FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Table of Contents 

INTRODUCTION .................................................................... 1

Message from the Acting Chairman.....................................3

About This Report.................................................................4

MANAGEMENT’S DISCUSSION AND ANALYSIS......................... 5

Mission and Organization.....................................................7

CFTC Mission.......................................................................................7

Mission Highlights.............................................................................. 8

Organization ....................................................................................... 9

Performance Summary and Highlights.............................. 11

Future Effects and Challenges ............................................ 13

Inspector General’s Discussion and Analysis ....................19

Management Controls, Systems and Compliance with 

Laws.....................................................................................22

Budget and Financial Highlights........................................25

PERFORMANCE SECTION..................................................... 31

Overview..............................................................................33

Resource Logic Model.........................................................35

Goal One..............................................................................36

Strategic Goal One: Ensure the economic vitality of the 

commodity futures and option markets. ......................................... 36

Outcomes .......................................................................................... 36

Program Performance Results ......................................................... 36

Goal One Resources.......................................................................... 40

Program Funding.............................................................................. 40

Summary of Performance .................................................................41

Goal Two..............................................................................42

Strategic Goal Two: Protect market users and the public............... 42

Outcomes .......................................................................................... 42

Program Performance Results ......................................................... 42

Goal Two Resources ......................................................................... 50

Program Funding.............................................................................. 50

Summary of Performance .................................................................51

Goal Three ...........................................................................52

Strategic Goal Three: Ensure market integrity in order to foster 

open, competitive, and financially sound markets.......................... 52

Outcomes .......................................................................................... 52

Program Performance Results ......................................................... 52

Goal Three Resources....................................................................... 60

Program Funding.............................................................................. 60

Summary of Performance .................................................................61
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Methodology for Collecting, Maintaining, and 

Analyzing Performance Data ............................................. 62

Program Assessment Rating Tool......................................66

External Challenges and Factors ....................................... 67

FINANCIAL SECTION........................................................... 69

Message from the Acting Chief Financial Officer and 

Executive Director ...............................................................71

Balance Sheet...................................................................... 72

Statement of Net Cost (unaudited).................................... 73

Statement of Changes in Net Position (unaudited)........... 75

Statement of Budgetary Resources (unaudited) ............... 76

Statement of Financing (unaudited).................................. 77

Statement of Custodial Activity (unaudited)..................... 78

Notes to Financial Statements ........................................... 79

Independent Auditors’ Report...........................................88

APPENDICES .....................................................................101

Litigation by Strategic Goal One ...................................... 103

Litigation by Strategic Goal Two...................................... 105

Litigation by Strategic Goal Three ....................................113

Table of Acronyms............................................................. 115
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Introduction 

Overview 

Most Americans are unaware of the impact the commodity futures and option

markets have on their everyday lives. Properly functioning futures and option

markets serve vital price discovery and “hedging” functions that are essential to 

maintaining a healthy capital-based economy. This means that the prices established by these markets affect how much we pay for our food, our clothing, and 

our shelter. 

Because of their pervasive nature, futures and option markets that function improperly can have a devastating effect on our lives. Therefore, the markets must

be protected against manipulation, abusive trading practices, and fraudthe

elements that cause improper market function. Doing so not only encourages the 

economic competitiveness, efficiency, and integrity of the markets, but also, more

importantly, protects the American public from the detrimental forces seeking to 

gain monetarily at their expense. 

Background 

Understanding the impact of the futures and option markets on the lives of all 

Americans, Congress in 1974 passed the Commodity Futures Trading Commission Act of 1974, which created the Commodity Futures Trading Commission (the

Commission or CFTC) as an independent agency with the mandate to regulate

commodity futures and option markets in the U.S. The Commission’s mandate 

was renewed and/or expanded in 1978, 1982, 1986, 1992, and 1995. In December

2000, the Commission was reauthorized by Congress and the President through 

fiscal year (FY) 2005 with the passage of the Commodity Futures Modernization

Act of 2000 (CFMA). 

Impact of Commodity Futures Modernization Act 

The CFMA transformed the Commission from a front-line regulatory agency to

an oversight regulator. Although the Commission’s approach to regulation has 

consequently changed, its mission remains the same. The CFTC continues to be 

responsible for fostering the economic utility of futures markets by encouraging 

their competitiveness and efficiency, ensuring their integrity, and protecting

market participants against manipulation, abusive trading practices, and fraud.

Through effective oversight regulation, the CFTC enables the commodity futures 

markets better to serve their vital function in the Nation’s economyproviding a 

mechanism for price discovery and a means of offsetting price risks. 

Oversight of U.S. Futures Industry 

Futures contracts for agricultural products have traded in the U.S. for over 150 

years. In recent years, futures trading has expanded rapidly into many new markets, beyond the domain of traditional physical and agricultural commodities. 

Futures and option contracts are offered on a vast array of financial instruments,

including foreign currencies, U.S. and foreign government securities, and U.S. 

and foreign stock indices. 

Through its continued leadership role in the oversight of the U.S. futures industry, the Commission achieves its mandate by relying on several oversight actions: 

Introduction 1
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 Enforcementto police the futures and option markets for conduct that

violates the Commodity Exchange Act (CEA) and Commission regulations. 

 Market Surveillanceto survey the futures and option markets to ensure

that they reflect the forces of supply and demand for the underlying commodity and are free of disruptive activity. 

 Rulemaking, Auditing, and Reviewingto protect the economic functions of the market, to protect market users, to foster open, competitive

and financially sound markets, and to promote an effective, flexible regulatory environment, responsive to evolving market conditions. 

Some of these interventions and actions reside entirely within the Commission, 

but the work of the Commission also involves significant partnering with local, 

state, national, and international authorities and with the futures industry. At the 

same time, some activities are internal, such as financial management, procurement, information resources management, personnel; without which the Commission could not operate or hope to achieve its goals. 

*** 

2 Introduction 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 Message from the Acting Chairman 

Keeping pace with change has never been more significant than it is today at the CFTC. The unprecedented 

growth and complexity of the futures and options industry has not only been an exciting challenge, it has 

validated the past few years of hard work and dedication of the agency to provide the most flexible and responsive oversight structure possible. The results of

our efforts are presented in this first CFTC Performance and Accountability Report. 

This report is a result of meeting the requirements of

the Accountability of Tax Dollars Act of 2002, in which 

agencies must prepare and submit to Congress, the Office of Management and Budget (OMB), and the public, annual audited financial

statements and performance results. The passage of the Accountability of Tax 

Dollars Act has improved the financial performance through the integration of 

budget and performance results. 

I am pleased to present the CFTC’s first Performance and Accountability Report

summarizing our achievements and challenges for FY 2004, and certify with reasonable assurance that, except for one material non-conformance regarding asset 

management specifically identified in the management control section of this report, our agency’s systems of management control, taken as a whole, comply with 

the Federal Managers’ Financial Integrity Act of 1982. I also certify that our 

agency is in substantial compliance with applicable Federal accounting standards 

and the U.S. General Ledger at the transaction level and with Federal financial 

system requirements. I am confident that the CFTC’s financial and performance

data is reliable, accurate, and consistent. 

The agency's first independent audit conducted by KPMG LLP, under oversight of 

the Office of the Inspector General, has been conducted and reported on. The

report highlights that we have received an unqualified (clean) opinion on our balance sheet. We are pleased with these initial results and will continue our efforts

in FY 2005 to make the recommended improvements to our internal controls as 

discussed in the auditor's report. 

As we improve our ability to measure progress towards our performance objectives, keeping pace with change will continue to be our challenge. The Commission stands ready to work with the Congress, other regulators, and market participants to ensure that our regulatory structure keeps up with the marketplace; 

and that our future Performance and Accountability Reports provides you with

the results of our progress in meeting these challenges. 

Sharon Brown-Hruska 

Acting Chairman 

November 17, 2004

Introduction—Message from the Acting Chairman 3
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

About This Report 

The CFTC’s FY 2004 Performance and Accountability Report is the first such

report published by the Commission. This document is comprised of three primary sections: 

 Management’s Discussion and Analysis 

The Management’s Discussion and Analysis (MDA) is an overview of the entire Report, as supported and detailed in the Performance Section and Financial Section. The MDA presents performance, budget and financial highlights

for FY 2004, as well as the Inspector General’s discussion and analysis. In 

addition, the MDA addresses compliance with legal and regulatory requirements and existing or possible effects and challenges facing the Commission

in the future.

 Performance Section 

This Section compares the Commission’s performance to the annual goals as 

set forth in the CFTC Strategic Plan. For more information on this section,

please contact Emory Bevill, Deputy Director for Budget and Planning at

202-418-5187. 

 Financial Section 

This Section is comprised of the Commission’s financial statements and related Independent Auditors’ report. For more information on this section, 

please contact Jeanne Ring, Deputy Director for Accounting and Financial

Systems at 202-418-5185. 

An electronic version of this document is available on the Internet at 

www.cftc.gov/cftc/cftcreports.htm. The Commission’s strategic and performance 

plans are also available at this Web site. 

Questions and comments about this document can be directed to Emory H. Bevill, Deputy Director, Budget and Planning at 202-418-5187, via e-mail at ebevill@cftc.gov. 

4 Introduction—About This Report 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Management’s Discussion and Analysis

Management’s 

Discussion and 

Analysis

FY 2004 Performance and Accountability Report 

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Mission and Organization 

CFTC Mission 

In December 2000, the CFMA transformed the Commission from a front-line 

regulatory agency to an oversight regulator. Although the Commission’s approach to regulation has consequently changed, its mission remains the same—to 

protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity futures and options, and to foster open, 

competitive, and financially sound commodity futures and option markets. 

Mission Statement, Strategic Goals and Outcome Matrix 

Mission Statement 

The mission of the CFTC is to protect market users and the public from fraud, manipulation,

and abusive practices related to the sale of commodity futures and options, and to foster 

open, competitive and financially sound commodity futures and option markets.

Goal One

Ensure the economic vitality of the commodity futures and option markets.

Outcomes

1. Markets that accurately reflect the forces of supply and demand for the underlying commodity and are 

free of disruptive activity. 

2. Markets that are effectively and efficiently monitored to ensure early warning of potential problems or

issues that could adversely affect their economic vitality. 

Goal Two

Protect market users and the public.

Outcomes

1. Violations of Federal commodities laws are detected and prevented.

2. Commodities professionals meet high standards. 

3. Customer complaints against persons or firms falling within the jurisdiction of the Commodity Exchange

Act are handled effectively and expeditiously.

Goal Three

Ensure market integrity in order to foster open, competitive, and financially sound markets.

Outcomes

1. Clearing organizations and firms holding customer funds have sound financial practices. 

2. Commodity futures and option markets are effectively self-regulated.

3. Markets are free of trade practice abuses. 

4. Regulatory environment is responsive to evolving market conditions. 

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FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Mission Highlights 

Through effective oversight, the CFTC enables the futures markets to serve the 

important function of providing a means for price discovery and offsetting price 

risk. 

An Important Mission in the Ever-Changing World of Finance 

 The mission of the CFTC is to protect market users and the public from

fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and options markets. 

Futures and Option Contracts 

 Futures contracts for agricultural commodities have been traded in the 

U.S. for more than 150 years and have been under Federal regulation

since the 1920s. In recent years, trading in futures contracts has expanded rapidly beyond traditional physical and agricultural commodities

into a vast array of financial instruments, including foreign currencies,

U.S. and foreign government securities, and U.S. and foreign stock indices. 

Evolving Mission and Responsibilities

 Congress created the CFTC in 1974 as an independent agency with the 

mandate to regulate commodity futures and option markets in the United

States. The agency’s mandate has been renewed and expanded several 

times since then, most recently by the CFMA. 

 Today, the CFTC assures the economic utility of futures markets by encouraging their competitiveness and efficiency, ensuring their integrity,

protecting market participants against manipulation, abusive trading practices, and fraud, and ensuring the financial integrity of the clearing process.

Through effective oversight, the CFTC enables the futures markets to service the important function of price discovery and offsetting price risk. 

8 MDA—Mission and Organization
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Organization

Commodity Futures Trading Commission Organization Structure 

CFTC Organization 

 The Commission consists of five Commissioners appointed by the President to service staggered five-year terms. The President, with the consent of the Senate, designates one of the Commissioners to serve as 

Chairman. No more than three Commissioners at any one time may be 

from the same political party. 

A Highly Professional and Diverse Staff 

 The Commission employs top-notch professionals with strong academic 

records and excellent analytical and problem-solving skills for this important work: 

3⁄4 Attorneys at the Commission work on complex and novel legal issues 

in litigation, regulation, and policy development. Attorneys participate in administrative and civil proceedings, assist U.S. Attorneys in 

criminal proceedings involving futures law violations, and provide 

legal advice to the Commission on policy and adjudicatory matters. 

3⁄4 Auditors examine records and operations of futures exchanges and

firms for compliance with CFTC rules on financial requirements and

trade practices. 

3⁄4 Economists evaluate filings for new futures and option contracts and 

amendments to existing contracts to ensure they meet the Commission’s regulatory standards. Economists also analyze and advise the 

Commission on the economic effect of various Commission and industry actions and events.

MDA—Mission and Organization 9 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

3⁄4 Futures Trading Specialists/Investigators perform regulatory and compliance oversight and conduct investigations of alleged fraud, market 

manipulations, and trade practice violations. They may also appear as

expert witnesses in administrative or civil proceedings, or assist state or 

other Federal law enforcement agencies in dealing with futures-related 

violations. 

3⁄4 Management professionals support the CFTC mission by performing 

strategic planning, information technology, human resources, staffing,

training, accounting, budgeting, contracting, procurement, and other

management operations. 

***

10 MDA—Mission and Organization
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Performance Summary and Highlights 

During FY 2004, the CFTC has made substantial progress in advancing our vision 

of preserving and protecting the vital economic role played by America’s futures 

industry and we have continued to demonstrate our commitment to protect market users and the public from fraud, manipulation, and abusive practices related

to the sale of commodity futures and options, and to foster open competitive, and 

financially sound futures and option markets. 

Among our most noteworthy accomplishments during FY 2004 are:

 Progress in implementing the CFMA including: 

3⁄4 Submitting a report to the Federal Reserve Board concerning the 

exercise of authority delegated by the Board to the Commission

and the Security and Exchange Commission (SEC) to prescribe 

customer margin rules for security futures products (SFP). 

3⁄4 Signing of a Memorandum of Understanding (MOU) between 

the SEC and the Commission to clarify the ability of each agency 

to conduct inspections of notice-registered intermediaries, exchanges, and limited purpose national securities associations. 

 Investigating alleged misconduct in the Energy Markets. The investigation has focused on energy trading firms that have allegedly engaged in

the reporting of false, misleading or knowingly inaccurate market information, including price or volume information, attempted manipulation

or manipulation, and/or “round-tripping,” a risk-free trading practice 

that produces wash results and the reporting of non bona fide prices in

violation of the Act. 

 Fighting Foreign Currency (forex) Trading Fraud. Under the CFMA it is

unlawful to offer off-exchange forex futures or option contracts to retail 

customers unless the counterparty is a CFMA-enumerated regulated financial entity such as a futures commission merchant (FCM) or a financial institution. The Commission has brought enforcement actions

against both registered firms and unregistered “bucket shops.” 

 Protecting investors from unscrupulous commodity trading advisors 

(CTAs) and commodity pool operators (CPOs) that promise great riches

with little risk and then often stealing investor funds. 

 Investigating Natural Gas Price Spikes. The Commission concluded a

seven-month investigation of the sharp upward movement in prices in 

the natural gas market that occurred in late 2003. The investigation did

not uncover evidence that any entity or individual engaged in activity 

with an intent to cause an artificial price in natural gas in late 2003. 

 Investigating the Cattle Markets in Connection with the Bovine Spongiform Encephalopathy (BSE) or “mad cow” scare. The Commission 

MDA—Performance Summary and Highlights 11
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

opened an investigation in last December that is looking into the possibility that certain commodity traders had advance announcement that

“mad cow” disease had been found in a cattle herd in the northwestern

U.S. The investigation seeks to determine whether news of the announcement was leaked in advance from government sources. 

 Continued U.S. leadership in setting international standards for effective

regulation through active participation in the International Organization

of Securities Commission (IOSCO) efforts to develop best practices principles in areas that are intended to help foster higher international regulatory standards and increase access to markets and products.

 Assessing and responding to the impact of technological change on

methods of transacting business on futures exchanges and a proliferation 

of designation applications for new electronic futures exchanges. 

 Reviewing 200 new futures and option contracts based on a wide variety

of underlying physical products, financial instruments, and economic indexes – many of which represent innovative approaches designed to

meet specialized hedging needs of producers and firms in various industries. In addition, 25 SFPs were filed during FY 2004. 

 Refining Intermediary Policy, for example: Part 30 Rule Clarification; revising risk-based capital requirements; reviewing the issue of remote 

clearing and how it may relate to cross-border clearing arrangements. 

 Developing New Oversight Examination Programs -- in close consultation with other federal financial regulators and certain overseas financial 

supervisors – to enhance supervision of exchanges, clearinghouse and

other self-regulatory organizations (SROs) with risk-based examination 

cycles and risk-focused reviews. 

 Modernizing and Streamlining Financial Filing Requirements that modernize certain financial reporting for Introducing Brokers (IBs) and

FCMs. 

 Revising the Form 1-FR-FCM and Instruction Manual to reflect the new

risk–based capital rules, as well as numerous rulemaking and interpretations that have been issued by the Commission. This revision is the first 

time the manual has been revised since the Commission issued it in 1989. 

*** 

12 MDA—Performance Summary and Highlights 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Future Effects and Challenges

Clearing and Intermediary Oversight 

Increased numbers of registrants, particularly derivatives clearing organizations 

(DCOs) and firms engaged in retail forex transactions, will challenge the resources of the Clearing and Intermediary Oversight program. 

Regulation of Intermediaries 

The Clearing and Intermediary Oversight program will continue to enhance an

effective oversight framework for intermediaries. Staff will continue its efforts to 

streamline and modernize pool operator and trading advisor regulation, and to 

reduce or eliminate regulatory burdens where they are not needed, such as where

the level of futures trading is minimal and where pool participants or advisory 

clients are highly sophisticated. The Commission adopted in July 2004, a proposal developed by staff to clarify availability of the registration relief provided by

recently adopted Rule 4.13(a)(3). In addition, staff is preparing rulemaking proposals that would define the term “client” of a CTA, and would specify situations 

in which the registration exemption for CTAs providing standardized trading advice would not be available for a CTA that manages client accounts pursuant to a 

letter of direction or other written authorization in favor of either the CTA or an 

FCM, IB, or associated person (AP). The latter proposal would further specify 

situations in which a CTA managing client accounts pursuant to a letter of direction or other written authorization would be an account controller for the purposes of receiving account statements and other documentation. 

Coordination with Other Regulators

The Clearing and Intermediary Oversight program will continue to coordinate 

with the SEC regarding regulation of SFP trading and rationalizing the requirements applicable to persons, such as investment advisers, doing business under 

both CFTC and SEC regulatory frameworks. The program will also continue to

work with the National Futures Association (NFA) and the National Association 

of Securities Dealers in developing an appropriate proficiency examination for 

persons engaging in security futures trading. Joint regulation with the SEC of 

SFPs has involved unforeseen challenges, and the Commission will consider ways 

to alleviate undue burdens on the industry so that the market for this new product may continue to develop. Staff has initiated and will continue discussions

with regulatory authorities in the United Kingdom (U.K.) and Germany concerning coordinating regulatory oversight of cross-border business, in particular, the 

activities of the LCH-Clearnet and Eurex Clearing AG. 

Retail Forex Trading 

The CFMA clarified the Commission’s jurisdiction over off-exchange retail forex

trading. Going forward, the Clearing and Intermediary Oversight program will 

continue to work with NFA in developing guidance for persons who engage in 

retail off-exchange forex futures and options trading, in designing and conducting audits, and in verifying compliance with required adjusted net capital requirements for firms engaged in retail forex transactions. This will continue to be

a particular challenge given the limited jurisdiction provided to the Commission

under the CFMA, and the recent decision in the Zelener case, and the Commission will consider whether statutory changes should be sought. 

MDA—Future Effects and Challenges 13
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Implementation of the USA PATRIOT Act

Commission staff will continue working with Treasury in finalizing proposed 

anti-money laundering (AML) program rules for CTAs, investment advisors (IAs) 

and unregistered investment companies. The final rules are currently being 

drafted. Staff also has been working with the SEC and other federal financial 

agencies in drafting interpretations of the customer identification rules and a

proposed no-action position concerning the customers of certain CTAs and IAs. 

The first tier of the interpretations for the futures industry was issued on June 14,

2004. Staff will also continue to work with Treasury in a process for sharing information about possible terrorists and money launderers. As part of this process, Commission staff maintains and updates a list of FCMs and contact persons,

which Treasury then uses when issuing a list of possible money launderers and 

terrorists on a biweekly basis. The Commission recognizes that, although this

process has not been part of its mission historically and presents certain unique 

aspects, the Commission must rise to the challenge posed by money launderers

and terrorists, and prevent them from using futures markets for illegal purposes. 

General Counsel 

Continuation of the record growth and globalization of the futures industry in 

recent years will impact the Office of General Counsel (OGC) in many ways. With 

increasing industry growth has come a proliferation of new and innovative trading platforms and products. This trend will call for increasing OGC analysis of

novel and complex legal questions, particularly with respect to cross-border trading. The recent trend of increasing case filings by the Division of Enforcement 

places demands on all program areas within OGC – from legal review of proposed

charges and settlements, to appellate litigation work, to adjudicatory matters 

with respect to administrative cases. OGC also must continue to meet the challenge of maintaining its readiness to respond to unpredictable events initiated by

third parties, such as service of judicial subpoenas, commencement of bankruptcy proceedings, challenges to Commission personnel actions, and Freedom of 

Information Act (FOIA) filings, to name just a few. OGC anticipates increasing 

activity with the upcoming legislative reauthorization process, though the pace

and intensity of that process are uncertain. OGC also anticipates a continuation

of the heightened level of activity that has resulted from the added responsibilities imposed on the Office with the enactment of the CFMA (including cooperative regulatory and enforcement efforts on both an inter-agency and international 

basis), and responsibilities assumed by the Office as part of internal reallocations of certain program functions within the agency (e.g., compliance with 

ethics requirements, Paperwork Reduction Act obligations, etc.). 

