UNITED STATES

DETAILED ASSESSMENT OF IMPLEMENTATION

SELF-ASSESSMENT BY THE STAFF OF THE

U.S. COMMODITY FUTURES TRADING COMMISSION

IOSCO OBJECTIVES AND PRINCIPLES OF SECURITIES 

REGULATION

This self-assessment has been prepared by the Staff of the CFTC solely for purposes of 

the IMF’s 2015 Financial Sector Assessment Program (FSAP) of the United States and 

should not be considered outside the FSAP context. The responses contained herein are 

not rules, regulations, or statements of the Commission. Further the CFTC has neither 

approved nor disapproved these responses. Accordingly, any statements or responses 

contained herein are not binding and should not be deemed to constitute interpretative 

advice by the Staff of the CFTC or be used or relied upon for legal purposes.

July 31, 2014

(revised 14 Oct 2014)
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

2 INTERNATIONAL MONETARY FUND 

CONTENTS

INTRODUCTION...................................................................................................................................................................... 3

ADDITIONAL GUIDANCE..................................................................................................................................................... 4

SUMMARY GRADINGS...................................................................................................................................................... 10

LIST OF ABBREVIATIONS.................................................................................................................................................. 14

PREAMBLE.............................................................................................................................................................................. 17

DETAILED SELF-ASSESSMENT QUESTIONNAIRE.................................................................................................... 18

ANNEX.................................................................................................................................................................................... 331

TABLES

1A. Summary of IOSCO Objectives and Principles of Securities Regulation ........................................... 10
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 3

INTRODUCTION

Jurisdiction: United States

Authority: U.S. Commodity Futures Trading Commission

Date prepared: July 31, 2014

Contact name: Sarah Josephson

Title: Director, Office of International Affairs

Email address: sjosephson@cftc.gov

1. This self-assessment questionnaire has been prepared in reference to the Methodology to 

assess the implementation of the IOSCO Objectives and Principles of Securities Regulation approved 

by IOSCO 

2. Section II provides important guidance that should be taken into account when preparing 

the responses to the self-assessment questionnaire that is particularly important for the IMF to 

initiate the assessment of the efficiency of supervision. Please pay particular attention to the fact 

that the scope of the IOSCO assessment extends beyond the primary securities regulator, if other 

authorities are responsible for regulating, supervising and/or enforcing any elements covered by the 

Principles. 

3. As described in the following sections, the authorities are requested to provide (i) brief 

information on preconditions (section III); (ii) a summary of grades (section IV); and (iii) detailed 

answers to the self assessment questionnaire (section V). 

4. Deadline for providing the fully completed self-assessment to the IMF is July, 31, 2014. 

Questions on this document should be referred to IMF Assessors: Malcolm Rodgers, Ana Carvajal, 

and Eija Holttinen.

5. In your answers to the questions, please describe the content of your regulatory, supervisory 

and enforcement framework in detail and include precise references to the relevant laws, regulations 

and guidelines. Please also provide us with links to/PDF copies of them. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

4 INTERNATIONAL MONETARY FUND 

ADDITIONAL GUIDANCE

A. Additional Guidance for the Preparation of the Self-Assessment on 

the IOSCO Principles and Objectives of Securities Regulation

The self-assessment constitutes a critical input in the assessment process. It provides the authorities’

own evaluation of the extent to which the jurisdiction is compliant with the IOSCO Objectives and 

Principles of Securities Regulation. A recurrent challenge for missions has been the fact that 

authorities do not always include sufficient information to allow assessors to determine whether the 

legal and regulatory framework described in the corresponding principle has been implemented in 

practice. As a result, assessors usually need to request additional information from the authorities 

under very tight timetable. The table below lists the most frequent cases where additional 

information has been requested in the past, so that the authorities can take it into consideration 

when preparing the self-assessment. The provision of this information should help achieve more 

effective and efficient meetings during the mission. 

Number of the 

Principle and Question 

Useful information to include in the self-assessment, under the 

response to the corresponding Principle/Question

1, Question 2.(a)  Please ensure that your description identifies any possible 

division of responsibilities in the regulation and supervision of 

securities markets, activities and participants on the basis of 

the type of security, market participant (e.g. bank vs. securities 

dealer/broker) between the various statutory and selfregulatory authorities. Please note that the IOSCO assessment 

covers also banks’ securities activities, and if more than one 

authority is responsible for the supervision of such activities, 

the discussion of Principles 1-5 should cover all those 

authorities. In such case, you are also expected to include 

information on the responsibilities and activities of all those 

authorities in all relevant Principles (particularly 10-12 and 29-

32). 

1, Question 2(b)  Do other types of financial institutions offer securities like 

products (such as CIS-like insurance products or deposit 

instruments that mimic CISs/return based on market 

performance, etc.)?

 If so, how are these other products regulated with respect to 

disclosure, suitability for the client, etc.?

 Is the regulation that is applied equivalent to that which 

applies to equivalent securities products?

1, Question 2.(d)  Reference to any MoUs between the domestic authorities and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 5

the areas that they cover. If possible include copies. 

 Reference to any committees between the domestic 

authorities, with indication of frequency of meetings, and 

types of issues discussed in the past.

3, Question 2  Information on the budget development of the relevant 

regulatory authorities, including source(s) of funding (for the 

last three years and any budgets or estimates available for the 

upcoming years). 

3, Question 3  Information on number of staff dedicated to securities markets 

regulation and supervision, if possible with a break down by 

main functions (licensing, supervision of intermediaries, 

market surveillance, enforcement), as well as by profession. 

 Information on average years of experience of staff at different 

levels of the organization, staff turnover, and competitiveness 

of the salaries vis-à-vis private sector

5, Question 2 a)  Details on the mechanisms in place to oversee that the staff 

complies with the Code of Conduct or other relevant ethical

obligations.

7, Question 1  What information does the regulator have about securities

activities in the jurisdiction, including about activities that are 

not subject to regulation?

 Is this information complete, up to date and accurate?

 What kind of analysis/review is done on this information?

9, Question 3 c)  Details on the SRO's supervision of its members, including onand off-site examinations and enforcement activities over the 

past 3-5 years (same kind of information as listed under Pr. 12, 

Questions 1 and 9 below)

9, Question 4 a)  Detailed information on the regulator’s oversight program in

all entities that qualify as SROs as per Principle 9, including 

both off-site reporting and on-site inspections. With regards 

to the latter, include information on the cycle of inspections

and their scope/coverage.

12, Question 1 for issues 

related to supervision 

and question 9 for issues 

related to enforcement

 For both supervision and enforcement, include the 

quantitative information listed below for the last three years 

(the authorities are encouraged to provide a longer set of 

data, e.g., five years). If supervision and enforcement are (also) 

carried out by the exchanges or a SRO, please provide the 

corresponding information also on their activities.

For supervision of market intermediaries and fund managers:

 For periodic inspections: number of inspections carried out, 

with a break down by type of firm, and by type of inspection 

(due to regular program, and due to complaint/cause). It is 

important that information be included on the criteria used to 

select firms, and on the frequency and scope of inspections

 Thematic inspections (i.e. inspections focusing on a particular 

theme across a larger group of supervised entities): number 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

6 INTERNATIONAL MONETARY FUND 

and themes and how many firms were covered in each 

thematic inspection. It is important that information be 

included on the way the themes are selected.

For administrative/civil enforcement:

 Number of investigations opened on an annual basis and

number of investigations finalized on an annual basis, if 

possible with a break down by type of misconduct 

 Number of sanctions imposed on an annual basis, if possible 

with a break down by type of sanctions, type of participant, 

and type of misconduct.

For criminal enforcement

 Number of cases referred to the criminal authorities on an 

annual basis, if possible with a break down by type of criminal 

offense.

 Number of sanctions imposed on an annual basis, if possible 

with a break down by type of criminal offense.

14, Questions 5, 6 and 9 

and Principle 15,

Questions 1 to 7

 Number of MoUs with foreign authorities and the areas that 

they cover. 

 Information on number of requests for assistance received 

from foreign regulators in the last three years (per type of 

request if possible), and average time that it takes to process 

them.

 If requests for information have been refused, how many 

refusals there have been and what reasons were given for 

refusal.

16, Questions 1 and 2  If there are initial offerings that are exempt from public 

disclosure requirements, describe the types of exemptions 

available, e.g. by type of transaction, securities or investor.

 If there are any offerings that are required to have initial 

disclosure documents but thereafter are exempt from 

continuous disclosure requirements – either immediately or 

after a period of time, please describe them (e.g. only held by 

a small number of investors or not listed on an exchange).

 If there are special disclosure regimes for particular types of 

securities (such as asset-backed securities, structured 

products, ETFs), describe how these rules differ from the 

general requirements. 

 What disclosure requirements apply to standardized 

exchange-traded instruments (e.g. options, futures)

16, Questions 5, 6 and 9  Information on the system to review prospectuses, for 

example whether all prospectuses are reviewed or just a 

sample, and if only a sample, what the criteria are to select the 

prospectuses that will be reviewed. Similar type of information 

should be provided for the review of periodic reports and 

material event disclosures. If such review is carried out by the 

exchanges or a SRO, please provide the corresponding 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 7

information based on what the exchanges or SRO do.

 Information on the number of prospectuses and listing 

documents filed with the regulator (or exchange or a SRO) for 

the last three years.

 Number of sanctions imposed on issuers and others involved 

in the issuing process during the last three years, if possible 

with a break down by type of misconduct. 

 Information on the number of public offerings or listings by 

foreign issuers within the jurisdiction for the last three years. 

19, Questions 1, 4, 6 and 

7 and Principle 20, 

Question 7

 Information on any oversight program in place for auditors, 

with indication of whether on-site inspections are carried out 

on a periodic basis, or only for cause. If on a periodic basis, 

include information on the criteria used to select the auditors 

to be inspected, as well as inspection cycles.

 Information on sanctions imposed on auditors, if possible for 

the last three years.

21, Question 4  Information on the system to review financial statements, for 

example whether all financial statements are reviewed or just a 

selection of them, and if the latter, include information on the 

criteria. If such review is carried out by the exchanges or a 

SRO, please provide the corresponding information based on 

what the exchanges or SRO do.

22, Question 2  Number of inspections carried out in CRAs (if applicable), by 

type of inspection (due to regular program, and due to 

complaint/cause). It is important that information be included 

on the criteria used to select firms, frequency and scope of 

inspections. 

24, Question 1 a)  Describe the regulation of CIS only sold to sophisticated 

investors (non-retail or wholesale funds) and how it differs

from the regulation of retail funds.

24, Question 1 b)  Cover in your response all entities involved in the operation of 

a CIS, including the fund management company, asset 

manager, fund administrator, custodian etc.

24, Questions 8 and 9  For the periodic inspection plan of CIS operators, custodians

and CIS: number of inspections carried out, with a break down 

by type of firm, and by type of inspection (due to regular 

program, and due to complaint/cause). It is important that 

information be included on the criteria used to select firms

and on the frequency and scope of inspections.

 Thematic inspections: number and themes. It is important that 

information be included on the way the themes are selected.

 Number of sanctions imposed on fund managers during the 

last three years, if possible with a break down by type of 

misconduct

26, Questions 6, 7 and 9  Information on the system, if any, to review the CIS offering 

documents, for example whether all offering documents are 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

8 INTERNATIONAL MONETARY FUND 

reviewed or just a sample, and if only a sample, what the 

criteria are to select the documents that will be reviewed. 

Similar type of information should be provided for the review 

of periodic reports and other disclosure documents. If such 

review is carried out by the exchanges or a SRO, please 

provide the corresponding information based on what the 

exchanges or SRO do.

 Information on the number of offering documents filed with 

the regulator in the last three years.

 Number of sanctions imposed on CIS operators and others 

involved in the preparation of CIS disclosure documents or 

advertisements, if possible with a break down by type of 

misconduct. 

28, Question 1  Does the jurisdiction have a definition of hedge fund? If so, 

please provide it.

28, Question 8  Number of inspections carried out in hedge fund managers/ 

advisers and/ or hedge funds (if applicable), by type of 

inspection (due to regular program, and due to 

complaint/cause). It is important that information be included 

on the criteria used to select firms and on the frequency and 

scope of inspections.

31, Question 19  For the periodic inspection plan of intermediaries: number of 

inspections carried out, with a break down by type of 

intermediary, and by type of inspection (due to regular 

program, and due to complaint/cause. It is important that 

information be included on the criteria used to select firms

and on the frequency and scope of inspections.

 Thematic inspections: number and themes. It is important that 

information be included on the way the themes are selected.

 Number of sanctions imposed on market intermediaries

during the last three years, if possible with a break down by 

type of misconduct.

32, Question 3 d)  Is there a compensation fund for investors or a 

settlement/default fund at a clearing house?

 What losses are covered?

 Who is covered?

32, Question 4  If applicable, concrete examples of how the regulator has dealt 

with a failure of a market intermediary.

34, Question 1  Information on the oversight of exchanges and trading 

platforms, including both off site reporting and on-site 

inspections. For the latter, please include information on the 

frequency and scope of inspections.

36, Questions 2 and 3  Information on administrative/ civil sanctions imposed during 

the last three years on major misconducts, such as market 

manipulation and insider trading.

 Information on criminal sanctions imposed for major offenses, 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 9

such as insider trading and market manipulation. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

10 INTERNATIONAL MONETARY FUND 

SUMMARY GRADINGS

Grading Number of Principles

Fully Implemented (FI) 32

Broadly implemented (BI) 1

Partly implemented (PI)

Not Implemented (NI)

Not applicable (NA) 5

Total 38

Table 1: Summary of IOSCO Objectives and Principles of Securities Regulation Grade

Principle 1 - The responsibilities of the Regulator should be clear and objectively stated FI

Principle 2

-

The Regulator should be operationally independent and accountable in the 

exercise of its powers and functions FI

Principle 3

-

The Regulator should have adequate powers, proper resources and the 

capacity to perform its functions and exercise its powers. FI

Principle 4 - The Regulator should adopt clear and consistent regulatory processes FI

Principle 5

-

The staff of the Regulator should observe the highest professional 

standards including appropriate standards of confidentiality FI

Principle 6

-

The Regulator should have or contribute to a process to monitor, mitigate 

and manage systemic risk, appropriate to its mandate FI

Principle 7

-

The Regulator should have or contribute to a process to review the 

perimeter of regulation regularly. FI

Principle 8

-

The Regulator should seek to ensure that conflicts of interest and 

misalignment of incentives are avoided, eliminated, disclosed or otherwise 

managed. FI

Principle 9

-

Where the regulatory system makes use of Self-Regulatory Organizations 

(SROs) that exercise some direct oversight responsibility for their respective 

areas of competence, such SROs should be subject to the oversight of the 

Regulator and should observe standards of fairness and confidentiality FI
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 11

Table 1: Summary of IOSCO Objectives and Principles of Securities Regulation Grade

when exercising powers and delegated responsibilities.

Principle 10

-

The Regulator should have comprehensive inspection, investigation and 

surveillance powers. FI

Principle 11 - The Regulator should have comprehensive enforcement powers. FI

Principle 12

-

The regulatory system should ensure an effective and credible use of 

inspection, investigation, surveillance and enforcement powers and 

implementation of an effective compliance program. FI

Principle 13

-

Regulator should have the authority to share both public and non-public 

information with domestic and foreign counterparts. FI

Principle 14

-

Regulators should establish information sharing mechanisms that set out 

when and how they will share both public and non-public information with 

their domestic and foreign counterparts FI

Principle 15

-

The regulatory system should allow for assistance to be provided to foreign 

Regulators who need to make inquiries in the discharge of their functions 

and exercise of their powers. FI

Principle 16

-

There should be full, accurate and timely disclosure of financial results, risk 

and other information which is material to investors’ decisions. N/A

Principle 17

-

Holders of securities in a company should be treated in a fair and equitable 

manner. N/A

Principle 18

-

Accounting standards used by issuers to prepare financial statements 

should be of a high and internationally acceptable quality. N/A

Principle 19 - Auditors should be subject to adequate levels of oversight. FI

Principle 20 - Auditors should be independent of the issuing entity that they audit FI

Principle 21

- Audit standards should be of a high and internationally acceptable quality FI
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

12 INTERNATIONAL MONETARY FUND 

Table 1: Summary of IOSCO Objectives and Principles of Securities Regulation Grade

Principle 22

-

Credit rating agencies should be subject to adequate levels of oversight. 

