Futures Trading Commission\n\n\n\nStatements of Budgetary Resources\nFor the Years Ended September 30, 2005 and 2004\n\t\t\t\t Unaudited\n\t\t 2005\t 2004\n\n\n BUDGETARY RESOURCES\n Unobligated Balances, October 1\t $\t 1,395,503\t $\t 9,340,776\n Recoveries of Prior Year Unpaid Obligations\t\t 6,920,117\t 8,902,248\n Total Prior Resources\t\t 8,315,620\t 18,243,024\n New Resources:\n \t Appropriations\t\t 94,327,000\t\t 90,435,000\n \t Spending Authority from Offsetting Collections\t\t\t\n \t Collected\t\t 69,394\t 554,529\n \t Change in Federal Receivables \t\t 152,789\t 22,806\n \t Total New Resources\t\t 94,549,183\t 91,012,335\n Permanently Not Available:\n \t Cancellation of Expired Accounts\t\t (289,267)\t\t (339,153)\n \t Enacted Reduction\t\t (754,616)\t\t (533,567)\n\n TOTAL BUDGETARY RESOURCES\t $\t1 01,820,920 \t $\t1 08,382,639\n\n\n\n STATUS OF BUDGETARY RESOURCES\n Obligations Incurred, Direct\t $\t 98,029,681 \t $\t106,949,795\n Obligations Incurred, Reimbursable\t\t 22,698\t 37,341\n \t Total Obligations Incurred \t\t 98,052,379\t 106,987,136\n Unobligated Balance Apportioned\t\t 768,613\t 38,613\n Unobligated Balance Not Available\t\t 2,999,928\t 1,356,890\n\n TOTAL STATUS OF BUDGETARY RESOURCES\t $\t101,820,920\t $\t108,382,639\n\n\n\n RELATIONSHIP OF OBLIGATIONS TO OUTLAYS\n Net Obligated Balance, October 1\n Unpaid Obligations\t $\t 24,931,530\t $\t 19,713,939\n Uncollected Payments from Federal Sources\t\t (22,806)\t -\n Net Obligated Balance, October 1\t\t 24,908,724\t\t 19,713,939\n\n Gross Obligations Incurred\t\t 98,052,379\t\t106,987,136\n\n Gross Outlays\t\t(96,211,945)\t\t(92,867,297)\n\n Recoveries of Prior Year Unpaid Obligations\t\t (6,920,117)\t\t (8,902,248)\n\n Change in Federal Receivables \t\t (152,789)\t\t (22,806)\n\n\n\n\n 67\n\x0c Commodity Futures Trading Commission\n\n\n Statements of Budgetary Resources\n For the Years Ended September 30, 2005 and 2004 (continued)\n\n Unaudited\n \t\t\t 2005\t 2004\n\n\n Net Obligated Balance, September 30\n \t Unpaid Obligations\t\t 19,851,847\t\t 24,931,530\n \t Uncollected Payments from Federal Sources\t\t (175,595)\t\t (22,806)\n \t Net Obligated Balance, September 30\t\t 19,676,252\t\t 24,908,724\n Unreconciled Differences\t $\t -\t $\t -\n\n\n\n NET OUTLAYS\n Gross Outlays\t $\t 96,211,945\t $ \t 92,867,297\n Offsetting Collections Received\t\t (69,394)\t (554,529)\n Distibuted Offsetting Reciepts\t\t (9,474)\t (13,541)\n\n NET OUTLAYS\t $\t 96,133,077\t $\t 92,299,227\n\n\n The accompanying notes are an integral part of these financial statements.\n\n\n\n\n68\n\x0c FINANCIAL SECTION\n\n\n\n\nCommodity Futures Trading Commission\n\n\nStatements of Financing\nFor the Years Ended September 30, 2005 and 2004\n\n\t\t\t Unaudited\n\t\t\t 2005\t\t 2004\n\n\nRESOURCES USED TO FINANCE ACTIVITIES\n Obligations Incurred\t $\t 98,052,379\t $\t106,987,136\n Less: Spending Authority from Offsetting Collections and Recoveries\t $ \t (7,142,300)\t $ \t(9,479,583)\n Net Obligations\t\t 90,910,079\t\t 97,507,553\n Offsetting Receipts\t\t (9,474)\t\t (13,541)\n Net Obligations After Offsetting Receipts\t\t 90,900,605\t\t 97,494,012\n\n Other Resources \xe2\x80\x93 Imputed Financing from Cost Absorbed by Others\t\t 4,330,593\t\t 3,858,871\n Total Resources Used to Finance Activities\t\t 95,231,198\t\t101,352,883\n\n\n\n RESOURCES USED TO FINANCE ITEMS NOT PART OF THE NET COST OF OPERATIONS\n Offsetting Receipts\t\t 9,474\t\t 13,541\n Change in Undelivered Orders\t\t 6,316,378\t\t (7,483,065)\n Resources that Finance the Net Acquisition of Fixed Assets\t\t (1,472,567)\t\t (196,857)\n Total Resources Used to Finance Items Not Part of the Net Cost of Operations\t\t 4,853,285\t\t (7,666,381)\n\n Resources Used to Finance the Net Cost of Operations\t\t 100,084,483\t\t 93,686,502\n\n\n\n COMPONENTS OF THE NET COST OF OPERATIONS THAT WILL NOT REQUIRE OR\n GENERATE RESOURCES IN THE CURRENT PERIOD\n Decrease in Accounts Receivable from the Public (Refunds)\t\t (875)\t\t -\n Change in Unfunded Annual Leave, FECA Expenses and Contingent Liabilities\t\t 171,161\t\t 2,364,826\n Total Cost of Items That Will Generate Resources in Future Periods\t\t 170,286\t\t 2,364,826\n\n\n\n COMPONETS NOT REQUIRING OR GENERATING RESOURCES\n Depreciation and Amortization\t\t 134,562\t\t 128,239\n Contract Refund and Other\t\t (92,007)\t\t 5,210\n Total Components Not Requiring or Generating Resources\t\t 42,555\t\t 133,449\n\n\n NET COST OF OPERATIONS\t $\t 100,297,324\t $\t 96,184,777\n\n\nThe accompanying notes are an integral part of these financial statements.\n\n\n\n\n 69\n\x0cCommodity Futures Trading Commission\n\n\n\nStatements of Custodial Activity\nFor the Years Ended September 30, 2005 and 2004\n\n\t\t\t\t Unaudited\n\t\t\t 2005\t\t 2004\n\n\n REVENUE ACTIVITY\n SOURCES OF CASH COLLECTIONS\n Registration and Filing Fees\t $\t 742,133\t $\t 768,130\n Fines, Penalties, and Forfeitures\t\t 34,260,078\t\t 122,468,925\n General Proprietary Receipts\t\t 9,474\t\t 13,541\n Total Cash Collections\t\t 35,011,685\t\t 123,250,596\n Change in Custodial Fines and Interest Receivable\t\t (6,739,094)\t\t 35,376,188\n Total Custodial Revenue\t\t 28,272,591\t\t 158,626,784\n\n\n\n DISPOSITION OF COLLECTIONS\n TRANSFERRED TO OTHERS, BY RECIPIENT:\n Transferred to Treasury\t\t (35,011,685)\t\t(123,250,596)\n Change in Custodial Liabilities\t\t 6,739,094\t\t(35,376,188)\n\n NET CUSTODIAL ACTIVITY\t $\t -\t $\t -\n\n\nThe accompanying notes are an integral part of these financial statements.\n\n\n\n\n70\n\x0c FINANCIAL SECTION\n\n\n\n\nNotes to the Financial Statements \t The financial statements report on the CFTC\xe2\x80\x99s\nAs of and For the Fiscal Years Ended financial position, net cost of operations, changes in net\nSeptember 30, 2005 and 2004 position, budgetary resources, financing, and custodial\n activities of the CFTC. The books and records of the\nNote 1. Reporting Entity agency served as the source of information for preparing\nThe Commodity Futures Trading Commission (CFTC) the financial statements in the prescribed formats. All\nis an independent agency of the executive branch of the agency financial statements and reports used to monitor\nFederal Government. Congress created the CFTC in 1974 and control budgetary resources are prepared from the\nunder the authorization of the Commodity Exchange Act same books and records. The statements should be read\nwith the mandate to regulate commodity futures and op- with the understanding that they are for a component of\ntion markets in the United States. The agency\xe2\x80\x99s mandate the U.S. Government, a sovereign entity.\nwas renewed and expanded under the Futures Trading Acts \t The Balance Sheets present the financial position\nof 1978, 1982, and 1986; under the Futures Trading Prac- of the agency. The Statements of Net Cost present the\ntices Act of 1992; and under the CFTC Reauthorization agency\xe2\x80\x99s operating results, the Statements of Changes in\nAct of 1995. The Commodity Futures Modernization Act Net Position display the changes in the agency\xe2\x80\x99s equity\nof 2000 reauthorized the Commission through FY 2005. accounts. The Statements of Budgetary Resources pres-\nSince its inception, the CFTC has continuously operated ent the sources, status, and uses of the agency\xe2\x80\x99s resources\nthrough authorized appropriations. and follows the rules for the Budget of the United States\n\t The CFTC is responsible for ensuring the economic Government. The Statements of Financing present the\nutility of futures markets by encouraging their competi- reconciliation of the agency\xe2\x80\x99s use of budgetary resources\ntiveness and efficiency, ensuring their integrity, and pro- with its operating results. The Statements of Custodial\ntecting market participants against manipulation, abusive Activity present the sources and disposition of collections\ntrade practices, and fraud. for which the CFTC is the fiscal agent, or custodian, for the\n Treasury General Fund Miscellaneous Receipt accounts.\nNote 2. Summary of Significant Accounting Policies\nA. Basis of Presentation B. Budgetary Resources and Status\n The CFTC is funded through Congressionally approved\nThe financial statements have been prepared to report\n appropriations. The CFTC is responsible for administering\nthe financial position and results of operations for the\n the salaries and expenses of the agency through the execu-\nCFTC, as required by the Chief Financial Officers\xe2\x80\x99 Act of\n tion of these appropriations.\n1990 along with the Accountability of Tax Dollars Act of\n2002, and the Government Management Reform Act of \t For these annual statements, there is no material dif-\n1994. They are presented in accordance with the form ference between the Statement of Budgetary Resources and\nand content requirements contained in Office of Man- related budgetary information reported to OMB, or in the\nagement and Budget (OMB) Circular A-136, \xe2\x80\x9cFinancial alignment to the Budget of the U.S. Government.\nReporting Requirements.\xe2\x80\x9d \t Congress annually enacts one-year appropriations\n\t The financial statements have been prepared from that provide the CFTC with the authority to obligate\nthe agency\xe2\x80\x99s books and records in conformity with gener- funds within the respective fiscal year for necessary\nally accepted accounting principles in the United States expenses to carry out mandated program activities. In\nof America as prescribed for the federal government addition, Congress enacted a permanent indefinite ap-\nby the Federal Accounting Standards Advisory Board propriation that is available until expended. All appro-\n(FASAB), promulgated by the Office of Management and priations are subject to quarterly apportionment as well\nBudget (OMB), and the agency\xe2\x80\x99s accounting policies as as Congressional restrictions.\nsummarized in this note.\n\n\n\n\n 71\n\x0cCFTC\xe2\x80\x99s budgetary resources for FY 2005 consist of: E. Accounts Receivable\n\xe2\x80\xa2 U\n \x07 nobligated balances of resources brought forward Accounts receivable consists of amounts owed by other\n from the prior year, federal agencies and the public to the CFTC and is valued\n\xe2\x80\xa2 Recoveries of obligations in prior years, and net of an allowance for uncollectible amounts. The al-\n\xe2\x80\xa2 N\n \x07 ew resources in the form of appropriations and lowance is based on past experience in the collection\n spending authority from offsetting collections. of receivables and analysis of the outstanding balances.\n\t Unobligated balances associated with resources Accounts receivable arise from reimbursable operations,\nexpiring at the end of the fiscal year remain available for earned refunds or the Civil Monetary Sanctions program.\nfive years after expiration only for upward adjustments of (See Note 4.)\nprior year obligations, after which they are canceled and F. Property and Equipment\nmay not be used. All unused monies related to canceled\n Property and equipment represents furniture, fixtures,\nappropriations are returned to Treasury and the canceled\n equipment, and information technology hardware and soft-\nauthority is reported as a line item on the Statements of\n ware, which are capitalized and depreciated or amortized\nBudgetary Resources and the Statements of Changes in\n over their useful lives.\nNet Position.\n \t The CFTC capitalizes assets annually if they have\nC. Entity and Non-Entity Assets useful lives of at least two years and an individual value of\nAssets consist of entity and non-entity assets. Entity assets $25,000 or more. Bulk or aggregate purchases are capital-\nare those assets that the CFTC has authority to use for its ized when the individual useful lives are at least two years\noperations. Non-entity assets are those held by the CFTC and a value of $25,000 or more. Property and equipment\nthat are not available for use in its operations. Non-entity that does not meet the capitalization criteria are expensed\nassets held by the CFTC include deposit fund balances and when acquired. Depreciation and amortization is computed\ncustodial fines and interest receivable, net. on a straight-line basis using a five-year life. Agency assets\n are valued net of accumulated depreciation. (See Note 5.)\nD. Fund Balance with Treasury\nFund Balance with Treasury is the aggregate amount of the G. Liabilities\nCFTC\xe2\x80\x99s funds with Treasury in expenditure, receipt, and The CFTC\xe2\x80\x99s liabilities consist of actual and estimated\ndeposit fund accounts. Appropriated funds recorded in amounts that are likely to be paid as a result of transac-\nexpenditure accounts are available to pay current liabilities tions; that are covered by budgetary resources for which\nand finance authorized purchases. Custodial collections Congress has appropriated funds or funding, or are\nrecorded in the deposit fund account and miscellaneous otherwise available from reimbursable transactions to pay\nreceipts accounts of the Treasury are not available for amounts due.