Market Oversight 

The promotion of responsible innovation and fair competition was added to the 

purpose of the Act under Section 3(b) by the CFMA, and the Market Oversight

program will continue to work with a variety of markets that are interested in

innovation or in opening up current markets to greater competition. These markets may be currently regulated by the Commission or are interested in becoming 

regulated. The Market Oversight program will also continue to work with foreign 

regulators, in order to develop appropriate responses to innovation and competition. This is a particular challenge since many of the proposals brought to the

attention of the Market Oversight program raise novel and complex issues. 

In addition, since the passage of the CFMA, there has been a large increase in the 

number of novel trading mechanisms and innovative products, including instruments based upon economic occurrences, the outcome of political events, and the 

14 MDA—Future Effects and Challenges 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

conduct of individuals. The Market Oversight program will have to devote an increasing amount of resources to giving direction to the industry with regard to 

Commission jurisdiction over these matters, whether through rulemakings, interpretive letters, or no-action letters. Given the sophisticated nature of the financial engineering that accompanies these innovations, such jurisdictional determinations will require extensive case-by-case analyses by staff economists and 

attorneys. 

Large trader reporting and exchange data reporting in fulfillment of market surveillance requirements will continue to grow in complexity as new exchanges and 

new types of products come into existence. FY 2004 saw the introduction of innovative products such as fixed payout binary options, daily expiring futures contracts, and negatively priced contracts as well as the start up of several new exchanges. Staff will work with reporting firms and exchange personnel to attempt 

to implement solutions for novel products that will conform to existing industry

data reporting practices. Division of Market Oversight (DMO) staff will coordinate work in systems design, testing, and data communications between CFTC

and industry information technology groups. When necessary, DMO and OIRM

will enhance the ISS (Integrated Surveillance System) to provide the tools necessary for surveillance of any new exchanges or products. In addition to the possibility of new exchanges, data reporting by exempt commercial markets is expected to begin in FY 2005. This will require implementation of a new data record format for reporting by these markets, ISS database extensions, and new ISS 

reporting tools for the analysis of products of these markets. 

In order to meet the changing demands of the marketplace, driven by growth in

electronic trading, novel products and intermarket trading strategies, the Commission is developing a new automated trade practice surveillance system to 

more efficiently and effectively detect illegal trading activity. The new surveillance system will identify possible trading abuses for referral to exchanges and 

the Division of Enforcement, and will support Commission investigations and

litigation involving manipulation and trade practice abuses. A new, robust system also will allow identification of inter-exchange violations which individual

exchanges lack the capacity to detect, allow quicker access to and more sophisticated and customizable analysis of the full range of data supplied by exchanges 

with respect to electronic as well as open outcry trading, and enable meaningful

Commission evaluation of the exchanges’ own electronic surveillance systems. In

designing and implementing the new system, Commission staff will combine custom-built components with available off-the-shelf software to give the Commission unqualified, immediate, and confidential access to all exchange-supplied 

data. It is estimated that the new system will take approximately two and onehalf years to implement fully. 

Proceedings

The Office of Proceedings expects the number reparations filings to remain the

same in FY 2006; however, if Proceedings receives a significant increase in the 

number of reparations cases filed, it could seriously challenge the staffing and

fiscal resources of the Office. Some of the challenges that the Office of Proceedings may encounter if a significant increase in reparations complaints is experienced are: 

 The overall processing time of reparations complaints in the Complaints

Section may increase. 

MDA—Future Effects and Challenges 15
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 The Proceedings Clerk’s Office would also receive an increase in cases

forwarded for the institution of a formal adjudicatory proceeding, significantly increasing the number of pleadings filed by parties, as well as an

increase in the orders, rulings, and decisions issued by the ALJs and the 

Commission. 

 The presiding officers’ workload would also increase significantly. It is 

possible that the percentage of cases disposed of within one-year may decrease. 

 The future effects of a possible increase in cases filed may challenge our

budgeted resources (travel and transcripts costs would increase). 

 The number of cases could possibly increase if the Commission assumes

jurisdiction over new and unique types of instrument(s). 

 The response time to requests for information and copies of documents 

may increase.

 The response time to FOIA and Privacy Act requests may increase. 

Administrative Enforcement Cases 

The Administrative Law Judges (ALJ) will continue to hear and decide administrative enforcement cases; however, a significant increase in the administrative

enforcement cases would challenge the resources (staff and fiscal) of the Office of 

Proceedings. Some of the challenges that the Office of Proceedings would encounter if a significant increase in the number of administrative enforcement 

cases filed were experienced are: 

 The Proceedings Clerk’s Office would experience an increase in the number of pleadings filed by parties to the cases, as well as an increase in the

orders, rulings, and decisions issued by the ALJs and the Commission. 

 The ALJs’ overall workload would also increase significantly. The future

effects of a possible increase in cases filed may challenge our budget resources (travel and transcripts costs would increase). 

 The number of cases could possibly increase if the Commission obtains

jurisdiction over new and unique types of instrument(s). 

Optimal Staffing

Potential obstacles to the goal of optimal staffing include: numbers of retirements 

that are either much larger or much smaller than anticipated; job market that is

either much more or much less competitive than at present; rapid change in industry, beyond our ability to hire or develop staff competencies needed to respond; and insufficient funding to support needed full-time equivalent (FTE),

workforce planning and succession strategies, etc.

Achieve Full Funding for Pay Parity

Potential obstacles to the goal of pay parity include: increases by our benchmark 

financial regulatory agencies, based on fees from regulated industries, that we 

cannot afford to match; difficulty in allocating staff and other administrative 

overhead needed to support contracting for complex benefit packages found at

larger FIRREA agencies; and lack of consensus on which of the various FIRREA 

models to follow. 

16 MDA—Future Effects and Challenges 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

International Affairs 

The Commission’s International Affairs program anticipates that the trend of 

futures exchanges, clearing organizations and intermediaries expanding their 

global relationships through linkages and other commercial ventures, as well as

through seeking direct recognition abroad, will continue to accelerate. Because

these global relationships often take place in multiple jurisdictions, their proper 

regulation necessitates enhanced cooperation with multiple foreign regulators 

who may be best placed to assure the financial and market integrity of various 

aspects of the relevant transactions. The Commission anticipates that this trend

will continue and may place greater demands on the Commission to enhance its 

regulatory and enforcement cooperative efforts both not only on individual bilateral and multilateral bases, but also on broader multilateral international forums

such as IOSCO, Council of Securities Regulators of the Americas (COSRA) and

the Council of European Securities Regulators to negotiate international principles and regional supervisory approaches. The Commission to date has found it 

difficult to host meetings of IOSCO and other international organizations in

which it participates. 

There continues to be greater focus among international regulators and international financial institutions such as the International Monetary Fund and World

Bank to continue to develop international regulatory standards and to enhance 

assessment efforts to ensure that the international standards developed by standard setters such as IOSCO are in fact implemented. The Commission has participated in such standard setting exercises, such as chairing the IOSCO Implementation Committee, and finds such participation of great value to assure that

standards remain high and consistent with its approach. The Commission anticipates that it may need greater resources to adequately cover and staff these

activities should they accelerate. 

Finally, the Commission continues to receive requests to provide technical assistance, particularly as a result of the increasing focus noted above on the assessment of jurisdictions’ efforts to implement international standards. Such requests 

will place increasing demands on the Commission’s limited resources. 

Information Resources Management 

The Commission plans to design and implement a robust Commission-wide Asset 

Management Program to manage Commission assets throughout the asset’s lifecycle, from requisition to surplus. This complex and challenging effort is critical

to the Commission’s daily operational efficiency and effectiveness. This effort will

allow the Commission to save valuable resources, time and money, while building 

better business operations and enhancing accountability. Organizational change

and the implementation of new processes are key challenges the Commission will

face executing this effort. These changes include: 1) assigning matrix functional

responsibility, 2) defining accountability 3) developing policies and procedures, 

and 4) implementing tracking processes and tools. Once the business processes 

are streamlined and redesigned, a technology solution will be applied. Although

the program is still in its infancy and office responsibilities are still being defined,

the positive effect of the success of this program will be felt across the Commission for many years to come. 

Conversion to Commercial Mail Process 

The Office of Management Operations will be converting the current mail handling and payment process through the Official Mail Accounting System to a 

MDA—Future Effects and Challenges 17
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

commercial payment process in accordance with the General Services Administration regulation. The conversion must be coordinated with the U.S. Postal 

Service, Commission financial and mail managers, and the commercial postal

vendor. It will require a review of all mail meters and equipment upgrades to 

support this initiative. As part of the review process, it will be determined how

best to meet the postal needs of each location. The Commission will also need to 

arrange permits with the U.S. Postal Service in each location. The ultimate benefits of this conversion will be to: track postage cost in real time; measure performance; identify opportunities to save money; identify instances of potential 

fraud; increase the ability to react quickly to problems; and to streamline operations and improve productivity. 

Kansas City Regional Office Relocation

With Kansas City’s current growth, and its projected FY 2005 growth, the office

relocated to larger office space in October 2004. In addition to the change in

space requirements, the responsibilities and activities have increased with the 

addition of the Enforcement division. The Office of Management Operations was 

challenged with relocating the office, establishing the required support services,

as well as providing ongoing operational support. 

Asset Management 

The Commission, with contractor assistance, is designing a Commission Asset

Management Program to manage Commission assets throughout their lifecycle 

from requisition to surplus while taking into consideration all perspectives in order for the Commission to save time, money, and allow for smoother, more successful operations. Although the program is still in its infancy and office responsibilities are not clearly defined, the Office of Management Operations will be

responsible for physical assets other than IT related items. 

In order for a successful program, there must be organizational changes, such as: 

 Assigning matrix functional responsibility 

 Identifying accountable parties 

 Developing formal agency policies 

 Implementing tracking processes and tools. 

Once the processes are streamlined and redesigned to meet requirements, automation will be applied. 

Business Continuity Plan 

Under the umbrella of the Continuity of Operations Plan, the Office of Management Operations is currently developing a Business Continuity Plan. This contingency plan, which will be used in the event that the Commission is not able to

work at our current locations, will support the recovery and continuity of the Office of Management Operations’ critical business functions and the eventual restoration of normal operations. 

***

18 MDA—Future Effects and Challenges 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Inspector General’s Discussion and Analysis 

MDA—Inspector General’s Discussion and Analysis 19
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

20 MDA— Inspector General’s Discussion and Analysis 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

MDA—Inspector General’s Discussion and Analysis 21
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Management Controls, Systems and Compliance with Laws 

CFTC Statement of Assurance for FY 2004 

22 MDA—Management Controls, Systems, and Compliance with Laws
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Federal Managers’ Financial Integrity Act 

The Federal Managers’ Financial Integrity Act (FMFIA) requires agencies to institute management accountability and internal controls for program, operational, administrative, accounting and financial management functions. These 

controls must provide reasonable assurance that agency: 

 Obligations and costs are in compliance with applicable laws; 

 Funds, property and other assets are safeguarded against waste, loss, unauthorized use, or misappropriation; and 

 Revenues and expenditures are properly recorded and accounted for. 

In addition, FMFIA requires the agency head to annually report on the adequacy 

of its management controls and conformance of its financial systems to federal 

regulations and standards. The report on its controls and financial systems is 

based on evaluations of its program, operational, administrative, accounting and 

financial management functions. 

The CFTC’s management control program is designed to comply with the requirements of FMFIA, including OMB Circular A-123, “Management Accountability and Control,” OMB Circular A-127, “Financial Systems,” and OMB Circular 

A-130, Management of Federal Information Resources. The management control 

program ensures: 

 Programs achieve their intended results;

 Resources are used effectively and are consistent with the agency’s mission; 

 Programs and resources are properly safeguarded against waste, fraud 

and mismanagement;

 Information supports timely, complete and reliable decision-making; and 

 Laws and regulations are followed. 

Ongoing control reviews are conducted by the major divisions and offices of the 

Commission to ensure that systems and controls comply with the standards established by FMFIA. The results of these reviews are reported annually to the 

Acting Chairman and include: 

 Management knowledge gained from daily operations; 

 Audits of internal controls and financial statements; 

 Financial management systems reviews;

 Office of the Inspector General and Government Accountability Office 

reports; and 

 Other reviews, evaluations and related reports. 

For FY 2004, the Acting Chairman issued a qualified statement of assurance that,

other than a material non-conformance related to the agency’s asset management 

system, the CFTC is in compliance with FMFIA. The Acting Chairman based this

statement of assurance on management control reviews conducted by the major 

MDA—Management Controls, Systems, and Compliance with Laws 23
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

divisions and offices of the Commission, financial systems reviews by the various 

offices of the Executive Director, a summary management review by the Executive Director, and a limited review process conducted by the Office of the Inspector General. 

The material non-conformance related to the asset management system was

originally reported in the CFTC’s FY 2002 FMFIA report and updated in the 

agency’s FY 2003 report. The FY 2004 assessment of this system determined

that the material non-conformance continues to exist. The agency’s remediation

plan for bringing this system anticipates full compliance by FY 2007. 

*** 

24 MDA—Management Controls, Systems, and Compliance with Laws
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Budget and Financial Highlights 

The Commission’s balance sheet, which appears in the Financial Section of this 

Report, received an unqualified audit opinion issued by the accounting firm of 

KPMG LLP. This is the first year that the Commission financial statements have 

been audited by an independent accounting firm. Preparing these statements is a 

part of the Commission’s goal to improve financial management and to provide 

accurate and reliable information that is useful for assessing performance and 

allocating resources. Commission management is responsible for the integrity 

and objectivity of the financial information presented in the financial statements. 

The financial statements and financial data presented in this report have been 

prepared from accounting records of the CFTC in conformity with the U.S. generally accepted accounting principles (GAAP). U.S. GAAP for Federal entities are

the standards prescribed by the Federal Accounting Standards Advisory Board

(FASAB). 

Overview of Financial Position 

Assets. The Commission had total assets of $62.2 million at the end of FY 2004.

The Commission’s assets are summarized in the following table: 

A ssets 

I ntrago v e rnm e ntal:

Fund Balanc e with Treasury $ 26,30 4,227

A c counts Rec eiv able 22,80 6

To tal Intrago v e rnm ental 26,327 ,0 3 3

Custo dial Fine s and Inte rest Rec eiv able , Ne t 3 5 ,40 2,939

A c counts Rec eiv able 9,45 7

Equip m e nt and Furnitu re , Net 3 40 ,21 0

So ftware, Net 1 49,428

T otal A ssets $ 62,229,0 67

Liabilities. The Commission had total liabilities of $44.4 million at the end of FY 

2004. 

L iabilities 

I ntrago v e rnm e ntal:

FECA Liabilities $ 1 94,1 0 2

With the Public :

Trade A c c o unts Pay able 1 ,0 25 ,643

A c c rued Funded Pay ro ll and Bene fits 2,282,462

A nnual Leav e 4,7 97 ,30 4

A c tuar ial FECA Laiblitie s 5 1 4,932

Custo dial Liabilitie s 3 5 ,40 2,939

Co ntingent Liabilities 1 82,426

T otal L iabilities $ 44,399,80 8

MDA—Budget and Financial Highlights 25 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Ending Net Position. The Commission had a net position of $17.8 million at the 

end of FY 2004. The Commission’s Net Position is summarized in the following 

table: 

Net Position

Cumulativ e Results o f Operations (5 ,1 99,1 26)

Unex pended A ppro priations 23,028,385

T otal Net Position 17 ,829,25 9

Results of Operations. The results of operations are reported in the Statement of 

Net Cost and the Statement of Changes in Net Position. 

The Statement of Net Cost presents the Commission’s gross and net cost for its

strategic goals. The net cost of operations is the gross (i.e., total) cost incurred by

the commission, less any earned revenue. 

Goal One: Ensure the economic vitality of the commodity futures and option 

markets 

Unaudited

Intragov ernmental Gross Costs $ 4,297 ,937

Less: Earned Rev enue (10,605 )

Intragov ernm ental Net Cost of Operations 4,287 ,332

Gross Costs With the Public 27 ,1 24,106

Less: Earned Rev enue (9,032)

Net Cost of Operations With the Public 27 ,115 ,07 4

Net Cost of Operations - Goal One $ 31,402,406

Goal Two: Protect market users and the public 

Intragov ernmental Gross Costs $ 5 ,245 ,5 1 5

Less: Earned Rev enue (1 2,943)

Intragov ernm ental Net Cost of Operations 5,232,57 2

Gross Costs With the Public 33,104,237

Less: Earned Rev enue (1 1 ,023)

Net Cost of Operations With the Public 33,093,214

Net Cost of Operations - Goal T wo $ 38,325,7 86

26 MDA—Budget and Financial Highlights 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal Three: Ensure market integrity in order to foster open competitive, and 

financially sound markets

Unaudited

Intragov ernmental Gross Costs $ 3,621 ,020

Less: Earned Rev enue (8,934)

Intragov ernm ental Net Cost of Operations 3,612,086

Gross Costs With the Public 22,852,1 09

Less: Earned Rev enue (7 ,61 0)

Net Cost of Operations With the Public 22,844,499

Net Cost of Operations - Goal T hree $ 26,456,585

Grand Total 

Intragov ernmental Gross Costs $ 1 3,1 64,47 2

Less: Earned Rev enue (32,482)

Intragov ernm ental Net Cost of Operations 13,131,990

Gross Costs With the Public 83,080,45 2

Less: Earned Rev enue (27 ,665 )

Net Cost of Operations With the Public 83,052,7 87

T otal Net Cost of Operations $ 96,184,777

MDA—Budget and Financial Highlights 27 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

The Statement of Changes in Net Position presents the accounting items that

caused the net position section of the balance sheet to change since the beginning 

of the fiscal year. 

(Unaudited)

Cumulative Results Unexpended

of Operations Appropriations

Balances, October 1, 2003 $ (2,957,781) $ 23,550,666

Budgetary Financing Sources

Appropriations:

Received - 90,435,000

Less: Rescinded - (533,567 )

Less: Canceled - (339,153)

Used to Acquire and Provide Services 90,084,561 (90,084,561)

Other Financing Sources:

Imputed Financing Sources 3,858,87 1 -

Total Financing Sources 93,943,432 (522,281)

Net Cost of Operations (96,184,777) -

Balances, September 30, 2004 $ (5,199,126) $23,028,385

Budgetary Issues 

The FY 2004 Commission budget of $89.9 million (appropriation less rescissions) was allocated among the following programs: 

 $17.7 million for Market Oversight. The primary responsibility of the Division of Market Oversight (DMO) is to foster markets that accurately reflect the forces of supply and demand for the underlying commodity and

are free of abusive trading activity. DMO helps ensure that the markets

are performing the vital economic functions of price discovery and risk 

transfer by monitoring the markets to detect and protect against price

manipulation and abusive trading practices DMO also reviews products

listed by exchanges and rules and rule amendments submitted by exchanges, and develops, implements, and interprets regulations that are 

designed to protect the economic functions of the markets, protect market participants, and prevent trading abuses. 

 $11.9 million for Clearing and Intermediary Oversight. The primary responsibility of the Division of Clearing and Intermediary Oversight 

(DCIO) is to oversee market intermediaries and the self-regulatory programs and compliance activities of the futures industry SROs, which include the U.S. commodity exchanges and the National Futures Association and derivatives clearing organizations. DCIO also is responsible for 

developing rules to protect market users and financial intermediaries. 

 $1.4 million for the Office of the Chief Economist. The Office of the Chief 

Economist conducts research on major policy issues facing the Commis28 MDA—Budget and Financial Highlights 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

sion; assesses the economic impact of regulatory changes on the futures 

markets and other sectors of the economy; participates in the development of Commission rulemakings; provides expert economic support and

advice to other Commission divisions; conducts special studies and 

evaluations; and participates in the in-house training of CFTC staff on 

matters related to futures, options, swaps, and risk management. 

 $25.7 million for Enforcement. The Division of Enforcement (DOE) investigates and prosecutes alleged violations of the Commodity Exchange 

Act and Commission regulations. DOE takes enforcement action against 

individuals and firms registered with the Commission, those who are engaged in activities that directly or indirectly affect commodity futures and

option trading on domestic exchanges, and those who improperly market 

futures and option contracts. 

 $2.3 million for the Office of Proceedings. The Office of Proceedings provides an inexpensive, impartial, and expeditious forum for handling customer complaints against persons or firms registered under the CEA. 

Customers may bring complaints against professionals currently or formerly registered with the Commission if the individuals or firms allegedly violated the antifraud or other provisions of the CEA. Administrative 

Law Judges (ALJs) or Judgment Officers decide reparations cases. ALJs 

also decide administrative enforcement cases brought by the Division of

Enforcement against firms or persons who have allegedly violated the 

CEA or Commission regulations. 

 $5.5 for Office of General Counsel. The Office of the General Counsel 

(OGC) is the Commission’s legal advisor. OGC attorneys represent the 

Commission in court, appearing regularly before the U.S. courts of appeals and the U.S. district courts in proceedings that involve futures industry professionals. Through its Opinions Program, OGC staff assists 

the Commission in performing its adjudicatory functions. As legal advisor, OGC reviews all substantive regulatory, legislative, and administrative matters presented to the Commission. OGC also advises the Commission on the application and interpretation of the CEA and other administrative statutes. 