The regulatory system should ensure that credit rating agencies whose 

ratings are used for regulatory purposes are subject to registration and 

ongoing supervision. N/A

Principle 23

-

Other entities that offer investors analytical or evaluative services should be 

subject to oversight and regulation appropriate to the impact their activities 

have on the market or the degree to which the regulatory system relies on 

them. FI

Principle 24

-

The regulatory system should set standards for the eligibility, governance, 

organization and operational conduct of those who wish to market or 

operate a collective investment scheme. FI

Principle 25

-

The regulatory system should provide for rules governing the legal form 

and structure of CIS and the segregation and protection of client assets. FI

Principle 26

-

Regulation should require disclosure, as set forth under the principles for 

issuers, which is necessary to evaluate the suitability of a CIS for a particular 

investor and the value of the investor’s interest in the CIS. FI

Principle 27

-

Regulation should ensure that there is a proper and disclosed basis for 

asset valuation and the pricing and the redemption of units/shares in a CIS. FI

Principle 28

-

Regulation should ensure that hedge funds and/or hedge funds 

managers/advisers are subject to appropriate oversight. FI

Principle 29

-

Regulation should provide for minimum entry standards for market 

intermediaries. FI

Principle 30

-

There should be initial and ongoing capital and other prudential 

requirements for market intermediaries that reflect the risks that the 

intermediaries undertake. BI

Principle 31

-

Market intermediaries should be required to establish an internal function 

that delivers compliance with standards for internal organization and 

operational conduct, with the aim of protecting the interests of clients and 

their assets and ensuring proper management of risk, through which 

management of the intermediary accepts primary responsibility for these 

matters. FI
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 13

Table 1: Summary of IOSCO Objectives and Principles of Securities Regulation Grade

Principle 32

-

There should be a procedure for dealing with the failure of a market 

intermediary in order to minimize damage and loss to investors and to 

contain systemic risk. FI

Principle 33

-

The establishment of trading systems including securities exchanges should 

be subject to regulatory authorization and oversight. FI

Principle 34

-

There should be ongoing regulatory supervision of exchanges and trading 

systems, which should aim to ensure that the integrity of trading is 

maintained through fair and equitable rules that strike an appropriate 

balance between the demands of different market participants. FI

Principle 35 - Regulation should promote transparency of trading. FI

Principle 36

-

Regulation should be designed to detect and deter manipulation and other 

unfair trading practices FI

Principle 37

-

Regulation should aim to ensure the proper management of large 

exposures, default risk and market disruption FI

Principle 38 Securities settlement systems and central counterparties should be subject 

to regulatory and supervisory requirements that are designed to ensure that 

they are fair, effective and efficient and that they reduce systemic risk.

Not to 

be 

assessed.

Aggregate Level: Implemented (FI), Broadly Implemented (BI), Partially Implemented (PI), NonImplemented (NI), Not applicable (N/A).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

14 INTERNATIONAL MONETARY FUND 

LIST OF ABBREVIATIONS

U.S. Federal Law

APA Administrative Procedure Act

Bank Secrecy Act Currency and Foreign Transactions Reporting Act of 1970

CEA Commodity Exchange Act

CFMA Commodity Futures Modernization Act of 2000

CRARA Congressional Review of Agency Rulemaking Act

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act

FOIA Freedom of Information Act

PRA Paperwork Reduction Act

RFPA Right to Financial Privacy Act

Securities Act Securities Act of 1933

Securities Exchange Act Securities Exchange Act of 1934

Sunshine Act Government in the Sunshine Act

1974 Act CFTC Act of 1974

CFTC Divisions and Offices

DCR Division of Clearing and Risk

DMO Division of Market Oversight

DOE Division of Enforcement

DSIO Division of Swap Dealer and Intermediary Oversight

OCE Office of the Chief Economist

OGC Office of the General Counsel

OIA Office of International Affairs

OIG Office of the Inspector General

U.S. Federal Departments and Agencies

CFTC or Commission Commodity Futures Trading Commission

DOJ Department of Justice

EPA Environmental Protection Agency

FERC Federal Energy Regulatory Commission

Federal Reserve Board of Governors of the Federal Reserve System

FDIC Federal Deposit Insurance Corporation

FHFA Federal Housing Finance Agency

FSOC Financial Stability Oversight Council

FTC Federal Trade Commission

GAO Government Accountability Office

NCUA National Credit Union Administration

OCC Office of the Comptroller of the Currency
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 15

OMB Office of Management and Budget

SEC Securities and Exchange Commission

Treasury Department Department of the Treasury

USDA Department of Agriculture

Other Abbreviations

AICPA American Institute of Certified Public Accountants

AML Anti-Money Laundering

CDS Credit Default Swaps

CME Chicago Mercantile Exchange

CPO Commodity Pool Operator

CTA Commodity Trading Advisor

DCM Designated Contract Market

DCO Derivatives Clearing Organization

DSRO Designated Self-regulatory Organization

ECP Eligible Contract Participant

ETF Exchange Traded Fund

FASB Financial Accounting Standards Board

FATF Financial Action Task Force

FCM Futures Commission Merchant

FBOT Foreign Board of Trade

FinCEN Financial Crimes Enforcement Network

FINRA Financial Industry Regulatory Authority 

GAAS Generally Acceptable Accounting Standards

IB Introducing Broker

ICC ICE Clear Credit

ICE Intercontinental Exchange

IOSCO International Organization of Securities Commissions

IOSCO MMOU IOSCO Multilateral Memorandum of Understanding

MSP Major Swap Participant

MLWG Money Laundering Working Group

MOU Memorandum of Understanding

NFA National Futures Association

OFR Office of Financial Research

OTC Over-the-counter

PCAOB Public Company Accounting Oversight Board

RER Rule Enforcement Review

RFA Registered Futures Association

SD Swap Dealer

SDR Swap Data Repository

SEF Swap Execution Facility

SIDCO Systemically Important Derivatives Clearing Organization
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

16 INTERNATIONAL MONETARY FUND 

SRO Self-regulatory Organization

Staff Staff of the CFTC
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 17

PREAMBLE

The CFTC is providing this self-assessment as part of the assessment of the United States being 

conducted by the International Monetary Fund (“IMF”) as part of its Financial Sector Assessment 

Program (“FSAP”). One key component of the FSAP is an evaluation of the policies, practices, laws, 

and regulations administered by the CFTC against the IOSCO Core Principles of Securities 

Regulation (“IOSCO Principles”). 

In preparation for the IMF’s assessment, CFTC Staff prepared a self-assessment as of June 1, 1014, of 

the Commission’s compliance with the IOSCO Principles, based upon the IOSCO assessment 

methodology. This document sets forth CFTC Staff’s responses to key questions contained in the 

methodology, and is being provided by the CFTC to the IMF to facilitate review of the CFTC’s 

compliance with the IOSCO Principles.

This self-assessment has been prepared by the Staff of the CFTC solely for purposes of the IMF’s 

2015 FSAP of the United States and should not be considered outside the FSAP context. The 

responses contained herein are not rules, regulations, or statements of the Commission. Further the 

CFTC has neither approved nor disapproved these responses. Accordingly, any statements or 

responses contained herein are not binding and should not be deemed to constitute interpretative 

advice by the Staff of the CFTC or be used or relied upon for legal purposes. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

18 INTERNATIONAL MONETARY FUND 

DETAILED SELF-ASSESSMENT QUESTIONNAIRE

The following questions have been developed by IOSCO as a tool to assess the level of 

implementation of the IOSCO Objectives and Principles of Securities Regulation. To answer them, 

the authorities should have as a reference the preamble, scope and explanatory notes included in 

the IOSCO Methodology, in connection with each Principle.

PRINCIPLES RELATING TO THE REGULATOR (1-8)

Principle 1 The responsibilities of the Regulator should be clear and objectively stated

Key Questions

1. Are the regulator’s responsibilities, powers and authority:

(a) Clearly defined and transparently set out, preferably by law, and in the case 

of powers and authority, enforceable? 

Yes. The Commodity Futures Trading Commission (“CFTC” or “Commission”) is an 

independent five-member Federal agency established in 1974 pursuant to the 

Commodity Exchange Act (“CEA”).

1

 The responsibilities, powers and authority of the 

CFTC are clearly defined and transparently set forth in the CEA and CFTC regulations 

promulgated thereunder.2 In particular, the jurisdiction of the CFTC is established under 

Section 2(a) of the CEA while the powers of the CFTC are set forth in Section 8a of the 

CEA. 

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

manipulation, other abusive practices, and systemic risk related to derivatives, which are 

subject to the CEA and to foster open, transparent, competitive and financially sound 

markets.

The Commission was directed by the U.S. Congress (“Congress”) to police the derivatives 

markets, which includes futures, options and swaps contracts related to underlying 

commodities. These markets are critical to the efficient functioning of the global 

financial system and the economies it supports. The CEA vests the CFTC with exclusive 

jurisdiction over futures and commodity option transactions.3 Subject to certain 

 

1

Section 2(a)(2)(A) of the CEA.

2

See 7 U.S.C. 1, et seq., and 17 C.F.R. 1, et seq. The CEA and CFTC regulations can be found on the Commission’s 

website at: http://www.cftc.gov/LawRegulation/index.htm.

3

Section 2(a)(1)(A) of the CEA grants the CFTC exclusive jurisdiction with respect to “accounts, agreements (including 

any transaction which is of the character of . . . an “option” . . . ) and “transactions involving swaps or contracts of sale

of a commodity for future delivery (including significant price discovery contracts), traded or executed on a contract 

market designated pursuant to section 5 or a swap execution facility pursuant to section 5h or any other board of 

trade, exchange, or market, and transactions subject to regulation by the Commission pursuant to section 19 of this 

title.” Section 1a(9) of the CEA defines the term “commodity” to mean wheat, cotton, rice, corn, oats, barley, rye, 

flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and oils 

(including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, 

cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice, 

(continued)
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 19

exceptions, and to the CFTC’s authority to exempt certain transactions or categories of 

transactions from most provisions of the CEA, all transactions in commodity futures 

contracts and all commodity option transactions are required to occur on or subject to 

the rules of designated contract markets (“DCMs”). 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)4

amended the CEA to establish a comprehensive statutory framework to reduce risk,

increase transparency, and promote market integrity within the financial system by, 

among other things: (1) providing for the registration and comprehensive regulation of 

swap dealers (“SDs”) and major swap participants (“MSPs”); (2) imposing clearing and 

trade execution requirements on standardized derivative products; (3) creating rigorous

recordkeeping and real-time reporting regimes; and (4) enhancing the Commission’s 

rulemaking and enforcement authorities with respect to all registered entities, 

intermediaries and others subject to the Commission’s oversight. 

Security Futures. Section 2(a)(1)(D) of the CEA, and related securities laws, allocate 

jurisdiction over certain derivative products between the CFTC and the Securities and 

Exchange Commission (“SEC”). The SEC has authority to regulate options on securities, 

on groups and indices of securities, on certificates of deposit and on foreign currencies 

when traded on a national securities exchange.5 The CFTC has exclusive jurisdiction over 

futures trading on government securities, foreign currency,

6

on certain non-narrowbased groups or indices of securities,7

and over options on such futures.8 In addition, 

security futures products—futures on individual stocks and narrow-based securities 

indexes—are subject to the joint jurisdiction of the CFTC and SEC.9 Security futures 

products may be traded on any designated contract market (“DCM”) that also is notice 

registered with the SEC as a national securities exchange.10 Security futures products 

 

and all other goods and articles, except onions (as provided by the first section of Public Law 85-839 (7 U.S.C. 13–1)) 

and motion picture box office receipts (or any index, measure, value, or data related to such receipts), and all 

services, rights, and interests(except motion picture box office receipts, or any index, measure, value or data related 

to such receipts) in which contracts for future delivery are presently or in the future dealt in. Swaps are defined in 

Section 1(a)(47) of the CEA and further defined by Commission regulation 1.3(xxx). The CEA specifically excepts from 

the CFTC’s exclusive jurisdiction security futures products and the setting of margin levels for stock index futures 

contracts. 

4

Public Law 111–203, 124 Stat. 1376 (2010).

5

Section 4c(f) of the CEA provides that the CEA is inapplicable “to any transaction in an option on foreign currency 

traded on a national securities exchange.”

6

CEA Sections 2(c)(1) and 2(c)(2)(A).

7

CEA Section 2(a)(1)(c)(ii).

8

Id.

9

See Title II of the Commodity Futures Modernization Act (“CFMA”), Public Law 106-554 (Dec. 21, 2000).

10 See SEC, Securities Exchange Act Release No. 44692 (August 13, 2001), 66 FR 43721 (Aug. 20, 2001).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

20 INTERNATIONAL MONETARY FUND 

may also be traded on any SEC-registered national securities exchange, national 

securities association, or alternative trading system that is notice designated as a DCM by 

the CFTC.11 

Agricultural Swaps. The Dodd-Frank Act removed or revised the bilateral swaps 

exemptions added by the Commodity Futures Modernization Act of 2000 (“CFMA”)12 by 

giving the Commission jurisdiction over swaps. CEA Section 2(d). The Dodd-Frank Act 

also included a general prohibition on any swap in an agricultural commodity unless 

permitted under the Commission’s Section 4(c) exemptive authority. The Commission 

issued such a rule under its Section 4(c) exemptive authority in August 2011 permitting 

the transaction of swaps in an agricultural commodity (or, “agricultural swaps”) subject to 

the same rules and regulations applicable to any other swap. Part 35 of the 

Commission’s regulations permits the transaction of swaps in an agricultural commodity

to be treated like all other swaps transactions. CFTC Regulation 35.1(a). Swaps in an 

agricultural commodity may be traded on a swap execution facility (“SEF”) or DCM.13

Trade Options/Commodity Options. The Dodd-Frank Act includes a definition of 

“swap” that encompasses “commodity options.”14 Pursuant to its rulemaking authority, 

the Commission determined commodity options are to be regulated as swaps.15 

However, a commodity option involving a physical (as opposed to a financial) 

commodity may avoid being regulated as a swap if it is (1) a commodity option 

embedded in a forward contract;16 (2) a volumetric commodity option embedded in a 

forward contract; or (3) a trade option. To qualify as a trade option, a commodity option 

must involve a physical commodity (i.e., an exempt or agricultural commodity) and meet 

three conditions: (1) the option is offered by either an “eligible contract participant” 

(generally speaking, a financially sophisticated entity) or a commercial participant (i.e., a 

 

11 See Part 41 of the CFTC’s regulations.

12 Public Law 101-554 (Dec. 21, 2000).

13 See CFTC Regulation 35.1(b).

14 See CEA Section 1a(47)(A)(i). Note that the swap definition excludes options on futures (which must be traded on 

a DCM pursuant to Part 33 of the Commission’s regulations) (see CEA section 1a(47)(B)(i), but it includes options on 

physical commodities (whether or not traded on a DCM) (see CEA section 1a(47)(A)(i)). Other options excluded from 

the statutory definition of swap are options on any security, certificate of deposit, or group or index of securities, 

including any interest therein or based on the value thereof, that is subject to the Securities Act of 1933 (“Securities 

Act”) and the Securities Exchange Act of 1934 (“Securities Exchange Act”) (see CEA section 1a(47)(B)(iii)) and foreign 

currency options entered into on a national securities exchange registered pursuant to section 6(a) of the Securities 

Exchange Act (see CEA section 1a(47)(B)(iv)). Note also that the Commission’s regulations define a commodity option 

transaction or commodity option as ‘‘any transaction or agreement in interstate commerce which is or is held out to 

be of the character of, or is commonly known to the trade as, an ‘option,’ ‘privilege,’ ‘indemnity,’ ‘bid,’ ‘offer,’ ‘call,’ 

‘put,’ ‘advance guaranty’ or ‘decline guaranty’.’’ CFTC Regulation 1.3(hh).

15 Commodity Options, 77 FR 25320 (Apr. 27, 2012).

16 The CEA generally excludes forward contracts from CFTC jurisdiction (other than in cases of fraud or manipulation).

A forward contract is “any sale of any cash commodity for deferred shipment or delivery.” See CEA Section 1a(19). 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 21

producer, processor, commercial user of, or merchant handling, the underlying physical 

commodity); (2) the option is offered to a commercial participant; and (3) the option is 

intended to be physically settled so that, if exercised, the option would result in the sale 

of an exempt or agricultural commodity for immediate or deferred shipment or delivery. 

While trade options are exempt from most of the rules applicable to swaps, they remain 

subject to certain, minimal regulatory requirements set out in CFTC regulations.

17

 

Excluded Financial Instruments. Section 2(c)(1) of the CEA specifically excludes from 

the CEA certain transactions in specified financial instruments including foreign currency, 

government securities, security rights, security warrants, resales of installment loan 

contracts, repurchase transactions in excluded commodities,18 mortgages and mortgage 

commitments, unless conducted on an organized exchange. The Commodity Futures 

Trading Commission Act of 1974 originally exempted from the CFTC’s jurisdiction, 

among other things, contracts based on foreign currency and Treasury securities so long 

as the transactions did not involve the sale of a futures contract (or option thereon) or 

commodity options executed or traded on a futures exchange. The CFTC 

Reauthorization Act of 200819 clarified that the CFTC retains jurisdiction to regulate 

transactions in futures contracts (and options thereon) and commodity options based on 

excluded financial instruments to the extent that such transactions occur on a DCM. 