\nagency use. At fiscal year end, receipt account balances are \t Liabilities include those covered by budgetary re-\ncleared and returned to Treasury. sources in existing legislation and those not covered by\n\t The CFTC does not maintain bank accounts of its budgetary resources (See Note 6). The CFTC liabilities not\nown, has no disbursing authority, and does not maintain covered by budgetary resources include:\ncash held outside of Treasury. Treasury disburses funds for \xe2\x80\xa2 D\n \x07 eposit funds,\nthe agency on demand. Spending authority from offsetting \xe2\x80\xa2 C\n \x07 ontingent liabilities,\ncollections is recorded in the agency\xe2\x80\x99s expenditure account \xe2\x80\xa2 A\n \x07 ctuarial Federal Employees Compensation Act (FECA)\nand is available for agency use subject to certain limita- liabilities,\ntions. (See Note 3.) \xe2\x80\xa2 A\n \x07 nnual leave benefits which will be funded by annual\n appropriations as leave is taken,\n\n\n\n\n72\n\x0c FINANCIAL SECTION\n\n\n\n\n\xe2\x80\xa2 C\n \x07 ustodial liabilities for custodial revenue transferred to determination or investigation. The CFTC deposit fund is\n Treasury at fiscal year end. used to record and later distribute monetary awards to the\n\t The CFTC\xe2\x80\x99s liabilities that are covered by budgetary appropriate defendants as restitution.\nresources are considered current liabilities.\n K. Net Position\nH. Accounts Payable Net position consists of unexpended appropriations and\nAccounts payable consists primarily of contracts for cumulative results of operations.\ngoods or services, such as leases, utilities, telecommuni- \t Unexpended appropriations are appropriations that\ncations, and consulting and support services. Accounts have not yet been used to acquire goods and services or\npayable to other Federal agencies are designated as provide benefits. Appropriations are considered expended,\n\xe2\x80\x9cintragovernmental.\xe2\x80\x9d or used, when goods and services have been acquired by\n the CFTC or benefits have been provided using the ap-\nI. Accrued Payroll and Benefits and Annual Leave\n propriation authority, regardless of whether monies have\nLiability\n been paid or payables for the goods, services, or benefits\nThe accrued payroll liability represents amounts for sala-\n have been established. Appropriations were used primar-\nries and benefits owed for the time since the payroll was\n ily to acquire goods and services to operate the CFTC\xe2\x80\x99s\nlast paid through the end of the fiscal year. The annual\n programs or to provide benefits.\nleave liability is the amount owed employees for unused\n \t Cumulative results of operations represent the excess\nannual leave as of the end of the fiscal year. At the end of\n of financing sources over expenses since inception. Cumu-\neach fiscal year, the balance in the accrued annual leave\n lative results of operations are derived from the net effect\naccount is adjusted to reflect current balances and pay\n of capitalized assets, expenses, exchange revenue, and\nrates. Sick leave and other types of non-vested leave are\n unfunded liabilities.\nexpensed as taken.\n\t The agency\xe2\x80\x99s employees participate in the Civil Ser- L. Revenues\nvice Retirement System (CSRS) or the Federal Employees\xe2\x80\x99 The CFTC receives reimbursement and earns revenue for\nRetirement System (FERS). On January 1, 1987, FERS went the following activities:\ninto effect pursuant to Public Law 99-335. Most employ- \xe2\x80\xa2 R\n \x07 eimbursement for travel, subsistence, and related\nees hired after December 31, 1983, are automatically cov- expenses from federal and non-federal sources for atten-\nered by FERS and Social Security. Employees hired prior to dance at meetings or similar functions that an employee\nJanuary 1, 1984, could elect to either join FERS and Social has been authorized to attend in an official capacity on\nSecurity or remain in CSRS. behalf of the Commission.\n\t For employees under FERS, the CFTC contributes \xe2\x80\xa2 R\n \x07 eimbursement for Intergovernmental Personnel Act\nan amount equal to one percent of the employee\xe2\x80\x99s basic Mobility Program assignments from state and local gov-\npay to the tax deferred thrift savings plan and matches ernments, institutions of higher education, and other\nemployee contributions up to an additional four percent eligible organizations for basic pay, supplemental pay,\nof pay. FERS employees can contribute 15 percent of their fringe benefits, and travel and relocation expenses.\ngross earnings to the plan. CSRS employees are limited to \xe2\x80\xa2 R\n \x07 eimbursement from non-federal sources for registra-\na contribution of 10 percent of their gross earnings and tion fees to cover the cost of expenses related to the\nreceive no matching agency contribution. CFTC\xe2\x80\x99s annual International Regulators Conference.\n\nJ. Deposit Funds M. Net Cost of Operations\nDeposit funds are expenditure accounts used to record Net cost of operations is the difference between the\nmonies that do not belong to the Federal government. CFTC\xe2\x80\x99s expenses and its earned revenue. The presenta-\nThey are held awaiting distribution based on a legal tion of program results by strategic goals is based on\n\n\n\n\n 73\n\x0cthe CFTC\xe2\x80\x99s current Strategic Plan established pursuant which will generate or use resources in a future period,\nto the Government Performance and Results Act (GPRA) such as benefits expense resulting from the increase in\nof 1993. annual leave liability, which is accrued for purposes of\n\t The mission statement of the CFTC is to protect the Statements of Net Cost, but is not funded until leave\nmarket users and the public from fraud, manipulation, is taken.\nand abusive practices related to the sale of commodity and\n P. Custodial Activity\nfinancial futures and options, and to foster open, competi-\n The CFTC collects penalties and fines levied against firms\ntive, and financially sound futures and option markets.\n for violation of laws as described in the Commodity\nThe mission is accomplished through three strategic goals,\n Exchange Act as codified at 7 U.S.C. \xc2\xa7 1, et seq., and the\n\xe2\x80\xa2 E\n \x07 nsure the economic vitality of the commodity futures\n Commodity Futures Modernization Act of 2000, Appendix\n and option markets.\n E of PL.106-554, 114 Stat. 2763. Unpaid fines, penalties\n\xe2\x80\xa2 P\n \x07 rotect market users and the public.\n and accrued interest are reported as custodial receivables,\n\xe2\x80\xa2 E\n \x07 nsure market integrity in order to foster open, com-\n with an associated custodial liability. The receivables and\n petitive, and financially sound markets.\n the liability are reduced by losses determined to be uncol-\nN. Gross Costs and Earned Revenue by Budget lectible. Revenues earned and the losses from bad debts\nFunctional Classification are reported to Treasury.\nThe CFTC\xe2\x80\x99s gross costs, earned revenue, and intragovern- \t Collections made by CFTC during the year are depos-\nmental transactions align with the three strategic goals ited and reported into designated Treasury miscellaneous\nbased on the agency mission statement related to protect- receipt accounts for:\ning market users and the public. \xe2\x80\xa2 R\n \x07 egistrations and filing fees,\n \xe2\x80\xa2 F\x07 ees, fines, penalties and forfeitures, and\nO. Reconciliation of Net Obligations and Net\n \xe2\x80\xa2 G\n \x07 eneral miscellaneous recoveries and refunds.\nCost of Operations\n \t At fiscal year end, custodial collections made by CFTC\n\t The Statements of Financing reconcile the net obliga-\n are returned to Treasury. The CFTC does not retain any\ntions with the net cost of operations. Net obligations,\n amount for custodial activities including reimbursement\nreported on the Statements of Budgetary Resources, are\n of the cost of collection.\ncalculated by subtracting downward adjustments of prior-\nperiod obligations and offsetting collections from gross Q. Use of Management Estimates\nobligations. The net cost of operations, reported on the The preparation of the accompanying financial state-\nStatements of Net Cost represents the difference between ments in accordance with accounting principles generally\ngross costs and earned revenue. accepted in the United States requires management to\n\t Other resources used to finance activity, such as im- make certain estimates and assumptions that directly af-\nputed costs from the Statements of Changes in Net Posi- fect the results of reported assets, liabilities, revenues, and\ntion, are added to net obligations to derive total resources expenses. Actual results could differ from these estimates.\nused to fund activities. Resources used to finance items\nnot part of the net cost of operations, such as undelivered R. Tax Status\norders are added to the reconciliation. The CFTC is not subject to Federal, State or local income\n\t The reconciliation is finalized by adding in items taxes. Accordingly, no provision for income taxes is recorded.\nin the net cost of operations that do not generate or use\nresources in the current period. This includes costs and\nearned revenues which will never generate or use resourc-\nes, such as depreciation expense. This also includes those\n\n\n\n\n74\n\x0c FINANCIAL SECTION\n\n\n\n\nNote 3. Fund Balance with Treasury\n\nA. Reconciliation to Treasury:\nThere are no differences between the Fund Balance re-\nflected in the CFTC Balance Sheets and the balance in the\nTreasury accounts.\n\nB. Fund Balances:\nFund Balances with Treasury consist of entity assets such\nas appropriations and reimbursements for services ren-\ndered. Obligation of these funds is controlled by quarterly\napportionments made by the OMB. Work performed\nunder reimbursable agreements is initially financed by the\nannual appropriation and is subsequently reimbursed.\nOther funds include non-entity deposit fund receipts.\n\t Fund Balance with Treasury at September 30, 2005\nand 2004, consisted of the following:\n\n\n \t\t\t 2005\t\t 2004\n\n\n Appropriated Funds\t $ \t 23,444,793\t $ \t 26,304,227\n\n\n Other Funds:\n Deposit Funds\t\t 20,094\t\t -\n\n TOTAL FUND BALANCE WITH TREASURY\t $\t 23,464,887\t $\t 26,304,227\n\n\n\n C. Status of Fund Balance with Treasury:\n The Status of Fund Balance with Treasury at\n September 30, 2005 and 2004, consisted of the following:\n\n \t\t\n \t\t\t 2005\t\t 2004\n\n\n Appropriated Funds\n Unobligated Fund Balance\n -Available\t $\t 756,075\t $\t 16,360\n -Expired\t\t 12,538\t\t 22,253\n -Unavailable\t\t 2,999,928\t\t 1,356,890\n Obligated Balance Not Yet Disbursed\t\t 19,676,252\t\t 24,908,724\n\n Deposit Fund\t\t 20,094\t\t -\n\n TOTAL FUND BALANCE WITH TREASURY\t $\t 23,464,887\t $\t 26,304,227\n\n\n\n\n 75\n\x0cNote 4. Accounts Receivable \t Historical experience has indicated that a high per-\nAccounts receivable consist of amounts owed to the CFTC centage of custodial receivables prove uncollectible. The\nby other Federal agencies and the public. Accounts receiv- methodology used to estimate the allowance for uncollect-\nable are valued net of estimated uncollectibles. Non-custo- ible amounts related to custodial accounts is that custo-\ndial accounts receivable are primarily for overpayments of dial receivables are considered 100 percent uncollectible\nexpenses to other agencies, or vendors, and repayment of unless otherwise noted in the judgment. An allowance for\nemployee benefits. Historical experience has indicated that uncollectible accounts has been established and included\nmost of the non-custodial receivables are collectable and in accounts receivable on the balance sheet. The allowance\nthere are no material uncollectible amounts. is based on past experience in the collection of accounts\n\t Custodial receivables (non-entity assets) are those for receivable and analysis of outstanding balances. Accounts\nwhich fines and penalties have been assessed and levied are reestimated quarterly based on account reviews and\nagainst businesses for violation of law. The CFTC litigates the agency determination that changes to the net realiz-\nagainst defendants for alleged violations of the CEA, as able value are needed.