 $25.4 for Executive Direction and Support. Executive Direction and

Support includes the Offices of the Chairman and the Commissioners

and the Offices of the Executive Director. The Offices of the Chairman 

and the Commissioners provide Commission leadership and develops

and implements agency policy in furtherance of the purposes of the CEA.

The Office of the Executive Director (OED) provides mission support services to the programs of the Commission. OED offices include Financial

Management, Human Resources, Information Resources Management,

Management Operations and Library. Through these offices, OED provides: strategic planning; resource management; personnel management; financial management; leasing, contracting, and procurement; security and emergency preparedness; information technology resources; 

and facilities, furniture, and equipment management. 

The FY 2004 Commission budget of $89.9 million was allocated among the following three strategic goals: 

$29.4 to ensure the economic vitality of commodity futures and option markets.

$35.8 to protect market users and the public. 

MDA—Budget and Financial Highlights 29 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

$24.7 to ensure market integrity in order to foster open, competitive and financially sound markets. 

*** 

30 MDA—Budget and Financial Highlights 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Performance Section

Performance 

Section

FY 2004 Performance and Accountability Report 

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Overview 

In its continuing effort to meet the requirements of GPRA and budget and performance integration, the Commission took a fresh look at its strategic performance planning and measurement structure in FY 2004. A team of senior program 

executives and key managers from OED attended a two-day working session for 

the purposes of documenting the Chairman’s vision of success for the next five

years, determining the indicators of success, and how to measure them. The result was a new system that enables the Commission to: 1) allocate FTEs by business process rather than activity; and 2) measure its performance using fewer, 

more meaningful outcome measures rather than numerous output measures. 

In FY 2004, the Commission continues to make progress with respect to each of

the standards for success associated with the President’s goal of budget and performance integration as outlined below: 

 Creation, implementation, and monitoring of an integrated performance plan/budget. With this FY 2006 OMB estimate, the budget request

and the Annual Performance Plan have been integrated—with the budget

now showing the request broken out by object class, by program, and by 

strategic goal and planned outcome. 

To further demonstrate the Commission’s progress, the Budget & Planning and Accounting teams of OFM are working to restructure the financial management system to align the monitoring of spending with that of

budgeting or planning for spending. This means a complete overhaul of 

the Management Accounting Structure Code (MASC) system to better

align it with the goals, outcomes, and business processes of the new strategic performance planning and measurement structure. 

 Performance plan/budget sets forth outcome goals, output targets, and

requested resources in context of past results. As mentioned previously,

a new strategic planning and measurement structure guided the Commission’s latest development of the integrated performance plan and 

budget. The modifications to the structure were based on input from the

Chairman and senior executive staff and evaluations of past performance 

conducted quarterly by program managers. In addition, the GAO critiqued the Commission’s strategic planning structure, providing valuable

suggestions regarding how to improve its effectiveness. This year’s efforts 

and these internal evaluations and past critiques have led to a more 

streamlined set of business processes and performance indicators of success, measures of outcome, and annual performance targets. 

 Budget accounts, staff, and programs/activities are aligned to achieve

program targets. The work of the Budget & Planning and Accounting

teams to restructure budget accounts and the MASC system has enabled 

a better understanding by program staff of how their activities help the 

Commission reach its goals, outcomes, and performance targets. As a result, monitoring of resource expendituresmonetary and humanwill 

become more successfully aligned as originally envisioned. 

 Full cost of outputs and programs is integrated with performance. The 

Commission’s fully integrated budget and performance estimate contain 

a cross-cutting analysis that demonstrates how the full cost of each 

budget request is fully integrated with planned performance. That is, the

Performance Section—Overview 33
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

program-based and object class-based analyses of the request are augmented by a programmatic distribution of resources by each of the 

Commission’s strategic goals. Conversely, the goal-based analysis of request’s planned performance also disaggregates resources by program. 

This analysis was developed both to demonstrate that full costs were integrated with performance and to engender greater understanding

among the public, the Congress, the Administration, market users, and

the many other interested persons and entities regarding how resources 

contribute to the accomplishment of the Commission’s mission. 

 Agency documents program effectiveness, analyzes policies’ impact on

outcomes, and demonstrates how results inform budget decisions. With 

the work of the senior staff to revamp the strategic performance planning 

and measurement system as well as the efforts of the Budget & Planning

and Accounting teams of OFM to align planning and monitoring of resource expenditure, the Commission will have the foundation in place to

begin documenting program effectiveness, analyzing the impact of policy 

decisions on outcomes, and demonstrating how performance results affect budget decisions. 

*** 

34 Performance Section—Overview 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Resource Logic Model 

Outcome 1.2

Markets that are effectively and efficiently monitored

to ensure early warning of potential problems or

issues that could adversely affect their economic vitality.

Outcome 1.1

Markets that accurately reflect the

forces of supply and demand for the underlying

commodity and are free of disruptive activity.

Goal One

Ensure the economic vitality of commodity

futures and option markets.

FY 2004: $29.4 Million and 174 FTEs

Outcome 2.3

Customer complaints against persons or firms

registered under the Act are handled

effectively and expeditiously.

Outcome 2.2

Commodities professionals meet

high standards.

Outcome 2.1

Violations of Federal commodities laws

are detected and prevented.

Goal Two

Protect market users and the public.

FY 2004: $35.8 Million and 206 FTEs

Outcome 3.4

x Regulatory environment is flexible and x

responsive to evolving market conditions.

x

Outcome 3.3

x Markets are free of trade practice abuses. x

Outcome 3.2

Commodity futures and option markets

are effectively self-regulated.

Outcome 3.1

Clearing organizations and firms holding

customer funds have sound financial practices.

Goal Three

Ensure market integrity in order to foster open,

competitive, and financially sound markets.

FY 2004: $24.7 Million and 136 FTEs

Mission Statement

The mission of the Commodity Futures Trading Commission is to protect market users and the public from fraud, manipulation, and abusive

practices related to the sale of commodity futures and options, and to foster open, competitive, and

 financially sound commodity futures and option markets.

Performance Section—Resource Logic Model 35
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal One 

Strategic Goal One: Ensure the economic vitality of the commodity 

futures and option markets.

The focus of this goal is the marketplace. If the U.S. commodity futures and option markets are protected from and are free of abusive practices and influences, 

they will better operate to fulfill their vital role in our market economy and the

global economyaccurately reflecting the forces of supply and demand and serving market users by fulfilling an economic need. 

Outcomes 

For Strategic Goal One, in FY 2004 the Commission aimed to achieve these “intermediate” outcomes: 

 Futures and option markets that accurately reflect the forces of supply 

and demand for the underlying commodity and are free of disruptive activity. 

 Markets that can be used effectively by producers, processors, financial

institutions, and other firms for the purposes of price discovery and risk 

shifting. 

The Commission also worked toward these “initial” outcomes: 

 Prevention or mitigation of potentially disruptive situations; and 

 Prevention or mitigation of decreased market use because of a loss of 

confidence in the integrity of the markets. 

Program Performance Results 

Market Oversight 

Monitoring market activity represents one of the ways the Commission seeks to 

protect the economic functions of the markets. Market Surveillance is conducted 

to detect attempted manipulation and other abusive practices that could undermine the capacity of these markets to perform their economic function. The

Commission takes preventive measures to ensure that market prices accurately

reflect fundamental supply and demand conditions, including the routine daily 

monitoring of large trader positions, futures and cash prices, price relationships,

and supply and demand factors in order to detect threats of price manipulation. 

In FY 2004, the Market Surveillance subprogram conducted daily surveillance of

556 active futures and option markets. Particularly close monitoring was conducted on the energy futures markets, which experienced periods of high prices

and high price volatility due to, among other things, low stocks, geopolitical tension in the Middle East, and strong world economic demand. In addition, very 

close monitoring was conducted on the cattle futures markets as prices were volatile due to the countervailing pressures of strong demand and the effects of discovery of BSE disease in a single cow in Washington State. The surveillance included collecting and analyzing approximately 35.3 million line items of data regarding large trader activity and approximately 17,035 reports identifying the 

36 Performance Section—Goal One 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

large traders. In the course of the year, economists prepared approximately 1,850

weekly surveillance reports and compiled 26 special market reports. 

The Market and Product Review staff reviewed three applications of entities seeking to become designated contract markets. The Market and Product Review staff 

also reviewed five filings by entities that notified the Commission of their intention to operate as exempt markets under the CEA. 

The Market and Product Review staff reviewed 16 rule amendment approval requests for existing futures and option contracts in FY 2004. Staff reviewed the 

terms and conditions of contracts submitted for approval to ensure that the contracts’ terms and conditions were in compliance with Commission regulations 

and policies and did not raise any public interest issues. Under the Commission’s

certification procedures for listing new products, 204 new contracts were filed, 

including 29 SFPs, and under its certification procedures, 299 rule changes were

filed. Staff reviewed the terms and conditions of contracts submitted under certification procedures to ensure that statutory and regulatory anti-manipulation 

requirements were met and to provide essential background information in order

to conduct market surveillance. 

The Commission’s review of exchange rules is a key aspect of the statutory 

framework for self-regulation under Commission oversight. The staff of the Market and Product Review subprogram reviewed exchange rule submissions with a 

view toward maintaining the fairness and financial integrity of the markets, protecting customers, accommodating and fostering innovation, and increasing efficiency in self-regulation consistent with the Commission’s statutory mandates. 

During FY 2004, staff reviewed 263 exchange rule submissions containing 2,669

separate new rule amendments. The Market and Product Review subprogram is

also responsible for providing exemptive, interpretive, or other relief to various 

markets and market participants to facilitate the continued development of an

effective, flexible regulatory environment responsive to evolving market conditions. 

Clearing and Intermediary Oversight 

The Commission’s Clearing and Intermediary Oversight program monitors the

potential for, and instances of, market disruptions or emergencies related to: 1) 

the proper capitalization of firms; 2) the proper segregation of customer funds; or

3) issues with respect to systemic risk. Clearing and Intermediary Oversight staff

monitor cases of volatile markets in order to advise the Commission of any potential impairment of a registrant or potential systemic risk. It is not possible to estimate in advance the number of such events that will occur annually because 

market volatility cannot be predicted. Nevertheless, such events are expected to

occur. In this connection, Clearing and Intermediary Oversight staff conducted 

34 market move reviews in FY 2004. Such reviews met the objectives of: 1) assuring that registrants and financial intermediaries are not impaired by market volatility or disruptions; and 2) detecting any failure to meet clearinghouse obligations or other impairment of a registrant. 

Enforcement 

Energy Markets. During FY 2004, the Commission filed a total of 12 enforcement actions in this program area. (See Appendix A) 

Performance Section—Goal One 37
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

During FY 2004, the Commission also achieved the following significant litigation result in an action filed in this practice area during the previous fiscal year: 

 CFTC v. Enron Corp., et al., No. H-03-909, Consent Order Of Permanent 

Injunction And Other Relief Against Defendant Enron Corp. (S.D.Tex.

entered May 28, 2004) (energy investigation case filed March 12, 2003;

permanent injunction; $35 million civil monetary penalty). (Thus, the 

civil monetary penalties imposed in this program area during FY 2004 

totaled $156 million.) 

Office of the Chief Economist 

The Office of the Chief Economist performed economic and empirical analyses to

evaluate the performance of futures markets and to evaluate the impact of 

changes in trading rules and in contract specifications on the performance of the 

futures markets. The office also provided economic and statistical consulting services to Commission staff and offered economic and financial research seminars 

and short courses in futures, options, and financial economics. 

Staff also provided economic and statistical analysis to the Enforcement program 

on a number of cases involving foreign currencies and energy products and to the 

Market Oversight program on a review of the need for federal position limits for 

agricultural futures contracts and on several recently developed derivatives products. 

 

During FY 2004, OCE staff presented research findings relating to price discovery, hedging and market microstructure and development issues at industry or 

academic conferences as well as through refereed academic journals. 

Office of Proceedings 

During FY 2004, the Office of Proceedings continued to hear and decide statutory

disqualification actions brought by the Commission.

Office of the General Counsel 

In FY 2004, the Office of the General Counsel (OGC) continued to review for legal

sufficiency and for conformance with the CEA and Commission policy and precedent contract market designation applications and applications for registration as

derivatives transaction execution facilities (DTEFs) and DCOs. 

In FY 2004, OGC continued to advise the Commission concerning implementation of the rules and regulations issued pursuant to the CFMA. OGC has been instrumental in advising the Commission as it comprehensively modernizes the

rules governing market intermediaries such as FCMs, CPOs, CTAs and other registrants in light of the study completed by the Commission and submitted to 

Congress under Section 125 of the CFMA. 

OGC also reviewed all proposed enforcement actions alleging manipulation and 

other abusive trading practices during FY 2004 to assure their legal sufficiency 

and conformance with Commission policy and precedent. 

Executive Direction & Support 

Administrative Management & Support. In FY 2004, the Commission’s primary 

mission critical application to support futures and option data market surveillance, the Integrated Surveillance System (ISS), has been significantly enhanced

38 Performance Section—Goal One 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

to address changes and growth in the futures industry. This year those changes 

included accepting markedly different contract markets that are traded on a new 

exchange, Hedge Street and daily futures now being traded on the Chicago Mercantile Exchange. In addition, significant effort to improve the capability and 

availability of the ISS was executed through the implementation of over 12,000 

system modifications and the implementation of a second data collection point 

for transmitted surveillance data to support continuity of operations. 

*** 

Performance Section—Goal One 39
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal One Resources 

In FY 2004, the Commission was appropriated $89.9 million and 516 FTEs, and

allocated $29.4 million and 174 FTEs to Goal One. 

Goal One: Ensure economic vitality of the commodity futures and option markets. 

Program Funding 

FY 2002 

Actual 

FY 2003 

Actual 

FY 2004 

Est. Actual 

$ (000) FTE $ (000) FTE $ (000) FTE

Market Oversight $9,212 66 $9,672 70 $15,631 91

Clearing & Intermediary Oversight 1,000 7 616 4 750 5

Chief Economist 0 0 1,323 7 1,814 13

Enforcement 3,360 23 3,800 23 6,288 36

Proceedings 0 0 0 0 0 0

General Counsel 1,157 7 1,226 7 1,547 11

Executive Direction & Support 1 6,646 45 8,129 53 3,328 18

TOTAL $21,375 148 $24,766 164 $29,358 174

 1 Represents Executive Direction resources directly allocated to Goal 1. All unallocated resources are

prorated among the other programs. 

40 Performance Section—Goal One 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Summary of Performance 

Goal One: Ensure the economic vitality of the commodity futures and option markets.

Outcome 1.1: Futures and option markets that accurately reflect the forces of supply and demand

for the underlying commodity and are free of disruptive activity.

Annual Performance Goal: No price manipulation of other disruptive activities that would cause loss of confidence or negatively affect price discovery or risk shifting. 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage growth in market volume (Growth in market volume)

Percentage of novel or innovative market proposals or requests for

CFTC action addressed within six months to accommodate new

approaches to, or the expansion in, derivatives trading, enhance 

the price discovery process, or increase available risk management

tools (Expanding Infrastructure)

Percentage increase in number of products traded (Expanding 

number of products) 

Percentage of new exchange and clearinghouse applications completed within fast track review period 

Percentage of new contract certification reviews completed within

two months to identify and correct deficiencies in contract terms

that make contracts susceptible to manipulation

Percentage of rule change certification reviews completed within

two months, to identify and correct deficiencies in exchange rules 

that make contracts susceptible to manipulation or trading abuses

or result in violations of law 

22% 

N/A 

13% 

100% 

55% 

64% 

TBD 

N/A 

TBD 

TBD 

TBD 

TBD 

18% 

TBD 

13% 

100% 

55% 

70% 

Outcome 1.2: Markets are effectively and efficiently monitored to ensure early warning of potential problems or issues that could adversely affect their economic vitality.

Annual Performance Goal: To have an effective and efficient market surveillance program. 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage of DCO applications demonstrating compliance with 

core principles 

Ratio of contracts surveilled per economist 

Percentage of contract expenditure without manipulation

100% 

20 

99.9% 

100% 

TBD 

99.9% 

100% 

22 

99.9% 

Performance Section—Goal One 41
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal Two 

Strategic Goal Two: Protect market users and the public. 

The focus of this goal is protection of the firms and individualsmarket userswho come to the marketplace to fulfill their business and trading needs.

Market users must be protected from possible wrongdoing on the part of the 

firms and commodity professionals with whom they deal to access the marketplace, and they must be assured that the marketplace is free of fraud, manipulation, and abusive trading practices.

Outcomes 

For Strategic Goal Two, in FY 2004 the Commission aimed to achieve these “intermediate” outcomes: 

 Compliance with federal commodity laws and deterrence of violations. 

 Commodities professionals meet high standards. 

 Customer complaints against persons or firms registered under CEA 

handled effectively and expeditiously. 

The Commission also worked toward these “initial” outcomes: 

 Potential wrongdoing is identified, investigated, and prosecuted. 

 Registered, tested, and licensed commodity professionals. 

 Complaints resolved through settlement, informal voluntary proceedings, or formal adjudicatory proceeding.

Program Performance Results 

Clearing and Intermediary Oversight 

Oversight of Sales Practices and Registered Futures Associations. A core part of 

the Commission’s mission is to operate a program that protects market users and 

the public from fraud and abusive practices related to the offer and sale of commodity futures and options. The Clearing and Intermediary Oversight program 

conducts ongoing oversight related to screening market professionals for fitness 

and assuring that DCOs have appropriate risk management programs. The Clearing and Intermediary Oversight program also develops disclosure standards, particularly for managed futures and option products, to assure that market users 

and potential market users are appropriately and consistently informed of the

risks of futures and option trading as well as important background information 

about trading managers. 

The Clearing and Intermediary Oversight program oversees the NFA’s Disclosure

Document Review program for CPOs and CTAs. Pursuant to a March 2003 delegation of authority by the Commission to the NFA, the program now includes

oversight of NFA reviews of disclosure documents filed by CPOs for publicly offered commodity pools. Further, pursuant to a December 2002 delegation of authority by the Commission to the NFA, the program now includes oversight of 

NFA reviews of annual reports by CPOs for commodity pools that they operate.

42 Performance Section—Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commission staff has frequent contact with NFA staff to coordinate regulatory 

efforts. 

Oversight of Intermediary Fitness. In FY 2004, there were 68,948 industry registrants. These registrants included 212 FCMs (16 of which were noticeregistered), 1,700 IBs (39 of whom were notice-registered), 1,917 CPOs, and

2,693 CTAs. These firms employ 52,161 sales personnel, known as APs. In addition, there are 8,739 individuals registered as floor brokers (FBs) and 1,526 individuals registered as floor traders executing trades on U.S. exchanges. 

The Clearing and Intermediary Oversight program is responsible for performing 

the Commission’s formal oversight of the NFA registration program. This oversight involves inspection of records and interviews with NFA staff as well as numerous informal contacts between NFA and the Clearing and Intermediary Oversight program on a weekly basis. These oversight activities are designed to protect market participants and the public interest by assuring that persons who deal

directly with customers and those who handle customer orders and customer 

funds meet the standards for fitness, integrity, and training established under the

CEA. Persons who cannot meet these standards may be subject to statutory disqualification from registration and may have their registration denied, conditioned, or revoked. 

The Clearing and Intermediary Oversight program seeks to protect market users 

and the public by requiring futures industry professionals to meet high standards 

through registration and passing of a proficiency exam by salespersons. A performance measure established to indicate the percentage of professionals compliant with standards regarding testing, licensing, and ethics training shows that in

FY 2004 the program reached 100 percent. When Commission staff uncover persons who are not registered but should be, a letter is sent to the person, and/or

the matter is referred for enforcement action. 

The Clearing and Intermediary Oversight program chaired the Registration 

Working Group (RWG), which is composed of Commission and NFA representatives. The RWG was created as a means for the Commission and NFA staff to 

share ideas and concerns about issues that are not tied to any specific pending 

registration case. Commission staff participated in four meetings of the RWG 

during FY 2004, in which the group discussed among other things: 1) registration holds; 2) permitting oral hearings as part of the process of determining

whether to suspend a person’s registration for willful failure to disclose a criminal

matter; 3) the impact of a new Illinois statute on registration under the Act; 4) 

Rule 30.5 exemptions from Commission registration; and 5) fingerprint processing. 

Anti-Money Laundering. Clearing and Intermediary Oversight staff worked with 

representatives of other Commission units and other federal financial regulators

on various aspects of a program to combat money laundering and terrorist financing. Specifically, staff worked with Treasury in developing suspicious activity reporting and customer identification rules applicable to FCMs and IBs. The

suspicious activity reporting rules apply to transactions occurring after May 18,

2004. Staff also worked with Treasury in developing proposed AML program

rules for CTAs, IAs and unregistered investment companies. The final rules are 

currently being drafted. Staff also worked with the SEC and other agencies in 

drafting interpretations of the customer identification rules and a proposed noaction position concerning the customers of certain CTAs and IAs. The first tier

of the interpretations was issued on June 14, 2004. Staff also continues to work 

Performance Section—Goal Two 43 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

with Treasury in a process for sharing information about possible terrorists and 

money launderers. As part of this process, Commission staff maintains and updates a list of FCMs and contact persons, which Treasury then uses when issuing

a list of possible money launderers and terrorists on a biweekly basis. 

The Major Reviews unit, one of two new units within the Division, was created 

during FY 2004 to, in addition to managing major risk-focused reviews of exchanges and clearinghouses, develop and review standards for the evaluation and 

audit of registrant compliance with AML requirements applicable to FCMs, IBs,

CPOs, and CTAs. 