Foreign Currency Transactions. The CFTC has anti-fraud jurisdiction over any 

agreement, contract or transaction in foreign currency that is offered by a futures

commission merchant (“FCM”) or a retail foreign exchange dealer (“RFED”) on a 

leveraged or margined basis to persons who are not eligible contract participants 

(“ECPs”),

20 as if the foreign currency contracts were “futures contracts.” 21

 The CFTC also 

has jurisdiction over foreign currency futures or options on foreign currencies (unless 

traded on a national securities exchange) entered into by persons who are not ECPs, 

where the counterparty to the transaction is an FCM or RFED. The CFTC does not have 

jurisdiction over retail forex transactions that are entered into by a financial institution

(except an FCM or RFED), a registered broker-dealer, an insurance company, a financial 

holding company or an investment bank holding company. 

 

17 See CFTC Regulations 32.3(b)-(d).

18 Excluded commodities are not themselves excluded from the CEA’s coverage. Instead, these commodities are 

“excluded” in the sense that they are eligible to be the underlying commodities for certain off-exchange contracts 

that are excluded from the CEA.

19 Public Law 110-246 (June 18, 2008).

20 ECP is defined in Section 1a(12) of the CEA to include financial institutions, insurance companies, registered 

investment companies, highly-capitalized commodity pools, entities and employee benefit plans, governmental 

entities, certain broker-dealers, futures commission merchants (“FCMs”), floor brokers/traders and high net worth 

individuals. 

21 See CEA Section 2(c)(2)(B).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

22 INTERNATIONAL MONETARY FUND 

Furthermore, pursuant to a written determination issued by the Secretary of the Treasury, 

foreign exchange forwards and foreign exchange swaps are not regulated as swaps 

under the CEA, with certain exceptions.22 In addition, the CFTC does not have jurisdiction 

over bona fide foreign exchange spot transactions. A foreign exchange transaction will 

be considered a bona fide spot transaction if it settles via an actual delivery of the 

relevant currencies within two business days. In certain circumstances, however, a 

foreign exchange transaction with a longer settlement period concluding with the actual 

delivery of the relevant currencies may be considered a bona fide spot transaction 

depending on the customary timeline of the relevant market.

Retail Forex Transactions. The Commission adopted a comprehensive regulatory 

scheme to implement the provisions of the Dodd-Frank Act and the CFTC 

Reauthorization Act of 2008 with respect to off-exchange transactions in foreign currency 

with members of the retail public. 

Hybrid Instruments. A “hybrid instrument” is defined in Section 1a(21) of the CEA to 

mean a security having one or more payments indexed to the value, level or rate of, or 

providing for the delivery of one or more commodities. The CFTC is not authorized to 

regulate hybrid instruments that are predominantly securities.23 This provision enacted

as part of the CFMA effectively expanded the exemption provided by CFTC regulations in 

Part 34, regulation of hybrid instruments.

24

 A hybrid instrument is deemed to be 

predominantly a security and thus excluded from regulation under the CEA if: the issuer 

receives full payment of the purchase price of the instrument substantially 

contemporaneously with delivery of the instrument; the purchaser is not required to 

make any payment to the issuer in addition to the purchase price during the life of the 

instrument; the issuer is not subject, under the terms of the instrument, to mark-tomarket margining requirements; and the hybrid is not marketed as a futures contract.

Swaps. The Dodd-Frank Act gave the CFTC regulatory authority over swaps and the SEC 

 

22 Section 1a(47)(E) of the CEA, as amended by the Dodd-Frank Act, vested the Secretary of the Treasury with the 

authority to determine whether foreign exchange swaps and foreign exchange forwards should be regulated as 

swaps under the CEA, provided that the Secretary makes a written determination satisfying certain criteria specified 

in Section 1b of the CEA. The Secretary of the Treasury issued such a written determination on November 16, 2012. 

See 77 Fed. Reg. 69694 (Nov. 20, 2012). Notwithstanding the written determination, foreign exchange swaps and 

foreign exchange forwards are still subject to the swap data repository (“SDR”) reporting requirements set forth in 

Section 4r of the CEA, and any party to a foreign exchange swap or foreign exchange forward that is an SD or MSP 

must comply with the business conduct standards requirements contained in Section 4s(h) of the CEA. See Sections 

1a(47)(E)(iii)-(iv) of the CEA.

23 See CEA Section 2(f).

24 CFTC Regulation 34.2(a), adopted prior to the CFMA, defines “hybrid instrument” to mean an equity or debt 

security or depository instrument with one or more commodity-dependent components that have payment features 

similar to commodity futures or commodity options contracts or combinations thereof.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 23

regulatory authority over security-based swaps. A swap is defined in Section 1a(47) of 

the CEA. A security-based swap is defined in Section 3(a)(68) of the Securities Exchange 

Act of 1934 (“Securities Exchange Act”).

25 The terms were further defined through a joint 

rulemaking by the SEC and CFTC in August 2012.26 

DCMs. DCMs are boards of trade that operate under the regulatory oversight of the 

CFTC, pursuant to Section 5 of the CEA.

27

 DCMs are traditional futures exchanges that 

permit access to their facilities by all types of traders, including retail customers. DCMs 

may list for trading futures or options contracts based on any underlying commodity, 

index or instrument. With the passage of the Dodd-Frank Act, swaps may be traded and 

executed on a DCM. 

To obtain and maintain its designation, a DCM must also comply with 23 Core Principles 

established in Section 5(d) of the CEA and Part 38 of the CFTC's regulations. Specifically, 

DCMs must comply on an initial and continuing basis with the following Core Principles: 

(1) designation as a contract market; (2) compliance with rules; (3) contracts not readily 

subject to manipulation; (4) prevention of market disruption; (5) position limits or 

accountability; (6) emergency authority; (7) availability of general information; (8) daily 

publication of trading information; (9) execution of transactions; (10) trade information; 

(11) financial integrity of transactions; (12) protection of markets and market participants; 

(13) disciplinary procedures; (14) dispute resolution; (15) governance fitness standards; 

(16) conflicts of interest; (17) composition of governing boards of contract markets; (18) 

recordkeeping; (19) antitrust considerations; (20 system safeguards; (21) financial 

resources; (22) diversity of board of directors; and (23) availability of certain records to 

the SEC. 

DCMs may implement new rules or rule amendments or list new products by filing 

with the CFTC a certification that the rule or rule amendment complies with the CEA 

and CFTC regulations and policies and/or by requesting approval from the CFTC.

SEFs. SEFs are trading systems or platforms that operate under the regulatory oversight 

of the CFTC, pursuant to Section 5h of the CEA.28 SEFs are platforms in which multiple 

participants have the ability to execute or trade swaps by accepting bids or offers made 

by multiple participants in the facility or system, through any means of interstate 

 

25 15 U.S.C. 78c(a)(68). 

26 Further Definition of “Swap,” “Security-Based Swap,” “Security-Based Swap Agreement;” Mixed Swaps; Security-Based 

Swap Agreement Recordkeeping, 77 FR 48208 (Aug. 13, 2012).

27 Part 38 of the CFTC’s regulations details the procedures and requirements for operating a DCM.

28 Part 37 of the CFTC’s regulations details the procedures and requirements for operating a DCM.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

24 INTERNATIONAL MONETARY FUND 

commerce. Only swaps may be traded and executed on a SEF regulated by the CFTC. 

No person may operate a facility for the trading or processing of swaps unless the facility 

is registered as a SEF or DCM.29 To register and maintain registration as a SEF, a SEF

must comply with 15 Core Principles established in Section 5h of the CEA and Part 37 of 

the CFTC's regulations. Specifically, a SEF must comply on an initial and continuing basis 

with the following Core Principles: (1) compliance with core principles; (2) compliance 

with rules; (3) swaps not readily subject to manipulation; (4) monitoring of trading and 

trade processing; (5) ability to obtain information; (6) position limits or accountability; (7) 

financial integrity of transactions; (8) emergency authority; (9) timely publication of 

trading information; (10) recordkeeping and reporting; (11) antitrust considerations; (12) 

conflicts of interest; (13) financial resources; (14) system safeguards; and (15) designation 

of chief compliance officer. 

SEFs may implement new rules or rule amendments or list new products by filing with 

the CFTC a certification that the rule or rule amendment complies with the CEA and CFTC 

regulations and policies and/or by requesting approval from the CFTC.

DCOs. DCOs are derivatives clearing organizations that operate under the regulatory 

oversight of the CFTC, pursuant to Section 5b of the CEA.

30

 A derivatives clearing 

organization is a clearinghouse, clearing association, clearing corporation, or similar 

entity, facility, system, or organization that with respect to an agreement, contract, or 

transaction enables each party to an agreement, contract, or transaction to substitute, 

through novation or otherwise, the credit of the DCO for the credit of the parties; 

arranges or provides, on a multilateral basis, for the settlement or netting of obligations

resulting from such agreements, contracts, or transactions executed by participants in 

the DCO; or otherwise provides clearing services or arrangements that mutualize or 

transfer among participants in the DCO the credit risk arising from such agreements, 

contracts, or transactions executed by the participants.

To register and maintain registration as a DCO, a DCO must comply with 18 Core 

Principles established in Section 5b of the CEA and Part 39 of the CFTC's regulations. 

Specifically, a DCO must comply on an initial and continuing basis with the following 

Core Principles: (1) compliance with core principles; (2) financial resources; (3) participant 

and product eligibility; (4) risk management; (5) settlement procedures; (6) treatment of 

funds; (7) default rules and procedures; (8) rule enforcement; (9) system safeguards; (10) 

reporting; (11) recordkeeping; (12) public information; (13) information sharing; (14) 

antitrust considerations; (15) governance fitness standards; (16) conflicts of interest; (17) 

 

29 A facility that is registered with the SEC as a security-based SEF must also register with the Commission if it intends 

to operate a facility to trade swaps. CEA Section 5h(a)(2).

30 Part 39 of the CFTC’s regulations details the procedures and requirements for operating a DCO.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 25

composition of governing boards; and (18) legal risk.

DCOs generally may implement new rules or rule amendments by filing with the CFTC a 

certification that the rule or rule amendment complies with the CEA and CFTC 

regulations and policies and/or by requesting approval from the CFTC. A DCO that has

been designated by Financial Stability Oversight Council (“FSOC”) as systemically 

important (“SIDCO”), however, must provide notice to the Commission no less than 60 

days in advance of any proposed changes to its rules, procedures or operations that 

could materially affect the nature or level of risks presented by the SIDCO.

Commodity Pools. The solicitation of funds for investment in a commodity pool31

constitutes the offer of a “security” that Section 4(m) of the CEA states necessitates 

compliance with certain provisions of the Securities Act of 1933 (“Securities Act”) and the 

Securities Exchange Act. Separately, the CFTC maintains jurisdiction over the operation 

of commodity pools and has issued regulations mandating, among other things, certain 

required disclosures in connection with the offer of a pool.32 As a practical matter, public 

offers for commodity pools are generally made by one prospectus that complies with 

both the securities laws and the CFTC’s commodity pool regulations. Although the 

majority of all commodity pools are private placements, and therefore subject primarily 

to CFTC substantive regulation,33 issuers of exchange-traded products (“ETPs”) have 

launched commodity-based ETPs for trading on national securities exchanges. As a 

result, these products are subject to “dual” regulation by both the CFTC and SEC 

consisting of commodity pool operator (“CPO”) registration and regulation, disclosure 

requirements under both the CEA and Federal securities laws, and securities exchange 

regulation. 

CFTC Regulation 4.5 excludes from the definition of CPO, and therefore application of the 

CEA and CFTC regulations related to pools and their related advisors, certain collective 

investment vehicles that are otherwise regulated entities, such as certain registered 

investment companies, insurance company separate accounts, banks and trust 

companies and certain defined benefit (pension) plans. CFTC Regulation 4.13 also 

provides exemptions from CPO registration for CPOs that meet specified criteria, 

including small or family pools, and pools that engage in minimal futures trading. The 

CFTC, pursuant to CFTC Regulation 4.12, can also exempt entities from the application of 

 

31 Although the CEA does not define the term “commodity pool”, CFTC Regulation 4.10(d)(1) defines “pool” to mean 

any investment trust, syndicate or similar form of enterprise operated for the purpose of trading commodity 

interests.

32 See CFTC Regulations 4.21, 4.24, 4.25 and 4.26.

33 The SEC, however, does retain anti-fraud and anti-manipulation authority over the securities of such commodity 

pool offerings.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

26 INTERNATIONAL MONETARY FUND 

Part 4 of the CFTC’s regulations in appropriate cases.

Intermediaries. The CFTC regulates the following categories of intermediaries:

 “Futures Commission Merchant” is defined as any person who solicits or accepts 

orders to buy or sell futures, options, swaps, or leverage contracts, security futures 

products, or any transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i) 

of the CEA, or acts as a counterparty in any transaction described in those sections, 

and who, in connection with the order, accepts any money or other property (or 

extends credit) to margin, guarantee, or secure the contracts resulting from these

activities. See CFTC Regulation 1.3(p).

 “Swap dealer” is defined as any person who holds itself out as a dealer in swaps, 

makes a market in swaps, regularly enters into swaps with counterparties as an 

ordinary course of business for its own account, or engages in any activity causing 

the person to be commonly known in the trade as a dealer or market maker in swaps,

subject to certain exemptions for entities that engage in a de minimis quantity of 

swap dealing in connection with transactions with or on behalf of customers. The 

term was further defined through a joint rulemaking between the SEC and CFTC 

published in May 2012.34 See CFTC Regulation 1.3(ggg).

 “Major swap participant” is defined as any person who is not an SD and 

maintains a substantial position in swaps for any of the major swap categories

(excluding both positions held for hedging or mitigating commercial risk and certain 

positions maintained by employee benefit plans), or whose outstanding swaps create 

substantial counterparty exposure that could have serious adverse effects on the 

financial stability of the U.S. banking system or financial markets, or is a financial 

entity that is highly leveraged relative to the amount of capital it holds and that is 

not subject to capital requirements established by an appropriate Federal banking 

agency, subject to certain exclusions. The term was also further defined through 

joint rulemaking between the SEC and CFTC. See CFTC Regulation 1.3(hhh).

 “Introducing Broker” is any person who solicits or accepts orders to buy or sell 

futures, options, swaps, or leverage transaction contracts, security futures products, 

or any transaction described in Section 2(c)(2)(C)(i) or 2(c)(2)(D)(i) of the CEA, but who 

does not accept any money or property (or extend credit) to margin, guarantee or 

secure the contracts. See CFTC Regulation 1.3(mm).

 “Floor trader” is a person who trades contracts on DCMs and/or SEFs for his own 

account. See CFTC Regulation 1.3(x).

 

34 Further Definition of Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based 

Swap Participant” and “Eligible Contract Participant,” 77 FR 30596 (May 23, 2012).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 27

 “Floor broker” is a person who trades contracts on DCMs and/or SEFs for the 

account of others. See CFTC Regulation 1.3(n).

 “Foreign futures and options broker” is any non-U.S. person that is a member of 

a non-U.S. exchange or self-regulatory organization (“SRO”) and subject to regulation 

in such foreign jurisdiction. Also included are foreign affiliates of U.S. firms that are 

licensed and subject to regulation in such non-U.S. jurisdiction. See CFTC Regulation 

30.1(e).

 “Leverage Transaction Merchant” is a category of registrant established by the 

CFTC in 1984 for persons engaged in the solicitation, execution or acceptance of 

leverage contracts. There currently are no registered leverage transaction merchants. 

See CFTC Regulation 1.3(oo).

 “Commodity Trading Advisor” is defined as any person who, for compensation or 

profit, is engaged in the business of providing commodity interest advisory services 

to others. See CFTC Regulation 1.3(bb).

 “Commodity Pool Operator” is defined as any person who solicits funds from 

others for the purpose of pooling the funds for use in investing in commodity 

interests. As noted above, pools also may be regulated by the SEC if publicly offered 

or under the Investment Company Act of 1940, under certain circumstances. See

CFTC Regulation 1.3(cc).

 “Retail Foreign Exchange Dealer” is defined in CFTC Regulation 5.1(h)(1) as any 

person who is, or offers to be, the counterparty to an off-exchange retail forex 

transaction, but does not include persons that are regulated by another financial 

regulator, such as banks or securities broker dealers. FCMs may also be the 

counterparty to such off-exchange retail forex transactions but, unlike FCMs, retail 

foreign exchange dealers (“RFEDs”) may not engage in exchange-traded 

commodities transactions. See CFTC Regulation 5.1(h).