\namended. Violators may be subject to a variety of sanc- \t Accounts receivable, as of September 30, 2005 and\ntions including fines, injunctive orders, bars or suspen- 2004, consisted of the following:\nsions, rescissions of illegal contracts, disgorgements, and\nrestitutions to customers.\n\n\n\t\t\t 2005\t\t 2004\n\n\n Intragovernmental Accounts Receivable \t $\t 175,595\t $\t 22,806\n\n Custodial Fines and Interest Receivables, Net:\n \t Civil Monetary Penalty Interest\t $\t 2,501,590\t $\t 65,253,060\n \t Less: Allowance for Loss on Interest \t\t (2,290,056)\t\t(65,253,060)\n \t Civil Monetary Penalties, Fines, and Administrative Fees\t\t 328,168,373\t\t 465,735,791\n \t Less: Allowance for Loss on Penalties, Fines and Administrative Fees\t\t(299,716,062)\t (\t430,332,852)\n \t Net Custodial\t\t 28,663,845\t\t 35,402,939\n Other\t\t 10,332\t\t 9,457\n\n\n Total Accounts Receivable With the Public\t $\t 28,674,177\t $\t 35,412,396\n\n\n\n\n76\n\x0c FINANCIAL SECTION\n\n\n\n\nNote 5. Property and Equipment, Net\nAssets are capitalized annually if they have useful lives of\nat least two years and an individual value of $25,000 or\nmore. Bulk or aggregate purchases are capitalized when\nthe individual useful lives are at least two years and a\nvalue of $25,000 or more. Depreciation and amortization\nis computed on a straight-line basis using a five-year life.\nThe CFTC did not defer any maintenance in FY 2005 and\nFY 2004. Property and equipment, net, as of September\n30, 2005 and 2004, consisted of the following:\n\n\n\t 2005 \t\t\t Accumulated\n\t\t \t\t Amortization/\n Major Class\t Service Life and Method\t Cost\t Depreciation\t Net Book Value\n\n\n Equipment\t\t 5 Years/Straight Line\t $\t 562,894\t $\t 176,878\t $\t 386,016\n IT Software\t\t 5 Years/Straight Line\t $\t 1,580,271\t $\t 46,637\t $\t 1,533,634\n Total Property and Equipment\t\t $\t 2,143,165\t $\t 223,515\t $\t 1,919,650\n\n\n 2004\t\t\t\t\t Accumulated\t\t\t\n \t\t\t\t\t\t Amortization/\n Major Class\t\t Service Life and Method\t\t Cost\t Depreciation\t Net Book Value\n\n\n Equipment\t\t 5 Years/Straight Line\t $\t 428,040\t $\t 87,830\t $\t 340,210\n IT Software\t\t 5 Years/Straight Line\t $\t 284,301\t $\t 134,873\t $\t 149,428\n Total Property and Equipment\t\t $\t 712,341\t $\t 222,703\t $\t 489,638\n\n\n\n Note 6. Liabilities Not Covered by Budgetary Resources\n As of September 30, 2005 and 2004, the following\n liabilities not covered by budgetary resources exist:\n\n\n \t\t\t 2005\t\t 2004\n\n\n Intragovernmental-FECA\t $\t 138,496\t $\t 194,102\n\n\n Annual Leave\t 5,230,125\t 4,797,303\n Actuarial FECA\t 491,304\t 514,932\n Contingent Liabilities\t -\t 182,426\n Deposit Fund\t 20,094\t -\n\n TOTAL LIABILITIES NOT COVERED BY BUDGETARY RESOURCES\t $\t 5,880,019\t $\t 5,688,764\n\n\n\n\n 77\n\x0c Note 7. Retirement Plans and Other Employee utilizes historical benefits payment patterns related to a\n Benefits specific incurred period to predict the ultimate payments\n The CFTC imputes costs and the related financing source related to that period. The projected annual benefits\n for its share of retirement systems accruing to its past and payments are discounted to present value using OMB\xe2\x80\x99s\n present employees that are in excess of the amount of economic assumptions for ten-year Treasury notes and\n contributions from the CFTC and its employees, which are bonds. To provide more specifically for effects of infla-\n mandated by law. The Office of Personnel Management tions on liability for FWC benefits, wage inflation factors\n (OPM), which administers Federal civilian retirement (Consumer Price Index-Medical) are applied to the calcu-\n programs, provides the cost information to the CFTC. The lation of projected future benefits. These factors are also\n CFTC recognizes the full cost of providing future pension used to adjust historical payment so benefits are stated in\n and Other Retirement Benefits (ORB) for current employ- current-year constant dollars.\n ees as required by SFFAS No. 5, Accounting for Liabilities of\n Note 9. Leases\n the Federal Government.\n The CFTC leases office space in publicly owned buildings\n \t Full costs include pension and ORB contributions\n for its locations in Washington D.C., Chicago, New York,\n paid out of the CFTC\xe2\x80\x99s appropriations and costs financed\n Minneapolis, and Kansas City. The lease contracts for pub-\n by OPM. The amount financed by OPM is recognized as\n licly-owned buildings are operating leases. The CFTC has\n an imputed financing source. Reporting amounts such as\n no real property. Future lease payments are not accrued as\n plan assets, accumulated plan benefits, or unfunded li-\n liabilities and are expensed as incurred.\n abilities, if any, is the responsibility of OPM.\n \t As of September 30, 2005, future estimated mini-\n \t Liabilities for future pension payments and other\n mum lease payments through FY 2010, and thereafter, are\n future payments for retired employees who participate in\n as follows:\n the Federal Employees Health Benefits Program (FEHBP)\n and the Federal Employees Group Life Insurance Program\n \t Fiscal Year\t Dollars\n (FEGLI) are reported by OPM rather than the CFTC.\n \t 2006\t $ 10,926,612\n Note 8. Actuarial FECA Liabilities \t 2007\t 11,343,178\n \t 2008\t 11,654,861\n The Federal Employees Compensation Act (FECA) pro-\n \t 2009\t 11,942,110\n vides income and medical cost protections to covered \t 2010\t 12,207,780\n federal civilian employees injured on the job, to em- \t Thereafter\t 40,996,482\n ployees who have incurred work-related occupational\n \t TOTAL FUTURE MINIMUM LEASE PAYMENTS\t $ 99,071,023\n diseases and to beneficiaries of employees whose deaths\n are attributable to job-related injuries or occupational\n Note 10. Contingent Liabilities\n diseases. The FECA program is administered by the U.S.\n \t The CFTC records contingent liabilities for cases in\n Department of Labor (DOL), which pays valid claims\n which payment has been deemed probable and for which\n against the Department and subsequently seeks reim-\n the amount of potential liability has been estimated,\n bursement from the Department for these paid claims.\n including certain judgments that have been issued against\n Accrued FECA liabilities represent amounts due to DOL\n the agency and which have been appealed. In FY 2004, the\n for claims paid on behalf of the agency.\n U.S. District Court held the CFTC liable for $182,425 for\n \t Actuarial FECA liability represents the liability for\n violation of the Equal Access to Justice Act and a contin-\n future workers compensation (FWC) benefits, which\n gent liability was established. In FY 2005, the U.S. District\n includes the expected liability for death, disability,\n Court found in favor of the CFTC and the contingent\n medical, and miscellaneous cost for approved cases.\n liability was terminated. As of September 30, 2005, no\n The liability is determined using a formula provided by\n contingent liabilities exist.\n DOL annually as of September 30th using a method that\n\n\n78\n\x0c FINANCIAL SECTION\n\n\n\n\n Required Supplementary Information\n\nDetailed Information on Intragovernmental Amounts\nIntragovernmental assets and liabilities as of September 30, 2005 and 2004 consisted of the following:\n\n\t\t\n\t\t\t 2005\t\t 2004\n\n\nAssets:\nFund Balance with Treasury\t $\t 23,464,887\t $\t 26,304,227\n\n\n\nACCOUNTS RECEIVABLE:\nPostal Service\t\t 446\t\t -\nDepartment of Treasury \t\t 175,149\t\t -\nExecutive Office of the President\t\t -\t\t 22,806\n\nTotal Intragovernmental Assets\t $\t 23,640,482\t $\t 26,327,033\n\n\n\nLiabilities:\nDepartment of Labor (FECA)\t $\t 138,496\t $\t 194,102\n\n\n\nACCOUNTS PAYABLE:\nGeneral Services Administration\t $\t 51,491\t\t -\nGovernment Printing Office\t\t 2,451\t\t -\nDepartment of Treasury\t\t 11,070\t\t -\nDepartment of Agriculture\t\t 16,250\t\t -\nDepartment of Health and Human Services\t\t 2,352\t\t -\t\nLibrary of Congress\t\t 1,200\t\t -\nFederal Reserve Board\t\t 6,136\t\t -\n Total Accounts Payable\t\t 90,950\t\t -\n\nTotal Intragovernmental Liabilities \t $\t 229,446\t $\t 194,102\n\n\n\n\n 79\n\x0c A Report of the Independent Auditors\n\n\n\n\n80\n\x0c FINANCIAL SECTION\n\n\n\n\nFinancial Details\n\n\n\n\n 81\n\x0c82\n\x0c FF II N\n N AA N\n NCC II AA LL S\n DEEC\n TATIL\n OSN\n\n\n\n\nFinancial Details\n\n\n\n\n 83\n\x0c84\n\x0c FINANCIAL SECTION\n\n\n\n\nFinancial Details\n\n\n\n\n 85\n\x0c86\n\x0cFINANCIAL SECTION\n\n\n\n\n 87\n\x0c88\n\x0cFINANCIAL SECTION\n\n\n\n\n 89\n\x0c90\n\x0c FINANCIAL SECTION\n\n\n\n\nFinancial Details\n\n\n\n\n 91\n\x0c92\n\x0c FINANCIAL SECTION\n\n\n\n\n Other Statutorily Required Reports\n\n\nCredit Management and Debt Collection to provide a framework for enhancing the effectiveness of\nImprovement Act information security in the Federal government. FISMA\n also provides a mechanism for effective oversight of Fed-\nThe CFTC has designed and implemented a comprehen-\n eral agency information security programs. In Fiscal Year\nsive debt collection program that enables us to effectively\n 2005, OMB introduced a new privacy management section\nadminister our multimillion-dollar civil monetary sanc-\n of FISMA reporting, which removes privacy compliance\ntions program. The debt collection program covers ac-\n reporting from the annual E-Government Act report to the\ncount servicing, collection, and close-out and it conforms\n annual FISMA report. FISMA requires system owners to\nto the government-wide policies in the Federal Claims\n annually review certification and accreditation status of all\nCollection Standards, the OMB Circular A-129, and the\n systems, including those that are accredited (i.e., granted\nDebt Collection Improvement Act.\n an approval to operate).\n\t The Commission has $28.7 million in outstanding\ncivil monetary sanctions which accounts for almost 100\npercent of its outstanding debt. The other category of debt E-Government Act of 2002\nthat it manages, other administrative debt, is negligible. Each year OMB reports to Congress, a summary of the in-\nAs of September 30, 2005 the CFTC has forwarded ap- formation reported by agencies. In 2005, the Commission\nproximately 95 percent of all debts eligible for referral to provided a brief overview of our process for determining\nTreasury for servicing. which information will be made available on the Internet\n as well as our implementation accomplishments.\nFederal Information Security Management \t In FY 2005, the CFTC made significant progress\nAct and Agency Privacy Management toward implementation of the policies and best practices\nThe Commission is in substantial compliance with the published by the Interagency Committee on Govern-\nFederal Information Security Management Act of 2002 ment Information as required by Section 207(f)(2) of the\n(FISMA) also known as Title III of the E-Government Act E-Government Act of 2002. Specifically, CFTC compiled\nof 2002. FISMA requires each Federal agency to provide and published a Web site inventory; established a privacy\ninformation security for its information technology assets. policy in machine-readable format for visitors to the Web\nOur Independent Auditors\xe2\x80\x99 Report disclosed one instance site; completed the administration and publication of\nof noncompliance with FISMA. The purpose of FISMA is CFTC forms to the new government-wide forms portal;\n\n\n\n\n 93\n\x0c and upgraded its search engine to provide improved cus- \t eLearning. The CFTC offers on-line training consis-\n tomer functionality and internal reporting capabilities. In tent with the eLearning initiative and in FY 2005 started\n an effort to gather essential information about customer planning to broaden the range of on-line course offerings.\n satisfaction, CFTC entered into an agreement with the \t Enterprise Human Resources Integration (EHRI).\n Federal Consulting Group and its partner, Foresee Results In FY 2005, CFTC participated in the planning activities\n Inc., to publish a survey to the www.CFTC.gov Web site. for the e-Government services that are in the development\n This survey is providing valuable information on customer stage for the EHRI project, including imaging CFTC em-\n needs and behaviors for on-going enhancements to the ployee personnel records. Our staff has also contributed to\n Web site. The CFTC has a long-standing policy of placing the development of the related e-Payroll and HR Line of\n as much information as possible and practicable on its Business projects.