Enforcement 

Forex Cases. The Commission’s work in fighting fraud in FY 2004 continued in

the forex trading arena. During FY 2004, the Commission filed a total of 23 enforcement actions in this program area. (See Appendix B) 

During FY 2004, the Commission also achieved significant litigation results in 12 

actions filed in this practice area during previous fiscal years. (See Appendix B) 

Commodity Pools, Hedge Funds And Commodity Pool Operators. During FY

2004, the Commission filed six enforcement actions in this program area. (See 

Appendix B) 

During FY 2004, the Commission also achieved significant litigation results in 

four actions filed in this practice area during previous fiscal years. (See Appendix 

B) 

Commodity Trading Advisors, Managed Accounts, And Trading Systems. The 

Commission filed four enforcement actions in this program area during FY 2004.

(See Appendix B) 

During FY 2004, the Commission also achieved significant litigation results in 

two actions filed in this practice area during previous fiscal years. (See Appendix

B) 

Introducing Brokers And Their Associated Persons. During FY 2004, as in past 

years, the Commission devoted time and attention to matters involving violations 

by IBs and their APs. Such cases often involve fraudulent misrepresentations, 

usually to retail customers, to induce them to invest. The Commission has filed

two enforcement actions in this practice area during FY 2004. (See Appendix B) 

Futures Commission Merchants. During FY 2004, the Commission filed one 

case in this enforcement program area. (See Appendix B) 

Statutory Disqualifications. During FY 2004, the Commission filed three enforcement actions in this program area. (See Appendix B) 

Quick Strike Cases. The Commission is committed to responding quickly to enforcement investigations that uncover ongoing fraud. Quick-strike cases are civil 

injunctive actions that generally are filed in Federal district courts within days or 

weeks of the discovery of the illegal activity, enabling the Commission to stop 

fraud at an early stage and to attempt to preserve customer funds. Thus far during FY 2004, the Commission filed 10 quick-strike cases. (See Appendix B) 

Domestic Cooperative Enforcement. The Commission’s cooperative enforcement

efforts are an important part of its ability to promote compliance with and deter 

44 Performance Section—Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

violations of Federal commodities laws. Cooperative enforcement enables the

Commission to maximize its ability to detect, deter, and impose sanctions against 

wrongdoers involving U.S. markets, registrants, and customers. The benefits of

cooperative enforcement include: 1) the use of resources from other sources to 

support Commission enforcement actions; 2) coordination in filing actions with

other authorities to further the impact of enforcement efforts; and 3) development of consistent and clear governmental responses and avoidance of duplication of efforts by multiple authorities. 

As in the past, staff of the Enforcement program have coordinated with numerous Federal, state, and self-regulatory authorities. Historically, program staff 

have sought assistance from or provided assistance to various Federal agencies, 

such as the Department of Justice (DOJ), Federal Bureau of Investigation (FBI), 

SEC, the U.S. Postal Inspection Service, and the Internal Revenue Service (IRS). 

Similarly, Enforcement program staff have provided assistance to and/or received assistance from state authorities, such as agencies responsible for the 

regulation of corporations, securities, and banking. The Commission also has

provided Federal and local law enforcement authorities with testimony or other 

assistance in connection with criminal investigations. Enforcement program staff 

have worked with the DOJ and various U.S. Attorney’s offices throughout the Nation, the FBI, the offices of numerous state attorneys general, local police authorities, and task forces focusing on areas such as corporate fraud and forex fraud. 

Although the Commission cannot publicly describe the nature of the assistance

obtained or given in connection with pending investigations, the following is a 

sampling of results in cooperative enforcement cases during the past year in 

which the Enforcement program coordinated its efforts with domestic authorities. These cooperative enforcement cases fall into three general categories: 1)

criminal actions in which the Enforcement program provided testimony or other 

support; 2) matters in which the Commission worked with other criminal or civil 

authorities and they filed parallel actions; and 3) Commission enforcement actions for which the Commission received assistance from other authorities. 

Other Cooperative Enforcement Efforts. In addition to direct cooperation with 

domestic law enforcement and regulatory authorities, the Enforcement program 

also represents the Commission in a variety of domestic and international efforts, 

including task forces and working groups designed to keep market participants

abreast of new developments in financial crimes and to coordinate governmental 

responses to common issues. Several examples of the efforts of the Enforcement 

program in this area follow:

 Corporate Fraud Task Force. By Executive Order signed by President

Bush on July 9, 2002, the CFTC was named as a member of the Corporate Fraud Task Force. This task force was established with the objective

of strengthening the efforts of DOJ, Federal, state, and local agencies to

investigate and prosecute significant financial crimes, recover the proceeds of such crimes, and ensure just and effective punishment of those

who perpetrate financial crimes. Recent efforts of this inter-agency cooperative task force have included an investigation of the alleged manipulation of the energy markets during the power crisis of 2000 to 2001.

 National Futures Association Assistance. During FY 2004, the NFA continued to provide invaluable assistance to Commission’s Enforcement 

program in two of its most important program areas: its investigation 

into the alleged misconduct in the energy markets and its investigation of 

Performance Section—Goal Two 45 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

forex trading fraud. NFA’s assistance included detailing a number of its 

employees to work shoulder-to-shoulder with Enforcement program staff 

on these matters. The detailees’ expertise, enthusiasm and hard work 

were an invaluable asset to the Enforcement program and are a proud reflection of the NFA’s professionalism and commitment. 

 Anti-Money Laundering. The Commission participates in domestic and

international AML cooperative enforcement efforts. On the domestic

front, the Commission is a member of the Money Laundering Strategy

Working Group and the U.S. Treasury Department’s Bank Secrecy Act 

Advisory Group, and Commission staff are consulting with staff of the 

U.S. Treasury Department in developing regulations as required by the

USA PATRIOT Act enacted in response to the terrorist attacks of September 11, 2001. Internationally, the Commission has aided the U.S. 

delegation to the Financial Action Task Force, including its efforts to

combat global terrorist financing. 

 Telemarketing and Internet Fraud Working Group. The Telemarketing 

and Internet Fraud Working Group consists of representatives from 

state, Federal, and international regulatory and criminal authorities. At 

the working group’s quarterly meetings, members discuss all aspects of

telemarketing and Internet fraud, including issues such as new scams, 

new uses of technology, geographical hotspots for certain types of 

fraudulent activity, effective enforcement techniques, and recent cases 

that establish relevant precedent in this area. 

 Consumer Protection Initiatives Committee. The Consumer Protection

Initiatives Committee was created by the Attorney General’s Council on

White-Collar Crime to coordinate activities of various agencies’ consumer

protection programs. Goals of the committee include: 1) minimizing duplication of consumer protection efforts by sharing information on various fraud prevention and enforcement initiatives; 2) developing interagency consumer protection initiatives focusing on enforcement, deterrence, and public awareness; and 3) facilitating referrals of cases with

strong criminal implications to the DOJ and U.S. Attorney’s Offices in

order to better address consumer fraud issues. 

 Securities and Commodities Fraud Working Group. The Securities and

Commodities Fraud Working Group is a vehicle for public and private 

sector participants to discuss current trends in financial crime in the securities, futures, and option industries and to exchange ideas about enforcement techniques. The group, organized by the Fraud section of the 

Criminal Division of the DOJ, meets on a quarterly basis, and its members include criminal and regulatory authorities from state and Federal 

agencies and representatives from various exchanges and other SROs. 

Office of Proceedings 

The Office of Proceedings provides a forum for effectively and expeditiously handling customer complaints against persons or firms registered with the Commission at the time of the alleged wrongdoing or at the time the complaint is filed. 

During FY 2004, the Office of Proceedings will meet its goal of resolving most

customer complaints within one year from the date the complaint was filed. During FY 2004, 41 percent of the reparations complaints were disposed of within

one year from the date the complaint was filed. The remaining complaints were

46 Performance Section—Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

not resolved within one year as a result of issues beyond the Commission’s control. For example, parties requested additional time for one or more of the following reasons: 1) to submit supplementation to their cases; 2) to prepare pleadings; 

3) to complete extensive discovery documents; or 4) to deal with personal or professional responsibilities. 

The Office of Proceedings’ ALJs are responsible for hearing and rendering decisions in administrative enforcement cases brought by the Commission against 

alleged violators of the CEA or related regulations. The Office of Proceedings decided 45 administrative enforcement cases in FY 2004. 

Office of the General Counsel 

Opinions and Review. Through its Opinions Program, OGC assists the Commission in the performance of its adjudicatory functions. In fulfilling this role, OGC 

drafts opinions and orders in matters appealed to the Commission. The Commission’s jurisdiction in adjudicatory matters includes: 

 Administrative cases prosecuted by the Enforcement program against

alleged violators of the CEA or related regulations; 

 Reparations cases brought by customers to recover money damages from

industry registrants; and 

 Adjudicatory actions taken by industry SROs. 

The Commission issued 24 opinions and orders through the first nine months of 

FY 2004. Among other decisions, the Commission ruled that a presidential pardon, standing alone, does not nullify a statutory disqualification. The character 

of a pardoned individual who seeks to be registered remains subject to scrutiny in 

light of the conduct underlying the disqualification and the pardon. Hirschberg

v. NFA, Docket No. CRAA-02-03 (CFTC (June 8, 2004) (affirming a decision by

the NFA). 

The Commission decided two trade practice cases, finding liability against a single respondent in a case involving transactions in gold futures on the Commodity 

Exchange, Inc., In re Gorski, Docket No. 93-5 (CFTC Mar. 24, 2004); and dismissing the complaint against five individuals who traded various futures on 

three New York exchanges. In re Fisher, Docket No. 93-2 (CFTC Mar. 24, 2004). 

The Commission also reached divergent results in two cases involving offexchange transactions in the agricultural market known as “hedge-to-arrive 

(HTA)” contracts. The Commission held that the HTA contracts in In re Competitive Strategies, Inc., Docket No. 98-4 (CFTC Nov. 23, 2003) were offexchange, and therefore illegal, futures contracts. It dismissed the complaint

against respondents in In re Grain Land Cooperative, Docket No. 97-01 (CFTC 

Nov. 25, 2003), finding that the record did not establish reliably that the transactions were “futures contracts rather than forward contracts” excluded from the 

CFTC’s jurisdiction. 

In a third case involving off-exchange contracts used to manage agricultural price 

risk, the Commission summarily affirmed the initial decision’s dismissal of the

complaint based on the finding that respondent’s “premium offer contracts” were

not options, but rather forward contracts excluded from the CFTC’s jurisdiction. 

In re Cargill, Docket No. 99-16 (CFTC Nov. 25, 2003). 

Performance Section—Goal Two 47 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

In FY 2004, OGC assisted with the resolution of appeals from initial decisions in

administrative enforcement matters, appeals from initial decisions in reparations 

matters, and appeals arising out of SRO disciplinary actions. 

Litigation. Through the litigation program, OGC represents the Commission in

the U.S. District Courts and the U.S. Courts of Appeals and assists the Solicitor 

General in representing the Commission before the U.S. Supreme Court. OGC 

also monitors litigation of interest to accomplishing the Commission’s mission, 

including the Commission’s cooperation with other Federal financial regulators 

through the President’s Working Group on Financial Markets and the President’s 

Corporate Fraud Task Force. 

During FY 2004, before the Courts of Appeals, the Commission obtained favorable rulings upon a variety of issues. Most notably, the U.S. Court of Appeals for 

the Ninth Circuit confirmed the Commission’s view of the professional integrity 

necessary to work as a commodity professional. Specifically, the court affirmed a

Commission opinion that held that an individual may be denied a license to work 

as a CPO or as a CTA if that person has demonstrated a lack of honesty. CFTC v. 

Stephen Bronte Advisors, No. 02-73241 (9th Cir.) In another matter, the U.S. 

Court of Appeals for the Eleventh Circuit affirmed a district court finding of fraud 

in the retain sale of options contracts. CFTC v. Matrix Trading Group, No. 03-

13123 (11th Cir.). 

In a number of cases, the Office of the General Counsel defended cases against 

violators of the CEA who failed to return funds to defrauded customers, among

them, CFTC v. Heffernan, No. 03-14494D (11th Cir.), CFTC v. Kingsfield, No. 03-

2413 (4th Cir), and CFTC v. Wall Street et al., No. 04-3131 (10th Cir.). In addition, 

on behalf of the Commission, OGC affirmatively sought review before the U.S.

Court of Appeals for the Seventh Circuit of the core jurisdictional issue regarding 

the definition of a futures contract. CFTC v. Zelener, No. 03-4245 (7th Cir.). 

Before the U.S. District Courts, the Office of the General Counsel successfully defended the Commission’s right to decide, subject only to appellate review,

whether or not an individual has the requisite qualifications to serve as a FB in 

the commodities industry. Hirschberg v. CFTC, 2003 WL 22019310 (N.D.Ill.). 

In addition, the OGC represented the Commission in personnel cases before the

district courts, and before administrative agencies, such as the Equal Employment Opportunity Commission and the Merit Systems Protection Board and represented the Commission in contract matters before the General services Board 

of Contract Appeals. 

The Office of the General Counsel also monitors bankruptcy cases involving futures industry professionals and, as appropriate, assists courts, trustees, and customers in implementing special Bankruptcy Code provisions that pertain to 

commodity firms. In FY 2004, the Office of the General Counsel appeared before

various Bankruptcy Courts throughout the country to protect both the Commission’s interest in recovering penalties owed due to market misconduct and the 

interest of public customers in having their funds recovered and returned. Most 

notably, during FY 2004, OGC appeared in bankruptcy proceedings involving

several firms alleged to have engaged in misconduct in the energy markets. In re

Enron Corp, No. 01-16034 (S.D.N.Y.); In re NRG Energy Inc., No. 03-13024 

(S.D.N.Y.). 

Finally, through its amicus curiae program, the Office of the General Counsel 

supports the Commission in assisting the courts in resolving difficult or novel 

questions arising under the CEA or Commission regulations with the intent of 

48 Performance Section—Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

making significant contributions to the development of consistent and accurate

legal precedent. In FY 2004, the Office actively considered participating as

amicus curiae in one such case. 

Regulatory and Legislative Matters. In FY 2004, OGC continued to advise the 

Commission concerning the implementation of rules and regulations issued pursuant to the CFMA. OGC assisted the Commission in new regulatory initiatives to 

further carry out CFMA mandates, including providing regulatory relief to market intermediaries as contemplated by the CFMA, such as amendments to Part 4 

of the Commission’s regulations governing the registration and activities of CPOs

and CTAs. 

OGC, working in conjunction with other programs of the Commission, consulted

with staff of the U.S. Treasury Department and various Federal financial regulators to develop AML regulations required under the USA PATRIOT Act, including 

in FY 2004, a final rule requiring FCMs and IBs to report suspicious transactions. 

OGC also coordinated the Commission’s continuing work with Treasury regarding a number of other regulations required by the USA PATRIOT Act that will 

impact the futures industry, including: 1) final rules requiring commodity pools,

CPOs, CTAs, and securities investment advisers to establish AML compliance 

programs; and 2) final rules involving correspondent and private banking accounts for non-U.S. institutions and individuals. During FY 2004, OGC also actively participated in an inter-agency working group lead by the Treasury Department to develop and issues guidance concerning the application of the recent

customer identification program rules to the futures industry and other sectors of 

the financial services industry. 

Because many hedge fund complexes include registered CPOs and CTAs, OGC 

has made the Commission’s hedge fund information available to the SEC in connection with its ongoing study of that industry. Also, during FY 2004, the General

Counsel presented Commission testimony, including extensive hedge fund statistical data and related materials, at a hearing of the Senate Committee on Banking, Housing, and Urban Affairs on “Regulation of the Hedge Fund Industry.” 

Executive Direction & Support 

Administrative Management & Support. In FY 2004, the Commission began 

work on Project eLaw, an effort that provides law office automation and modernization to the Division of Enforcement, Office of the General Counsel, and Office of Proceedings. Project eLaw is a Commission-wide initiative that seamlessly

integrates technology and work processes to support managers and staff across

the Commission in their investigative, trial, and appellate work. Detailed planning and careful execution of Project eLaw tasks required extensive collaboration

across the Commission to ensure all internal stakeholders had an opportunity to 

articulate their needs in this effort. In FY 2004, the requirements analysis, technology assessment, security plan and business impact analysis study were completed. 

*** 

Performance Section—Goal Two 49 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal Two Resources 

In FY 2004, the Commission was appropriated $89.9 million and 516 FTEs, and

allocated $35.8 million and 206 FTEs to Goal Two. 

Goal Two: Protect market users and the public. 

Program Funding 

FY 2002 

Actual 

FY 2003 

Actual 

FY 2004 

Est. Actual 

$ (000) FTE $ (000) FTE $ (000) FTE

Market Oversight $00 0 $00 0 $00 0

Clearing & Intermediary Oversight 2,201 15 2,328 14 6,873 35

Chief Economist 0 0 0 0 0 0

Enforcement 14,955 100 16,229 97 22,121 129

Proceedings 2,000 14 2,256 13 2,732 18

General Counsel 2,563 16 2,930 15 3,815 22

Executive Direction & Support 2 7,221 47 8,040 48 289 2

TOTAL $28,940 192 $31,783 187 $35,830 206

 2 Represents Executive Direction resources directly allocated to Goal 2. All unallocated resources are

prorated among the other programs. 

50 Performance Section—Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Summary of Performance 

Goal Two: Protect market users and the public.

Outcome 2.1: Violations of Federal commodities laws are detected and prevented.

Annual Performance Goal: Violators have a strong probability of being detected and sanctioned. 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Number of enforcement investigations opened during the fiscal 

year

Number of enforcement cases filed during the fiscal year 

Percentage of enforcement cases closed during the fiscal year in

which the Commission obtained sanctions (e.g., civil monetary

penalties, restitution and disgorgement, cease and desist orders, 

permanent injunctions, trading bans, and registration restrictions)

Cases filed by other criminal and civil law enforcement authorities 

during the fiscal year that included cooperative assistance from 

the Commission

172 

64 

100% 

19 

120 

60 

100% 

20 

120 

60 

99% 

20 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage of SROs that comply with core principles

Percentage of DCOs that comply with core principles

Percentage of professionals complaint with standards regarding

testing, licensing, and ethics training (Professional compliance) 

Percentage of SROs that comply with requirement to enforce their 

rules 

Percentage of total requests receiving CFTC responses for guidance and advice 

100% 

100% 

100% 

100% 

93% 

New 

100% 

100% 

100% 

90% 

100% 

100% 

100% 

100% 

90% 

Outcome 2.3: Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.

Annual Performance Goal: Customer complaints are resolved within one year from the date filed and appeals are resolved within six months. 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage of filed complaints resolved within one year of the filing 

date 

Percentage of appeals resolved within six months

66% 

50% 

50% 

35%

50% 

35%

Performance Section—Goal Two 51 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal Three 

Strategic Goal Three: Ensure market integrity in order to foster

open, competitive, and financially sound markets. 

 The third goal focuses on several important outcomeseffective self-regulation; 

firms and financial intermediaries have sound business, financial and sales practices; and responsive and flexible regulatory oversight.

Outcomes 

For Strategic Goal Three, in FY 2003 the Commission aimed to achieve these “intermediate” outcomes: 

 Ensure sound financial practices of clearing organizations and firms 

holding customer funds. 

 Promote and enhance effective self-regulation of the commodity futures 

and option markets. 

 Facilitate the continued development of an effective, flexible regulatory

environment responsive to evolving market conditions. 

 Promote markets free of trade practice abuses. 

The Commission also worked toward these “initial” outcomes: 

 No loss of customer funds as a result of failure of firms to adhere to regulations. 

 No customer prevented from transferring funds from a failing firm to a

sound firm. 

 No customer funds lost as a result of failure of an SRO to ensure compliance with its rules. 

 Regulatory reform that is responsive to evolving markets conditions. 

 Prevention and mitigation of trade practice abuses in the market. 

Program Performance Results 

Market Oversight 

In FY 2004, Market Oversight’s Market Compliance subprogram staff completed

three rule enforcement reviews of SRO compliance programs. Periodic review of 

self-regulated organization compliance programs is a component of the program’s oversight activity to promote and enhance effective self-regulation and 

ensure that SROs enforce compliance with their rules.

One of the rule enforcement reviews completed during FY 2004 was a review of 

the Coffee, Sugar and Cocoa Exchange’s (CSCE’s) audit trail, trade practice surveillance, disciplinary and dispute resolution programs. Market Compliance staff 

found that CSCE maintains adequate programs with respect to the areas reviewed, but made recommendations to further improve CSCE’s trade practice 

surveillance and disciplinary programs. Staff recommended that CSCE modify its 

procedures for monitoring cross trades and impose consistently meaningful sanc52 Performance Section—Goal Three
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

tions in cases involving similar substantive trading abuses. Market Compliance 

staff also conducted a review of the New York Mercantile Exchange’s (NYMEX’s) 

trade practice, audit trail, disciplinary, and dispute resolution programs. In its 

review, staff found that NYMEX maintains adequate programs in these areas,

and made recommendations to further improve certain aspects of its disciplinary

program. Finally, staff conducted a review of the Minneapolis Grain Exchange’s 

(MGE) market surveillance, trade practice surveillance, audit trail, disciplinary,

and dispute resolution programs. Similarly, staff found that MGE maintains adequate programs in these areas and made recommendations for further improvement. 

The Commission’s review of exchange rules is a key aspect of the statutory 

framework for self-regulation. Market and Product Review subprogram staff review exchange rule submissions with the goals of: 1) maintaining the fairness and

financial integrity of the markets; 2) protecting customers; 3) accommodating 

and fostering innovation; and 4) increasing efficiency in self-regulation consistent with the Commission’s statutory mandates. To these ends, the Market and 

Product Review staff reviewed 263 exchange rule submission packages and,

within those packages, staff reviewed 2,669 new rules and rule amendments. 

Market and Product Review subprogram staff also work to facilitate industry innovations and new trading methods and market structures, thereby meeting the

Commission’s objective of promoting and enhancing effective self-regulation and 

competition. During FY 2004, staff were involved in a number of significant matters including issues related to new exchanges and exempt markets, exchange 

mergers, novel trading procedures, and new automated trading systems. 