The CEA and CFTC Regulations impose requirements related to licensing, conduct of 

business, mandatory firm capital and custodianship of customer assets. In addition, the 

CEA requires the officers of the above registrants and persons who solicit funds or 

supervise such persons within such registrants to register as associated persons (“APs”). 

In addition to the standards established by the American Institute of Certified Public 

Accountants (“AICPA”), the Public Company Accounting Oversight Board (“PCAOB”), and 

the Financial Accounting Standards Board (“FASB”), CFTC regulations establish 

requirements pertaining to independent public accountants who audit CFTC registrants. 

For example, under CFTC Regulation 1.16 the CFTC will recognize only a licensed certified 

public accountant or licensed public accountant who is in good standing under the laws 

of the place of his or her residence or principal place of business and such accountants’
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

28 INTERNATIONAL MONETARY FUND 

report must be prepared consistent with the requirements of CFTC Regulation 1.16(c)(1). 

The CFTC also has worked with AICPA to provide guidance on the application of 

accounting standards to CFTC registrants.

Foreign Brokers. Part 30 of the CFTC regulations govern the offer and sale of foreign 

futures and options contracts to customers located in the U.S. As set forth in CFTC 

Regulation 30.4, any domestic or foreign person engaged in activities like those of an 

FCM, IB, CPO or CTA must register in the appropriate capacity or seek an exemption from 

registration under CFTC Regulations 30.5 or 30.10. 

CFTC Regulation 30.5 provides an exemption from registration for any person located 

outside of the U.S. who is required to be registered with the CFTC under Part 30 other 

than a person required to be registered as an FCM. A foreign futures or options broker 

in such case is required to consent to the jurisdiction of the U.S. courts and the CFTC with 

respect to dealings with U.S. customers, and engage in all transactions subject to 

regulation under Part 30 through a registered FCM or foreign broker who has received 

confirmation of exemption from registration as an FCM under CFTC Regulation 30.10.

CFTC Regulation 30.10 permits a person affected by any of the requirements contained 

in Part 30 of the Commission’s regulations to petition the Commission for an exemption 

from such requirements. If the CFTC determines that compliance with the foreign 

jurisdiction’s regulatory program would offer “comparable” protection to persons located 

in the U.S. and there is an information sharing arrangement between the Commission 

and the firm’s home country regulator, the CFTC will consider issuance of an order to the 

foreign regulator or SRO granting general relief, subject to certain conditions.

Margin Authority. Section 2(a)(1)(C)(v) of the CEA requires any DCM that trades stock 

index futures contracts (or options thereon) to file with the Board of Governors of the 

Federal Reserve System (“Federal Reserve”) any rule establishing or changing the levels 

of margin (initial and maintenance) for that contract and authorizes the Federal Reserve 

to set the margin levels. Under the authority of that section, the Federal Reserve 

delegated such margin authority to the CFTC in 1993, subject to an annual reporting 

requirement to the Federal Reserve. 

Dual Registration. Securities broker-dealers registered with the SEC may also dually 

register in the above-referenced CFTC categories. In this regard, many of the largest 

FCMs are also registered with the SEC as securities broker-dealers. The Commission’s 

regulatory structure recognizes that such entities are subject to dual registration and 

attempts to harmonize regulations where possible. For example, the Commission and 

the SEC have implemented a uniform capital and financial reporting regime for dualregistrant FCMs/broker-dealers, which allows such entities to meet the requirements of 

both agencies by following a single set of coordinated regulations. In addition, banks 

that intermediate futures transactions for customers typically establish subsidiaries to 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 29

conduct such business due to the requirements of banking regulators, as well as the 

liquidity requirements of CFTC capital rules. FCM subsidiaries of bank holding 

companies are subject to Federal Reserve examination and certain other requirements.

(b) If the regulator can interpret its authority, are the criteria for interpretation clear 

and transparent? 

The CFTC can interpret how to apply the authority granted to it by the CEA. The CEA also 

grants the CFTC broad exemptive authority under Section 4(c) as well as broad 

rulemaking authority under Section 8a(5).35

Yes. The criteria for interpreting the CFTC’s authority are clear and transparent. The CFTC 

largely interprets the CEA based on the plain meaning of the statute and available 

legislative history as related to relevant markets and market participants. CFTC 

rulemaking is employed to administer and implement various provisions of the CEA as 

provided for in Section 8a(5) of the CEA. The rulemaking process is governed by Section 

553 of the Administrative Procedure Act (“APA”) and other various statutes that prescribe 

the manner in which the CFTC may adopt rules and regulations. As set forth below in 

1.1(c), this process is fully transparent with CFTC rule proposals and adoptions, concept 

releases and interpretations published in the Federal Register. CFTC staff may also 

provide guidance to market participants and practitioners on a variety of legal and 

regulatory matters. Although not legally binding on the CFTC, these staff interpretations 

provide guidance on a host of CEA and related issues. 

(c) Is the interpretative process transparent enough to preclude situations in which 

an abuse of discretion can occur?

Yes. Section 553 of the APA requires agencies to incorporate a concise general statement 

of the basis and purpose for adopted rules. Generally, all CFTC orders, exemption letters 

and advisories contain written explanations of the basis for such actions. These CFTC 

actions are publicly disclosed in the Federal Register and/or the CFTC’s Web site at 

http://www.cftc.gov. Parties affected by any such CFTC actions may also seek judicial 

review by the Federal courts.

2. When more than one domestic authority is responsible for securities regulation:

(a) Where responsibility is divided among regulators, is legislation designed to avoid 

regulatory differences or gaps? 

Yes. For example, Sections 712(b) and 712(c) of the Dodd-Frank Act delimit the CFTC’s 

jurisdiction and the SEC’s jurisdiction with respect to swaps and security-based swaps, 

respectively, and provide that either agency may object if the other promulgates a rule, 

regulation or order that conflicts with the statutory delimitation. In addition, Section 718 

of the Dodd-Frank Act provides a coordinated review process in connection with novel 

derivatives products that both the CFTC and SEC may use in determining the regulatory 

 

35 The Commission may also interpret its authority through adjudicatory proceedings under Parts 10 and 12 of the 

Commission’s regulations.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

30 INTERNATIONAL MONETARY FUND 

status of these instruments.

The Dodd-Frank Act also requires that the CFTC, SEC and U.S. prudential regulators 

coordinate with each other with respect to certain rulemakings. Section 712(a)(1) of the 

Dodd-Frank Act provides that, before the Commission commences any rulemaking or 

issues an order regarding swaps pursuant to Subtitle A of Title VII of the Dodd-Frank Act 

(which relates to regulation of the over-the-counter (“OTC”) swaps markets), the 

Commission shall “consult and coordinate to the extent possible with the [SEC] and the 

prudential regulators for the purposes of assuring regulatory consistency and 

comparability, to the extent possible.” Section 712(a)(2) of the Dodd-Frank Act has a 

parallel provision with respect to rulemakings commenced by the SEC, requiring it to 

consult with the CFTC and the U.S. prudential regulators. 

Section 712(d) of the Dodd-Frank Act requires that the CFTC and the SEC, in consultation 

with the Federal Reserve, further define the terms “swap,” “security-based swap,” “swap 

dealer,” “security-based swap dealer,” “major swap participant,” “major security-based 

swap participant,” “eligible contract participant,” and “security-based swap agreement” 

(which, as noted below, the agencies have completed).

In addition, Section 752(a) of the Dodd-Frank Act provides in part that “[i]n order to 

promote effective and consistent global regulation of swaps and security-based swaps, 

the [CFTC], the [SEC], and the prudential regulators . . . as appropriate, shall consult and 

coordinate with foreign regulatory authorities on the establishment of consistent 

international standards with respect to the regulation (including fees) of swaps ...”

Section 619 of the Dodd-Frank Act, commonly known as the “Volcker rule,” adds a new 

Section 13 to the Bank Holding Company Act of 1956 which, in subsection (b)(2)(B)(ii), 

requires the Commission, the SEC and the Federal banking agencies to “consult and 

coordinate with each other, as appropriate, for the purposes of assuring, to the extent 

possible, that such regulations [issued under this section] are comparable and provide for 

consistent application and implementation of the applicable provisions of this section to 

avoid providing advantages or imposing disadvantages to the companies affected by this 

subsection and to protect the safety and soundness of banking entities and nonbank 

financial companies supervised by the [Federal Reserve].” Under this authority, the 

Commission, along with the SEC and the Federal banking agencies, issued final rules to 

implement the Volcker rule.36 The Federal banking agencies involved in this consultation 

are, in addition to the Federal Reserve, the Federal Deposit Insurance Corporation 

(“FDIC”) and the Office of the Comptroller of the Currency (“OCC”).

 

36 Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, 

Hedge Funds and Private Equity Funds, 79 FR 5808 (Jan. 31, 2014).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 31

(b) Is substantially the same type of conduct and product generally subject to 

consistent regulatory requirements? 

Yes. See response to Principle 1, Question 2(a). In particular, Section 712(a)(7)(A) of the 

Dodd-Frank Act provides that “[i]n adopting rules and orders under this subsection [i.e., 

those relating to swaps and security-based swaps] the [Commission] and the [SEC] shall 

treat functionally or economically similar products or entities ... in a similar manner.” 

Section 712(a)(7)(B), however, provides “[n]othing in this subtitle requires the [CFTC] or 

the [SEC] to adopt joint rules or orders that treat functionally or economically similar 

products or entities . . . in an identical manner.”

SEC. The SEC and CFTC have strived to recommend changes to their respective statutes 

and regulations that would eliminate differences with respect to similar types of financial 

instruments so that the agencies’ regulations are harmonized when appropriate: (1) 

Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators 

and Commodity Trading Advisors on Form PF, 76 FR 71128 (Nov. 16, 2011); (2) 

Harmonization of Compliance Obligations for Registered Investment Companies Required 

to Register as Commodity Pool Operators, 78 FR 52308 (Aug. 22, 2013); (3) Further 

Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” 

“Major Security-Based Swap Participant,” and “Eligible Contract Participant,” 77 FR 30596 

(May 23, 2012); (4) Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘SecurityBased Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping,”

77 FR 48208 (Aug. 13, 2012); and (5) Identity Theft Red Flag Rules, 78 FR 23638 (Apr. 19, 

2013). 

FERC. The Federal Energy Regulatory Commission (“FERC”) and CFTC signed two 

memoranda of understanding (“MOUs”) mandated by the Dodd-Frank Act to address 

circumstances of overlapping jurisdiction and to share information in connection with 

market surveillance and investigations into potential market manipulation, fraud or 

abuse. The CFTC and FERC have overlapping jurisdiction over energy commodities, but 

the CFTC has exclusive jurisdiction over swaps and futures transactions.

(c) Are responsible authorities required to cooperate and communicate in areas of 

shared responsibility?

See (d) below.

(d) Are there arrangements for cooperation and communication between responsible 

authorities through appropriate channels and are cooperation and 

communication occurring between responsible authorities without significant 

limitations?

Yes. The Chairperson of the CFTC is a member of the FSOC. FSOC is chaired by the 

Secretary of the Treasury, and also includes the Chairperson of the Federal Reserve, the 

OCC, the Director of the Consumer Financial Protection Bureau (“CFPB”), the Chairperson

of the SEC, the Chairperson of the FDIC, the Director of the Federal Housing Finance 

Agency (“FHFA”), the Chairperson of the National Credit Union Administration (“NCUA”),

and an independent member with insurance expertise who is appointed by the President 

of the United States (“President”) and confirmed by the U.S. Senate (“Senate”) for a six-
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

32 INTERNATIONAL MONETARY FUND 

year term.

In addition, five nonvoting members serve in an advisory capacity: the Director of the 

Office of Financial Research (“OFR”) in the U.S. Department of the Treasury (“Treasury 

Department”), the Director of the Federal Insurance Office (“FIO”) in the Treasury 

Department, a state insurance commissioner designated by the state insurance 

commissioners, a state banking supervisor designated by the state banking supervisors, 

and a state securities commissioner (or officer performing like functions) designated by 

the state securities commissioners.

FSOC provides comprehensive monitoring of the stability of the U.S. financial system. 

FSOC is charged with identifying risks to the financial stability of the U.S. financial system, 

promoting market discipline, and responding to emerging risks to the stability of the U.S. 

financial system. 

Section 813 of Title VIII of the Dodd-Frank Act,

37 requires the CFTC and the SEC to 

coordinate with the Federal Reserve to jointly develop risk management supervision 

programs for designated clearing entities, including SIDCOs. Consistent with that 

provision, the CFTC, the SEC and the Federal Reserve issued a report in July 2011 that 

included recommendations that help, with respect to systemically important clearing 

entities, to achieve the statutory goals of improving consistency in the SEC’s and CFTC’s 

oversight programs, promoting robust risk management, promoting robust risk 

management oversight, and improving the ability of regulators to monitor the potential 

effects of such risk management on the stability of the U.S. financial system.

The CFTC and SEC formed a Joint Advisory Committee on Emerging Regulatory Issues in 

2010. Through its duration, the Committee focused its attention on the flash crash of 

May 2010. The Committee, jointly chaired by the Chairmen of the SEC and CFTC,

provided recommendations to the Commissions in February 2011.

Staff also works through various established intergovernmental partnerships to share 

information and to consult on issues of importance both to the CFTC and to other 

regulators. Meetings are typically held among the CFTC, SEC, Treasury Department, 

Federal Reserve, the New York Federal Reserve Bank, Department of Energy, U.S. 

Department of Agriculture (“USDA”), Federal Trade Commission (“FTC”) and FERC. . 

Meetings to discuss implementation of the Volcker rule are held among the CFTC, SEC, 

Federal Reserve, FDIC and OCC. Other meetings are event driven.

The working relationships with federal law enforcement entities are also fundamental to 

an effective law enforcement effort. The CFTC coordinates its enforcement efforts with 

 

37 12 U.S.C. 5472.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 33

agencies such as the U.S. Department of Justice (“DOJ”), the Federal Bureau of 

Investigation, Federal Trade Commission (“FTC”), SEC, the U.S. Postal Inspection Service 

and FERC. Enforcement efforts are coordinated with state authorities as well, including 

state commissions responsible for the regulation of corporations, securities, insurance 

and banking.

The CFTC also is represented on several interagency task forces designed to keep 

participants abreast of new developments in financial crimes and to coordinate the 

government’s response. In this area, the CFTC participates in the Money Laundering 

Working Group (“MLWG”), a forum for discussing money laundering issues among 

relevant U.S. governmental agencies, chaired by the Treasury Department and DOJ and 

attended by U.S. banking, securities and futures regulators and state and Federal law 

enforcement agencies. Through the MLWG, the CFTC also lends advice to the Treasury

Department’s Financial Crimes Enforcement Network (“FinCEN”) regarding the work 

undertaken by the Financial Action Task Force (“FATF”), an international organization 

created to formulate recommendations for combating money laundering.

Section 12(g) of the CEA requires the CFTC to cooperate with the Office of the U.S. Trade 

Representative, Treasury Department, U.S. Department of Commerce, and U.S. 

Department of State to remove any trade barriers that may be imposed by a foreign 

nation on the international use of electronic trading systems.

Cooperation with other government agencies is also mandated by the CEA. See response 

to Principle 2, Question 2.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

34 INTERNATIONAL MONETARY FUND 

Principle 2 The Regulator should be operationally independent and accountable in the 

exercise of its powers and functions

Key Questions

Independence

1. Does the securities regulator have the ability to operate on a day-to-day basis without:

(a) External political interference?

Yes. The 1974 Act established the CFTC as an independent regulatory commission of the 

U.S. government (i.e., the CFTC does not operate as a division of any Executive Branch

department or other agency). Also, as noted below in response to Principle 2, Question 5, 

the CEA mandates that no more than three CFTC Commissioners may be members of the 

same political party. However, the CFTC is accountable to, and subject to the oversight of, 

the Congress.

(b) Interference from commercial or other sectoral interests?

Yes. As set forth below in response to Principle 2, Question 7, interested parties may 

comment on various CFTC rulemaking proposals, proposed guidance and proposed 

orders. In this manner, persons that may be affected by Commission action may provide 

input and voice any concerns. It is the Commission’s practice to place ex parte

communications in informal rulemakings into the public record. Specifically, oral 

comments addressed to the merits of the rule proposal and made privately to members 

of the Commission or staff are summarized and placed in the public comment file; 

similarly, written communications addressed to the merits of the rule proposal are also 

placed in the comment file. 

2. Where particular matters of regulatory policy require consultation with, or even approval 

by, a government minister or other authority: 

(a) Is the consultation process established by law? 

Yes. See response to Principle 1, Question 2(a), with respect to consultation required by 

the Dodd-Frank Act between the Commission, the SEC and the Federal Reserve regarding 

coordination in the implementation of Title VII of the Dodd-Frank Act, and between the 

Commission, the SEC and the Federal banking agencies regarding coordination in the 

implementation of the Volcker rule.