\n Web site. \t Financial Education Web site. Through a partnership\n \t One noteworthy highlight was implementation of an with 19 other Federal agencies, the CFTC helped launch\n automated strategic workforce planning system. Support a new financial education Web site and toll-free hotline\n by agency senior leadership of a more transparent and number. The www.mymoney.gov Web site and the 1-888-\n participative approach to resource management guided mymoney toll-free hotline were established to provide\n the selection of an on-line survey that drew on the collec- Americans easily access to information that can help them\n tive expertise of all employees to inventory the mission- save, invest, and manage their money wisely to meet im-\n critical competencies needed over the life of the CFTC portant personal goals.\n strategic plan.\n\n\n The Commission Participated in Several\n E-Gov Initiatives During FY 2005.\n Personnel Security e-Clearance. In FY 2005, CFTC\n implemented a 100 percent electronic Personnel Security\n and Suitability process with the installation of electronic\n fingerprinting units in its Chicago, Washington, D.C.,\n Kansas City and New York offices. CFTC now electroni-\n cally captures and transmits fingerprints as part of the\n required background investigations conducted by the\n OPM. This equipment is certified by the FBI in compliance\n with the FBI\xe2\x80\x99s Integrated Automated Fingerprint Identifica-\n tion System. This technology significantly improved the\n satisfactory classification rate of fingerprints, as well as the\n timeliness in processing and receiving results of finger-\n print checks.\n \t Financial Management. In FY 2005, CFTC selected an\n OMB-approved Financial Management Center of Excel-\n lence and initiated the migration process. This migration\n will be completed in FY 2006.\n \t Travel Management. In FY 2005, CFTC initiated\n migration to an electronic travel system solution through\n an OMB-approved Financial Management Center of Excel-\n lence and initiated the migration process. This migration\n will be completed in FY 2006.\n\n\n94\n\x0cFINANCIAL SECTION\n\n\n\n\n 95\n\x0c APPENDICES\n\n\n\n\n96\n\x0c APPENDICES\n\n\n\n\n Appendices\n\n\nInspector General\xe2\x80\x99s Assessment of Management Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98\n\n\n\n\nEnforcement Litigation by Strategic Goal One. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102\n\n\n\n\nEnforcement Litigation by Strategic Goal Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106\n\n\n\n\nEnforcement Litigation by Strategic Goal Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113\n\n\n\n\nGlossary of Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115\n\n\n\n\n 97\n\x0c Inspector General\xe2\x80\x99s Assessment\n of Management Challenges\n\n\n\n\n98\n\x0cAPPENDICES\n\n\n\n\n 99\n\x0c100\n\x0cAPPENDICES\n\n\n\n\n 101\n\x0c Enforcement Litigation for Goal One\n\n\n Litigation by Goal One managers, Jack McCaffery of North Platte and John D.\n Lawless of Imperial, to report phony sales of feeder cattle\n Goal One: Ensure the economic vitality of the com- to the U.S. Department of Agriculture (USDA). Accord-\n modity futures and option markets. ing to the complaint, the USDA included these sales in\n Manipulation Attempted Manipulation & False Report- its public cash market feeder cattle report, which the\n ing. Manipulation investigations and litigations tend to be CME used to price the CME\xe2\x80\x99s Feeder Cattle Index, which\n among the most complex and resource-intensive matters ultimately determined the final settlement price for the\n handled by Enforcement staff. During FY 2005, the Com- October 2003 Feeder Cattle futures contract. Accord-\n mission\xe2\x80\x99s Enforcement program\xe2\x80\x99s efforts in this program ing to the complaint, the reports of phony sales caused\n area are reflected in its handling of alleged misconduct in an increase of $2.85 in the final settlement price of the\n the feeder cattle and energy markets. CME\xe2\x80\x99s October 2003 feeder cattle contract, to $106.98\n \t Potential Cattle Market Misconduct - CFTC v. per hundredweight of feeder steers. The Commission\n DeLay, et al., No. 05C 5619 (N.D.Ill. filed Sept. 29, lawsuit also alleges that, as part of the manipulation\n 2005). On September 29, 2005, the Commission filed an scheme, Delay violated CFTC-approved speculative posi-\n action charging Todd J. Delay, a futures broker located in tion limits for the Feeder Cattle futures contract, in that\n Columbus, Ohio, with engaging in a scheme to manipu- Delay and other trading accounts he controlled bought\n late the price of the October 2003 Feeder Cattle futures twice as many contracts as permitted, all of which ben-\n contract traded at the CME. The futures contracts at issue efited from the rise in futures prices. The Commission\n involve \xe2\x80\x9cfeeder cattle\xe2\x80\x9d as defined in the CME contract, received invaluable assistance throughout the investiga-\n which are young steers that are sent to feedlots for tion from the CME\xe2\x80\x99s Market Regulation Department.\n finishing into \xe2\x80\x9cfed\xe2\x80\x9d or \xe2\x80\x9cfat\xe2\x80\x9d cattle that, in turn, are sent \t Potential Energy Market Misconduct. During FY\n to packers for slaughter. Futures contracts enable cattle 2005, the Commission\xe2\x80\x99s Enforcement program contin-\n producers, meat packers, bulk beef purchasers and others ued its rigorous investigation of the energy industry to\n to manage their price risk more effectively, and foster determine whether any companies and individuals had\n price discovery in the livestock industry. The Commission engaged in any conduct violative of the CEA. In particu-\n action charges that Delay caused Feeder Cattle futures lar, the Enforcement program investigated conduct that\n contracts to trade at an artificially high price at the end of potentially involved false reporting of natural gas trading\n October 2003 by conspiring with two Nebraska feedlot to companies that compile and publish natural gas index\n\n\n\n\n102\n\x0c APPENDICES\n\n\n\n\nprices for delivery hubs throughout the U.S. and/or at- Previously Filed Administrative Case Resulting in Sanc-\ntempts to manipulate and/or manipulation of natural gas tions During FY 2005 - CFTC v. American Electric Power\nindex prices. Company and AEP Energy Services, Inc., No. 2:03-cv-891, Fi-\n\t As a result of extensive investigative work in this area, nal Judgment and Consent Order (S.D.Ohio filed Jan. 26,\nduring FY 2005, the Commission achieved significant suc- 2005). On January 26, 2005, the Commission settled an\ncess (see discussion below) including: filing a total of 10 action brought on September 30, 2003, against American\nenforcement actions; achieving significant litigation results Electric Power Company, Inc. (AEP) and AEP Energy Ser-\nin one action filed in this practice area during the previous vices, Inc. (AEPES), a subsidiary of AEP. The Final Judgment\nfiscal year; and achieving a significant victory in a related and Consent Order requires the defendants to pay a $30\nsubpoena enforcement action. million civil monetary penalty in settlement of charges that\n defendants falsely reported natural gas trades and attempt-\nAdministrative Cases Against Energy Companies ed to manipulate natural gas prices. In addition, in related\nFiled During FY 2005 actions, AEPES agreed to pay an additional $30 million to\n\xe2\x80\xa2 \x07In re Mirant Americas Energy Marketing LP, CFTC Docket the DOJ to avoid federal criminal prosecution, and $21 mil-\n No. 05-05 (CFTC filed Dec. 6, 2004). On December 6, lion to the Federal Energy Regulatory Commission.\n 2004, the Commission simultaneously instituted and \t Individual Energy Trader Enforcement Actions.\n settled an action against Mirant Americas, a wholly During FY 2005, the Commission filed seven enforcement\n owned subsidiary of Mirant Corporation, charging it actions charging a total of 16 individual energy traders\n with attempted energy marketing manipulation and false and charging them with false reporting and attempted\n reporting in connection with its false reports of informa- manipulation. All the individual defendants are or were\n tion concerning natural gas transactions to price compil- natural gas traders working for various energy compa-\n ing publications. The order requires Mirant Americas to nies, which are identified below (and most of which were\n cease and desist from further violations as charged and previously sued by the Commission). The traders are\n imposes a $12.5 million civil monetary penalty. charged with submitting reports to various natural gas\n\xe2\x80\xa2 \x07In re Cinergy Marketing & Trading, LP, CFTC Docket No. price compilers, including Gas Daily, Inside FERC, Natural\n 05-03 (CFTC filed Nov. 16, 2004). On November 16, Gas Intelligence, Btu Daily and Natural Gas Week, that\n 2004, the Commission simultaneously instituted and contained false information such as fictitious trades or the\n settled an action against Cinergy Marketing & Trading, alteration of price or volume for actual executed trades, all\n LP (Cinergy) charging it with false reporting of trade in an attempt to manipulate prices.\n information concerning natural gas transactions to two \xe2\x80\xa2 \x07CFTC v. Whitney, No. H-05-333 (S.D.Tex. filed Feb. 1,\n price compiling publications. The order requires Cinergy 2005). On February 1, 2005, the Commission filed an\n to cease and desist from further violations as charged and action charging that Michael Whitney, formerly an energy\n imposes a civil monetary penalty of $3 million. trader with Duke Energy Trading and Marketing, LLC,\n\xe2\x80\xa2 \x07In re BP Energy Co., CFTC Docket No. 05-02 (CFTC filed submitted or caused to be submitted false or mislead-\n Nov. 4, 2004). On November 4, 2004, the Commission ing or knowingly inaccurate price and volume informa-\n simultaneously instituted and settled an action against tion to Gas Daily and Enerdata, Ltd. concerning natural\n BP Energy Company charging it with illegal wash sales gas transactions he executed on behalf of Duke Energy\n involving electricity contracts and the reporting of non- between June 2001 and approximately August 2002. As\n bona fide prices. The order requires BP Energy Company alleged, Whitney submitted the false trade information\n to cease and desist from further violations as charged and in an attempt to manipulate the price of natural gas in\n imposes a $100,000 civil monetary penalty. interstate commerce.\n\t\n\n\n\n\n 103\n\x0c \xe2\x80\xa2 \x07CFTC v. Bradley, et al., No. 05CV62-CVE-FHM (N.D.Okla. attempted to manipulate the price of natural gas in inter-\n filed Feb. 1, 2005). On February 1, 2005, the Commis- state commerce by reporting biased information to price\n sion filed an action charging that, between January 2001 reporting companies. Specifically, the complaint alleges\n and October 2002, Jeffrey A. Bradley, formerly the man- that defendants regularly circulated an e-mail with direc-\n ager of marketing for CMS Field Services, Inc., knowingly tions to the traders to report prices in such a way that\n submitted false, misleading or knowingly inaccurate it would benefit their positions. The complaint charges\n transaction information regarding hundreds of natural that all these activities occurred while defendants were\n gas transactions to multiple natural gas reporting firms, employed by the energy company Shell Trading Gas and\n including but not limited to Gas Daily, Btu Daily, Natural Power Company in providing services for Coral Energy\n Gas Intelligence and Natural Gas Week. The action al- Resources, L.P.\n leges that Bradley did this by reporting fictitious trades as \xe2\x80\xa2 \x07CFTC v. Reed, et al., No. 05-D-178 (D.Colo. filed Feb. 1,\n if they were bona fide transactions, by altering the prices 2005). On February 1, 2005, the Commission filed an\n and volumes for actual trades, or by reporting non-fixed action charging that, between May 2000 and October\n price trades as if they were fixed price trades. On at least 2002, Matthew Reed, Darrell Danyluk and Shawn\n one occasion, Robert L. Martin, formerly the director of McLaughlin engaged in false reporting and attempted\n gas supply for the same company, allegedly conspired manipulation while employed by Enserco Energy Servic-\n and coordinated with Bradley, and caused reports to be es. McLaughlin engaged in this conduct while acting as\n submitted to the same natural gas reporting firms. President of Enserco. The complaint further alleges that\n \xe2\x80\xa2 \x07CFTC v. Atha, et al., No. 1:05-CV-0293 (N.D.Ga. filed Feb. Reed continued the false reporting and attempted ma-\n 1, 2005). On February 1, 2005, the Commission filed nipulation scheme while employed by Concord Energy,\n an action charging Paul Atha, Christopher McDonald, LLC, which is also charged with liability for his acts. As\n and Texas resident Michael Whalen, all formerly Mirant alleged, while at Enserco, with McLaughlin\xe2\x80\x99s knowl-\n Americas Energy Marketing, LP, energy traders, with false edge and consent, Reed, located in Enserco\xe2\x80\x99s Colorado\n reporting and attempted manipulation of the natural gas office, and Danyluk, located in Enserco\xe2\x80\x99s Calgary office,\n markets between January 2000 and late 2000 or early coordinated on an almost daily basis how they wanted\n 2001. As charged, Whalen departed Mirant in May 2000 to report fictitious trades to numerous reporting firms,\n and his alleged violations occurred during his subsequent including Gas Daily and Natural Gas Intelligence, to\n employment with Cinergy Corporation in Texas. The benefit trading positions they held.