Issuing Exemptive, Interpretive, and No-Action Relief

The Market and Product Review subprogram is responsible for providing exemptive, interpretive, or other relief to facilitate the continued development of an effective, flexible regulatory environment responsive to evolving market conditions.

For example, in FY 2004, the Market and Product Review subprogram issued an

interpretative letter to the Australian Wheat Board (AWB) which found that

AWB’s proposal to have its wholly-owned subsidiary, AWB (USA), Inc., conduct 

over-the-counter trading, both as an offeror and an offeree of agricultural trade 

option contracts, fell within the exemptive provisions of regulation 32.13(g). The 

Commission continued the policy initiated in FY 1999 of issuing no-action letters

in response to requests by foreign boards of trade to permit placement of electronic terminals in the U.S. without requiring contract market designation for 

those boards of trade. In FY 2004, the Market and Product Review subprogram 

issued a no-action letter to the European Energy Exchange and issued amended

no-action letters to Eurex Deutschland and Eurex Zurich, Ltd., to permit, subject 

to Commission approval, the clearing of Euro products traded on the two exchanges to be cleared by the Clearing Corporation as a special clearing member of 

Eurex Clearing AG. In FY 2004, the Market and Product Review subprogram

also issued an amended no-action relief letter to the Sydney Futures Exchange

(SFE) to permit non-clearing SFE members that carry U.S. customer accounts to 

place SFE terminals with those customers conditioned on the non-clearing member giving up those trades to a guaranteeing FCM or rule 30.10 firm. 

Clearing and Intermediary Oversight 

Fostering Sound Business Practices: Oversight of SROs, Market Intermediaries,

and DCOs. A key aspect of assuring effective self-regulation is oversight by the 

Performance Section—Goal Three 53 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commission of SRO programs to assure compliance by their members with customer and market protection standards. Toward this end, the Clearing and Intermediary Oversight program oversees, reviews, and reports to the Commission

concerning statutorily required self-regulatory programs directed at maintaining 

the financial integrity of the markets and deterring improper sales practices and 

other wrongful conduct. 

The Clearing and Intermediary Oversight program staff conduct a financial surveillance and audit program that buttresses periodic audit, daily financial surveillance, and other self-policing programs administered by the exchanges and NFA

to promote and enhance effective self-regulation of the commodity futures and 

option markets. The objective of this program is to assure sound financial practices of clearing organizations and firms holding customer funds. The effort includes oversight of financial compliance programs of SROs and direct quality

control audits to assess the efficacy of their programs. The oversight of SRO programs is necessary to ensure that SRO member firms are properly capitalized, 

maintain appropriate risk management capabilities, and that customer funds are

held in segregation by appropriate custodians and are protected from misappropriation. 

This oversight function of the Clearing and Intermediary Oversight program has 

taken on increased importance under the Commission’s new regulatory framework under the CFMA. The CFMA defined a new category of registered entity, 

DCOs, and set forth certain core principles governing such entities. Staff also 

have developed a program for conducting oversight of DCO compliance and have 

met separately with each DCO to discuss the nature and content of this oversight 

program. 

Similar to the approach of other federal financial regulators and certain overseas

financial supervisors, - indeed, in close consultation with several such peers, - the 

Division has begun to enhance its supervision of exchanges, clearinghouses, and

other SROs with risk-based examination cycles and risk-focused reviews. Both 

the scheduling and scope of the Division’s supervisory reviews will now be based

on careful analysis of the underlying risks to which an institution is exposed and 

the controls which it has in place to address those risks. This approach promises 

to better utilize supervisory resources and to help ensure even greater financial

integrity and risk management within the firms and clearinghouses that are the

backbone of the futures clearing system.

The Major Reviews unit, one of two new units within the Division, was created 

during FY 2004 to plan, coordinate, schedule, monitor, and assess major riskfocused reviews. The unit’s activities are intended to ensure that multiple, simultaneous major reviews are completed on schedule, follow appropriate benchmarks of consistency and comparability, and, ultimately, provide meaningful assessments of core principle compliance which, when presented formally to the 

Commission, permit the Commissioners to assure themselves that the Commission is fulfilling its responsibilities on this important aspect of market oversight. 

The Clearing and Intermediary Oversight program staff completed six audits (one

exchange clearinghouses and five FCMs) in FY 2004 to test compliance with the

Commission’s financial requirements for the safekeeping of customer funds. In 

addition, program staff processed 4,671 financial reports filed by registrants. As a 

result of ongoing program efforts such as these, no regulated customer funds 

were lost in FY 2004, thereby meeting the program’s objective of ensuring sound

financial practices of clearing organizations and firms holding customer funds. 

54 Performance Section—Goal Three
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Ensuring a Flexible and Responsive Regulatory Environment. In FY 2004, the

Clearing and Intermediary Oversight program supported the Commission’s ongoing regulatory reform program, as well as actions required by or appropriate to

the implementation of the CFMA. In February 2004, the Commission amended

its rules to further expand the range of permissible investments by FCMs and 

clearinghouses of their customers’ funds and property, which will now be permitted to enter into repurchase agreements and collateral management programs

using customer-deposited securities. In April 2004, Clearing and Intermediary 

Oversight staff issued a letter clarifying application of the CPO exemption that

was adopted in August 2003 as Rule 4.13(a)(3). The letter stated that a CPO 

claiming registration exemption under Rule 4.13(a)(3) may admit Non-United

States persons (as defined in Rule 4.7) as participants in the CPO’s pool without

regard to whether such Non-United States persons meet the investor qualifications set forth in Rule 4.13(a)(3)(iii). In light of the Staff Letter, staff developed 

an amendment to Rule 4.13(a)(3), adopted by the Commission in July 2004, that 

provides that if a person can participate in a Rule 4.13(a)(4) pool, which has no 

trading restrictions, it similarly should be able to participate in a Rule 4.13(a)(3) 

pool, which does have a trading restriction. 

Exemptive, Interpretive, and No-Action Relief. The Clearing and Intermediary

Oversight program is responsible for providing exemptive, interpretive, or other 

relief to facilitate the continued development of an effective, flexible regulatory 

environment responsive to evolving market conditions. The Clearing and Intermediary Oversight program responded to a high number of formal and informal 

requests for guidance concerning the application of regulatory requirements to

specific transactions, new products, and market circumstances. Staff issued 176 

responses to written requests, including electronic responses, from members of 

the public and the regulated industry to provide guidance concerning the application of Commission rules and to provide exemptions. The average response time

was five weeks. Staff also responded to more than 1,750 telephone inquiries concerning the application of Commission requirements to commodity professionals.

These responses aided market participants and the public by providing guidance

concerning the manner in which they may conduct their activities to comply with

relevant requirements and by granting relief from requirements where application of the rules would not serve the public interest. 

The Commission also furthered the development of the foreign futures and option transactions (U.S. customers trading on non-U.S. markets) in FY 2004. The

Commission issued an order to the U.K. Financial Service Authority (FSA) consolidating and updating the relief set forth in prior orders issued pursuant to 

Commission Rule 30.10, reflecting the substitution of the FSA for various U.K.

regulatory and SROs and revising certain staff no-action letters regarding the 

treatment of customer funds attributable to trading on the London Metals Exchange. Among other things, the Commission’s order exempted firms designated 

by the FSA from compliance with the Commission’s risk disclosure requirements

as they apply to transactions under Part 30, and authorized such firms to permit

U.S. customers that are eligible contract participants to opt out of segregation 

with respect to foreign futures and options transactions. Conference calls were

conducted with representatives of each of the foreign exchanges that are recipients of Rule 30.10 relief to update information about contact persons, regulatory 

reform and structural changes at each exchange, and the accuracy of NFA’s list of

Rule 30.10 firms at each foreign exchange. These calls also solicited comments

from the Rule 30.10 foreign exchanges about any need for amendments to their 

respective Rule 30.10 orders. 

Performance Section—Goal Three 55 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Security Futures Products and Cooperation with the SEC. The CFMA also directs the Commission and the SEC to implement a joint regulatory framework for 

SFPs and narrow-based stock index futures. As part of the ongoing security futures product supervisory and oversight process, the Commission and the SEC

signed MOU to clarify the ability of each agency to conduct inspections of noticeregistered intermediaries, exchanges, and limited purpose national securities associations. The MOU provides that the CFTC and SEC will notify each other of 

any planned examinations, advise the other of reasons for an intended examination, provide each other with examination-related information, and conduct examinations jointly, if feasible. The agencies will notify each other of significant

market issues and will share trading data and related market information. 

The Clearing and Intermediary Oversight program permitted NFA to postpone 

indefinitely updating the Series 3 and Series 30 examinations to include questions on SFPs. Staff has discussed with NFA and National Association of Securities Dealers how to accomplish eventual updating of the examinations, but, for 

the time being, salespersons will be permitted to continue to offer SFPs following 

the taking of a web-based training module. The SEC is in accord with this approach. 

Enforcement 

Trade Practice. During FY 2004, the Commission filed two enforcement actions 

in this program area. (See Appendix C)

International Cooperative Enforcement. The Commission continues to coordinate enforcement activities with foreign authorities. During FY 2004 (October 1, 

2003 to July 13, 2004), the Commission made 93 requests for assistance to 45 

foreign authorities, and it received 23 requests from authorities in foreign jurisdictions. The number of requests made to and received from foreign authorities 

in FY 2004 have already exceeded the number of requests for the entire FY 2003. 

In particular this year, the Commission was successful in obtaining assistance,

including bank records, in several jurisdictions where we did not have prior cooperative relationships. 

Enforcement also has devoted time and resources to matters involving allegations 

that persons or entities have committed fraud or other misconduct in their crossborder activities. Such misconduct can adversely affect U.S. firms as well as customers located in the U.S. and overseas. The Commission’s efforts in this area 

during FY 2004 included the filing of 15 enforcement actions. (See Appendix C) 

Information-Sharing Arrangements. The Commission’s international information-sharing arrangements enable the Commission and foreign authorities to engage in the bilateral sharing of information to assist each other in the investigation of potential wrongdoing that extends beyond their respective borders. 

 Statement of Intent - Irish Financial Services Regulatory Authority. On 

March 17, 2004, the Commission and Irish Financial Services Regulatory Authority (IFSRA) signed a Statement of Intent (SOI) Concerning Consultation

and Cooperation in the Administration and Enforcement of Futures Laws. 

The SOI provides a framework for information sharing, thereby facilitating

cooperation in cross-border investigations of potential violations of commodity futures and options laws. The Commission’s arrangement with the IFSRA

is the 23rd formal bi-lateral arrangement that the Commission has entered

into for enforcement information sharing with its counterparts in other countries. 

56 Performance Section—Goal Three
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 IOSCO Multilateral Memorandum of Understanding. During FY 2004,

the Commission continued its work on the IOSCO Multilateral Memorandum 

of Understanding Concerning Consultation, Cooperation and the Exchange of

Information (MMOU). The MMOU is an important and meaningful undertaking for regulators to expand cooperation by establishing specific minimum 

standards for securities and futures regulators in the area of information 

sharing. There are 26 MMOU signatories, including nine foreign authorities

that the Commission did not have an information-sharing arrangement with

previously. 

International Organization of Securities Commissions (IOSCO)

 Screening and Approving MOU Applicants. Enforcement program staff

along with three other foreign regulators as members of a MMOU Verification Team evaluated the applications of five IOSCO members to become signatories to the MMOU. The Commission also is a member of the Screening

Group which makes recommendations to a decision making body of IOSCO 

concerning whether to accept or reject specific MMOU applications. In FY 

2004, the Screening Group reviewed approximately 10 applicants for the

MMOU. 

 Client Identification Task Force. The Enforcement program staff participated in the IOSCO Task Force on Client Identification to determine a range 

of acceptable options for client identification in the securities and futures industry. The Task Force’s work resulted in IOSCO’s publication in May 2004 

of its Principles On Client Identification And Beneficial Ownership For The

Securities Industry. 

 Standing Committee 4. During FY 2004, Enforcement program staff also 

continued to participate in the Standing Committee on Enforcement and Information-Sharing (SC4) of the Technical Committee of IOSCO. SC4 considers issues and formulates recommendations relating to international assistance in the detection, investigation, and prosecution of securities and futures violations. 

Office of Proceedings 

The Office of Proceedings continued to hear and decide administrative enforcement actions brought by the Commission. 

Office of the General Counsel 

OGC continued its review of requests for no-action relief to allow the offer and

sale of foreign exchange-traded foreign stock index futures contracts in the U.S. 

In FY 2004, OGC issued four no-action letters for six of these foreign exchangetraded foreign stock index futures contracts. 

During FY 2004, OGC advised the Commission with respect to legislative provisions affecting the Commission that were included in the Conference Report on 

the Energy Policy Act, H. Rep. No. 108-375. These included proposals to: 1)

amend Section 4b of the CEA to provide the Commission with principal-toprincipal anti-fraud authority; 2) amend Section 9 of the CEA to clarify the Commission’s false reporting authority; and 3) add savings clauses to the Federal 

Performance Section—Goal Three 57 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Power Act and the Natural Gas Act to preserve the Commission’s exclusive jurisdiction over market futures and options trading data.

OGC staff also continued to participate in IOSCO’s Standing Committee 5 (SC5)

on Investment Management. During the year, SC5 considered and issued reports 

on several topics of importance to collective investment vehicles. With respect to 

AML, OGC also participated in the development of the IOSCO Task Force on Client Identification principles. 

Executive Direction & Support 

Agency Direction. The Agency Direction subprogram, specifically OIA, assists

the Commission in the formulation of international policy by: 1) coordinating 

with foreign regulatory authorities; 2) participating in international regulatory 

organizations and forums; and 3) providing technical assistance to foreign governmental bodies. In FY 2004, OIA contributed to this effort by: 

 Coordinating Commission activities within IOSCO and its Technical

Committee and standing committees, with special focus on issues raised 

by index products, short-selling, transparency, error trade policies, crossborder activities of intermediaries, outsourcing and compliance functions; 

 Participating in several IOSCO Task Forces, including chairing the IOSCO Implementation Task Force that completed drafting an assessment

methodology for the IOSCO Objectives and Principles of Securities 

Regulation, which was adopted by IOSCO, developed an electronic version of the Assessment methodology and instructions to clarify its application and participated in IOSCO seminars in Spain and India explaining

the methodology; participating in the IOSCO-CPSS Task Force on Central Counterparties that developed a combined risk management and default procedure recommendations and assessment methodology for central counterparties, which was released as a consultative document by

IOSCO and the CPSS; and participating in an IOSCO Chairs’ Committee,

which examined ways to strengthen capital markets against financial

fraud and issues concerning the activities of credit rating agencies; 

 Providing information to the IOSCO Emerging Markets Committee on its

approach to detecting and deterring manipulation; 

 Coordinating Commission representation in the Council of Securities

Commissions of the Americas, including contributing a paper on the

benefits of futures trading to the securitization of small business loans

and participating on ways to advance COSRA’s regional technical assistance and training initiatives; 

 Providing expertise to the Committee of European Securities Regulators 

related to their inquiry into acceptable market practices for commodity 

markets as part of its deliberations on possible expansion of the Investment Services Directive to commodity markets; 

 Participating in the Joint Forum’s initiative to develop principles for outsourcing relevant to securities, banking and insurance firms; 

 Providing assistance to the Financial Sector Assessment Program of the 

World Bank and International Monetary Fund; 

 Coordinating the development of an arrangement for regulatory cooperation, consultation and the provision of technical assistance with the Securities Exchange Board of India. 

58 Performance Section—Goal Three
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 Coordinating the Commission’s provision of representations and regulatory information to regulatory authorities in Australia, Austria, Germany,

Italy, the Netherlands, Spain and Switzerland that supported the recognition of three U.S. futures exchanges electronic trading systems and provided regulatory information to assist Australian regulators determination to issue a blanket exemption to U.S. FCMs offering wholesale business in Australia; 

 Coordinating the Commission’s comments to the U.S. Treasury Department on various position papers including U.S.-India and U.S.-China 

dialogue; 

 Organizing the annual meeting for international regulators during the 

Futures Industry Association conference, focusing on international regulatory approaches to governance and self-governance of organized markets; 

 Participating in and advising the Toronto Centre on leadership with respect to securities and derivatives sector programs; 

 Responding to requests from domestic and international financial regulators for information on the Commission’s program and commenting on

various reports; 

 Obtaining fitness information from foreign regulators to support the 

NFA’s registration program and responding to requests from foreign

regulators for fitness information on Commission registrants that resulted in recognition of US intermediaries abroad; 

 Assisting NFA in designing its Regulatory Alert System, which provides

regulatory information on Commission registrants to participating regulators; 

 Providing technical assistance to foreign regulators in FY2004 through 

visits with staff at the Commission by 89 foreign persons representing 14

foreign jurisdictions, two on-site visits by Commission staff to foreign jurisdictions, and a week-long seminar in Chicago that examined the techniques used to promote market, firm, and customer protections. Sharing 

this information enhances the knowledge of other regulators and facilitates the development of high levels of global regulatory protections. In 

FY 2004, 64 persons representing 25 regulatory and market authorities

from 44jurisdictions attended the seminar. 

Administrative Management & Support. In FY 2004, the Commission implemented a new system, Stressing Positions at Risk (SPARK) that can analyze the 

financial positions of trading firms in relation to changing market conditions. 

This application was developed to perform analysis of existing market conditions 

and conduct “what if” analyses on future changes in support of financial oversight 

and risk analysis of the futures market. 

*** 

Performance Section—Goal Three 59 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Goal Three Resources 

In FY 2004, the Commission was appropriated $89.9 million and 516 FTEs, and

allocated $24.7 million and 136 FTEs to Goal Three. 

Goal Three: Ensure market integrity in order to foster open, competitive, and 

financially sound markets.

Program Funding 

FY 2002 

Actual 

FY 2003 

 Actual 

FY 2004 

Est. Actual 

$ (000) FTE $ (000) FTE $ (000) FTE

Market Oversight $288 2 $7,316 41 $7,443 43

Clearing & Intermediary Oversight 12,764 88 7,563 47 7,652 43

Chief Economist 0 0 167 1 0 0

Enforcement 3,333 22 3,758 22 4,870 29

Proceedings 143 1 162 1 207 1

General Counsel 1,060 7 1,201 7 1,787 8

Executive Direction & Support 3 7,390 49 8,730 51 2,777 12

TOTAL $24,978 169 $28,897 170 $24,734 136

 3 Represents Executive Direction resources directly allocated to Goal 3. All unallocated resources are

prorated among the other programs. 

60 Performance Section—Goal Three
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Summary of Performance 

Goal Three: Ensure market integrity in order to foster open, competitive, 

and financial sound markets.

Outcome 3.1: Clearing organizations and firms holding customer funds have sound financial practices.

Annual Performance Goal: No loss of customer funds as a result of firms’ failure to adhere to regulations. No customers prevented from transferring funds from failing firms to sound firms. 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Lost funds: 

a) Percentage decrease in number of customers who lose funds 

b) Amount of funds lost

Number of rulemakings to ensure market integrity and financially sound

markets

Percentage of clearing organizations that comply with requirement to enforce rules

0 

$0 

2 

100% 

0 

$0 

1 

100% 

0 

$0 

1 

100% 

Outcome 3.2: Commodity futures and option markets are effectively self-regulated.

Annual Performance Goal: No loss of funds resulting from failure of self-regulated organizations to ensure compliance with their rules. 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage of intermediaries who meet risk-based capital requirements 

Percentage of clearing organizations that comply with requirement to enforce their rules 

100% 

100% 

100% 

100% 

100% 

100% 

Outcome 3.3: Markets are free of trade practice abuses. 

Annual Performance Goal: Minimize trade practice abuses.

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage of exchanges deemed to have adequate systems for detecting 

trade practice abuses 

Percentage of exchanges that comply with requirement to enforce their 

rules

100% 

100% 

100% 

100% 

100% 

100% 

Outcome 3.4: Regulatory environment is flexible and responsive to evolving market conditions. 

Annual Performance Goal: TBD 

Performance Measures

FY 2003

Actual 

FY 2004

Plan 

FY 2004

Est. Act. 

Percentage of CFMA Section 126(b) objectives implemented 

Number of rulemakings, studies, interpretations, and guidance to ensure 

market integrity and exchanges’ compliance with regulatory requirements

Percentage of requests for no-action or other relief completed within six 

months related to novel market or trading practices and issues to facilitate

innovation 

Percentage of total requests receiving CFTC responses for guidance and

advice 

100% 

5 

100% 

93% 

100% 

4 

TBD 

90% 

100% 

4 

100% 

90% 

Performance Section—Goal Three 61 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Methodology for Collecting, Maintaining, and Analyzing 

Performance Data 

Market Oversight 

Statistics concerning the large trader and exchange data collection systems are 

computer-generated based on the number of actual reports processed. Similarly,

counts on numbers of markets trading, reports prepared, and new contract and 

rule change filings analyzed and completed are derived from computer records. 

Performance data from regional offices and headquarters are collected quarterly

and combined into an overall report reflecting performance data included in the

Annual Performance Plan. Trends in volume, open interest, and number of contracts approved are used to project workload statistics for future periods. Compliance factors, such as audits and letters to traders and reporting firms, are reviewed in the context of total reports processed for anomalous relationships. The 

number of market surveillance reports and special reports are viewed in the context of the number of markets trading and analyses that are presented at Commission meetings. These reports and comparisons with indicators from previous

periods are used to verify data accuracy. 

The Market and Product Review subprogram calculates the performance data 

included in the Commission’s Annual Performance Report and Annual Performance Plan by querying its automated database, the Designation and Rule Tracking (DART) system. Among other pieces of data, the DART system records for 

each new product and new rule submission information on the date received, the 

submission’s ultimate disposition, the date of disposition, and the processing

time. 