Section 2(a)(9)(B)(ii) of the CEA requires the CFTC to deliver a copy of any application by a 

board of trade for designation or registration as a DCM to trade futures based on any

security issued or guaranteed by the U.S. or any agency thereof to the Treasury 

Department and the Federal Reserve.

Section 2(a)(9)(B)(ii) of the CEA prohibits the CFTC from designating or registering a board 

of trade as a DCM in U.S. government issued or guaranteed securities until forty-five days 

after the CFTC provides a copy of the application to the Treasury Department and the 

Federal Reserve or until the CFTC receives comments from those agencies, whichever 

period is shorter. This section requires the CFTC to take into account any comments 

received from those agencies, not only in designation decisions but also in refusing, 

suspending or revoking the designation of a contract market trading futures contracts 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 35

based on U.S. government issued or guaranteed securities. 

Security futures products may be traded either on a national securities exchange, national 

securities association, or DCM (collectively, “Exchanges”); however, in each case, the entity 

must become registered with both the CFTC and SEC. This additional registration for a 

national securities exchange or national securities association is accomplished through an 

immediately effective notice filing pursuant to CFTC Regulation 41.31.38 Comparatively, a 

DCM would submit its notice registration with the SEC pursuant to section 6(g) of the 

Securities Exchange Act. Thus, an entity that lists security futures for trading must be 

registered with the SEC as a national securities exchange or national securities association 

and be designated by the CFTC as a DCM. In addition, exchanges trading security futures 

are required to file with the SEC and the CFTC proposed rule changes relating to higher 

margin levels, fraud or manipulation, recordkeeping, reporting, listing standards, decimal 

pricing, sales practices for security futures products or rules effectuating such SRO’s 

obligation to enforce the securities laws. A DCM that is “notice-registered” with the SEC 

would submit most proposed rule changes to the SEC pursuant to section 19(b)(7) of the 

Securities Exchange Act while at the same time filing with the CFTC under Regulation 

41.24 (rule amendments), and/or Regulation 41.23 (listing of new security futures 

products). Alternatively, a national securities exchange or national securities association 

that is “notice-registered” with the CFTC would submit proposed rule changes with the 

SEC pursuant to section 19(b)(1) of the Securities Exchange Act and concurrently provide a 

notice filing with the CFTC under Regulation 41.32.

A clearing agency that is associated with a DCM for security futures and that would be 

required to register as a clearing agency under Section 17A(b)(1) of the Securities 

Exchange Act only because it performs clearing functions for security futures products is 

exempt from registration as a clearing agency under the Securities Exchange Act. 

However, DCOs regulated by the CFTC through their association with DCMs for security 

futures products (other than cash-settled contracts) that are national securities exchanges 

for trading of security futures products must have arrangements in place with a registered 

clearing agency to effect payment and delivery of the securities underlying the security 

futures product. Further, any clearing agency for security futures products must develop 

linkages with all other clearing agencies for security futures products to permit the 

product to be purchased on one market and offset on another. SEC-registered clearing 

agencies are exempted from registration by the CFTC as DCOs.

Section 712 of the Dodd-Frank Act requires the CFTC to consult and coordinate, to the 

 

38 A national securities exchange, national securities association or alternative trading system subject to Regulation 

ATS under the Securities Exchange Act that only lists and trades security futures products may be designated as a 

contract market in security futures pursuant to Section 5f of the CEA by filing a notice with the CFTC. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

36 INTERNATIONAL MONETARY FUND 

extent possible, with the SEC and the U.S. prudential regulators “[b]efore commencing any 

rulemaking or issuing an order regarding swaps, swap dealers, major swap participants, 

swap data repositories, derivative clearing organizations with regard to swaps, persons 

associated with a swap dealer or major swap participant, eligible contract participants, or 

swap execution facilities.” 

In addition, under Section 805 of Title VIII of the Dodd-Frank Act,39 the CFTC may

prescribe regulations, in consultation with the FSOC and the Federal Reserve, containing 

risk management standards, taking into consideration relevant international standards 

and existing prudential requirements, for SIDCOs, governing the operations related to 

payment, clearing, and settlement activities of such designated DCOs. The CFTC is also a 

signatory to an MOU relating to the confidentiality and use of non-public information

obtained from or shared among the parties in connection with or related to the functions 

and activities of the FSOC or the OFR pursuant to the Dodd-Frank Act.40 In addition and 

in accordance with Title VIII of the Dodd-Frank Act, the CFTC consults with the Federal 

Reserve on the supervision of SIDCOs as well as with respect to any proposed changes to 

a SIDCO’s rules, procedures or operations that could materially affect the nature or level 

of risks presented by the SIDCO.41

Section 2(a)(1)(D)(iv) of the CEA authorizes the Commission to conduct periodic or special 

examinations of FCMs, IBs, floor brokers and floor traders engaging in security futures 

transactions. However, Section 2(a)(1)(D)(iv) of the CEA requires that the CFTC provide the 

SEC with notice of such examinations for the purpose of assessing the feasibility and 

desirability of coordinating efforts. 

Pursuant to a 2008 MOU between the CFTC and SEC regarding Coordination in Areas 

of Common Regulatory Interest (dated March 11, 2008), the agencies in connection 

with the review of “novel” derivative products have agreed to: (i) recognize their 

mutual regulatory interests and encourage innovation, competition, and legal certainty;

(ii) share information relating to novel derivative products and act on any related 

requests in a timely manner; (iii) permit the trading of novel derivative products (for 

products that implicate overlapping areas of regulatory concern) in either or both a 

CFTC- or SEC-regulated environment in a manner consistent with each agency’s 

 

39 12 U.S.C. 5464(a)(2)(A).

40 Signatories to this MOU include the FSOC, Treasury Department, Federal Reserve, OCC, CFPB, SEC, FDIC, FHFA, 

NCUA, OFR, FIO, the independent member appointed by the President having insurance expertise on the FSOC, the 

designated State insurance commissioner, the designated State banking supervisor, and the designated State 

securities commissioner.

41 For example, pursuant to Section 806(e) of Title VIII of the Dodd-Frank Act, 12 U.S.C. 5465(e)(1)(A) and CFTC 

Regulation 40.10, a SIDCO must provide notice 60-day advance notice to the CFTC and Federal Reserve of any 

proposed change to its rules, procedures or operations that could materially affect the nature or level of risks 

presented by the SIDCO. In addition, under Section 806(e)(4), before taking any action on, or completing its review 

of, a material rule change proposed by a SIDCO, the CFTC must consult with the Federal Reserve.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 37

regulatory structure; and (iv) meet on a quarterly basis to discuss particular regulatory 

matters and novel derivative products. 

In connection with the establishment of centralized clearing for credit default swaps 

(“CDS”), the Federal Reserve, CFTC and SEC entered into an MOU on November 14, 2008. 

The MOU establishes a framework for consultation and information sharing on issues 

related to CDS central counterparties and reflects the agencies’ intent to cooperate, 

coordinate and share information.

The FERC and CFTC signed two MOUs mandated by the Dodd-Frank Act to address 

circumstances of overlapping jurisdiction and to share information in connection with 

market surveillance and investigations into potential market manipulation, fraud or abuse. 

The CFTC and FERC have overlapping jurisdiction over energy commodities, but the CFTC 

has exclusive jurisdiction over swaps and futures transactions. 

In 2007, Congress also directed the FTC to adopt an anti-manipulation rule for the 

physical, wholesale, crude oil, gasoline and other petroleum distillates markets as part of 

the Energy Independence and Security Act of 2007.

42

In addition to its exclusive jurisdiction over futures trading on regulated exchanges, the 

CFTC also has anti-manipulation authority over cash markets as set forth in Section 9(a)(2) 

of the CEA. As a result, the CFTC and FTC each have concurrent jurisdiction over the 

underlying cash markets while the CFTC retains its exclusive jurisdiction over futures 

trading set forth in Section 2(a)(1)(A) of the CEA. It is expected that the agencies will 

closely coordinate efforts to efficiently deter and prosecute illegal activity in cash markets 

consistent with each agencies’ statutory mandate.

CFTC staff works with staff of other U.S. agencies on an as-needed basis and regularly

comments, including informally, on various financial regulation and financial stability 

initiatives of the Treasury Department and fellow financial regulators.

Federal agencies also must comply with certain general rulemaking requirements such as 

the Regulatory Flexibility Act43 (that requires agencies to take into account the impact of 

proposed rules on small businesses), the Paperwork Reduction Act (“PRA”)44 (that requires 

agencies to review rules to evaluate the information collection burden such rules would 

 

42 The FTC finalized its anti-manipulation rule in 2009. See Prohibitions on Market Manipulation, 74 FR 40686 (Aug. 2, 

2009) (adding new Part 317 to FTC regulations). Similar to the anti-fraud rule found under Section 10(b) of the 

Securities Exchange Act (Rule 10b-5), the FTC proposal prohibits fraudulent and deceptive practices which may 

include “intentional acts that obstruct or impair wholesale petroleum markets.” Proof that fraudulent or deceptive 

conduct actually had an effect on the market is not required under the FTC rule.

43 5 U.S.C. 601 et seq.

44 44 U.S.C. 3501 et seq.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

38 INTERNATIONAL MONETARY FUND 

impose on the public), and the Congressional Review of Agency Rulemaking Act 

(“CRARA”)45 (which requires agencies to submit rules to Congress and the General 

Accounting Office (“GAO”) with a report that includes a cost-benefit analysis). 

(b) Do the circumstances, in which consultation is required, exclude decision making 

on day-to-day technical matters? 

Yes. Consultation with other appropriate Federal agencies and bodies, as described in 

responses to Principle 1, Questions 2(a) - (d), is narrowly-tailored to specific issues of 

concurrent or shared jurisdiction.

(c) Are the circumstances in which such consultation or approval is required or 

permitted clear and the process sufficiently transparent, or the failure to observe 

procedures and the regulatory decision or outcome subject to sufficient review, to 

safeguard its integrity? 

Yes. See responses to Principle 1, Questions 2(a) – (d) and Principle 2, Questions 2(a) and 

6(a). For example, Section 712(c) of the Dodd-Frank Act provides that the Commission or 

the SEC may object to, and obtain judicial review of, a rule, regulation or order that does 

not conform to the statutory delimitation of jurisdiction between the Commission and the 

SEC with respect to swaps and security-based swaps. Regarding the PRA and Regulatory 

Flexibility Act, Federal agencies submit certain filings to the Office of Management and 

Budget (“OMB”) (regarding the PRA) and to the General Services Administration 

(regarding the Regulatory Flexibility Act) that essentially document compliance with the 

requirements of those statutes. Before an agency rule can take effect, the CRARA requires 

Federal agencies to submit to each House of Congress and to the Comptroller General of 

the United States (“Comptroller General”) a report containing a copy of the rule, a concise 

statement relating to the rule (including a cost-benefit analysis, including whether it is a 

major rule), and the proposed effective date. A “non-major” rule becomes effective as 

proposed by an agency if Congress and the GAO receive the required report. A “major” 

rule will generally become effective 60 days after Congressional receipt of an agency’s 

report.

As noted above, the regulatory decisions and outcomes of the CFTC are subject to judicial 

review in the Federal courts.

See also response to Principle 2, Question 6(a).

 

45 5 U.S.C. 804(2).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 39

3. Does the securities regulator have a stable and continuous source of funding sufficient to 

meet its regulatory and operational needs?

Section 2(a)(10)(A) of the CEA requires that whenever the CFTC submits any budget 

request to the President of the United States or OMB (the agency within the office of the 

President which analyses and makes recommendations to the President on budget 

matters), the CFTC must concurrently transmit copies of the request to the House and 

Senate Appropriations Committees and the House Committee on Agriculture and the 

Senate Committee on Agriculture, Nutrition and Forestry. The CFTC’s initial budget 

request may be revised during its consideration by OMB and then, after submission to 

Congress, by the appropriate House and Senate committees (which may hold hearings, 

request additional testimony by CFTC Commissioners or staff, or request additional 

documentation). The vehicle to authorize the CFTC’s budget funds is through the 

adoption by the Congress of a specific bill authorizing and funding the CFTC’s operations 

(as part of the President’s budget).

Determinations regarding the sufficiency of the CFTC’s requested resources are made by 

the Congress during its consideration of the CFTC’s formal budget request. Information 

regarding specific needs of the CFTC is communicated by the formal budget document 

and related written submissions, direct testimony by the Chairman and/or CFTC 

Commissioners to Congress, and by CFTC and Congressional staff communications and 

meetings.

See also responses to Principle 3, Question 2. 

4. Are the regulatory authority, the head and members of the governing body of the 

regulatory authority, as well as its staff, accorded adequate legal protection for the bona 

fide discharge of their governmental, regulatory and administrative functions and powers?

Yes. The Federal Employees Liability Reform and Tort Compensation Act of 198846

provides Federal employees with immunity from individual liability for torts committed in 

the scope of their employment. In order to insulate CFTC staff from individual liability for 

possible violation of constitutional or statutory duties that are not shielded by the Federal 

Liability Reform and Tort Compensation Act of 1988, the CFTC has adopted 

indemnification rules.47

5. Are the head and governing board of the regulator subject to mechanisms intended to 

protect independence, such as: procedures for appointment; terms of office; and criteria 

for removal?

Yes. Section 2(a)(2)(A) of the CEA provides that each of the five Commissioners of the 

CFTC are to be appointed by the President, by and with the advice and consent of the 

Senate. Each CFTC Commissioner holds office for a term of five years. The terms of the 

Commissioners are staggered due to the CEA’s initial requirement that the first 

Commissioners’ terms were to expire one, two, three, four and five years from the date the 

 

46 28 U.S.C. 2671.

47 CFTC Regulation Part 142.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

40 INTERNATIONAL MONETARY FUND 

CFTC began operations on April 21, 1975. Not more than three Commissioners may be 

members of the same political party.

The President appoints, with the advice and consent of the Senate, a member of the CFTC 

as Chairman, who serves as Chairman at the pleasure of the President. The President may 

appoint at any time, with the advice and consent of the Senate, a different Chairman, and 

the CFTC Commissioner previously appointed as Chairman may complete his or her term 

as a CFTC Commissioner.

Accountability

6. With reference to the system of accountability for the regulator’s use of its powers and 

resources: 

(a) Is the regulator accountable to the legislature or another government body on an 

ongoing basis?

Yes. The CFTC is accountable for its conduct to Congress. The House Committee on 

Agriculture and its Subcommittee on Risk Management and Specialty Crops, and the 

Senate Agriculture, Nutrition and Forestry Committee and its Subcommittee on Research, 

Nutrition and General Legislation have the principal responsibility for oversight of the 

CFTC. In general, these Committees handle, in the first instance, the reauthorization, 

budget and funding decisions for the CFTC, as well as bills affecting the CEA. 

Section 8(i) of the CEA requires the Comptroller General to conduct reviews and audits of 

the CFTC and make reports thereon. Section 8(i) of the CEA directs the CFTC to make 

available to the Comptroller General (generally through its OMB) any information 

regarding the powers, duties, organization, transactions, operations and activities of the 

CFTC, as well as access to any books and records (subject to confidentiality requirements), 

as the Comptroller General may require.

(b) Is the regulator required to be transparent in its way of operating and use of 

resources and to make public its actions that affect users of the market and 

regulated entities, excluding confidential or commercially sensitive information?

Yes. Section 8(h) of the CEA requires the CFTC to submit to Congress a written report 

within 120 days after the end of each fiscal year detailing the operations of the CFTC 

during that fiscal year. The CFTC is required to include in this annual report such 

information, data and legislative recommendations as it deems advisable with respect to 

the administration of the CEA and its powers and functions under the CEA. Section 18(b) 

of the CEA requires that the annual report contain plans and findings regarding 

implementation of Section 18(a) of the CEA, which mandates certain research and 

information programs. 

(c) Is the regulator’s receipt and use of funds subject to review or audit? 

Yes. Externally, the CFTC’s budget and available resources are subject to oversight by the 

Congress through the exercise of its authorization and funding procedures. Additionally, 

the Comptroller General periodically audits the CFTC. 

Internally, the CFTC Office of the Executive Director and the Office of Financial 

Management oversee the use of resources provided to the CFTC by Congress and report 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 41

directly to the Office of the Chairman. In particular, the Office of Financial Management 

manages the CFTC’s financial and budget programs by coordinating development of the 

CFTC’s strategic plan, annual performance plan and annual performance report; 

formulates and executes the CFTC’s budget; provides contracting and purchasing of 

services; ensures proper use of, and accounting for, agency resources; and manages the 

CFTC’s travel services.