\n complaint alleges a series of revealing telephone calls \xe2\x80\xa2 \x07CFTC v. Richmond, No. 05-M-668 (D.Colo. filed April\n between the Mirant traders and Whalen wherein they 12, 2005). On April 12, 2005, the Commission filed an\n conspire about how they should report to Inside FERC action against Andrew Richmond charging false report-\n to benefit their positions and discuss how to make their ing and attempted manipulation of the price of natural\n reports believable. gas. Specifically, the complaint alleges that, between\n \xe2\x80\xa2 \x07CFTC v. Johnson, et al., No. H-05-0332 (S.D.Tex. filed Feb. approximately April 2000 and February 2001, while he\n 1, 2005). On February 1, 2005, the Commission filed an was the director of marketing at Western, Richmond\n action charging Denette Johnson, Courtney Cubbison pressured his subordinates to submit false or mislead-\n Moore, Robert Harp, Anthony Dizona, John Tracy, and ing or knowingly inaccurate price and volume informa-\n Kelly Dyer with knowingly delivering dozens of reports tion to Gas Daily in an attempt to manipulate the price\n containing knowingly inaccurate fixed-price, physical, of natural gas.\n baseload trade information for at least nine locations in \xe2\x80\xa2 \x07CFTC v. Foley, No. 2:05 cv 849 (S.D.Ohio filed Sept. 14,\n the Western United States between October 2001 and 2005). On September 14, 2005, the Commission filed\n June 2002. The complaint also alleges that defendants an action charging that between November 2000 and\n\n\n\n\n104\n\x0c APPENDICES\n\n\n\n\n September 2002, Joseph P. Foley, a former natural gas\n head trader at AEPES, engaged in attempted manipula-\n tion and false reporting of natural gas prices. Foley is al-\n leged to have directed those he supervised to submit false\n reports of natural gas trading, including false prices and\n volumes, to index reporting firms that compile energy\n price surveys or indices (indices), such as Platts. Accord-\n ing to the complaint, price and volume information is\n used by Platts and others in calculating indexes of natural\n gas prices for various hubs throughout the U.S. The com-\n plaint alleges that Foley knowingly directed the delivery\n of false information to firms such as Platts in an attempt\n to skew those indexes for his and his company\xe2\x80\x99s financial\n benefit. According to the complaint, Foley knowingly\n directed those he supervised to deliver thousands of\n purported natural gas trades to the energy price indexes.\n The complaint alleges that, of those trades, a substantial\n number were false or misleading or knowingly inac-\n curate. Foley went so far as to direct the creation of a\n computer spreadsheet, titled \xe2\x80\x9cIFERC Bogus\xe2\x80\x9d, to record\n certain false trade information Foley wanted submitted,\n according to the complaint.\n\t Subpoena Enforcement Action - CFTC v. The\nMcGraw-Hill Companies, Inc., No. 1:05MS00235\n(D.D.C. filed June 16, 2005). On June 16, 2005, the\nCommission filed an application in the U.S. District\nCourt for the District of Columbia seeking to enforce a\nsubpoena it served on McGraw-Hill in April 2005. The\nsubpoena, issued as part of the Commission\xe2\x80\x99s on-going\ninvestigations of reporting by energy corporations, seeks\ninformation regarding the reporting of natural gas trad-\ning records to Platts, an entity owned by McGraw-Hill.\nThe information is being sought in connection with a\nnon-public investigation. The Commission subpoena\nalso seeks McGraw-Hill\xe2\x80\x99s documents concerning Platts\xe2\x80\x99\nuse of that data in the indices that Platts calculates and\ndisseminates. Following oral argument on September\n27th, the Honorable Judge Lamberth, on October 4th,\ngranted the Commission\xe2\x80\x99s motion and ordered Mc-\nGraw-Hill to provide the requested documents. Mc-\nGraw-Hill subsequently moved for reconsideration, and\nthe matter is still pending.\n\n\n\n\n 105\n\x0c Enforcement Litigation for Goal Two\n\n\n Litigation by Goal Two action against Philadelphia Alternative Asset Manage-\n ment Co., LLC (PAAM), a registered commodity pool\n Goal Two: Protect market users and the public. operator, and Paul M. Eustace, a registered associated\n Commodity Pools (including \xe2\x80\x9cHedge Funds\xe2\x80\x9d), person and president of PAAM, alleging fraudulent\n Commodity Pool Operators, and Commodity Trading solicitation and false reporting involving a hedge fund\n Advisors. Investors continue to fall prey to unscrupulous and commodity pools. PAAM is alleged to have ac-\n CPOs and CTAs, including CPOs and CTAs operating self- cepted over $230 million from participants and started\n described hedge funds. In many of these cases, the defen- sustaining massive losses that mounted to over $140\n dants have pre-existing business, social, religious, or ethnic million by May 2005. On the same day that the com-\n ties to the individual investors. These personal relationships plaint was filed, the Commission obtained a statutory\n enable the defendants to gain the investors\xe2\x80\x99 trust and then restraining order freezing defendants\xe2\x80\x99 assets, preventing\n lull them into a false sense of confidence. The Commission the destruction of books and records, and appointing a\n addresses this violative conduct through a combination receiver to take control of defendants\xe2\x80\x99 assets.\n of enforcement actions and investor education. Some of \xe2\x80\xa2\x07\x07\t\x07CFTC v. Bayou Management, LLC, No. 05 CIV. 8374\n the scams are operated as \xe2\x80\x9cPonzi schemes\xe2\x80\x9d in which early (S.D.N.Y. filed Sept. 29, 2005). On September 29, 2005,\n investors are paid purported \xe2\x80\x9cprofits\xe2\x80\x9d with newer investor the Commission filed an action alleging misappropria-\n funds. The schemes generally involve fraud in soliciting the tion and fraud involving Connecticut hedge fund man-\n general public to invest in the pools operated by the CPO ager Bayou Management, LLC (Bayou Management),\n or CTA, fraudulent statements concerning the results being its principals, Samuel Israel III and Daniel E. Marino,\n achieved by the pool for its investors, and/or outright mis- and Richmond Fairfield Associates, Certified Public\n appropriation of pool funds by the CPO. During FY 2005, Accountants PLLC (Richmond Fairfield). The complaint\n the Commission filed nine enforcement actions in this alleges that the defendants misappropriated customer\n program area, and also achieved significant litigation results funds, acquired funds through false pretenses, engaged\n in six actions filed in this practice area during previous fiscal in unauthorized trading, and misrepresented material\n years. Examples of these successes are provided below: facts to actual and prospective investors, including the\n \xe2\x80\xa2\t\x07CFTC v. Eustace, et al., No. 05CV2973 (E.D.Pa. filed June rates of return the hedge funds earned, the value of assets\n 21, 2005). On June 21, 2005, the Commission filed an under management, and the existence and identity of the\n\n\n\n\n106\n\x0c APPENDICES\n\n\n\n\n accounting firms that had purportedly audited the hedge trading for others); CFTC v. Steele, No. 05-3130 (N.D.Ill.\n funds. On the same date that the action was filed, the filed May 25, 2005); CFTC v. Beasley, et al., No. C 05\n defendants consented to a preliminary injunction that 02142 (N.D.Cal. filed May 25, 2005); CFTC v. Eustace, et\n included an asset freeze. Also on the same date, Israel and al., No. 05CV2973 (E.D.Pa. filed June 21, 2005); CFTC\n Marino, based upon the same conduct, pleaded guilty to v. Pippin, No. CV 05 4120 (E.D.N.Y. filed Aug. 29, 2005);\n criminal charges brought by the U.S. Attorney\xe2\x80\x99s Office for and CFTC v. Linuxor Asset Mgt., et al., No. 005 CV 8091\n the Southern District of New York, White Plains Division. (S.D.N.Y. filed Sept. 19, 2005).\n The Commission coordinated its investigation with the \t Commodity Trading Advisors, Managed Accounts,\n U.S. Attorney\xe2\x80\x99s Office and the SEC. and Trading Systems. During FY 2005, the Commis-\n\xe2\x80\xa2 \x07CFTC v. Princeton Global Management, Ltd., et al., No. sion filed eight enforcement actions in this program area\n 99CIV.9669 (S.D.N.Y. filed Sept. 18, 1999). On March and achieved significant litigation results in four actions\n 14, 2005, the Commission and SEC announced that a filed in this practice area during previous fiscal years. An\n court-appointed receiver in the pending actions against example of the Commission\xe2\x80\x99s enforcement success in this\n Princeton Economics International, Ltd. and Princeton practice area appears below:\n Global Management, Ltd. (the Princeton Companies) \xe2\x80\xa2 C\n \x07 FTC v. Charles, No. 2:05-cv-02144 (C.D.Ill. filed June\n and Martin Armstrong was in the process of distributing 23, 2005). On June 23, 2005, the Commission filed\n over $50 million as part of an interim distribution to an action against Cameron Charles alleging that he\n former customers of the Princeton Companies. The dis- defrauded Watseka Farmers Grain Co. Cooperative\n tribution stems from actions filed by the Commission (Watseka) by engaging in unauthorized and illegal\n and SEC alleging that Armstrong and his companies speculative trading. Specifically, according to the com-\n violated the Commodity Exchange Act and Federal se- plaint, Charles, a Watseka manager, engaged in unau-\n curities laws, respectively, by engaging in unauthorized thorized and illegal speculative trades for Watseka in the\n commodity futures and options trading and then hiding soybean market between January and May 2004. The\n their trading losses of several hundred million dollars complaint further alleges that Charles concealed from\n by, among other things, the issuance of false net asset and failed to disclose these trades to Watseka\xe2\x80\x99s board\n value letters. Separately, Mr. Armstrong has been held of directors and the Illinois Department of Agriculture\n in civil contempt of a district court order for failing to by making misrepresentations and falsifying Watseka\xe2\x80\x99s\n produce more than $14 million in assets that the Com- records to make it appear that Watseka was not at risk in\n mission and SEC contend were proceeds of the fraud. the futures market. The Commission complaint further\n\t Other FY 2005 Commission Enforcement Actions alleges that in mid-May 2004, a sharp decline in the\nAlleging Illegal Activity Involving Commodity Pools soybean futures market caused Watseka to receive mar-\n(including \xe2\x80\x9cHedge Funds\xe2\x80\x9d), Commodity Pool Opera- gin calls on the speculative long futures positions that\ntors, and Commodity Trading Advisors. During FY Charles had created. As alleged, Watseka could not meet\n2005, the Commission also filed the following actions the margin calls, thus forcing Watseka into liquidation.\nin this program area: CFTC v. Schotz, et al., No. 04-08889 According to the complaint, the liquidation resulted in\nSJO (SSx) (C.D.Cal. filed Oct. 27, 2004); CFTC v. Remco a loss of at least $1 million to shareholders of Watseka,\nCapital Management, et al., No. 04 CV 09029 (S.D.N.Y. who were mainly local farmers. The complaint also\nfiled Nov. 16, 2004); CFTC v. Heffernan, No. 4 04 23302 alleges that Charles solicited and accepted orders for\n25 (D.S.C. filed Dec. 16, 2004); In re Allen, CFTC Docket futures transactions from local farmers that Charles\nNo. 05-08 (CFTC filed April 6, 2005) (simultaneous file executed through Watseka\xe2\x80\x99s futures account. In so do-\nand settle; commodity pool operator/commodity trading ing, the complaint alleges, Charles acted illegally as an\nadvisor fraud; sanctions including cease and desist order, associated person of a futures commission merchant\nfive-year personal trading ban and permanent ban from without proper registration with the Commission. The\n\n\n\n\n 107\n\x0c Commission\xe2\x80\x99s investigation was done in coordination losses. The day after the complaint was filed, the court\n with the Illinois Department of Agriculture and the Il- issued a statutory restraining order, which CFTC repre-\n linois Attorney General\xe2\x80\x99s office. sentatives executed at four locations in Florida with the\n \t Other FY 2005 Commission Enforcement Ac- assistance of Florida law enforcement.