The Market Compliance subprogram’s performance data are continuously collected from regional and headquarters staff and are maintained at headquarters 

for each performance category. The adequacy of self-regulated organizations’

sanctions and a comparison of sanctions across all exchanges is conducted quarterly by regional staff and is also maintained at headquarters. 

Clearing & Intermediary Oversight 

Compliance and Registration. The Compliance and Registration subprogram

compiles data on discrete events, such as letters written, rules promulgated or

revised, and RWG meetings held. It should be noted that statistics on numbers of 

letters issued or rules promulgated may not reflect the complexity of any particular matter or the resources necessary to address one issue versus another issue.

Audit and Financial Review. Each branch of the Audit and Financial Review subprogram prepares a monthly report that includes statistics for those projects that

can be reported on a numerical basis and also describes special projects, enforcement support, and all other noteworthy matters that staff have worked on 

during the month. Statistical summaries are also prepared on a quarterly basis. 

Clearing Policy. The Clearing Policy subprogram maintains an ongoing status

report of current and completed projects. Separately, the Commission is close to

completion of development of an electronic database to track all exchange and 

clearinghouse rule filings.

62 Performance Section—Methodology for Collecting, Maintaining and Analyzing Performance Data
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Enforcement 

The performance data reported by the Enforcement program come from a variety 

of sources. For example, certain basic informationsuch as the numbers of investigations and cases opened, closed, and pendingis collected and tabulated on

a routine basis by staff in the headquarters office. Case status information is then 

cross-checked on a monthly basis against status reports submitted by staff to the 

Office of the Director of the Enforcement program. This information is adapted

for use in performance reporting (i.e., individual matters are identified by the

goals and activities under which they most reasonably fall). 

Other data that are routinely tracked and then adapted for use in performance 

reporting include sanctions assessed in enforcement matters. In enforcement

cases, sanctions can be assessed and/or affirmed by: 1) Commission ALJs; 2) the 

Commission in settlement or on appeal of an ALJ’s decision; 3) Federal district 

courts hearing injunctive matters; 4) Federal circuit courts of appeal on appeals

of district court or Commission decisions; and 5) the U.S. Supreme Court on appeals of decisions by circuit courts of appeal. Commission staff in the Enforcement program regularly track these results and monitor them in order to determine when sanctions become final and effective. Program staff receive notice of

sanctions assessed either from the Office of Proceedings in administrative actions, from the team conducting the litigation in injunctive actions, or from OGC 

in actions before circuit courts of appeal. 

Finally, additional data tracked by the Enforcement programparticularly data

reflecting investigation and litigation taskscome directly from the headquarters 

units and regional offices performing the work. Staff from each subprogram and 

regional office are required to submit monthly status reports on all pending matters. In conjunction with these monthly submissions, staff are required to fill out

an electronic form that provides specific information for each matter. While every 

effort is made to ensure that the data obtained from the investigation and litigation teams is accurate, the integrity of this data is ultimately and primarily the 

responsibility of the reporting teams. 

Office of the Chief Economist 

Assessment of the performance of the Office of the Chief Economist is based 

upon reports and consultations completed, which are maintained by OCE staff 

members themselves. The analysis of these performance data considers both the 

scale and the complexity of the assignments. 

Office of Proceedings 

The Office of Proceedings uses “Repcase,” the integrated computerized case

tracking system, to collect, maintain, and analyze performance information for 

each reparations case. The reparations case reports are separated into two sectionscomplaints and hearings. The data and information collected in the complaints section consists of the number of cases pending the first of the month, the

number of cases received during the month, the number of cases disposed of in 

complaints, and the number of cases pending at the end of the month. The data

and information collected for the hearings section consists of the number of cases

pending with an ALJ or judgment officer (JO) at the beginning of the month, the 

number of cases assigned during the month (including remands, reassignments,

and motions to vacate), the number and type of cases disposed of during the 

month, and the number of cases pending with each ALJ or JO at the end of the

month. 

Performance Section—Methodology for Collecting, Maintaining and Analyzing Performance Data 63 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

A separate database, “Docket Book,” is used to track administrative cases, i.e., 

administrative/enforcement, exchange, statutory disqualification, and Commission review cases. The administrative case tracking system tracks the number of

cases received during the month, the number and type assigned during the

month, and the number and type disposed of during the month. Case status information is checked on a monthly basis against status reports submitted by the 

judges, JOs, and proceedings clerk to the director of the Office of Proceedings.

This information is adapted for use in performance reporting. 

Office of the General Counsel 

OGC uses Repcase to collect, maintain, and analyze performance information for 

each reparations, enforcement, exchange review, and NFA case on appeal to the 

Commission. Statistical data is collected and reported by the total number of: 1)

cases resolved (e.g., final disposition, remand, interlocutory disposition, and miscellaneous disposition); 2) matters received (e.g., merits appeals, interlocutory 

appeals, and miscellaneous); 3) matters pending; and 4) drafts pending before

the Commission. 

OGC collects and maintains case data on a monthly, quarterly, and annual basis. 

A legal program assistant uses this information to prepare monthly, quarterly,

and annual reports, which are used by management to monitor and analyze all 

cases on appeal to the Commission. 

 Bimonthly Report. At the end of each bimonthly period, the legal program assistant prepares a bimonthly report for the General Counsel’s 

signature for submission to the Chairman. The information reported includes all activity (i.e., legislative, regulatory, litigation-related, and opinions-related) in the office that occurred during that period. 

 Monthly Opinions Report. At the end of each month, the legal program 

assistant prepares a monthly report for the General Counsel’s signature.

The information reported includes all activity (i.e., disposition of cases,

matters received, and matters pending) in the Opinions Program that occurred during the month. 

 Annual Report. At the end of each fiscal year, the legal program assistant 

prepares a statistical summary that shows activity in the program during 

the fiscal year. The report lists by category the number of matters received, Commission orders and opinions issued, and the number of cases 

pending at the end of the year. All issued opinions and orders are maintained in binders filed alphabetically, monthly, quarterly, and annually. 

In preparing these reports, the legal program assistant reviews the statistical data

provided by the Repcase tracking system as well as issued opinions and orders 

maintained in the binders. This staff member also maintains a separate tracking

system of the cases on appeal, which serves as a check against the data provided 

by the automated tracking system. All reports are reviewed and approved by the 

General Counsel and/or Deputy General Counsel for the Opinions and Review

section. 

Executive Direction & Support 

Office of International Affairs. OIA developed a new database system that staff 

uses to file all projects, correspondence and written advice. The filing system uses

64 Performance Section—Methodology for Collecting, Maintaining and Analyzing Performance Data
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

a standardized “Main Topic” and “Key word” format that correspond to certain of

the performance indicators used in the performance measurement process. When

a project is completed, staff members close out the file, record the action in the 

database, and file a paper copy of the project work product by year and file code

number. As a result, the OIA database captures all work products and permits

immediate computer-searchable access to the project and to the paper copy. The

system also captures a record of arranged visits to the Commission and regional 

offices by numerous foreign regulators. 

Office of Information Resources Management. OIRM acts on the basis of the 

CFTC Five-Year Plan for Information Resources Management and direction 

from the Executive Management Council. Performance data is collected by comparing the products actually delivered against the products called for in the plan

and the resources used to deliver those products as recorded in the Commission 

time and attendance data or equivalent OIRM internal records for internal FTEs

and the Commission’s financial management system or equivalent OIRM internal 

records for purchased resources. The five-year plan reflects Commission priorities, actual (as opposed to planned) project performance, and the resources that

will be made available to OIRM to pursue projects. Analysis of performance data

involves comparison of resources expended on projects with the planned expenditures to the products delivered with the products planned. 

***

Performance Section—Methodology for Collecting, Maintaining and Analyzing Performance Data 65 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Program Assessment Rating Tool 

OMB uses the Program Assessment Rating Tool (PART) to assess federal programs. Through the use of in-depth diagnostic questions, the PART is employed

to assess and evaluate programs across a set of performance-related criteria.

PART results are then used to help improve program management and ensure

that the American taxpayer receives the best value for their tax dollar. 

Beginning in the spring of 2004, OMB began review of the Commission’s Enforcement program. The review is still in progress. The results of the review will 

be included in the Commission’s FY 2005 Performance and Accountability Report. 

*** 

66 Performance Section—Program Assessment Rating Tool
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

External Challenges and Factors 

External Challenges and Factors 

The Commission faces challenges external to the organization that may significantly alter its ability to meet its mission, goals, and outcomes, depending on the 

weight of their influence and the timing of their occurrence. There are three

broad areas of external challenges that may impact the Commission’s achievement of its strategic goals and planned accomplishments for FY 2004 through FY

2009: 

Challenges in the Marketplace 

The continuing growth in the number of actively traded contracts on U.S. exchanges—nearly triple the number available just a decade ago—poses a significant external challenge. In the last decade, 956 new futures and option contracts

were approved or certified. In FY 2004 alone, 209 new futures and option contracts were approved or certified. Since the passage of the CFMA, the Commission has designated eight new contract markets and approved five additional

DCOs. 

Over one billion contracts are now being traded on futures and option exchanges. 

The CFTC must monitor the increases in volume and the complexity of trading 

activity in order to ensure that market users are able to trust the safety, fairness,

and transparency of trading on U.S. exchanges. 

Events that could destabilize commodity markets in particular and financial markets in general, such as attempts to manipulate prices and the loss of investor

confidence caused by recent events in the energy and financial sectors, also present significant challenges to the Commission. 

Legislative Challenges 

The Commission’s mission performance continues to be affected by changes in

Federal laws and policies, such as the deregulation of the energy industry and

changes in farm subsidy policies, spawning change and innovation, new types of 

crop insurance, structural changes permitted in the financial services industry, 

the diversification into overseas markets and the convergence of the securities,

commodities, insurance, and banking industries. 

Technological Challenges

The advancements in technology continue to introduce challenges in many areas: 

alternatives to the “open-outcry” method of trading commodity futures on the

exchange floor; enhanced methods for timing and tracking trading transactions;

online filing of financial information by market users; solicitations to the retail

market via the Internet; electronic marketing and trading of financial and riskhedging products; and trading commodity futures and options on a global, 24-

hour real-time basis. The extraordinary increase in electronic trading systems 

and Internet trading has allowed markets to respond to information and the

needs of their users 24 hours a day, but also has presented new opportunities for 

fraudulent activity. 

*** 

Performance Section—External Challenges and Factors 67 

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section

Financial 

Section

FY 2004 Performance and Accountability Report 

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Message from the Acting Chief Financial Officer and Executive Director 

In FY 2004, the CFTC made significant progress in improving its financial performance and reporting to

comply with the requirements of the Accountability of 

Tax Dollars Act of 2002. The Act required the CFTC to

prepare its first audited financial statements and integrate the results into a Performance and Accountability

Report. 

Through the hard work and dedication of the financial 

management, program, and audit staffs, we successfully completed the requirements of preparing financial

statements, undergoing audit scrutiny, and producing 

the results that are published in this Performance and

Accountability Report. 

I am pleased to present the CFTC’s first audited financial statements for FY 2004. 

Our independent auditor, KPMG LLP, has rendered an unqualified (clean) opinion on the agency’s balance sheet. This opinion attests to the fact that the

agency’s balance sheet presents fairly, in all material respects, the financial position of the CFTC as of September 30, 2004, in conformity with U.S. GAAP. 

Because this is the Commission’s first independent audit, the scope of the audit 

did not include fiscal years prior to FY 2004. As a result, the auditors were not 

able to express an opinion on accompanying statements of net cost, changes in

net position, budgetary resources, financing, and custodial activity since these 

statements are affected by the unaudited amounts as of the beginning of FY 

2004.

We are pleased with our initial results and will continue to build on this sound 

foundation for FY 2005. Through the continued dedication and collaborative

efforts of our staff, we will take steps to improve our internal controls, resolve the 

weaknesses identified in the independent auditors’ report, and successfully meet

the challenges ahead. We look forward to achieving success in meeting the new

reporting requirements for producing interim statements with accelerated due

dates, enhancing financial systems to improve functionality and strengthen regulatory compliance, and acquiring an unqualified (clean) audit opinion on our FY 

2005 financial statements. 

Financial Section—Message from the Chief Financial Officer 71
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Balance Sheet 

As of September 30, 2004 

A ssets 

Intragov ernmental:

Fund Balanc e with Treasury (Note 3) $ 26,304,227

A c counts Rec eiv able (Note 4) 22,806

Total Intragov ernmental 26,327 ,033

Custodial Fines and Interest Rec eiv able, Net (Note 4) 35 ,402,939

Ac counts Rec eiv able (Note 4) 9,45 7

Equipment and Furniture, Net (Note 5 ) 340,21 0

Software, Net (Note 5 ) 1 49,428

T otal A ssets $ 62,229,067

Liabilities 

Intragov ernmental:

FECA Liabilities $ 1 94,1 02

With the Public :

Trade Ac counts Pay able 1 ,025 ,643

Ac c rued Funded Pay roll and Benefits 2,282,462

Annual Leav e 4,7 97 ,304

Ac tuarial FECA Liabilities 5 1 4,932

Custodial Liabilities 35 ,402,939

Contingent Liabilities (Note 8) 1 82,426

T otal Liabilities 44,399,808

Commitments and Contingenc ies (Notes 7 and 8)

Net Position 

Cumulativ e Results of Operations (5 ,1 99,1 26)

Unex pended Appropriations 23,028,385

T otal Net Position 17 ,829,259

T otal Liabilities and Net Position $ 62,229,067

The ac c o m panying no te s are an integral part o f thes e financ ial s tatem ents .

72 Financial Section—Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Statement of Net Cost (unaudited) 

For the Year Ended September 30, 2004 

Ensure the economic vitality of the commodity futures and options markets 

Intragov ernmental Gross Costs $ 4,297 ,937

Less: Earned Rev enue (1 0,605 )

Intragov ernm ental Net Cost of Operations 4,287 ,332

Gross Costs With the Public 27 ,1 24,1 06

Less: Earned Rev enue (9,032)

Net Cost of Operations With the Public 27 ,115 ,07 4

Net Cost of Operations - Goal One $ 31,402,406

Protect market users and the public 

Intragov ernmental Gross Costs $ 5 ,245 ,5 1 5

Less: Earned Rev enue (1 2,943)

Intragov ernm ental Net Cost of Operations 5,232,57 2

Gross Costs With the Public 33,1 04,237

Less: Earned Rev enue (1 1 ,023)

Net Cost of Operations With the Public 33,093,214

Net Cost of Operations - Goal T wo $ 38,325,7 86

Ensure the market integrity in order to foster open, competitive, and financially 

sound markets 

Intragov ernmental Gross Costs $ 3,621 ,020

Less: Earned Rev enue (8,934)

Intragov ernm ental Net Cost of Operations 3,612,086

Gross Costs With the Public 22,852,1 09

Less: Earned Rev enue (7 ,61 0)

Net Cost of Operations With the Public 22,844,499

Net Cost of Operations - Goal T hree $ 26,456,585

 (Continued) 

Financial Section—Financial Statements 73
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Statement of Net Cost (unaudited), continued 

For the Year Ended September 30, 2004 

Grand Total 

Intragov ernmental Gross Costs $ 13,164,47 2

Less: Earned Rev enue (32,482)

Intragov ernm ental Net Cost of Operations 13,131,990

Gross Costs With the Public 83,080,452

Less: Earned Rev enue (27 ,665)

Net Cost of Operations With the Public 83,052,787

T otal Net Cost of Operations $ 96,184,7 7 7

The ac com panying notes are an integral part of thes e financial s tatem ents .

74 Financial Section—Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Statement of Changes in Net Position (unaudited) 

For the Year Ended September 30, 2004 

Cum ulativ e Results Unex pended

of Operations A ppropriations

Balances, Oc tober 1, 2003 $ (2,95 7 ,7 81) $ 23,5 5 0,666

Budgetary Financ ing Sources

Appropriations:

Rec eiv ed - 90,435 ,000

Less: Resc inded - (5 33,567 )

Less: Canc eled - (339,1 5 3)

Used to Acquire and Prov ide Serv ic es 90,084,561 (90,084,561 )

Other Fin ancing Sourc es:

Imputed Financ ing Sourc es 3,858,87 1 -

Total Financ ing Sourc es 93,943,432 (522,281 )

Net Cost of Operations (96,1 84,7 7 7 ) -

Balances, Septem ber 30, 2004 $ (5 ,199,126) $ 23,028,385

The ac c o m panying no te s are an integral part o f thes e financ ial s tatem ents .

Financial Section—Financial Statements 75 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Statement of Budgetary Resources (unaudited) 

For the Year Ended September 30, 2004 

Budgetary Resources

Budget Authority

 Appropriations Rec eiv ed $ 90,435 ,000

Unobligated Balanc e, Beginning of Y ear 9,340,7 7 6

Spending Authority from Offsetting Collec tions:

 Reimbursements Earned and Collec ted 5 54,529

 Rec eiv able from Federal Sourc es 22,806

Recov eries of Prior Y ear Obligations 8,902,248

Permanently Not Av ailable:

 Canc ellation of Ex pired Ac counts (339,1 5 3)

 Enac ted Reduc tion (5 33,567 )

T otal Budgetary Resources $ 108,382,639

Status of Budgetary Resources

Obligations Incurred, Direc t $ 1 06,987 ,1 36

Unobligated Balanc e Apportioned 38,61 3

Unobligated Balanc e Not Av ailable 1 ,356,890

T otal Status of Budgetary Resources $ 108,382,639

Relation of Obligations to Outlay s

Obligated Balanc e, Net, Beginning of Y ear $ 19,7 13,939

Obligated Balanc e, Net, End of Y ear:

 Ac counts Rec eiv able (22,806)

 Undeliv ered Orders 21 ,623,425

 Funded Ac counts Pay able and Ac c ruals 3,308,1 05

T otal Obligated Balance, End of Y ear $ 24,908,7 24

Outlay s:

 Disbursements $ 92,867 ,297

 Collec tions (5 54,529)

Subtotal Outlay s 92,31 2,7 68

Less: Offsetting Rec eipts (1 3,541 )

Net Outlay s $ 92,299,227

The ac c o m panying no te s are an integral part o f thes e financ ial s tatem ents .

76 Financial Section—Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Statement of Financing (unaudited) 

For the Year Ended September 30, 2004 

Resources Used to Finance Activities

Obligations Incurred $ 106,987 ,136

Less: Spending Authority from Offsetting Collections and Recov eries (9,47 9,583)

Net Obligations 97 ,507 ,553

Other Resources - Imputed Financing from Cost Absorbed by Others 3,858,87 1

Total Resources Used to Finance Activities 101,366,424

Resources Used to Finance Items Not Part of the

Net Cost of Operations

Change in Undeliv ered Orders (7 ,483,065)

Resources that Finance the Acquisition of Fixed Assets (1 96,857 )

Total Resources Used to Finance Items Not Part of the Net Cost of Operations (7,679,922)

Resources Used to Finance the Net Cost of Operations 93,686,502

Components of the Net Cost of Operations That Will Not Require

Or Generate Resources in the Current Period

Increase in Annual Leav e and FECA Liabilities 2,364,826

Total Net Cost of Items That Will Generate Resources in Future Periods 2,364,826

Components Not Requiring or Generating Resources

Depreciation and Amortization 1 28,239

Other Adjustments 5,210

Total Components Not Requiring or Generating Resources 133,449

Net Cost of Operations $ 96,184,777

The accompanying notes are an integral part of these financial statements.

 

Financial Section—Financial Statements 77 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Commodity Futures Trading Commission 

Statement of Custodial Activity (unaudited) 

For the Year Ended September 30, 2004 

Rev enue A c tiv ity

Sources of Cash Collec tions

 Registration and Filing Fees $ 7 68,1 30

 Fines, Penalties, and Forfeitures 1 22,468,925

 General Proprietary Rec eipts 1 3,541

T otal Cash Collec tions 1 23,250,596

I nc rease in A ccounts Rec eiv able 35 ,37 6,1 88

 1 58,626,7 84

Disposition of Collec tions

 Transferred to Treasury (1 23,250,596)

 Inc rease in Custodial Liabilities (35 ,37 6,1 88)

Net Custodial A c tiv ity $ -

The ac c o m panying no te s are an integral part o f the s e financ ial s tatem ents .

78 Financial Section—Financial Statements 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Notes to Financial Statements 

As of and For the Fiscal Year Ended 

September 30, 2004 

Note 1. Reporting Entity

The Commodity Futures Trading Commission (CFTC) is an independent agency 

in the executive branch of the federal government. Congress created the CFTC in

1974 under the authorization of the Commodity Exchange Act (CEA) with the

mandate to regulate commodity futures and option markets in the United States. 

The agency’s mandate was renewed and expanded under the Futures Trading Act 

of 1978, 1982, and 1986; under the Futures Trading Practices Act of 1992; and

under the CFTC Reauthorization Act of 1995. The CFMA reauthorized the Commission through Fiscal Year (FY) 2005. Since its inception, the CFTC has continuously operated through authorized appropriations. The CFTC is not subject

to Federal, state, or local income taxes.

The CFTC is responsible for ensuring the economic utility of futures markets by 

encouraging their competitiveness and efficiency, ensuring their integrity, and

protecting market participants against manipulation, abusive trade practices, and 

fraud. 

Note 2. Summary of Significant Accounting Policies 

 

Basis of Presentation and Accounting 

The financial statements have been prepared to report the financial position and 

results of operations for the CFTC, as required by the Accountability of Tax Dollars Act of 2002, the Chief Financial Officers’ Act of 1990, and the Government 

Management Reform Act of 1994. They are presented in accordance with the

form and content requirements contained in Office and Management and Budget 

(OMB) Bulletin No. 01-09, “Form and Content of Agency Financial Statements.” 

This is the first year in which the CFTC has been subject to audit; therefore, the 

financial statements are presented for FY 2004 only. 