In addition, the operations of the CFTC are subject to ongoing review by an independent 

Office of the Inspector General (“OIG”) with offices in the CFTC headquarters. OIG was 

established in April 1989 and conducts and supervises audits and investigations of 

programs and operations of the CFTC and reviews existing and proposed legislation and 

regulations. OIG recommends policies to promote economy, efficiency and effectiveness 

in CFTC programs and operations, and to prevent and detect fraud and abuse. OIG keeps 

the Chairman of the CFTC and Congress informed about any problems, deficiencies, and 

progress of corrective action in programs and operations. For more information about 

the OIG, see: http://www.cftc.gov/About/OfficeoftheInspectorGeneral/index.htm

7. Are there means for natural or legal persons adversely affected by a regulator’s decisions 

or exercise of administrative authority ultimately to seek review in a court, specifically:

(a) Does the regulator have to provide written reasons for its material decisions? 

Yes. CFTC rulemaking must comply with the procedural requirements of the APA, which 

are intended to provide public notice and opportunity for public comment in the 

rulemaking. The APA specifically requires Federal administrative agencies such as the 

CFTC to publish a Notice of Proposed Rulemaking in the Federal Register and to provide 

interested persons an opportunity to participate in the rulemaking through submission of 

written data, views or arguments with or without an opportunity for oral presentations. 

The APA requires agencies to incorporate a concise general statement of their basis and 

purpose in the rules adopted.

(b) Does the decision-making process for such decisions include sufficient procedural 

protections to be meaningful?

Yes. See response to Principle 2, Question 7(a). 

Part 147 of the CFTC’s regulations implements the open meetings requirement of the 

Government in the Sunshine Act (“Sunshine Act”), 5 U.S.C. 552b, which mandates the 

conditions under which CFTC Commissioners must conduct open meetings. As stated in 

CFTC Regulation 147.1(b), “among the primary purposes of these rules is the CFTC’s desire 

to inform the public to the fullest extent possible of its activities as an aid to its properly 

carrying out its responsibility for administering and enforcing the CEA . . .” 

The CFTC has also adopted regulations that provide objective due process procedures to 

ensure that various aspects of its programs are conducted with fairness and impartiality. 

See response to Principle 5, Question 1.

As previously noted (see response to Principle 2, Question 2(a) and 7(a)), Federal agencies 

such as the CFTC also must comply with certain general rulemaking requirements (e.g., the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

42 INTERNATIONAL MONETARY FUND 

Regulatory Flexibility Act that requires agencies to take into account the impact of 

proposed rules on small businesses, and the PRA that requires agencies to review rules to 

evaluate the information collection burden such rules would impose on the public) and its 

decisions are subject to review in a court.

(c) Are affected persons permitted to make representations prior to such a decision 

being taken by a regulator in appropriate cases?

Yes. See response to Principle 4, Question 2(c).

(d) Are all such decisions taken by the regulator subject to a sufficient, independent 

review process, ultimately including judicial review?

Yes. Aggrieved parties may challenge agency actions under the APA in U.S. Federal 

District Court. See 5 U.S.C. 702.

8. Where accountability is through the government or some other external agency is 

confidential and commercially sensitive information subject to appropriate safeguards to 

prevent inappropriate use or disclosure?

Yes.

Safeguards against Inappropriate Use of Information. Section 2(a)(8) of the CEA 

prohibits any CFTC Commissioner or employee of the CFTC from accepting employment 

or compensation from any person, exchange, or clearinghouse subject to regulation by 

the CFTC and from participating, directly or indirectly, in any contract market operations 

or transactions of a character subject to CFTC regulation.

Section 9(c) of the CEA makes it a felony punishable by a fine of not more than $500,000 

or imprisonment for up to 5 years, or both, for a CFTC employee or CFTC Commissioner 

to trade commodity futures and options or to participate directly or indirectly in any 

investment transaction in an actual commodity if nonpublic information is used in the 

transaction or if prohibited by CFTC regulations. CFTC Regulation 140.735-2 provides, 

subject to very limited exceptions, that no member or employee of the CFTC may 

participate directly or indirectly in any transaction involving commodity futures and 

commodity options, among other things. Section 9(d) of the CEA similarly makes it a 

punishable felony for a CFTC employee or CFTC Commissioner to pass on or otherwise 

benefit from information such employee or Commissioner receives in the course of 

employment which may affect or tend to affect the price of commodities.

As a matter of practice, DOE seeks to place restrictions on the use and disclosure of 

confidential information in litigation through the use of protective orders and non-disclosure 

agreements in investigations. 

Regarding insider trading, Section 746 of the Dodd-Frank Act amended Section 4c(a) of 

the CEA by adding a new section (3) as follows:

(3) CONTRACT OF SALE.—It shall be unlawful for any employee or agent of any 

department or agency of the Federal Government who, by virtue of the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 43

employment or position of the employee or agent, acquires information that may 

affect or tend to affect the price of any commodity in interstate commerce, or for 

future delivery, or any swap, and which information has not been disseminated by 

the department or agency of the Federal Government holding or creating the 

information in a manner which makes it generally available to the trading public, 

or disclosed in a criminal, civil, or administrative hearing, or in a congressional, 

administrative, or Government Accountability Office report, hearing, audit, or 

investigation, to use the information in his personal capacity and for personal gain 

to enter into, or offer to enter into (A) a contract of sale of a commodity for future 

delivery (or option on such a contract); (B) an option (other than an option 

executed or traded on a national securities exchange registered pursuant to 

section 6(a) of the [Securities Exchange Act]; or (C) a swap.

Safeguards Against Inappropriate Disclosure of Information. Section 8(a)(1) of the CEA

provides that, except as otherwise specified in the CEA, the CFTC may not publish data and 

information that would separately disclose market position, business transactions, trade 

secrets or names of customers (i.e., “Section 8 Material”), and the CFTC may withhold from

public disclosure any data or information concerning or obtained in connection with any 

pending investigation of any person. Section 8(a)(1) of the CEA also furnishes protection 

from compelled disclosure for confidential information received from foreign futures 

authorities. The effect of this provision is to protect the disclosure of confidential 

information provided to the CFTC under an MOU in response to a request under the 

Freedom of Information Act (“FOIA”) or third party subpoena. As noted above, DOE seeks to 

place restrictions on the use and disclosure of confidential information in litigation through 

the use of protective orders and non-disclosure agreements in investigations. 

CFTC Regulation 145.5 provides that the CFTC may decline to publish or make available to 

the public any “non-public” records as defined in Regulation 145.5(a)-(i). Generally, this type 

of information concerns trade secrets, national defense or foreign policy concerns, personal 

privacy, various financial statement forms and pending investigations. In addition, 

Regulation 145.9 outlines the procedures by which a person submitting information to the 

CFTC may request confidential treatment of that information.

Part 146 of the CFTC’s regulations implement the Privacy Act of 1974 (“Privacy Act”), 5 

U.S.C. 552a, which provides protections for information concerning an individual. Among 

the primary purposes of these rules are to enable individuals to determine whether 

information about them is contained in government files and, if so, to obtain access to 

that information; to establish procedures whereby individuals may have inaccurate and 

incomplete information corrected; and to restrict access by unauthorized persons to that 

information.

Sanctions. Section 9(f)(1) of the CEA makes it a felony for any person who is an employee, 

member of the governing board, or member of any committee of a board of trade, 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

44 INTERNATIONAL MONETARY FUND 

contract market or registered futures association, in violation of a regulation issued by the 

CFTC, willfully and knowingly to trade for such person’s own account, or for or on behalf 

of any other account in futures contracts or options thereon, on the basis of, or willingly 

and knowingly to disclose for any purpose inconsistent with the performance of such 

person’s official duties, any material nonpublic information obtained through special 

access related to the performance of duties. Violations are punishable by a fine of up to 

$500,000 in the case of an individual plus the amount of any gains realized from such 

trading or disclosures and/or prison of up to five years. 

Section 9(a)(5) of the CEA makes it a felony, punishable by a fine of up to $500,000 in the 

case of an individual and/or prison of up to five years, for any person willfully to violate 

any other provision of the CEA, or any rule or regulation thereunder.

Permissible Disclosures. The CEA specifies the circumstances for the permissible disclosure 

of information. CEA Section 8(a) also contains a provision that explicitly sets forth certain 

permissible disclosures of "Section 8 Material." This provision includes reference to 

confidential information received from a foreign futures authority. This explicit list is 

necessary because, under the CEA, Section 8 Material may not be disclosed by the CFTC 

"except as otherwise specifically authorized in this Act." See also Section 8(e) of the CEA for 

exceptions to the prohibition against disclosure of Section 8 Material.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 45

Principle 3 The Regulator should have adequate powers, proper resources and the 

capacity to perform its functions and exercise its powers.

Key Questions

1. Are the powers and authorities of the regulator sufficient, taking into account the nature 

of a jurisdiction’s markets and a full assessment of these Principles to meet the 

responsibilities of the regulator(s) to which they are assigned?

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

manipulation, other abusive practices, and systemic risk, related to derivatives that are 

subject to the CEA and to foster open, transparent, competitive and financially sound 

markets.

48

Surveillance. The CFTC has the power to conduct direct surveillance of those markets 

and financial institutions that fall within its regulatory jurisdiction.49 Significantly, the 

Dodd-Frank Act gave the Commission new regulatory authorities over SDs, MSPs, DCMs, 

DCOs, SEFs and SDRs. The CFTC also can obtain certain information on unregulated 

affiliates of FCMs or affiliates of FCMs subject to regulation by other authorities such as 

the SEC, the banking regulators, and the relevant foreign authorities.50 In addition, the 

CFTC has the power to obtain information regarding regulated markets, institutions, 

financial products, customers and parties to transactions.51 Further, the CFTC has the 

power to review books and records of persons holding reportable positions in futures and 

swaps, including all cash and spot transactions in and inventories of, and purchase and 

sale commitments of the commodities underlying reportable positions.52

Section 8a(6) of the CEA authorizes the CFTC to communicate to the proper committee or 

officer of any DCM, registered futures association (“RFA”), or self-regulatory organization 

(“SRO”) as defined in Section 3(a)(26) of the 1934 Act, notwithstanding Section 8 of the 

CEA, the full facts concerning any transaction or market operation, including the names of 

parties thereto, which in the judgment of the CFTC disrupts or tends to disrupt any market 

or is otherwise harmful or against the best interests of producers, consumers or investors, 

which is necessary to effectuate the purposes of the CEA. Section 8a(6) of the CEA further 

provides that any information so provided must not be disclosed except in a selfregulatory proceeding or action.53

 

48 See Section 3(b) of the CEA.

49 See CEA Sections 4(a), 4(b), 4d, 4e, 4m, 4s, 5b, 5h, 8a(5) and 21

50 See CEA Section 4f(c), 8(a)(1) and 8(a)(2).

51 See CEA Sections 4g and 4n.

52 See Sections 4i and 4t of the CEA.

53 See also CFTC Regulation 140.72 (delegating such authority to certain Staff).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

46 INTERNATIONAL MONETARY FUND 

Enforcement. The CFTC has the power to conduct investigations54 and sanction 

violations of the CEA. Administrative sanctions may include orders suspending, denying, 

revoking, or restricting registration and exchange trading privileges and imposing civil 

monetary penalties and orders of restitution (CEA Section 6(c)) as well as cease and desist 

orders (CEA Section 6(d)). The CFTC may also obtain temporary restraining orders and 

preliminary and permanent injunctions in Federal court for CEA violations, as well as 

impose civil monetary penalties (CEA Section 6c). Other relief may include appointment 

of a receiver, freeze assets, restitution and disgorgement of unlawfully acquired benefits.

The CEA also provides that the CFTC may obtain certain temporary relief on an ex parte

basis (that is, without notice to the other party) including restraining orders preserving 

books and records, freezing assets and appointing a receiver.55 When those enjoined 

violate court orders, the CFTC may seek to have the offenders held in contempt.

The CFTC has the power to direct “registered entities”56 to alter or supplement their rules 

and to take such action as it deems to be necessary to maintain or restore orderly trading. 

See Sections 8a(7) and (9) of the CEA. Section 5e of the CEA authorizes the CFTC to 

suspend or revoke the designation of a contract market, SEF or DCO based on a failure or 

refusal to comply with any of the provisions of the CEA, CFTC regulations or CFTC orders.

Section 12(a) of the CEA provides that the CFTC “may cooperate with any Department or 

agency of the government, any state, territory, district, or possession, or department, 

agency, or political subdivision thereof, any foreign futures authority, any department or 

agency of a foreign government or political subdivision thereof, or any person.”

After the recent financial crisis, the Dodd-Frank Act modernized consumer and investor 

protection requirements and expanded those requirements to previously unregulated 

areas. Section 753 of the Dodd-Frank Act also significantly enhanced the Commission’s 

enforcement anti manipulation authority. For example, Section 6(c)(1) prohibits the use of 

any “manipulative or deceptive device or contrivance” in connection with any swap or 

contract of sale of any commodity in interstate commerce of for future deliver on or 

subject to the rules of any registered entity and includes a special provision for 

manipulation by false or misleading or inaccurate reporting. See also Regulation 180.1(a). 

These provisions lessened the intent requirement to prohibit "the reckless use of fraud-

 

54 See CEA Section 8(a)(1). 

55 See CEA Section 6c.

56 The term “registered entity” is defined in Section 1a(40) of the CEA to mean (i) a board of trade designated as a 

contract market under Section 5; (ii) a DCO registered under Section 5b; (iii) a board of trade designated as a contract 

market under Section 5f; (iv) a SEF registered under Section 5h; (v) an SDR registered under Section 21; and (vi) with 

respect to a contract that the Commission determines is a significant price discovery contract, any electronic trading 

facility on which the contract is executed or traded.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 47

based manipulative schemes.”

The Dodd-Frank Act also expanded the CFTC's authority to bring new types of 

enforcement actions alleging false statements to the CFTC. Section 6(c)(2) makes it 

unlawful to make any false or misleading statement of a material fact to the Commission 

in any form relating to a future, swap or commodity in interstate commerce. Section 

6(c)(3) prohibits any person from directly or indirectly manipulating or attempting to 

manipulate the price of any product regulated by the Commission. 

In Section 747 of the Dodd-Frank Act, Congress amended the CEA to expressly prohibit 

certain trading practices that it determined were disruptive of fair and equitable trading. 

Dodd-Frank section 747 amends Section 4c(a) of the CEA making it unlawful for any 

person to engage in any trading, practice, or conduct on or subject to the rules of a 

registered entity that:

 violates bids or offers;

 demonstrates intentional or reckless disregard for the orderly execution of 

transactions during the closing period; or 

 is of the character of, or is commonly known to the trade as, “spoofing” (bidding 

or offering with the intent to cancel the bid or offer before execution). 

The Dodd-Frank Act also established structural mechanisms to ensure that gaps are 

addressed as soon as new products are developed. The Dodd-Frank Act removed 

previous exemptions from regulation related to: (1) transactions in excluded commodities 

between ECPs and not executed or traded on a trading facility; (2) principal-to-principal 

transactions in excluded commodities between certain ECPs and executed or traded on an 

electronic trading facility; (3) transactions subject to individual negotiation between ECPs

in commodities other than agricultural commodities and not executed or traded on a 

trading facility; (4) transactions in exempt commodities between ECPs and not entered 

into on a trading facility; (5) principal-to principal transactions in exempt commodities 

between eligible commercial entities and executed or traded on an electronic trading 

facility; and (6) transactions in commodities, among other things, having a nearly 

inexhaustible deliverable supply or no cash market, between ECPs and traded on an 

exempt board of trade.

Additionally, the Dodd-Frank Act includes detailed Core Principles for DCOs to enhance 

the CEA regulatory regime for central counterparties. It also authorized the CFTC to 

prescribe regulations, in consultation with FSOC and the Federal Reserve, containing risk 

management standards for SIDCOs, taking into consideration relevant international 

standards and existing prudential requirements.

In order to provide greater transparency to the swap market and permit regulators to 

properly assess the market and its participants, Section 728 of the Dodd-Frank Act

established SDRs for the purpose of collecting and maintaining data and information 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

48 INTERNATIONAL MONETARY FUND 

related to swap transactions. SDRs are required to register57 with the CFTC and make 

such data and information directly and electronically available to the CFTC and other 

regulators.58 In addition, the Dodd-Frank Act also required in Section 727 that swap 

transaction data be publicly available and disseminated to the marketplace. The CFTC 

adopted Part 43 to its regulations to implement these Congressional requirements.59

To implement Section 737 of the Dodd-Frank Act, the CFTC recently reissued a notice of 

proposed rulemaking to establish limits on speculative positions in 28 selected physical 

commodity futures contracts traded pursuant to the rules of a DCM as well as swaps that 

are “economically equivalent” to those contracts.60 The proposed rulemaking would 

enable the CFTC to meet its statutory responsibility to set such limits in order to prevent 

excessive speculation and manipulation while ensuring sufficient market liquidity for bona 

fide hedgers and protecting the price discovery process. 