\n tions in This Program Area. The Commission\xe2\x80\x99s FY 2005 \t Other FY 2005 Commission Enforcement Ac-\n enforcement actions in this program area also included tions in This Program Area. The Commission\xe2\x80\x99s FY 2005\n the following: CFTC v. Jade Trader, et al., No. CV04-8213 enforcement actions in this program area also included\n (C.D.Cal. filed Oct. 1, 2004); CFTC v. Longhorn Financial the following: CFTC v. Brickell Key Financial, LLC, et al.,\n Advisors, LLC, et al., No. 1:04CV00911 (M.D.N.C. filed Oct. No. 04-22549 (S.D.Fla. filed Oct. 8, 2004); CFTC v. United\n 5, 2005); In re Berg, et al., CFTC Docket No. 05-07 (CFTC Investors Group, Inc., et al., No. 05-80002 (S.D.Fla. filed\n filed Jan. 18, 2005) (simultaneous file and settle; com- Jan. 3, 2005); CFTC v. Lanier, No. 5:05-CV-516 (W.D.Okla.\n modity trading advisor distribution of inaccurate and out- filed May 10, 2005); In re Mueller, CFTC Docket No. 05-09\n dated disclosure document; sanctions including cease and (CFTC filed June 3, 2005) (simultaneous file and settle; as-\n desist order and $10,000 civil monetary penalty); CFTC v. sociated person unauthorized trading; sanctions including\n Gemancer, Inc., et al., No. CV05 2660 (C.D.Cal. filed April case and desist order, permanent trading ban and $30,000\n 12, 2005); CFTC v. Smithers, et al., No. 05-80592 (S.D.Fla. civil monetary penalty); CFTC v. Commodity Investment\n filed June 29, 2005); CFTC v. Lovett, No. CV05-5074 GHK Group, Inc., et al., No. 05 CV 5741 (S.D.N.Y. filed June 21,\n (MANx) (C.D.Cal. filed July 12, 2005); CFTC v. Poole, No. 2005); In re Lochmann, CFTC Docket No. 05-12 (CFTC\n 1:05CV00859 (M.D.N.C. filed Sept. 30, 2005). filed July 6, 2005) (unauthorized trading by introducing\n \t Futures Commission Merchants, Introducing broker associated person); CFTC v. Musorofiti, et al., No.\n Brokers and Their Associated Persons. The Commission CV 05 3917 (E.D.N.Y. filed Aug. 16, 2005); CFTC v. Ameri-\n diligently redresses misappropriation and other violative can Derivatives Corp., et al., No. 1 05-CV 2492 (N.D.Ga.\n conduct by futures commission merchants, introducing filed Sept. 26, 2005); and CFTC v. Int\xe2\x80\x99l Currency Exchange,\n brokers, and their associated persons. During FY 2005, the Inc., et al., No. 05 CV 8446 (S.D.N.Y. filed Sept. 30, 2005).\n Commission filed 11 enforcement actions in this practice \t Foreign Currency Cases. During FY 2005, the Com-\n area, and also achieved significant litigation results in mission continued to battle fraud perpetrated on the retail\n one action filed in this practice area during previous fiscal public by firms offering trading in off-exchange forex. While\n years. An example of the Commission\xe2\x80\x99s enforcement suc- much foreign currency trading is legitimate, numerous\n cess in this practice area appears below: companies have fraudulently solicited and traded customer\n \xe2\x80\xa2 C\n \x07 FTC, et al. v. Cromwell Financial Services, Inc., et al., foreign currency futures or option trading accounts. Under\n No. 1:05-cv-00210-JD (D.N.H. filed June 12, 2005). On the CFMA, it is unlawful to offer off-exchange foreign cur-\n June 12, 2005, the Commission, along with the State rency futures or option contracts to retail customers unless\n of New Hampshire, filed an action against registered the counterparty to the contract is a regulated financial\n introducing broker Cromwell Financial Services, Inc. entity enumerated in the CFMA, such as a FCM or financial\n (Cromwell), its founder and owner (Phillip Tuc- institution. In addition, even if the counterparty is appro-\n celli), and several of its registered associated persons priate, the Commission has jurisdiction to investigate and\n (Michael Staryk, Dennis Gee, Richard Peluchette, and prosecute foreign currency futures or options fraud. Forex\n Richard Astern) alleging fraudulent solicitation to trade trading scams often attract customers through advertise-\n commodity futures contracts and failure to supervise. ments in local newspapers, radio promotions, or online.\n Specifically, the complaint alleges that, from at least These advertisements often tout purportedly high-return,\n January 1, 2002 through December 2003, Cromwell low-risk investment opportunities in foreign currencies. The\n fraudulently solicited at least 900 customers who col- Commission has brought enforcement actions against both\n lectively incurred approximately $19 million in trading registered firms (for fraud and for other CEA violations,\n\n\n\n\n108\n\x0c APPENDICES\n\n\n\n\nsuch as failure to maintain net capital requirements) and Pine, which was purchased for $390,000 in cash in\nunregistered \xe2\x80\x9cbucket shops.\xe2\x80\x9d 2003. The receiver\xe2\x80\x99s report also states it is investigating\n\t During FY 2005, the Commission filed 17 enforce- the possible diversion of substantial funds to Mexico\nment actions against firms and individuals selling illegal and Belize. On October 28, 2004, the court entered a\nforeign currency futures and option contracts, bringing the preliminary injunction against White Pine enjoining it\ntotal of such actions to 79 since enactment of the CFMA from further violations as charged, and also confirmed\nin December 2000. During FY 2005, the Commission also a restraining order entered on October 21 against White\nachieved significant litigation results in eight actions filed Pine and Richard Matthews that freezes defendants\xe2\x80\x99 as-\nin this practice area during previous fiscal years. Since the sets and appoints a temporary receiver.\nenactment of the CFMA, the Commission has obtained in \xe2\x80\xa2 C\n \x07 FTC v. World-Wide Currency Services Corp., et al., No.\nits 79 forex enforcement actions approximate monetary 03-80032-CIV-HURLEY, Order Adopting Magistrate\nsanctions of $170 million in civil monetary penalties and Judge\xe2\x80\x99s Report & Recommendation (S.D.Fla. entered\n$115 million in restitution. Jan. 4, 2005). On January 4, 2005, the court entered an\n order assessing a total of $6,141,748 in civil monetary\nAmong the Enforcement program\xe2\x80\x99s successes in this penalties against defendants World-Wide Currency\narea during FY 2005 were the following: Services Corp., its president (Genady Spivack) and its\n\xe2\x80\xa2 C\n \x07 FTC v. White Pine Trust Corp., et al., No. 04-CV-2093 vice-president Ellison Kent Morris. This Commission\n (S.D.Cal. filed Oct. 20, 2004). On October 20, 2004, the filed this enforcement action on January 13, 2003, and\n Commission filed an action against White Pine Trust on August 5, 2004, the court granted the Commission\xe2\x80\x99s\n Corporation (White Pine) and Richard Matthews charg- summary judgment motion finding that the defendants\n ing them with fraudulent solicitation, misappropria- fraudulently sold foreign currency futures contracts to\n tion of customer funds, and illegally offering foreign customers under the guise of conducting spot currency\n currency options. According to the complaint, since at transactions. Also, according to the summary judgment\n least February 2003, defendants fraudulently solicited order, defendants solicited customers using telemarket-\n at least $650,000 from customers. As alleged, defen- ing tactics and claims urging customers to act quickly to\n dants also misappropriated funds to pay for personal take advantage of current market conditions and make\n and business expenses. Moreover, as asserted in papers substantial profits, with minimal risk. One customer\n filed by the Commission, shortly after receiving the was promised a monthly return of one to two percent,\n subpoena to testify before the Commission, $1.4 mil- another was told to expect an annual profit of 20 per-\n lion was withdrawn in cash from an operating account. cent, still others were promised anywhere from dou-\n The complaint alleges that defendants control multiple bling their money to earning as much as five times their\n corporate accounts into which defendants have depos- investment in just a few months, according to the order.\n ited over $30 million and upon information and belief, The summary judgment order required repayment to\n those funds may consist in part, or entirely, of customer defrauded customers of $1,092,880.\n funds obtained from hundreds of customers. Accord- \xe2\x80\xa2 \x07CFTC v. Sonoma Trading Corp., et al., No. 05-60342\n ing to papers filed by the Commission, defendants (S.D.Fla. filed March 9, 2005). On March 9, 2005, the\n paid millions out of these accounts for extravagant Commission filed an action against Sonoma Trading\n personal and purported business expenses, including Corporation (Sonoma) and its owner, William David\n NFL football tickets, nightclubs, and Saks Fifth Avenue Seigler, Jr., charging that they wrongfully solicited\n purchases. According to an October 28, 2004 report and sold foreign currency options. The Commission\n filed by the court-appointed receiver, the receiver has complaint alleges that since December 2002, So-\n control over real property exceeding $3 million in value, noma and Seigler, through a Web site operated in the\n and also has possession of a yacht owned by White name of Sonoma, solicited retail customers to trade\n\n\n\n\n 109\n\x0c foreign currency options contracts, touting Sonoma its ill-gotten gains. ACE Emerald, as a relief defendant,\n as \xe2\x80\x9cThe Premier Foreign Exchange Options Dealer in was charged with receiving customer funds to which it\n the Americas.\xe2\x80\x9d As further alleged, in connection with was not entitled, but was not charged with participation\n these solicitations, the defendants instructed custom- in any violation of law. The lawsuit is still pending as to\n ers to wire transfer funds to a U.S.-based bank for defendants Emerald, Jian Zhuang and Hao Jan Lu, and\n routing to a Sonoma bank account located in San relief defendants ACE Capital Advisory Group Inc., Lyn-\n Jose, Costa Rica. To conduct these activities lawfully, nwood Jen, and Esther Pranolo.\n the complaint charges that Sonoma and Siegler either \xe2\x80\xa2 C\n \x07 FTC v. DBS Capital, Inc., et al., No. 03 CFTC v. DBS\n were required to execute the options transactions on a Capital, Inc., et al., No. 03-1379 VRW, Consent Order\n contract market or a foreign board, or were required to Of Permanent Injunction (N.D.Cal. entered June 17,\n register with the Commission as a futures commission 2005). On June 17, 2005, the court entered a consent\n merchant. The complaint alleges that they did neither. order of permanent injunction and other equitable\n On the same day the complaint was filed, court issued relief against defendants DBS Capital, Inc., and Douglas\n an order freezing the defendants\xe2\x80\x99 assets and preventing Stevens, the founder and president of DBS. The order\n the destruction of their books and records. stems from an enforcement action filed on March 31,\n \xe2\x80\xa2 C\n \x07 FTC v. Emerald Worldwide Holdings, Inc., et al., No. 2003. Without admitting or denying the findings, the\n CV03-8339 AHM (C.D.Cal. entered April 19, 2005). defendants consented to entry of the order that found\n April 19, 2005, the court issued a default order requir- the defendants have been offering and selling illegal,\n ing defendant City Trust and Investment Co. Ltd. (CTI) off-exchange futures contracts to the retail public; and\n of Tokyo, Japan, to repay defrauded customers more they fraudulently solicited approximately $14 million\n than $3.2 million, and to pay a civil monetary pen- from approximately 200 retail customers. In addition to\n alty of $8.2 million, in connection with a forex scam being permanently enjoined from further violations as\n operated by CTI and Emerald Worldwide Holdings, charged, the defendants were ordered to make restitu-\n Inc. (Emerald). The order stems from an amended tion to customers of $11,505,025, plus post-judgment\n complaint filed by the Commission on May 10, 2004, interest, and to pay a $3,191,597 civil monetary penalty.