The financial statements have been prepared from the CFTC’s books and records

in conformity with accounting principles generally accepted in the United States 

(U.S.) prescribed for the Federal government by the Financial Accounting Standards Advisory Board, promulgated by the OMB, and the agency’s accounting

policies as summarized in this note. 

The financial statements have been prepared to include the accounts of all funds

under CFTC control in the consolidated format required by OMB Bulletin No. 01-

09. The financial statements report on the CFTC’s financial position, net cost of

operations, changes in net position, budgetary resources, financing, and custodial 

activities of the CFTC. The books and records of the agency served as the source 

of information for preparing the statements in the prescribed formats. They are 

prepared in addition to the financial reports used to monitor and control budgetary resources that are prepared from the same books and records. The stateFinancial Section—Notes to Financial Statements 79
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

ments should be read with the realization that they are for a component of the

U.S. Government, a sovereign entity. 

The CFTC’s Balance Sheet presents the financial position of the agency. The Statement of Net Cost presents the agency’s operating results, the Statement of 

Changes in Net Position displays the changes in the agency’s equity accounts. 

The Statement of Budgetary Resources presents the sources, status, and uses of

the agency’s resources and follows the rules for the Budget of the U.S. Government and reports intra-fund entity transactions without elimination. The Statement of Financing presents the reconciliation of the of the agency’s use of budgetary resources with its operating results. The Statement of Custodial Activity 

presents the sources and disposition of collections for which the CFTC is the fiscal agent, or custodian, for the U.S. Treasury’s General Fund Miscellaneous Receipt accounts. 

Throughout these financial statements, assets, liabilities, earned revenue and 

costs have been classified according to the type of entity with whom the transactions are with. Intragovernmental asset and liabilities are those from or to other 

federal entities. Intragovernmental earned revenues represent collections or accruals of revenues from other federal entities and intragovernmental costs are

payments or accruals to other entities. 

Budgetary Resources and Status 

The CFTC is funded through the execution of congressionally-approved appropriations, all under Treasury symbol 95-1400. It is responsible for administering

the salaries and expenses of the agency through the execution of these appropriations. 

Budgetary resources consisted of unobligated balances of resources brought forward from the prior year and new resources in the form of appropriations and 

collections for services. The balance forward and collections for services are set

forth in line items on the Statement of Budgetary Resources. 

Permanent indefinite appropriations and collection authority are available for 

new obligations without further action by the Congress, on apportionment by

OMB and allotment by the CFTC. Annual appropriations and collection authority 

expire after one year. Annual appropriations are available for new obligations

during their period of availability and for five years after that to fund net upward

adjustments of prior-year obligations, i.e., they are not available for new obligations. The status of resources in which authority is available for new obligations 

at year-end is called “unobligated authority available.” Authority available only

to fund net upward adjustments of prior-year obligations at year-end is termed 

“unobligated authority not available.” 

After the end of the five-year expiration period, an appropriation authority is 

canceled and cannot be used for any purpose. All unused monies related to canceled appropriations are returned to Treasury. Canceled authority is reported as a 

line item on the Statement of Budgetary Resources. 

Obligations, or “obligated authority” refer to orders placed for goods and services 

not yet received, or for benefits to be provided, called “undelivered orders,” and 

for goods and services received, or for benefits provided, called “delivered orders.” Undelivered orders may have cash advances with them, although CFTC 

does not have any undelivered orders with advances. Delivered orders may be 

either paid or unpaid at the end of the fiscal year. 

80 Financial Section—Notes to Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

There are no material differences between the Statement of Budgetary Resources 

and related budgetary information reported to OMB, or in the Budget of the U.S.

Government.

Assets 

Assets consist of entity and non-entity assets. Entity assets are those assets that 

the CFTC has authority to use for its operations. Non-entity assets are those held

by the CFTC that are not available for its use. All CFTC assets are entity assets

except net custodial accounts receivable. 

Fund Balance with Treasury

Fund Balance with Treasury is the aggregate amount of CFTC’s accounts with 

Treasury for which CFTC is authorized to make expenditures and pay liabilities.

CFTC does not maintain bank accounts of its own, has no disbursing authority of 

its own, and does not have any cash held outside of Treasury. Treasury disburses

funds for the agency on demand, and monies collected by CFTC are deposited to

the U.S. Treasury. (See Note 3.) 

Accounts Receivable 

Accounts receivable consists of amounts owed by other federal agencies and the 

public to the CFTC. They are claims for payment as a result of employee repayments, overpayments to vendors, custodial fines, and interest receivable resulting 

from civil monetary penalties. Accounts receivable are valued net of an allowance 

for uncollectible amounts. The allowance is based on past experience in the collection of receivables and analysis of the outstanding balances. (See Note 4.) 

General Property, Plant, and Equipment 

General property, plant, and equipment (PP&E) represents furniture, fixtures, 

equipment, and information technology hardware and software, which are capitalized and depreciated or amortized over their useful lives. 

CFTC capitalizes these assets if they have useful lives of at least two years and an

individual value of $25,000 or more. Bulk or aggregate purchases are capitalized

when the individual useful lives are at least two years and a value of $25,000 or 

more. General PP&E that do not meet these criteria are expensed when acquired. 

Depreciation and amortization is computed on a straight-line basis using a 5-year

life. PP&E is valued net of accumulated depreciation (See Note 5.) 

Liabilities 

CFTC liabilities consist of actual and estimated amounts that are likely to be paid 

as a result of transactions, they are covered by budgetary resources for which

Congress has appropriated funds or funding, or are otherwise available from reimbursable transactions to pay amounts due. 

Liabilities include those covered by budgetary resources in existing legislation 

and those not yet covered by budgetary resources. All agency liabilities are 

funded except for the contingent liability, which will be paid if judgment is rendered against the CFTC, and the liability to pay annual leave and Federal Employee Compensation Act (FECA or workmen’s compensation benefits), which 

will be funded by future appropriations as the leave is taken and compensation

Financial Section—Notes to Financial Statements 81
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

claims are paid. All liabilities are considered current except for the annual leave

liability and the Actuarial FECA liabilities. 

Accounts Payable 

Accounts payable consists primarily of contracts for goods or services, such as

leases, utilities, telecommunications, and consulting and support services. 

Accrued Payroll and Benefits 

The accrued payroll and benefits represent amounts for salaries and benefits

owed for the time since the payroll was last paid through the end of the fiscal

year. The annual leave liability is the amount owed employees for unused annual 

leave as of the end of the fiscal year. Annual leave is accrued at the CFTC and 

represents the amount earned by employees, but not yet taken. At the end of 

each fiscal year, the balance in the accrued annual leave account is adjusted to 

reflect current balances and pay rates. Sick leave and other types of non-vested

leave are expensed as taken. 

The agency’s employees participate in the Civil Service Retirement System 

(CSRS) or the Federal Employee’s Retirement System (FERS). On January 1,

1987, FERS went into effect pursuant to Public Law 99-335. Most employees

hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to January 1, 1984, could elect to either join FERS

and Social Security or remain in CSRS. 

For employees under FERS, the CFTC contributes an amount equal to one percent of the employee’s basic pay to the tax deferred thrift savings plan and 

matches employee contributions up to an additional four percent of pay. FERS

employees can contribute thirteen percent of their gross earnings to the plan.

CSRS employees are limited to a contribution of eight percent of their gross earnings and receive no matching agency contribution. 

The FECA provides income and medical cost protection to covered federal civilian employees injured on the job, to employees who have incurred work-related

occupational diseases and to beneficiaries of employees whose deaths are attributable to job-related injuries or occupational diseases. The FECA program is 

administered by the U.S. Department of Labor (DOL), which pays valid claims 

against the Department and subsequently seeks reimbursement from the Department for these paid claims. Accrued FECA liability represents amounts due 

to DOL for claims paid on behalf of the agency. 

Actuarial FECA liability represents the liability for future workers’ compensation 

(FWC) benefits, which includes the expected liability for death, disability, medical, and miscellaneous costs for approved cases. The liability is determined using

a formula provided by DOL annually, as of September 30, using a method that 

utilizes historical benefits payment patterns related to a specific incurred period 

to predict the ultimate payments related to that period. The projected annual

benefit payments are discounted to present value using OMB’s economic assumptions for ten-year Treasury notes and bonds. To provide more specifically for 

effects of inflation on liability for FWC benefits, wage inflation factors (Cost of

Living Allowance) and medical inflation factors (Consumer Price Index – Medical) are applied to the calculation of projected future benefits. These factors are

also used to adjust historical payment so benefits are stated in current-year constant dollars.

82 Financial Section—Notes to Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Net Position 

Net position consists of unexpended appropriations and cumulative results of

operations. Unexpended appropriations are appropriations that have not yet 

been used to acquire goods and services or provide benefits. Appropriations are

considered expended, or used, when goods and services have been acquired by

CFTC or benefits have been provided using the appropriation authority, regardless of whether monies have been paid or payables for the goods, services, or 

benefits have been established. Appropriations were used primarily to acquire 

goods and services to operate the CFTC’s programs or to provide benefits. Cumulative results of operations is the difference between the cumulative amount of 

expenses, exchange revenue, and transfers of assets or liabilities in or out without 

reimbursement. 

Revenues 

The CFTC receives reimbursements and earned revenue for the following activities: 

 Reimbursement for travel, subsistence, and related expenses from federal and non-federal sources for attendance at meetings or similar functions that an employee has been authorized to attend in an official capacity on behalf of the Commission. 

 Reimbursement for Intergovernmental Personnel Act Mobility Program 

assignments from state and local governments, institutions of higher 

education, and other eligible organizations for basic pay, supplemental

pay, fringe benefits, and travel and relocation expenses. 

 Reimbursement from non-federal sources for registration fees to cover

the cost of expenses related to the CFTC's annual International Regulators Conference. 

Net Cost of Operations 

Net cost of operations is the difference between CFTC’s expenses and its earned

revenue. CFTC operates one major program with three goals, as described in the

Management’s Discussion and Analysis. Its mission is to protect market users

and the public from fraud, manipulation, and abusive practices related to the sale

of commodity and financial futures and options, and to foster open, competitive,

and financially sound futures and option markets. CFTC presents its Statement

of Net Cost by goal to align the presentation of net costs with the agency’s strategic plan. 

Gross Costs and Earned Revenue by Budget Functional Classification (BFC) 

The CFTC’s gross costs, earned revenues, and intragovernmental transactions 

were all related to protecting market users and the public. The BFC for CFTC is

376. 

Reconciliation of Net Obligations and Net Cost of Operations 

The Statement of Financing reconciles the net obligations with the net cost of 

operations. Net obligations are gross obligations, adjusted by downward adjustments of prior-period obligations, less offsetting collections, as reported on the

Financial Section—Notes to Financial Statements 83
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Statement of Budgetary Resources. The net cost of operations is the difference

between costs and earned revenue, as reported on the Statement of Net Cost. 

The flow of the reconciliation adds to net obligations any net non-budgetary resources which are used to fund activity, but which do not appear in net obligations, such as transfers of property in or out without reimbursement, as reported

on the Statement of Changes in Net Position. The combination of net obligations,

or “net budgetary resources used to fund activities” and these non-budgetary resources, constitutes the total resources used to fund activities. 

The reconciliation is then accomplished in part by removing any items that do 

not result in costs or earned revenue from the total resources used to fund activities, such as undelivered orders. 

The reconciliation is finalized by adding in items in the net cost of operations that

do not generate or use resources in the current period. This includes costs and 

earned revenues, which will never generate or use resources, such as depreciation

expense. This also includes those which will generate or use resources in a future

period, such as benefits expense resulting from the increase in annual leave liability, which is accrued for purposes of the Statement of Net Cost, but is not 

funded until the leave is taken.

Custodial Activity 

CFTC collects penalties and fines levied against firms for violation of laws as described in the CEA as codified at 7 U.S.C. § 1, et seq, and the Commodities Futures Modernization Act of 2000, Appendix E of P.L.106-554, 114 Stat. 2763). 

Collections during the year are deposited to a designated fund at Treasury. Unpaid fines and penalties, with interest accrued on them, are reported as custodial 

receivables, with a related liability to collect them. The receivables and the liability are reduced by estimated losses from uncollectibility. Treasury reports the

revenues earned and the losses from bad debts. CFTC does not retain any of the

collections for reimbursement of its costs of collection. 

Use of Management Estimates 

The preparation of the accompanying financial statements in accordance with

accounting principles generally accepted in the United States of America requires

management to make certain estimates and assumptions that directly affect the 

results of reported assets, liabilities, revenues, and expenses. Actual results could 

differ from these estimates.

Note 3. Fund Balance with Treasury 

Fund Balance with Treasury is related to appropriations and reimbursements for

goods or services. Work performed under reimbursable agreements is initially

financed by the appropriation providing the services and is subsequently reimbursed. 

 

The status of the Fund Balance with Treasury as of September 30, 2004, is as

follows:

Fund Balance:

Appropriated Funds $ 26,304,227

84 Financial Section—Notes to Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Status of Fund Balance with Treasury:

Unobligated Balance Available $ 16,360

Unobligated Balance Expired 22,253

Unobligated Balance Unavailable 1,356,890

Obligated Balance Not Yet Disbursed 24,908,724

TOTAL $ 26,304,227

There are no differences between the Fund Balance with Treasury on CFTC’s 

books and those of Treasury. 

Note 4. Accounts Receivable 

Accounts receivable consist of amounts owed to the CFTC by other Federal agencies and the public. Accounts receivable are valued net of estimated uncollectibles. Non-custodial accounts receivable are primarily for overpayments of expenses to other agencies, vendors, and employees. Historical experience has indicated that most of these receivables are collectable and there are no material

uncollectible amounts. 

Custodial receivables are those for which fines and penalties have been levied

against businesses for violation of law. CFTC litigates against defendants for alleged violations of the Commodities Exchange Act, as amended. Violators may be

subject to a variety of sanctions including fines, injunctive orders, bars or suspensions, rescissions of illegal contracts, disgorgements and restitutions to customers. Historical experience has indicated that a high percentage of these receivables prove uncollectible.

Accounts receivable as of September 30, 2004, consisted of the following: 

Category: 

Intragovernmental $ 22,806

With the Public 

 Custodial:

 Civil Monetary Penalties, Fines, and Administrative Fees $ 465,735,791

 Less: Allowance for Loss on Penalties, Fines and Fees (430,332,852)

 Civil Monetary Penalty Interest 65,253,060

 Less: Allowance for Loss on Interest (65,253,060)

 Total Custodial 35,402,939

 

 Other 9,457

Total With the Public $ 35,412,396

Financial Section—Notes to Financial Statements 85
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Note 5. General Property, Plant, and Equipment 

General Property, Plant, and Equipment as of September 30, 2004, consisted of 

the following:

Major Class Service Life 

& Method 

Acquisition 

Value

Accumulated

Amortization/

Depreciation

Net Book 

Value

Equipment 5 Years/Straight Line $ 428,040 $ 87,830 $ 340,210 

IT Software 5 Years/Straight Line 284,301 134,873 149,428 

Total $ 712,341 $ 222,703 $ 489,638 

Note 6. Retirement Plans and Other Employee Benefits

CFTC imputes costs for its share of retirement systems accruing to its past and 

present employees, which are in excess of the amount of contributions from

CFTC and its employees, which are mandated by law. The Office of Personnel

Management (OPM), which administers federal civilian retirement programs, 

provides the cost information to CFTC. The CFTC recognizes the full cost of providing future pension and Other Retirement Benefits (ORB) for current employees as required by Statement of Federal Financial Accounting Standard (SFFAS)

No. 5, Accounting for Liabilities of the Federal Government. 

Full costs include pension and ORB contributions paid out of CFTC appropriations and costs financed by OPM. The amount financed by OPM is recognized as

an imputed financing source. Reporting amounts such as plan assets, accumulated plan benefits, or unfunded liabilities, if any, is the responsibility of OPM. 

Liabilities for future pension payments and other future payments for retired 

employees who participate in the Federal Employees Health Benefits Program 

and the Federal Employees Group Life Insurance Program are reported by OPM 

rather than CFTC. 

86 Financial Section—Notes to Financial Statements
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Note 7. Leases 

The agency has no real property. The CFTC leases office space in publicly owned 

buildings for all of its locations. The lease contracts for publicly owned buildings 

are operating leases. Future lease payments are not accrued as liabilities. They 

are expensed as incurred. Commitments for future lease payments (in thousands) are as follows: 

 Fiscal Year 

 2005 $ 10,595

 2006 11,279

 2007 11,374

 2008 11,752

 2009 12,040

 Thereafter 61,981

Total Future Minimum Lease Payments $ 119,021

Note 8. Commitments and Contingent Liabilities 

On November 24, 2003, The U.S. District Court held the CFTC liable for

$182,425 for violation of the Equal Access to Justice Act. The CFTC has filed an 

appeal in the U.S. District Court of Appeals. Although CFTC is vigorously defending this litigation, based on the initial court ruling, this amount has been recorded as a liability. It is also possible that the amount of the loss may increase

by approximately $40,000 to accommodate attorney fees at the appellate level. 

The amounts did not have a material effect on the financial position or results of

operations as reflected in the accompanying financial statements. 

Note 9. Detailed Information on Intragovernmental Amounts 

Intragovernmental assets and liabilities as of September 30, 2004, consisted of

the following:

Assets: 

Fund Balance with Treasury $ 26,304,227

Accounts Receivable:

Executive Office of the President (IMF) 22,806

Total Intragovernmental Assets $ 26,327,033

Department of Labor $ 194,102

Total Intragovernmental Liabilities $ 194,102

Financial Section—Notes to Financial Statements 87
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Independent Auditors’ Report 

88 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section—Independent Auditors’ Report 89
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

90 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section—Independent Auditors’ Report 91
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

92 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section—Independent Auditors’ Report 93
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

94 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section—Independent Auditors’ Report 95
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

96 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section—Independent Auditors’ Report 97
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

98 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Financial Section—Independent Auditors’ Report 99
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

100 Financial Section—Independent Auditors’ Report
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Appendices

Appendices

A Enforcement Litigation by Strategic Goal One 

B Enforcement Litigation by Strategic Goal Two

C Enforcement Litigation by Strategic Goal Three

D Acronyms

FY 2004 Performance and Accountability Report 

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Litigation by Strate

Strategic Goal One: Ensur

gic Goal One 

e the economic vitality of the comAppendixA

modity futures and option markets. 

Energy Markets. During FY 2004, the Commission filed a total of 12 enforcement actions resulting in $121 million in civil monetary penalties in this program

area: 

 In re CMS Marketing Services & Trading, et al., CFTC Docket No. 04-05

(CFTC filed Nov. 25, 2003) (settled; $16 million civil monetary penalty) 

 In re Reliant Energy Services, Inc., CFTC Docket No. 04-06 (CFTC filed 

Nov. 25, 2003) (settled; $18 million civil monetary penalty) 

 In re Aquila Merchant Services, Inc., CFTC Docket No. 04-08 (CFTC

filed Jan. 28, 2004) (settled; $26.5 million civil monetary penalty)

 In re Oneok Energy Marketing and Trading Co., L.P., et al., CFTC 

Docket No. 04-09 (CFTC filed Jan. 28, 2004) (settled; $3 million civil

monetary penalty) 

 In re Entergy-Koch Trading, LP, CFTC Docket No. 04-10 (CFTC Jan. 28, 

2004) (settled; $3 million civil monetary penalty)

 In re Calpine Energy Services, L.P., CFTC Docket No. 04-11 (CFTC filed 

Jan. 28, 2004) (settled; $1.5 million civil monetary penalty)

 In re e prime, Inc., CFTC Docket No. 04-12 (CFTC filed Jan. 8, 2004) (a 

wholly-owned subsidiary of Xcel Energy, Inc.; settled; $16 million civil

monetary penalty) 

 In re Knauth, CFTC Docket No. 04-15 (CFTC filed May 10, 2004) (settled; $25,000 civil monetary penalty)

 In re Western Gas Resources, Inc., CFTC Docket No. 04-17 (CFTC filed 

July 1, 2004) (settled; $7 million civil monetary penalty) 

 CFTC v. NRG Energy, Inc., No. 04-3090 (D.Minn. filed July 1, 2004) 

Appendix A—Litigation by Strategic Goal One 103
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 In re Coral Energy Resources, Inc., CFTC Docket No. 04-21 (CFTC filed 

July 28, 2004) (settled; $30 million civil monetary penalty)

 In re Byron G. Biggs, CFTC Docket No. 04-22 (August 11, 2004) 

***

104 Appendix A—Litigation by Strategic Goal One 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Litigation by Strategic Goal Two AppendixB

Strategic Goal Two: Protect market users and the public. 

Forex Cases. The Commission’s work in fighting fraud in FY 2004 continued in

the forex trading arena. The cases filed thus far during FY 2004 with respect to 

the offer and sale of illegal forex futures and option contracts to the general public include the following: 

 CFTC v. A.S. Templeton Group, Inc., NO. 03 4999 (E.D.N.Y. filed Oct. 1,

2003) 

 CFTC v. FX First, Inc., et al., No. SACV 03-1454-JVS(MLGx) (C.D.Cal.

Filed Oct. 6, 2003); 

 CFTC v. Bibas Levy Corp., et al., No. 03-22624 (S.D.Fla. Oct. 7, 2003)

 CFTC v. Rowell, CFTC Docket No. 04-02 (CFTC filed Oct. 15, 2003) 

 CFTC v. First Lexington Group, LLC, et al., No. 03 CV 9124 (S.D.N.Y.

Nov. 18, 2003) 

 CFTC v. Bursztyn, et al., No. 03 CV 9125 (S.D.N.Y. Nov. 18, 2003) 

 CFTC v. Walter, Scott, Lev & Associates, LLC, et al., No. 03 CV 9126

(S.D.N.Y. filed Nov. 18, 2003) 

 CFTC v. ISB Clearing Corp., et al., No. 03 CV 9127 (S.D.N.Y. filed Nov.