Foreign boards of trade (“FBOTs”) that wish to permit identified members and other 

participants located in the U.S. with direct access to their electronic trading and order 

matching system must apply for and receive an order of registration pursuant to the 

procedures set forth in Part 48 of the Commission’s regulations.

2. With regards to funding: 

(a) Is the regulator's funding adequate to permit it to fulfil its responsibilities, taking 

into account the size, complexity and types of functions subject to its regulation, 

supervision or oversight?

Determinations regarding the sufficiency of the CFTC’s requested resources are made by 

the Congress during its consideration of the President’s budget request with input from 

the CFTC’s formal budget request. Information regarding specific needs of the CFTC is 

communicated by the formal budget document and related written submissions, direct 

testimony by the Chairman and/or CFTC Commissioners to Congress and by CFTC and 

Congressional staff communications and meetings.

The CFTC currently employs roughly 667 career staff. For FY2014, the CFTC received a 

modest budgetary increase to $215 million, up from a sequestration level of $195 million 

that posed significant challenges for the agency’s orderly operation. The President’s 

FY2015 budget recommended $280 million for the CFTC for FY2015, an increase of $65 

million and 253 staff persons over the FY2014 levels. The President’s FY2015 budget 

would enable the CFTC to expand examinations, surveillance and technology functions.

 

57 Swap Data Repositories: Registration Standards, Duties and Core Principles, 76 FR 54538, 54544 (Sept. 1, 2011).

58 Swap Data Recordkeeping and Reporting Requirements, 77 FR 2136 (Jan. 13, 2012).

59 Real-Time Public Reporting of Swap Transaction Data, 77 F.R. 1182 (Jan. 9, 2012).

60 See Section 4a(a) of the CEA.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 49

The House Appropriations Committee released the FY2015 Agriculture Appropriations Bill

with a budget of $218 million for the CFTC, an increase of $3 million over the 2014 

enacted level, $62 million below the President’s request. The Bill requires over $52 million 

be for the purchase of information technology until September 30, 2016.

See also response to Principle 2, Question 3.

(b) Can the regulator affect the operational allocation of resources once funded?

An allocation request is submitted by the CFTC to Congress. The request contains a 

specific breakdown of resource allocation within the CFTC. The final allocation may be 

revised as part of discussions between the Congress and the CFTC. The final allocation is 

established when the Congress adopts the bill funding the CFTC’s operations.

3. Does the level of resources recognize the difficulty of attracting and retaining experienced 

and skilled staff? 

Section 12 of the CEA authorizes the CFTC to employ personnel and obtain necessary 

technical resources; Section 12(b)(1) of the CEA also authorizes the CFTC to employ such 

investigators, special experts, Administrative Law Judges, clerks and other employees as it 

may from time to time find necessary for the proper performance of its duties and as may 

be from time to time appropriated by Congress; Section 12(b)(2) of the CEA authorizes 

the CFTC to employ experts and consultants; and Section 12(b)(3) of the CEA authorizes 

the CFTC to make and enter into contracts with respect to all matters which in the 

judgment of the CFTC are necessary and appropriate to effectuate the purposes of the 

CEA. Section 2(a)(7) of the CEA permits the CFTC to provide additional compensation and 

benefits to employees “if the same type of compensation or benefits are provided by any 

agency referred to in section 1206(a) of the Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989, 12 U.S.C. 1833b(a), or could be provided by such an agency 

under applicable provisions of law (including rules and regulations).” In effect, Section 

2(a)(7) of the CEA enables the CFTC to maintain comparative compensation and benefits 

in relation to other Federal financial regulators for the purpose of retaining and attracting 

employees. 

Section 2(a) of the CEA requires the Commission to have a General Counsel and to 

appoint such other attorneys as may be necessary to assist the General Counsel and 

perform legal duties and functions as the Commission may direct. 

As of May 31, 2014, the Commission employed 646 employees that comprise 435 mission 

critical programmatic staff (attorneys, economists, auditors, risk and trade analysts, and 

other financial specialists); 163 management and support staff (human resources 

specialists; IT specialists; management and program professionals; financial staff; strategic 

planners; logistics staff; and clerical); and 48 executives. See also FY 2013 Agency Financial 

Report dated December 2013 (http://www.cftc.gov/About/CFTCReports/index.htm).

4. Does the regulator ensure that its staff receives adequate ongoing training?

Yes. Throughout the year, the Human Resources Branch provides a series of 

educational/training seminars keyed to the primary mission of the CFTC through its Talent 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

50 INTERNATIONAL MONETARY FUND 

Management and Leadership Development Section. The Section employs a full-time 

Chief Learning Officer to ensure that the training needs of all employees are met. These 

training seminars are focused on the financial and legal aspects of the 

futures/options/swaps markets. Technical and computer skills are also provided to 

employees as needed. In addition, employees may use various on-line, web-based and 

in-house educational materials to maintain and increase proficiency. Off-site educational 

seminars provided by third parties (such as continuing legal education) are also made 

available. 

The Commission recently announced that it has entered into a multi-year contract to 

allow all CFTC Federal employees to take technical training related to financial 

management, financial marketplaces and business skill enhancement.

5. Does the regulator have policies and governance practices to perform its functions and 

exercise its powers effectively?

Yes. See response to question 1.

6. Does the regulator play an active role in promoting education in the interest of protecting 

investors?

Yes. The Commission has an Office of Consumer Outreach which supports the 

Commission by creating and distributing financial education messages to help consumers 

avoid fraud and deception in the commodities markets. 

The Commission has a section on its website (www.cftc.gov) devoted to consumer 

protection. The link is prominently located on the banner of the CFTC home page.

The consumer protection section of the website educates consumers about U.S. futures 

markets; notifies the public about the types of fraud in the marketplace; offers guidance 

on how to file complaints or send in tips regarding suspicious activities; and provides 

updates on disciplinary actions.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 51

Principle 4 The Regulator should adopt clear and consistent regulatory processes

Key Questions

Clear and Equitable Procedures

1. Is the regulator subject to reasonable procedural rules and regulations? 

Yes. The CFTC is subject to the APA. The APA establishes procedures that most Federal 

agencies, including the CFTC, must follow when they take agency action.61 The APA also 

provides the standards of judicial review of final agency action.62 In addition, the CEA and 

CFTC regulations also provide various procedural rules in connection with, among other

things, investigations and enforcement proceedings, review of exchange disciplinary 

proceedings and the reparations program. See response to Principle 4, Question 3; 

response to Principle 2, Question 2(a) (discussing compliance with the Regulatory 

Flexibility Act, PRA and CRARA). In addition, the CFTC is subject to FOIA, which requires 

Federal agencies to make public information which is not subject to one or more limited 

restrictions on disclosure.

2. Does the regulator: 

(a) Have a process for consultation with the public, or a section of the public, 

including those who may be affected by the policy, for example, by publishing 

proposed rules for public comment, circulating exposure drafts or using advisory 

committees or informal contacts?

See response to 2(c).

(b) Publicly disclose and explain its policies, not including enforcement and 

surveillance policies, in important operational areas, such as through 

interpretations of regulatory actions, setting of standards, or issuance of opinions 

stating the reasons for regulatory actions?

See response to 2(c).

(c) Publicly disclose changes and reasons for changes in rules or policies?

Yes, to all of the above. The CFTC typically promulgates rules through “informal” 

rulemakings under the APA. Informal rulemaking requires that the public be given notice 

of a proposed rule and the opportunity for public comment.

63 The APA generally requires 

Federal administrative agencies such as the CFTC to publish a notice of proposed and final 

rulemaking in the Federal Register and to provide interested persons an opportunity to 

participate in the rulemaking through submission of written data, views or arguments with 

or without an opportunity for oral presentations. The Commission’s procedural rules 

require that whenever the CFTC proposes to issue, amend, or repeal any rule or regulation 

of general application, that notice of the action be published in the Federal Register. CFTC 

Regulation 13.3. The CFTC sometimes holds open forums to permit oral communication 

of views by the public on proposed rules of particular significance. 

CFTC Regulation 140.98 provides, among other things, that each written

 

61 The APA is codified at 5 U.S.C. 551 et seq.

62 5 U.S.C. 702.

63 5 U.S.C. 553.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

52 INTERNATIONAL MONETARY FUND 

response by the Commission or its staff to a (i) letter requesting interpretive legal

advice, (ii) a statement that, on the basis of the facts stated in such letter, the staff

would not recommend that the Commission take any enforcement action, or (ii) certain 

exemption letters, will be made available to the public for inspection and copying except 

for (1) information provided pursuant to a request for confidential treatment under CFTC 

Regulation 140.98(b) and (2) Section 8 Material. 

As noted, the APA requires an agency to give its rationale and policy purpose in 

proposing or adopting a rule. In addition, the CFTC generally articulates the rationale for 

all interpretations, exemptions, orders or policy changes. See response to Principle 4, 

Question 4(d), regarding the types of communications published by the CFTC that explain 

the CFTC’s program.

The CFTC has from time to time created various advisory committees as a mechanism for 

public consultation with interested members of the commodities industry and users of the 

futures markets. Such advisory committees include: (i) an Agricultural Advisory 

Committee with 25 member organizations representing a major portion of the American 

agricultural community; (ii) a Global Markets Advisory Committee with 30 members 

representing futures exchanges, self-regulators, financial intermediaries, traders and 

market users; (iii) a Technology Advisory Committee with 21 individuals representing 

electronic markets, electronic communication systems, U.S. futures exchanges, an SRO, 

financial intermediaries, market users and traders; (iv) a Joint CFTC-SEC Advisory 

Committee on Emerging Regulatory Issues with ten members consisting of prominent 

market practitioners, academics and former market regulators; and (v) an Energy and 

Environmental Markets Advisory Committee consisting of 33 members representing 

industry professionals, futures exchanges, market participants, academics, consumer 

advocates and environmental organizations. The CFTC also periodically holds informal 

roundtables and formal public hearings on issues.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 53

(d) Have regard, in the formulation of policy, to the costs of compliance with 

regulation?

Yes. Section 15(a) of the CEA requires the Commission to consider the costs and benefits 

of its action before issuing a new regulation or certain orders under the CEA. By its terms, 

Section 15(a) does not require the Commission to quantify the costs and benefits of a new 

regulation or to determine whether the benefits of the proposed regulation outweigh its 

costs. Rather, Section 15(a) requires the Commission to ‘‘consider the costs and benefits’’ 

of its action in light of five areas of market and public concern: protection of market 

participants and the public; efficiency, competitiveness and financial integrity of futures 

markets; price discovery; sound risk management practices; and other public interest 

considerations.

(e) Make all rules and regulations available to the public? 

Yes. All CFTC regulations are published in the U.S. Code of Federal Regulations, 17 C.F.R. 

Part 1 et. seq. and are available at http://www.gpoaccess.gov.

(f) Make its rulemaking procedures readily available to the public? 

Yes. See response to Principle 4, Question 2(c).

3. In assessing procedural fairness:

(a) Are there rules in place for dealing with the regulator that are intended to ensure 

procedural fairness? 

Yes. CFTC rulemaking must comply with the procedural requirements of the APA, which 

are intended to provide public notice and opportunity for public comment in the 

rulemaking. The APA specifically requires Federal administrative agencies such as the 

CFTC to publish a Notice of Proposed Rulemaking in the Federal Register and to provide 

interested persons an opportunity to participate in the rulemaking through submission of 

written data, views or arguments with or without an opportunity for oral presentations. 

Part 147 of the CFTC’s regulations implements the open meetings requirement of the 

Sunshine Act. The Sunshine Act mandates the conditions under which CFTC 

Commissioners must conduct open meetings.64 As stated in CFTC regulation 147.1(b), 

“among the primary purposes of these rules is the CFTC’s desire to inform the public to 

the fullest extent possible of its activities as an aid to its properly carrying out its 

responsibility for administering and enforcing the CEA . . .” 

The CFTC also has adopted regulations that provide objective due process procedures to 

ensure that various aspects of its programs are conducted with fairness and impartiality. 

See, e.g., response to Principle 5, Question 1(d).

As previously noted (see response to Principle 4, Question 1), Federal agencies such as the 

CFTC also must comply with certain general rulemaking requirements (e.g., the Regulatory 

Flexibility Act that requires agencies to take into account the impact of proposed rules on 

small businesses, and the PRA that requires agencies to review rules to evaluate the 

 

64 5 U.S.C. 552b.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

54 INTERNATIONAL MONETARY FUND 

information collection burden such rules would impose on the public).

(b) Is the regulator required to give reasons in writing for its decisions that affect the 

rights or interests of others?

Yes. The regulator must give reasons in writing for final agency action that affects the 

rights or interests of others. The APA requires agencies to incorporate in the rules 

adopted a concise general statement of their basis and purpose.

(c) Are all material actions of the regulator in applying its rules subject to review?

Yes. Procedural challenges to agency actions under the APA may be brought by aggrieved 

parties in U.S. Federal District Courts.

(d) Are such decisions subject to judicial review where they adversely affect legal or 

natural persons?

Yes. See response to Principle 4, Question 3(c).

(e) Are the general criteria for granting, denying, or revoking a licence made public, 

and are those affected by the licensing process entitled to a hearing with respect 

to the regulator’s decision to grant, deny, or revoke a licence?

Yes. The general criteria for registration as an, DCM, DCO, FBOT, RFED, SDR, and SEF are 

public and included in Parts 38, 39, 48, 3, 49, and 37, respectively, of the CFTC’s 

regulations. The general criteria for granting the various categories of intermediary 

registration (i.e., registration as an FCM, RFED, IB, CTA, CPO, leverage transaction 

merchant, floor trader, floor broker, SD, and MSP) are made public in Parts 3 and 23 of the 

CFTC’s regulations. 

The general criteria for the denial, conditioning or revocation of a registration, as well as 

conditions concerning the opportunity for a hearing, are contained in Sections 8a(2)-(4) of 

the CEA and in Subpart C, Part 3 of the CFTC regulations. 

Section 5e of the CEA authorizes the CFTC to suspend or revoke the designation of a 

registered entity based on a failure to comply with any of the provisions of the CEA or any 

rules, regulations or orders of the CFTC. 

Section 17(l) authorizes the CFTC, after notice and opportunity for a hearing, to suspend 

or revoke the registration of a registered futures association (“RFA”)65 if the CFTC finds, 

among other enumerated reasons, that the association violated the CEA or CFTC rules.

Transparency and Confidentiality

4. If applicable, are procedures for making reports on investigations public consistent with 

the rights of individuals, including confidentiality and data protection? 

Yes. See Section 8 of the CEA and response to Principle 2, Questions 6 and 8.

Consistent Application

5. Are the regulator’s exercise of its powers and discharge of its functions consistently 

 

65 NFA is the only RFA. NFA is the SRO for the futures industry that regulates every registrant who conducts futures, 

options, or swaps trading business with customers, subject to CFTC oversight. FCMs, RFEDs, IBs, CPOs, CTAs, SDs, 

MSPs and APs are generally required, unless otherwise exempt, to be registered with the CFTC. However, the CFTC 

has delegated the registration function to the NFA so that such persons submit their registration applications to NFA 

and NFA approves/denies registration, subject to CFTC oversight. Section 17 of the CEA and Part 170 of the CFTC’s

regulations governs RFAs.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 55

applied?

Yes. See response to Principle 4, Question 3.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

56 INTERNATIONAL MONETARY FUND 

Principle 5 The staff of the Regulator should observe the highest professional 

standards including appropriate standards of confidentiality

Key Questions

1. Are the staff of the regulator required to observe legal requirements or a "Code of 

Conduct" or other written guidance, pertaining to: 

(a) The avoidance of conflicts of interest?

Yes. Subpart C of Part 140 of the CFTC’s regulations establishes general ethical standards 

of conduct for CFTC employees and CFTC Commissioners. CFTC Regulation 140.735-2 

restricts business and financial transactions and interests; Regulation 140.735-3 restricts 

non-governmental employment and outside activities; Regulation 140.735-4 restricts the 

receipt and disposition of foreign gifts and decorations; Regulation 140.735-5 prohibits 

the disclosure of non-public commercial, economic or official information to any 

unauthorized person; and Regulation 140.735-6 restricts the scope of former CFTC 

employees to practice or otherwise represent a person before the CFTC. 

Regulations issued by the U.S. Office of Government Ethics found in 5 C.F.R. Part 2635 also 

applies to CFTC employees and cover the following areas: basic obligations of public trust; 

gifts from outside sources; gifts between employees; conflicting financial interests; 

impartiality in performing official duties; seeking other employment; misuse of position; 

and outside activities.

Executive Order #12674 (dated April 12, 1989) also mandates high principles of ethical 

conduct for government employees.