\n alleging that defendants CTI and Emerald Worldwide \xe2\x80\xa2 C\n \x07 FTC v. World Market Advisors, Inc., et al., No. 05-60928-\n Holdings, Inc. (Emerald) operated together in fraudu- CIV-ALTONGA/TURNOFF (S.D.Fla. filed July 21, 2005).\n lently soliciting customers in Japan and China to invest On July 21, 2005, the Commission filed an action\n more than $5 million to trade illegal off-exchange against five Florida foreign currency firms, World Market\n foreign currency futures contracts in the United States. Advisors, Inc. (WMA), U.S. Capital Management, Inc.\n Specifically, the Commission\xe2\x80\x99s amended complaint (U.S. Capital), United Equity Group, Inc. (United\n alleged that Emerald\xe2\x80\x99s promotional materials, which Equity), Liberty One Advisors, LLC (Liberty One), Light-\n were disseminated by employees of CTI, contained false house Capital Management, LLC (Lighthouse), and five\n statements regarding Emerald\xe2\x80\x99s registration status and individuals, Jason T. Dean of Pompano Beach, Florida,\n affiliation with entities that were legitimately registered Steven D. Knowles and Paul F. Plunkett of Deerfield\n with the Commission. The complaint also alleged that, Beach, Florida, Joseph D. Valko of Coconut Creek,\n rather than trade the customers\xe2\x80\x99 funds as promised, Florida and Jeffrey Paul Jedlicki of Boca Raton, Florida,\n Emerald and CTI transferred the funds to various bank charging that defendants defrauded customers they\n accounts in the United States, Japan, China, and Hong solicited to trade foreign currency options contracts.\n Kong in the names of Emerald, CTI, and others. Addi- The complaint also charges three Florida-based foreign\n tionally, on March 15, 2005, Judge Matz issued an order currency dealers, Universal Options, Inc. (Universal\n requiring relief defendant ACE Emerald W. Holding, Options), Qualified Leverage Providers, Inc. (QLP)\n Inc. (ACE Emerald), of Las Vegas, Nevada, to disgorge and Safeguard FX, LLC (Safeguard), with liability as\n\n\n\n\n110\n\x0c APPENDICES\n\n\n\n\n principals for the acts of the five foreign currency firms. et al., No. 1:05CV492 (E.D.Va. filed April 29, 2005); CFTC\n Specifically, the Commission\xe2\x80\x99s complaint alleges that v. Webman, et al., No. 05 CV 4819 (S.D.N.Y. filed May 19,\n since October 2002, WMA and a series of short-lived 2005); CFTC v. Windsor Forex Trading Corp., et al., No. CV\n affiliates and successors, including the other corporate 05 2547 (E.D.N.Y. filed May 26, 2005); CFTC v. National\n defendants, through their brokers, including Jedlicki, Investment Consultants, et al., No. C 05 2641 (N.D.Cal. filed\n fraudulently solicited customers over the telephone June 29, 2005); CFTC v. de Wet, No. 05 CV 8401 (S.D.N.Y.\n throughout the U.S., Canada, and the U.K., using high- filed Sept. 30, 2005); CFTC v. Efrosman, et al., No. 05 CV\n pressure \xe2\x80\x9cboiler room\xe2\x80\x9d sales tactics, to open accounts to 8422 (S.D.N.Y. filed Sept. 30, 2005) (violation of prior\n trade foreign currency options contracts. The complaint Commission order in addition to forex fraud); and CFTC\n further alleges that defendants solicited at least 924 v. Yanev, No. C2 05 900 (S.D.Ohio filed Sept. 29, 2005).\n customers, who collectively invested at least $17.1 \t Precious Metals And Other Illegal Off-Exchange\n million to trade foreign currency options contracts. Cases. During FY 2005, the Commission\xe2\x80\x99s Enforcement\n The customers paid defendants at least $8.6 million in program prosecuted the following two actions that alleged\n commissions, and lost approximately $13.6 million non-forex, illegal off-exchange trading.\n in their trading accounts, according to the complaint. \xe2\x80\xa2 C\n \x07 FTC v. E-Metal Merchants, Inc., et al., No. 05-21574\n Over 96 percent of the customers lost money, and most (S.D.Fla. filed June 13, 2005). On June 13, 2005, the\n customers lost all of their investments. On the day the Commission filed an action against E-Metal Merchants,\n action was filed, the court entered a restraining order Inc., and two of its corporate officers, Benji Dayan and\n that, among other things, freezes the assets of all de- Andrew Stern, both of Miami, Florida, charging them\n fendants except Universal Options, QLP and Safeguard. with purchasing and selling illegal, off-exchange met-\n The Commission received cooperation in their investi- als options. Specifically, the Commission\xe2\x80\x99s complaint\n gation and prosecution of this matter from the Florida charges that, since at least May 2004, E-Metal Merchants\n Attorney General\xe2\x80\x99s Office of Statewide Prosecution, the accepted over $6.9 million from more than 200 custom-\n Florida Office of Agricultural Law Enforcement, the ers for the purpose of engaging in the purchase and sale\n Office of Financial Regulation and the Broward County of illegal off-exchange metals option contracts. Accord-\n Sheriff\xe2\x80\x99s Office, among others. The Commission also re- ing to the complaint, E-Metal Merchants transferred\n ceived assistance from the National Futures Association. more than $5.4 million from its customers\xe2\x80\x99 account\n\t Other FY 2005 Commission Enforcement Ac- to the firm\xe2\x80\x99s operating account, $575,000 to the firm\xe2\x80\x99s\ntions Alleging Illegal Forex Activity. During FY 2005, in off-shore account in New Zealand, and $509,000 to\naddition to one enforcement action it filed under seal, Universal Financial Holding Company, a firm owned\nthe Commission also filed the following actions in this by the secretary of E-Metal Merchants, Andrew Stern. As\nprogram area: CFTC v. Foreign Fund, et al., No. 0 04 098 further alleged, that firm paid the president of E-Metal\n(M.D.Ten. filed Oct. 5, 2004); In re Bentley Rothchild Group, Merchants, Benji Dayan, and the secretary, Stern, over\nInc., et al., CFTC Docket No. 05-04 (CFTC filed Nov. 23, $1 million from customer funds. Dayan and Stern are\n2004) (simultaneous file and settle; forex fraud; sanc- controlling persons of E-Metal Merchants and, there-\ntions including cease and desist order and $10,000 civil fore, are liable for the firm\xe2\x80\x99s violations of the CEA, the\nmonetary penalty); CFTC v. Richmond Global Associates, complaint alleges. On the same day the action was filed,\nLLC, et al., No. 05 CV 2181 (S.D.N.Y. filed Feb. 16, 2005); the court entered a restraining order that, among other\nCFTC v. Premium Income Corp., et al., NO. 3-05 CV 0416M things, freezes defendants assets.\n(N.D.Tex. filed March 2, 2005); CFTC v. Mercury Partners,\nInc., et al., No. 05-60328 (S.D.Fla. field Mar. 7, 2005;\nCFTC v. G7 Advisory Services, LLC, et al., No. 05-80313\n(S.D.Fla. filed April 12, 2005); CFTC v. Presidential FX, Inc.,\n\n\n\n\n 111\n\x0c \xe2\x80\xa2 \x07In re Trade Exchange Network, CFTC Docket No. 05-14\n (CFTC filed Sept. 29, 2005). On September 29, 2005,\n the Commission simultaneously commenced and set-\n tled an action against Trade Exchange Network Limited\n (TEN), a limited liability company based in Dublin,\n Ireland, alleging that TEN solicited and accepted orders\n from U.S. residents for commodity option contracts that\n were not excepted or exempted from the Commission\xe2\x80\x99s\n ban on options. TEN owns and operates an Internet-\n based trading platform that facilitates trading through\n its Web sites www.Tradesports.com, www.Intrade.com,\n and www.TradebetX.com. According to the findings in\n the order, TEN actively solicited U.S. residents to trade\n such contracts by retaining an individual in the U.S.\n to market TEN\xe2\x80\x99s products throughout the country, and\n TEN ultimately developed a U.S. customer base that was\n roughly 33 to 40 percent of its total customer base. The\n order further finds that the commodity option con-\n tracts offered on TEN\xe2\x80\x99s Web sites were not excepted or\n exempted from the Commission\xe2\x80\x99s regulation banning\n options trading, and therefore violated the CEA. TEN\xe2\x80\x99s\n high level of cooperation during the underlying inves-\n tigation resulted in a reduction of the civil monetary\n penalty to $150,000, which TEN agreed to pay. The\n order also calls for TEN to cease and desist from further\n violations of the CEA and comply with specific under-\n takings. In consenting to the entry of the Commission\xe2\x80\x99s\n order, TEN neither admitted nor denied the findings\n made in the order.\n\n\n\n\n112\n\x0c APPENDICES\n\n\n\n\n Enforcement Litigation for Goal 3\n\n\nLitigation by Goal Three conviction of Stuart Michael Helffrich for wire fraud and\n fraudulent conversion of his customers\xe2\x80\x99 commodity futures\nGoal Three: Ensure market integrity to foster positions. Helffrich, while a registered floor broker at the\nopen, competitive, and financially sound markets. CBOT, transferred winning trades from his customers\xe2\x80\x99 ac-\nTrade Practice. The legislative history of the CEA notes counts into his own trading account and \xe2\x80\x9cparked\xe2\x80\x9d his own\nthat one of the fundamental purposes of the Act is to ensure losing trades in their accounts, all to cover up mounting\nfair practices and honest dealing in the futures market and losses and to inflate the value of his own personal trading\nto control those forms of speculative activity that demoral- accounts. The scheme went on for approximately six weeks\nize the market to the detriment of producers, consumers, until it was discovered. Helffrich caused trading losses of\nand the markets. Consistent with Congress\xe2\x80\x99 mandate, the over $866,000 to two large grain dealers, and to Helffrich\xe2\x80\x99s\nCommission brings trade practice cases to address a variety employer, who ultimately repaid the customers. In addi-\nof unfair, abusive, or deceptive ploys by traders to avoid tion, the scheme caused the customers to pay additional\nexposing their orders to market risk. Such actions can create margin and exposed them to additional market risk. On\nnon-competitive prices in the marketplace and have the May 10, 2005, U.S. District Court for the Northern District\npotential to harm public customers, producers, and others. of Illinois issued the guilty verdict and on September 1,\nImproper trade practices include a variety of activities, in- 2005, Helffrich was sentenced to 41 months\xe2\x80\x99 imprison-\ncluding trading done in violation of exchange rules, such as ment, with 3 years\xe2\x80\x99 supervised release at the conclusion\ntrading ahead of a customer order, wash trading, accommo- of the period of incarceration. In addition, Helffrich was\ndation trading, and fictitious trading. During FY 2005, the ordered to repay his employer more than $800,000. This\nCommission filed six enforcement actions in this program criminal case was the result of a Division referral after the\narea, and also achieved significant litigation results in one Chicago Board of Trade revoked Helffrich\xe2\x80\x98s membership\naction filed in this practice area during previous fiscal years. and the Commission revoked his registration. In the Matter\nAn example of the Commission\xe2\x80\x99s success in this program of Stuart Michael Helffrich, SD 04-08 (Sept. 3, 2004).\narea appears below: \t Other FY 2005 Enforcement Program Actions Alleg-\n\t United States v. Helffrich. With the assistance of the ing Trade Practice Violations. During FY 2005, the Com-\nCommission\xe2\x80\x99s Enforcement program, the U.S. Attorney mission\xe2\x80\x99s Enforcement program filed the following trade\nfor the Northern District of Illinois obtained a criminal practice enforcement actions: In re Hucko, CFTC Docket\n\n\n\n\n 113\n\x0c No. 05-01 (CFTC filed Oct. 26, 2004) (simultaneous file will not participate in any audit of any commodity pool\n and settle; fraudulent trade allocation; sanctions including or Commission registrant in certain capacities until after\n cease and desist order, permanent trading ban and $50,000 December 31, 2005, and AMG will provide training in\n civil monetary penalty); In re Hencorp Becstone Futures LC, fraud examination and detection to staff, as well as re-\n et al., CFTC Docket NO. 05-06 (CFTC filed Dec. 22, 2004) view portions of its audit programs that were implicated\n (simultaneous file and settle; wash sales and reporting of in the alleged audit failures and report to the Commis-\n non-bona fide prices involving CSCE coffee futures; sanc- sion on its review.