18, 2003) 

 CFTC v. Madison Deane & Associates, Inc., et al., No. 03 CV 9128 

(S.D.N.Y. filed Nov. 18, 2003) 

 CFTC v. Itradecurrency USA LLC, et al., No. 03 CV 9129 (S.D.N.Y. filed 

Nov. 18, 2003) 

 CFTC v. Emerald Worldwide Holding, Inc., et al., No. CV03-8339 

AHM(Ex) (C.D.Cal. filed Nov. 17, 2004) 

Appendix B—Litigation by Strategic Goal Two 105
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 In re Yost, et al., CFTC Docket No. 04-07 (CFTC filed Dec. 22, 2003) 

 CFTC v. Erskine, et al., No. 1:04oV0016 (N.D.Ohio field Jan. 6, 2004) 

 CFTC v. Clearview Capital Mgt., et al., NO. 04cv45(FSH) (D.N.J. filed

Jan. 8, 2004) 

 CFTC v. Gibraltar Monetary Corp., et al., No. 04-80132 (S.D.Fla. Filed

Feb. 10, 2004) 

 CFTC v. FxTrade Financial, LLC, et al., No. 04-2181-Dan (W.D.Tenn. 

Filed March 17, 2003) 

 CFTC v. E Net Speculation Ltd., et al., No. 3:04CV169-s (W.D.Ky. Field

March 19, 2004); 

 CFTC v. Calvary Currencies LLC, et al., NO. 8:04-CV-01021-DKC

(D.Md. Filed March 29, 2004) 

 CFTC v. Lexington Royce & Associates, No. 04 CV 02768 (S.D.N.Y. filed

April 12, 2004) 

 CFTC v. Axess Trade Co., Inc., No. 04 CV 4293 (S.D.N.Y. filed June 7,

2004) 

 CFTC v. Sterling Financial Group, Inc., No. 04-21346 CIV-LENARD

(S.D.Fla. filed June 7, 2004) 

 CFTC v. Next Financial Services Unlimited, Inc., et al., No. 04-80562 

CIV-RYSKAMP (S.D.Fla. June 21, 2004) 

 CFTC v. Global Atlantic Management, Inc., et al. ̧ No. 04-60797 CIVJORDAN (S.D.Fla. filed June 21, 2004) 

During FY 2004, the Commission also achieved the following significant litigation results in actions filed in this practice area during previous fiscal years: 

 CFTC v. Hawker, et al., No. 2:03 CV 0260 JTG Consent Order Of Permanent Injunction And Other Equitable Relief [Against Bryan Keith

Hawker and G, Hawker & Stone, LLC] (D.Utah entered Oct. 24, 2003)

(forex fraud case filed March 12, 2003; permanent injunction; restitution

and civil monetary penalty reserved for further proceedings) 

 CFTC v. Offshore Financial Consultants, Inc, et al., NO. 02-60769-CIVMORENO, Default Final Judgment (S.D.Fla. entered Nov. 10, 2003) 

106 Appendix B—Litigation by Strategic Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

(forex fraud case filed April 30, 2001; permanent injunction against Anthony Garcia and James Sexton; civil monetary penalties against Garcia

($360,000) and Sexton ($360,000))

 CFTC v. A.S. Templeton Group, Inc., NO. 03 4999, Order Of Permanent 

Injunction (E.D.N.Y. entered Nov. 24, 2003) (forex fraud case filed Oct.

1, 2003; permanent injunction (Michael Vitebsky and Boris Shuster)) 

 CFTC v. World Banks Foreign Currency Traders, Inc. et al., No. 01-

7402, Consent Order Of Permanent Injunction And Other Equitable Relief Against Defendants Frank Desantis, Christopher Boutche And Erin

Valko (S.D. Fla. entered Jan. 20, 2004)(forex fraud case filed August 23, 

2001; permanent injunction; $600,000 total restitution (DeSantis &

Boutchie $300,000 each))

 CFTC v. Elsesser, et al., No. 8:03-CV-681-T-23TBM Consent Order Of 

Permanent Injunction And Other Equitable Relief Against Defendant 

Keith Elsesser (M.D.Fla. entered Jan. 26, 2004) (forex fraud case filed

April 11, 2003; permanent injunction; $73,507 restitution; $120,000 civil 

monetary penalty) 

 CFTC v. Fintrex, Inc., et al., No. CV 01-06907 PA (CWx), Final Order Of 

Default Judgment Against Fintrex, Inc., And Arman Ovsepyan (C.D.Cal. 

entered Jan. 29, 2004) (forex fraud case filed August 9, 2001; permanent 

injunction; $1,320,283 (Fintrex), and $683,670 (Fintrex and Ovsepyan, 

jointly and severall) restitution; $4,007,906 (Fintrex) and $1,367,340

(Ovsepyan) civil monetary penalties; and pursuant to the court’s December 12, 2002 civil contempt order, Ovsepyan is further ordered to return

funds to Fintrex of $170,012 and make an accounting of disposition of 

other assets) 

 CFTC v. Bibas Levy Corp., et al., No. 03-22624, Final Default Judgment 

(S.D.Fla. entered April 16, 2004) (forex fraud case filed October 7, 2003; 

$351,686 restitution; $100,013 disgorgement; $120,000 civil monetary

penalty; monetary penalties to be paid jointly and severally by Bibas Levy

Corp., Zacarias Bibas, and Hassan Sharam) 

 CFTC v. Noble Wealth Data Information Services, Inc., et al., No. PJM 

98-3316, Settlement Order (D.Md. entered May 14, 2004) (forex fraud 

case filed October 1, 1998; permanent injunction against Esfand Baragosh; $5,264,251 restitution; $1,211,058 civil monetary penalty)

 CFTC v. Eurobancorp, et al., No. 03-767 SJO (JWJx) Orders Of Permanent Injunction And Other Equitable Relief Against Defendants Paris

DeLesseppes, and John Lassen (C.D.Cal. entered May 21 and 28, 2004) 

(forex fraud case filed February 3, 2003; permanent injunction;

$333,769 (Lassen) and $333,769 (DeLesseppes) restitution; $240,000 

(Lassen) and $240,000 (DeLesseppes) civil monetary penalties)

 CFTC v. International Financial Services (New York), Inc., et al., No. 02 

Civ. 5497 (GEL), Final Judgment [Against All Defendants] (S.D.N.Y. entered May 26, 2004) (forex fraud case filed July 17, 2002; permanent injunction; $25,428,840 (jointly and severally) restitution and disgorgement; and $76,286,520 (jointly and severally) civil monetary penalty) 

Appendix B—Litigation by Strategic Goal Two 107
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 CFTC v. O’Neill, et al., No. 02-61307-Civ-Gold, Order of Permanent Injunction and Supplemental Order Of Judgment On Restitution And Civil

Monetary Penalties Against [Donald O’Neill and Danielle O’Neill] (S.D.

Fla. entered Nov. 14, 2003 and June 15, 2004) (forex fraud case filed 

September 17, 2002; permanent injunction; $11,519,660 restitution;

$10,609,133 civil monetary penalty)

 CFTC v. Wheeler, et al., No. 6:03CV42, Consent Orders Of Disgorgement 

As To Relief Defendants Mendoza, Gary Wood, Michael Fagan, and Walter Cole (E.D.Tex. entered June 4, 15 and 16, 2004) (forex fraud case filed

January 30, 2003; ordered disgorgement of $50,000 (Mendoza),

$92,000 (Fagan), $318,170 (Cole), and $500,000 (Wood))

Commodity Pools, Hedge Funds And Commodity Pool Operators. During FY

2004, the Commission filed the following enforcement actions in this program 

area: 

 CFTC v. Marquis Financial Mgt. Systems, Inc., et al., No. 03-74206

(E.D.Mich. Filed Oct. 20, 2003) 

 CFTC v. Friedlander, et al., No. 03 CV 8319 (S.D.N.Y. filed Oct. 21, 2003)

 CFTC v. Boston Trading Advisors, LLC, et al., CFTC Docket No. 04-03 

(CFTC filed Oct. 27, 2003)

 CFTC, et al. v. Silberstein, No. 1:04-CV-666 (D.Md. Filed March 5, 

2004); CFTC v. Equity Financial Group LLC, et al., No. 04CV1512 

(D.N.J. filed April 1, 2004) 

 CFTC v. Weatherford, No. CV04-4079 SJO(CWz) (C.D.Cal. filed June 8,

2004) 

 CFTC v. Vanguard Financial Mgt. Assoc., et al., No. SAVC 04-575(GLT) 

(C.D.Cal. filed May 19, 2004) 

During FY 2004, the Commission also achieved the following significant litigation results in actions filed in this practice area during previous fiscal years: 

 CFTC v. Brockbank, et al., No. 2:00 CV 00622ST, Consent Order Of 

Permanent Injunction And Other Ancillary Relief Against Defendant 

Thomas E. Jones (D.Utah entered Oct. 30, 2003) (commodity pool fraud 

case filed August 8, 2003, amended January 16, 2003; permanent injunction; $74,000 restitution)

 CFTC v. Mady et al., No. 02-72364, Consent Order Of Permanent Injunction And Other Equitable Relief And A Civil Monetary Penalty

Against Defendant Charles G. Mady (E.D. Mich. entered Nov. 6, 2003)

(pool fraud case filed June 11, 2002; permanent injunction; undertaking 

to not seek registration and to not trade for 10 years; $8,220,860 restitu108 Appendix B—Litigation by Strategic Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

tion; $8,220,860 civil monetary penalty with dollar for dollar credit for

payment towards restitution) 

 CFTC v. Chilcott, et al., No. 2:02-cv-94-FtM-29SPC, Order [Against Ted 

E. Whidden] and Supplemental Consent Order Concerning Restitution

And Civil Monetary Penalty Against Defendants Thomas D. Chilcott And

Leona Westbrook (M.D.Fla. entered Dec. 16, 2003, and January 6, 2004) 

(commodity pool fraud case filed March 6, 2002; $2,279,521 restitution 

(joint and several by Whidden, Chilcott and Westbrook); civil monetary 

penalties of $1,320,000 (Chilcott) and $110,000 (Westbrook))

 CFTC v. Sovereign Resource Management, Inc., et al., No. 02-1783 Order Of Default Judgment For Permanent Injunction And Other Ancillary 

Relief Against Defendants Sovereign Resource Management, Inc., Ken 

Mitra and Virgil E. Smith (D. Minn. entered March 26, 2004) (commodity pool fraud case filed July 18, 2002; permanent injunction; $3,127,752 

restitution (joint and several); civil monetary penalties of $550,000 

(Sovereign), $660,000 (Mitra) and $440,000 (Smith))

Commodity Trading Advisors, Managed Accounts, And Trading Systems. The 

Commission filed the following enforcement actions in this program area during

FY 2004: 

 CFTC v. Matrix, CFTC Docket No. 04-01 (CFTC filed Oct. 2, 2003) 

 In re Harrison, CFTC Docket No. 04-04 (CFTC filed Nov. 18, 2003)

 CFTC v. Profit Partners, Inc., No. CV03-9190 (C.D.Cal. filed Dec. 16,

2003)

 In re Allen, CFTC Docket No. 04-14 (CFTC filed April 9, 2004) 

During FY 2004, the Commission also achieved the following significant litigation results in actions filed in this practice area during previous fiscal years: 

 CFTC v. Lee, et al., No. 4:02CV 01477 CAS, Consent Order Of Permanent 

Injunction And Other Equitable Relief And A Civil Monetary Penalty

Against Defendants Kenneth J. Lee And KJL Financial Group, Inc. (E.D.

Mo. ordered March 9, 2004) (managed accounts case filed September

30, 2002; permanent injunction; restitution $567,551 (joint and several);

$300,000 civil monetary penalty (Lee)); and 

 CFTC v. Goldman, No. 03-3265 JFW (RCx), Consent Order Of Permanent Injunction And Other Equitable Relief Against Defendant Oscar 

Goldman (C.D.Cal. entered April 1, 2004) (CTA fraud case filed May 9,

2003; permanent injunction; $95,500 disgorgement; $180,000 civil 

monetary penalty). 

Introducing Brokers And Their Associated Persons. During FY 2004, as in past 

years, the Commission devoted time and attention to matters involving violations 

by IBs and their APs. Such cases often involve fraudulent misrepresentations, 

Appendix B—Litigation by Strategic Goal Two 109
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

usually to retail customers, to induce them to invest. The Commission has filed

the following enforcement actions in this practice area during FY 2004: 

 CFTC v. Commercial Hedge Services, et al., No. 4:04CV3184 (D.Neb. 

filed May 5, 2004)

 CFTC v. First American Investment Services, Inc., No. 04-60744 CIVHURLEY (S.D.Fla. filed June 7, 2004) 

Futures Commission Merchants. During FY 2004, the Commission filed the following case in this enforcement program area: 

 CFTC v. Krysinksi, No. 03C 8571(N.D.Ill. Filed Nov. 26, 2003) 

Statutory Disqualifications. During FY 2004, the Commission filed the following

enforcement actions in this program area: 

 In re FX First, Inc., CFTC Docket No. SD 04-01 (CFTC filed Feb. 18, 

2004)

 In re VanPatten, CFTC Docket No. SD 04-02 (CFTC filed March 25, 

2004) 

 In re Anixter, CFTC Docket No. SD 04-03 (CFTC filed June 30, 2004) 

Quick Strike Cases. The Commission is committed to responding quickly to enforcement investigations that uncover ongoing fraud. Quick-strike cases are civil 

injunctive actions that generally are filed in Federal district courts within days or 

weeks of the discovery of the illegal activity, enabling the Commission to stop 

fraud at an early stage and to attempt to preserve customer funds. Thus far during FY 2004, the Commission filed the following ten quick-strike cases: 

 CFTC v. Bibas Levy Corp., et al., No. 03-22624 (S.D.Fla. Oct. 7, 2003) 

(forex fraud) 

 CFTC v. Krysinksi, No. 03C 8571(N.D.Ill. Filed Nov. 26, 2003) (FCM

fraud) 

 CFTC v. Profit Partners, Inc., No. CV03-9190 (C.D.Cal. filed Dec. 16,

2003) (commodity trading system fraud) 

 CFTC v. Silberstein, No. 1:04-CV-666 (D.Md. filed March 5, 2004) (CPO

fraud) 

 CFTC v. FxTrade Financial, LLC, et al., No. 04-2181-Dan (W.D.Tenn. 

filed March 17, 2003) (forex fraud) 

110 Appendix B—Litigation by Strategic Goal Two 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 CFTC v. Lexington Royce & Associates, No. 04 CV 02768 (S.D.N.Y. filed

April 12, 2004) (forex fraud) 

 CFTC v. Vanguard Financial Mgt. Assoc., et al., No. SAVC 04-575(GLT) 

(C.D.Cal. filed May 19, 2004) (CPO fraud) 

 CFTC v. Weatherford, No. CV04-4079 SJO(CWz) (C.D.Cal. filed June 8,

2004) (CPO fraud) 

 CFTC v. Next Financial Services Unlimited, Inc., et al., No. 04-80562 

CIV-RYSKAMP (S.D.Fla. June 21, 2004) (forex fraud) 

 In re Anixter, CFTC Docket No. SD 04-03 (CFTC filed June 30, 2004)

(statutory disqualification)

***

Appendix B—Litigation by Strategic Goal Two 111

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Litigation by Strategic Goal Three AppendixC

Strategic Goal Three: Ensure market integrity to foster open, competitive, and 

financially sound markets. 

Trade Practice. During FY 2004, the Commission filed the following enforcement actions in this program area: 

 CFTC v. Olam Int'l Ltd., CFTC Docket No. 04-13 (CFTC filed April 6,

2004)

 In re Barry Callebaut Sourcing AG, CFTC Docket No. 04-16 (CFTC filed 

May 13, 2004)

International Cooperative Enforcement. The Commission continues to coordinate enforcement activities with foreign authorities. During FY 2004 (October 1, 

2003 to July 13, 2004), the Commission made 93 requests for assistance to 45 

foreign authorities, and it received 23 requests from authorities in foreign jurisdictions. The number of requests made to and received from foreign authorities 

in FY 2004 have already exceeded the number of requests for the entire FY 2003. 

In particular this year, the Commission was successful in obtaining assistance,

including bank records, in several jurisdictions where we did not have prior cooperative relationships. 

The Enforcement Division also has devoted time and resources to matters involving allegations that persons or entities have committed fraud or other misconduct

in their cross-border activities. Such misconduct can adversely affect U.S. firms

as well as customers located in the U.S. and overseas. The Commission’s efforts

in this area during FY 2004 included the filing of the following enforcement actions: 

 CFTC v. A.S. Templeton Group, Inc., No. 03 4999 (E.D.N.Y. filed Oct. 1, 

2003) 

 CFTC v. FX First, Inc., et al., No. SACV 03-1454-JVS (MLGx) (C.D. Cal. 

filed Oct. 6, 2003) 

 CFTC v. Marquis Financial Mgt. Systems, Inc., et al., No. 03-74206

(E.D. Mich. filed Oct. 20, 2003) 

 CFTC v. Walter, Scott, Lev & Associates, LLC, et al., No. 03 CV 9126

(S.D.N.Y. filed Nov. 18, 2003) 

Appendix C—Litigation by Strategic Goal Three 113
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

 CFTC v. ISB Clearing Corp., et al., No. 03 CV 9127 (S.D.N.Y. filed Nov.

18, 2003) 

 CFTC v. Itradecurrency USA LLC, et al., No. 03 CV 9129 (S.D.N.Y. filed 

Nov. 18, 2003) 

 CFTC v. Emerald Worldwide Holding, Inc., et al., No. CV03-8339 AHM 

(ex) (C.D.Cal. filed Nov. 17, 2004) 

 CFTC v. Gibraltar Monetary Corp., et al. No. 04-80132 (S.D.Fla. filed 

Feb. 10, 2004)

 CFTC v. Silberstein, No. 1:04-CV-666 (D.Md. filed March 5, 2004) 

 CFTC v. E Net Speculation ltd., et al., No. 3:04 CV 169-s (W.D.Ky. filed

March 17, 2004) 

 CFTC v. Calvary Currencies LLC, et al., No. 8:04-CV-01021-DKC (D.Md. 

filed March 29, 2004) 

 CFTC v.Equity Financial Group LLC, et al., No. 04CV1512 (D.N.J. filed

April 1, 2004)

 CFTC v. Lexington Royce & Associates, No. 04 CV 02768 (S.D.N.Y. filed 

April 12, 2004) 

 CFTC v. Axess Trade Co., Inc., No. 04 CV 4293 (S.D.N.Y. filed June 7,

2004)

 CFTC v. Sterling Trading Group, Inc., No. 04-21346 CIV-Lenard 

(S.D.Fla. filed June 7, 2004) 

*** 

114 Appendix C—Litigation by Strategic Goal Three 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

Table of Acronyms 

ALJ

AML Anti-Mo

Administrative La

ney Launderi

w Jud

ng 

ge 

Appendix D

AP Associated Person 

AWB Australian Wheat Board 

BSE Bovine Spongiform Encephalopathy 

CEA Commodity Exchange Act

CFTC Commodity Futures Trading Commission

CFMA Commodity Futures Modernization Act of 2000 

COSRA Council of Securities Regulators of the Americas 

CPO Commodity Pool Operator 

CSCE Coffee Sugar and Cocoa Exchange 

CSRS Civil Service Retirement System 

CTA Commodity Trading Advisor

DART Designation and Rule Tracking 

DCO Derivatives Clearing Organizations 

DMO Division of Market Oversight (CFTC) 

DOI-NBC Department of Interior’s National Business Center

DOL Department of Labor

DOJ Department of Justice 

DTEF Derivatives Transaction Execution Facility 

eTS eTravel Service 

FB Floor Broker 

FBI Federal Bureau of Investigation 

FCM Futures Commission Merchant 

FERS Federal Employees Retirement System

FIRREA Financial Institutions Reform, Recovery, and Enforcement Act of 1989

FMFIA Federal Managers’ Financial Integrity Act

FOIA Freedom of Information Act

FOREX Foreign Currency 

FSA U.K. Financial Service Authority 

FTE Full-time Equivalent 

FY Fiscal Year 

GAAP Generally Accepted Accounting Principles 

HTA Hedge To Arrive 

IA Investment Advisor 

IB Introducing Broker

IFSRA Irish Financial Services Regulatory Authority 

ISS Integrated Surveillance System

IOSCO International Organization of Securities Commissions

IRS Internal Revenue Service

JO Judgment Officer 

MASC Management Accounting Code Structure 

MDA Management’s Discussion and Analysis 

MGE Minneapolis Grain Exchange 

MOU Memorandum/Memoranda of Understanding 

Appendix D—Table of Acronyms 115 
FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT

MMOU Multilateral Memorandum of Understanding 

NFA National Futures Association 

NFC National Finance Center 

NYMEX New York Mercantile Exchange

OCE Office of the Chief Economist (CFTC) 

OFM Office of Financial Management (CFTC) 

OGC Office of the General Counsel

OHR Office of Human Resources (CFTC) 

OIA Office of International Affairs (CFTC) 

OIRM Office of Information Resources Management (CFTC)

OMB Office of Management and Budget

OPM Office of Personnel Management

ORB Other Retirement Benefits

RWG Registration Working Group 

SC4 Standing Committee 4 on Enforcement and Information-Sharing

SC5 Standing Committee 5 on Investment Management

SEC Securities and Exchange Commission 

SFE Sydney Futures Exchange 

SFP Security Futures Products 

SHIMS Safety and Health Information Management System

SOI Statement of Intent 

SPARK Stress Positions at Risk 

SRO Self-Regulatory Organization 

USA PATRIOT Uniting and Strengthening America by Providing Appropriate 

Tools Required to Intercept and Obstruct Terrorism 

UK United Kingdom 

116 Appendix D—Table of Acronyms