\n tions including cease and desist order and $100,000 civil \t Statutory Disqualifications. During FY 2005, the\n monetary penalty); In re Maddox, CFTC Docket No. 05-10 Commission filed five enforcement actions in this program\n (CFTC filed June 9, 2005)(simultaneous file and settle; area. An example of the Commission\xe2\x80\x99s success in this pro-\n fraudulent trade allocation; sanctions including $25,000 gram area is provided below:\n civil monetary penalty, $31,000 restitution and one year \xe2\x80\xa2 I\x07 n re McKenna, CFTC Docket No. SD 05-03 (CFTC\n personal trading ban); In re Armajaro Trading Ltd., et al., filed May 20, 2005). On May 20, 2005, the Commis-\n CFTC Docket No. 05-11 (CFTC filed June 21, 2005) (simul- sion simultaneously filed and settled an action against\n taneous file and settle; fictitious and non-competitive trad- Brion Scott McKenna, a former gas trader for Williams,\n ing in CSCE cocoa spread cross trades; sanctions including a subsidiary of The Williams Companies, Inc., a pub-\n cease and desist order and total of $60,000 civil monetary licly-traded company, revoking his registration as an\n penalties); and In re Credit Lyonnais Rouse Ltd., CFTC Docket associated person for three years and ordering him to\n No. 05-13 (CFTC filed Aug. 24, 2005) (simultaneous file cooperate fully with the Commission and other Federal\n and settle; fictitious and non-competitive trading in CSCE authorities in connection with this proceeding and any\n cocoa spread cross trades; sanctions including cease and related inquiry. The Commission\xe2\x80\x99s action was the result\n desist order and $85,000 civil monetary penalty). of McKenna\xe2\x80\x99s guilty plea in the U.S. District Court for\n \t Financial, Supervision, Compliance and Record- the Northern District of California to a felony violation\n keeping. During FY 2005, the Commission filed one involving manipulation while employed as a natural\n enforcement action in this program area during FY 2005, gas trader at Williams. Previously, on July 29, 2003, the\n and also achieved significant litigation results in two Commission simultaneously filed and settled an action\n actions filed in this practice area during previous fiscal against Williams for false reporting of natural gas trading\n years. An example of the Commission\xe2\x80\x99s success in this information, with Williams agreeing to pay a $20 million\n program area is provided below: civil monetary penalty.\n \xe2\x80\xa2 I\x07 n the Matter of G. Victor Johnson and Altschuler, Melvoin \t Other Commission Actions Filed In This Program\n and Glasser, LLP, CFTC Docket No. 04-29 (CFTC filed Area. During FY 2005, the Commission instituted the\n June 13, 2005). On June 13, 2005, the Commission following additional statutory disqualification actions: In\n issued an order accepting settlements of accounting firm re Wnukowski, CFTC Docket No. SD-5-01 (CFTC filed Dec.\n (Altschuler, Melvoin & Glasser, LLP (AMG)) and engage- 30, 2004); In re Beacon Hill Asset Mgt. LLC, CFTC Docket\n ment partner (G. Victor Johnson) arising from audits No. SD 05-02 (CFTC filed May 3, 2005); In re Palomino\n performed of a commodity pool that failed to detect a Capital Mgt., CFTC Docket No. SD 05-04 (CFTC filed July\n fraud perpetrated on investors by the pool\xe2\x80\x99s operator. 14, 2005); and In re Kaulentis, CFTC Docket No. SD 05-05\n Under the terms of the settlements, Johnson and AMG (CFTC filed Aug. 1, 2005).\n will pay $200,000 to the defrauded pool investors, will\n repay all audit fees earned from the audit engagements\n (which will go to victims of the fraud) and will pay a civil\n monetary penalty of $150,000. Additionally, Johnson\n\n\n\n\n114\n\x0c APPENDICES\n\n\n\n\n The CFTC Glossary\n\n\nTHE CFTC GLOSSARY\nA GUIDE TO THE LANGUAGE OF THE FUTURES INDUSTRY\nhttp://www.cftc.gov/opa/glossary/opaglossary_a.htm\n\n\nBecause the acronyms of many words and phrases used throughout the futures industry are not readily available in stan-\ndard references, the Commission\xe2\x80\x99s Office of External Affairs compiled a glossary to assist members of the public.\n\t This glossary is not inclusive, nor are general definitions intended to state or suggest the views of the Commission\nconcerning the legal significance, or meaning of any word or term. Moreover, no definition is intended to state or suggest\nthe Commission\xe2\x80\x99s views concerning any trading strategy or economic theory. If you cannot find the term you are looking\nfor or have any other comment, please email us at glossary@cftc.gov. The glossary was last revised September 2005.\n\n\nGlossary of Acronyms\nAE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Actuarials Exchange, LLC\n\nAEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . American Electric Power Company, Inc.\n\nAEPES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AEP Energy Services, Inc.\n\nALJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative Law Judge\n\nAMG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Altschuler, Melvoin & Glasser, LLP\n\nAML. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Anti-Money Laundering\n\nAWB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Australian Wheat Board\n\nBSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bovine Spongiform Encephalopathy\n\nBTEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BrokerTex Futures Exchange\n\nCBOT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chicago Board of Trade\n\n\n\n\n 115\n\x0c CBFB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cross-Border Futures Broker\n\n CCORP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Clearing Corporation\n\n CEA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Exchange Act\n\n CESR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Committee of European Securities Regulators\n\n CFTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Futures Trading Commission\n\n CFMA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Futures Modernization Act of 2000\n\n CME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chicago Mercantile Exchange\n\n COSRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Council of Securities Commissions of the Americas\n\n CPO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Commodity Pool Operator\n\n CSRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Civil Service Retirement System\n\n CTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Trading Advisor\n\n CTI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . City Trust and Investment Company Limited\n\n DART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Designation and Rule Tracking System\n\n DCIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Division of Clearing and Intermediary Oversight (CFTC)\n\n DCM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Direct Clearing Member\t\t\n\n DCO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives Clearing Organization\n\n DMO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Division of Market Oversight (CFTC)\n\n DOJ. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Department of Justice\n\n DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Department of Labor\n\n EHRI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enterprise Human Resources Integration\n\n ESC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Enterprise Services Center\n\n EUREX US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. Futures Exchange, LLC\n\n FBI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Bureau of Investigation\n\n FCM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Futures Commission Merchant\n\n FCOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FutureCom\n\n FECA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Employees Compensation Act\n\n FEGLI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Employees Group Life Insurance Program\t\n\n FEHBP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Employees Health Benefits Program\n\n FERC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Energy Regulatory Commission\n\n FERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Employees\xe2\x80\x99 Retirement System\n\n FILAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Filings System\n\n\n\n\n116\n\x0c APPENDICES\n\n\n\n\nFIRREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Institutions Reform, Recovery, and Enforcement Act\n of 1989\n\nFISMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Information Security Management Act of 2002\n\nFMFIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982\n\nFTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Full-time Equivalent\n\nFWC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Future Workers Compensation\n\nFY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fiscal Year\n\nGAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Generally Accepted Accounting Principles\n\nGAO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government Accountability Office\n\nGCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guaranty Clearing Corporation\n\nGMAC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Global Markets Advisory Committee\n\nGPRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Government Performance and Results Act of 1993\n\nIB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introducing Broker\n\nICC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intermarket Clearing Corporation\n\nIOSCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Organization of Securities Commissions\n\nISS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Integrated Surveillance System\n\nJO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Judgment Officer\n\nKCBT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas City Board of Trade\n\nLCH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . London Clearing House\n\nMDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management\xe2\x80\x99s Discussion and Analysis\n\nMGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minneapolis Grain Exchange\n\nMOU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Memorandum of Understanding\n\nMMOU. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multilateral Memorandum of Understanding\n\nNFA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Futures Association\n\nNYCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York Clearing Corporation\n\nNYMEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York Mercantile Exchange\n\nOCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Options Clearing Corporation\n\nOGC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of the General Counsel (CFTC)\n\nOIRM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of Information Resources Management (CFTC)\n\nOMB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of Management and Budget\n\nONXCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OnExchange Clearing Corporation\n\nOPM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Office of Personnel Management\n\n\n\n\n 117\n\x0c ORB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Retirement Benefits\n\n PAAM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Philadelphia Alternative Asset Management Co., LLC\n\n PART. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Program Assessment Rating Tool\n\n QLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Qualified Leverage Providers, Inc.\n\n RIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Registered Investment Companies\n\n RWG. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Registration Working Group\n\n SC4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standing Committee 4\n\n SC5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Standing Committee 5\n\n SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities and Exchange Commission\n\n SFE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sydney Futures Exchange Limited\n\n SFFAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Statement of Federal Financial Accounting Standards\n\n SFP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Futures Products\n\n SRO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Self-Regulatory Organization\n\n TAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technology Advisory Committee\n\n TEN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade Exchange Network Limited\n\n USA PATRIOT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Uniting and Strengthening America by Providing Appropriate\n Tools Required to Intercept and Obstruct Terrorism\n\n USDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United States Department of Agriculture\n\n UK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .United Kingdom\n\n WMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . World Market Advisors, Inc.\n\n\n\n\n118\n\x0cAPPENDICES\n\n\n\n\n 119\n\x0c Notes\n\n\n\n\n120\n\x0c'