While greatly detailed, in substance all of these ethical requirements establish that public 

service is a public trust and that all government employees must avoid both explicit 

conflicts of interests as well as even the appearance of impropriety in the conduct of their 

official business.

See also response to Principle 2, Question 8, regarding penalties for CFTC employees and 

Commissioners trading on inside information and/or misusing insider information.

(b) Restrictions on the holding or trading in securities subject to the jurisdiction of the 

regulatory authority and/or requirements to disclose financial affairs or interests?

Yes. See response to Principle 5, Question 1(a).

(c) Appropriate use of information obtained in the course of the exercise of powers 

and the discharge of duties?

Yes. The regulations cited in response to Principle 5, Question 1(a), above, also would 

prohibit the inappropriate use of information obtained in the course of employment at 

the CFTC. See response to Principle 2, Question 8 (regarding the prohibitions on use of 

non-public information by CFTC employees in Section 9 of the CEA).

(d) Observance of confidentiality and secrecy provisions and the protection of 

personal data?

Yes. Except as otherwise provided in the CEA, Section 8(a) of the CEA prohibits the CFTC 

from disclosing publicly data and information that would separately disclose the business 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 57

transactions, or market positions of any person and trade secrets or names of customers. 

Section 9(a)(5) makes it a felony punishable by a fine of up to $500,000 for an individual 

and/or imprisonment up to five years if any person willfully violates any other provision of 

the CEA. 

Part 145 of the CFTC regulations contains recordkeeping and access requirements, 

including requirements governing the handling and protection of nonpublic information. 

In order to prevent a clearly unwarranted invasion of personal privacy, CFTC Regulation 

145.4 authorizes the CFTC to delete identifying details when it makes available “public 

records” as defined in CFTC Regulation 145. CFTC Regulation 145.5 authorizes the CFTC 

to withhold from public disclosure any nonpublic records, including: records specifically 

exempted from disclosure by statute such as data and information which would 

separately disclose the business transactions or market positions of any person and trade 

secrets or names of customers; any data or information concerning or obtained in 

connection with any pending investigation of any person; trade secrets and commercial or 

financial information obtained from a person and privileged or confidential; and certain 

enumerated sections of financial reports required to be submitted to the CFTC.

Part 146 of the CFTC rules implements the Privacy Act, which provides protections for 

information concerning an individual. Among the primary purposes of these rules is to 

permit individuals to determine whether information about them is contained in 

Government files and, if so, to obtain access to that information; to establish procedures 

whereby individuals may have inaccurate and incomplete information corrected; and to 

restrict access by unauthorized persons to that information.

(e) Observance by staff of procedural fairness in performance of their functions?

Yes. As discussed in response to Principle 4, Question 3, above, the APA imposes 

mandatory procedures (notice and public comment) on the CFTC to ensure procedural 

fairness in the proposal and adoption of rules. The APA also establishes procedures in the 

adjudicatory context.

In addition, the CFTC has adopted rules of procedure addressing various aspects of the 

CFTC’s program. For example:

 CFTC regulations in Part 9 includes procedural regulations relating to the review of 

exchange disciplinary, access denial or other adverse actions; 

 CFTC regulations in Part 10 contains rules of practice that are generally applicable 

to adjudicatory proceedings before the CFTC under the CEA (such as denial, 

suspension, revocation, conditioning, restricting or modifying registration, the 

issuance of cease and desist orders, the denial of trading privileges, the 

assessment of civil penalties, the issuance of restitution orders) and any other 

proceeding where the CFTC declares them to be applicable; 

 CFTC regulations in Part 11 govern rules relating to investigatory proceedings 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

58 INTERNATIONAL MONETARY FUND 

conducted by the CFTC or its staff;

 CFTC regulations in Part 12 relate to reparation proceedings (i.e., claims against 

registrants for violations of the CEA and CFTC regulations resolved by 

Administrative Law Judges or hearing officers) pursuant to Section 14 of the CEA;

 CFTC regulations in Part 14 relate to the suspension or disbarment of persons 

from appearance and practice before the CFTC as an attorney or accountant;

 CFTC regulations in Part 147 specify the regulations applicable to the conduct of 

CFTC business, with a presumption of open CFTC meetings; and

 CFTC regulations in Part 171 govern procedures applicable to the review of

National Futures Association or (“NFA”) decisions.

2. Are there:

(a) Processes to investigate and resolve allegations of violations of the above 

standards?

Yes. See response to Principle 5, Question 1(e).

(b) Legal or administrative sanctions for failing to adhere to these standards?

Yes, as noted above in response to Principle 5, Question 1(a), the CFTC has adopted ethics 

regulations. Annual seminars and/or the dissemination of printed materials or films 

communicate such ethical standards to employees. As further noted, above, criminal 

penalties attach to certain ethical violations. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 59

Principle 6 The Regulator should have or contribute to a process to monitor, mitigate 

and manage systemic risk, appropriate to its mandate

Key Questions

1. Does the regulator have or contribute to a regulatory process (which may be focused on 

the securities market or be cross-sectoral) to monitor, mitigate, and appropriately manage 

systemic risk, according to the complexity of the Regulator’s market consistent with its 

mandate and authority?

Yes. The Commission has market surveillance and financial risk procedures to identify 

risks.

Market Surveillance

Market risks present in the derivatives markets under CFTC jurisdiction are generally 

assessed by the CFTC’s market surveillance program. Market surveillance is intended to 

preserve the economic functions of U.S. derivatives markets under CFTC jurisdiction by 

monitoring trading activity:

 to detect and prevent manipulation or abusive practices;

 to keep the CFTC informed of significant market developments;

 to enforce CFTC and exchange speculative position limits; and 

 to ensure compliance with CFTC reporting requirements.

The market surveillance program’s primary mission is to identify situations that could pose 

a threat of manipulation and to initiate appropriate preventive actions in physical 

commodities related to corners and squeezes. Further surveillance is conducted 

forensically to uncover manipulation or other abusive practices in markets within the 

CFTC’s jurisdiction for which information is not readily available or detection is not 

possible in real-time. Each day, for all active futures and option contract markets, the 

CFTC's market surveillance staff monitors the activities of large traders, and examines all 

price spikes, scheduled news release periods of market-sensitive data, all daily settlements 

in the major commodities and all option and final settlements in all major futures and 

options contracts. Staff also tracks key price relationships, and relevant supply and 

demand factors in a review for potential market problems. With the addition of swaps, 

staff monitors credit events for impacts on credit default indices and initiates an 

evaluative process to determine if the CDS settlement, after a credit event, was potentially 

manipulated. Interest rates swaps, foreign exchange, currency swaps and the other 

commodity asset class swaps are regularly examined for potential abuses and submission 

compliance with Commission regulations. 

Financial Risk

DCOs under the CFTC’s jurisdiction must comply with 18 Core Principles in order be 

registered and to maintain registration. These Core Principles address the following 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

60 INTERNATIONAL MONETARY FUND 

topics, among others: 

 Financial Resources

 Risk Management

 Settlement Procedures

 Treatment of Funds

 Default Rules and Procedures

 Rule Enforcement

 System Safeguards

 Reporting

 Recordkeeping

CFTC risk surveillance staff monitors the risk posed to and by DCOs, clearing members, 

and market participants, including market risk, liquidity risk, credit risk, and concentration 

risk. Relevant margin and financial resources are included within this monitoring 

program. CFTC staff regularly conducts back-testing to review margin coverage at the 

product level and follows up with the relevant clearing house regarding exceptional 

results. Independent stress testing of portfolios is conducted regularly. The independent 

stress tests may lead to individual trader reviews and/or FCM risk reviews. Traders and 

FCMs that have a higher risk profile are then reviewed during the Commission’s on-site 

review of a clearing house’s risk management procedures. In addition, CFTC risk 

surveillance also coordinates with other domestic and foreign regulators on matters of 

common jurisdictional interest.

The CFTC’s examination group examines DCOs that are registered with the Commission 

for compliance with the 18 DCO Core Principles as well as all relevant CFTC regulations. 

These Core Principles encompass all aspects of clearing, and an examination frequently 

involves a sophisticated analysis of a broad range of topics including, but not limited to, 

the adequacy of a DCO’s financial, operational and managerial resources; the DCO’s ability 

to manage all risks associated with clearing and settlement, including whether the DCO 

uses appropriate tools and procedures to monitor such risks; whether the DCO’s risk 

analysis and oversight program is able to accurately identify and minimize sources of 

operational risk; and a DCO’s ability to resist, and to minimize, any potential damage from 

cyber security threats. The exams group examines DCOs as frequently as practicable. In 

addition, the exams group examines each SIDCO at least once annually to determine: (1) 

the nature of the operations of, and the risks borne by, the SIDCO; (2) the financial and 

operational risks presented by the SIDCO to financial institutions, critical markets or the 

broader financial system; (3) the resources and capabilities of the SIDCO to monitor and 

control such risks; (4) the safety and soundness of the SIDCO; and (5) the SIDCO’s 

compliance with (A) Title VIII of the Dodd-Frank Act, and (B) the rules and orders 

prescribed under Title VIII of the Dodd-Frank Act. The exams group also frequently 

coordinates with other domestic and foreign regulators during an examination. Finally, 

the DCO exams group also performs the following tasks: (i) reviews all quarterly 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 61

submissions from DCOs to evaluate compliance with the CFTC’s financial resource 

requirements; (ii) reviews the certified financial statements of each DCO; (iii) reviews the

notice filings from all DCOs; (iv) assists with DCO applications by reviewing information 

supporting the DCO applicant’s compliance with certain Core Principles; and (v) assists in 

the review of SIDCO material rule change filings.

Economic Research and Analysis. 

The Office of the Chief Economist (“OCE”) provides economic support and advice to the 

Commission, conducts research on policy issues facing the Commission, and educates and 

trains Commission staff. The OCE plays an integral role in the preparation of new financial 

market regulations by providing economic expertise and analysis of cost-benefit 

considerations underlying those regulations. As new financial market regulations are 

implemented, the OCE will assess the impact of these regulations on derivatives markets. 

The OCE maintains an economic research program focused on the quantitative analysis of 

the ever-evolving changes in trading technology, trading instruments and types of market 

participants. Specifically, the OCE focuses its quantitative research program to analyze the 

following four broad areas:

• Analysis of the composition of speculative market participants in futures and 

options markets;

• Analysis of the linkages between and among futures, option, swap, securities and 

cash markets;

• Analysis of the effects of swap markets and swap market participants on market 

structure; and

• Analysis of high frequency and algorithmic trading.

The analysis of the composition of speculative market participants provides input into the 

Commission’s policy decisions on the potential impact of these traders in markets. Such 

analyses include identifying certain categories of traders; and identifying whether traders’

individual or collective positions or trading activity impact price, volatility or liquidity in 

markets. 

The analysis of the linkages between and among various markets helps to assess the 

transmission mechanisms between derivatives markets and securities and cash markets in 

order to monitor systemic risk issues. Such analysis includes identifying correlations 

among various markets and asset classes and determining whether an event in one 

market may trigger similar events in other markets.

The FSOC

The CFTC is also a member of the FSOC. Under Section 113 of the Dodd-Frank Act, the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

62 INTERNATIONAL MONETARY FUND 

FSOC is authorized to determine that a nonbank financial company’s material financial 

distress—or the nature, scope, size, scale, concentration, interconnectedness or mix of its 

activities—could pose a threat to U.S. financial stability. 

The Dodd-Frank Act also authorizes the FSOC to designate a Financial Market Utility 

(“FMU”) as “systemically important” if the FSOC determines that the failure of or a 

disruption to the functioning of the FMU could create or increase the risk of significant 

liquidity or credit problems spreading among financial institutions or markets and thereby 

threaten the stability of the U.S. financial system. Pursuant to Title VIII of the Dodd-Frank 

Act, designated FMUs are subject to heightened prudential and supervisory requirements 

that promote robust risk management and safety and soundness, including conducting 

their operations in compliance with applicable risk-management standards; providing 

advance notice and review of changes to their rules, procedures and operations that could 

materially affect the nature or level of their risks; and being subject to relevant 

examination and enforcement provisions.

2. Is the regulator developing expertise regarding risk measurements and analysis relevant 

to systemic risk, or if not, is the regulator able to take into consideration and apply risk 

measurements and analysis developed by other regulators?

Yes. The CFTC conducts its systemic risk work independently as well as with the FSOC and 

FSOC members. As described above, the CFTC has several risk surveillance teams

dedicated to measuring and analyzing risk so as to identify, mitigate and manage 

systemic risk. In addition to these internal programs, the CFTC works with the FSOC to 

help it identify threats to the financial stability of the United States; promote market 

discipline; and respond to emerging risks to the stability of the U.S. financial system. The 

FSOC consists of 10 voting members and 5 nonvoting members, including federal and 

state regulators. The CFTC is a voting member. FSOC operates through a number of 

functional committees on which the CFTC serves, including an FMU Committee and a

Systemic Risk Committee.

In connection with the Volcker rule, the Commission will receive extensive information 

regarding risk measures and analysis relevant to systemic risk. In receiving and reviewing 

this information, the Commission expects to coordinate with the SEC, Federal Reserve, 

FDIC and OCC.

On July 18, 2012, the FSOC designated eight financial market utilities as systemically 

important, including the following registered clearing agencies: Chicago Mercantile 

Exchange Inc. (“CME”), The Depository Trust Company, Fixed Income Clearing Corporation, 

ICE Clear Credit (“ICC”), National Securities Clearing Corporation, and Options Clearing 

Corporation. Of these registered clearing agencies, CME and ICC are SIDCOs for which 

the CFTC is the Supervisory Agency. The Options Clearing Corporation also is registered 

with the CFTC as a DCO.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 63

3. Is there communication and information sharing between the regulator and other 

domestic regulators who have responsibility for systemic stability with respect to efforts to 

reduce systemic risks?

Yes. As described above, the CFTC frequently coordinates with other domestic and 

foreign regulators on matters of common jurisdictional interest as well as on DCO 

examinations. In addition, as a voting member, Supervisory Agency, and subject matter 

expert, the CFTC frequently works with the FSOC on a number of matters, including 

systemic risk surveillance. The FSOC was created as part of the Dodd-Frank Act and 

specific FSOC authorities include:

 Facilitate Regulatory Coordination: The FSOC has a statutory duty to facilitate 

information sharing and coordination among the member agencies regarding 

domestic financial services policy development, and rulemaking, examinations, 

reporting requirements and enforcement actions with respect to designated FMUs

and designated nonbank financial companies. 

 Facilitate Information Sharing and Collection: In instances where the data available 

proves insufficient, the FSOC has the authority to direct the OFR to collect 

information from certain individual financial companies to assess risks to the 

financial system, including the extent to which a financial activity or financial market 

in which the financial company participates, or the financial company itself, poses a 

threat to the financial stability of the United States.

 Designate Nonbank Financial Companies for Consolidated Supervision: In the run 

up to the financial crisis, some of the firms which posed the greatest risk to the 

financial system were not subject to tough consolidated supervision. The DoddFrank Act gives the FSOC the authority to require consolidated supervision of 

nonbank financial companies, regardless of their corporate form.

 Designate Systemic Financial Market Utilities and Systemic Payment, Clearing, or 

Settlement Activities: The Dodd-Frank Act authorizes the FSOC to designate FMUs

and payment, clearing or settlement activities as systemically important, requiring 

them to meet risk management standards prescribed by the relevant Supervisory 

Agency and heightened oversight by the Federal Reserve, SEC or CFTC.

 Recommend Stricter Standards: The FSOC has the authority to recommend stricter 

standards for the largest, most interconnected firms, including nonbanks, 

designated by the FSOC for Federal Reserve supervision. Moreover, where the FSOC 

determines that certain practices or activities pose a threat to financial stability, the 

FSOC may make recommendations to the primary financial regulatory agencies for 

new or heightened standards.

 Recommend Congress close specific gaps in regulation.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

64 INTERNATIONAL MONETARY FUND 

Principle 7 The Regulator should have or contribute to a process to review the perimeter 

of regulation regularly.

Key Questions

1. Does the regulator have or participate in a process, to identify and assess whether its 

regulatory requirements and framework adequately addresses risks posed by products, 

markets, market participants and activities to investor protection, fair, efficient and 

transparent markets and the reduction of systemic risk? 

Yes. The FSOC is a forum for the exchange of issues and concerns among the U.S. financial 

regulatory agencies which participate in the FSOC. As noted in response to Principle 1, 

Question 2(d), the FSOC members include the heads of, among others, the Treasury

Department, Federal Reserve, CFTC, OCC, CFPB, SEC, and FDIC. The agencies are all separate 

US government agencies. Review occurs through staff discussions within the FSOC, through 

event-based discussions with other regulatory agencies, and through the day-to-day 

exercise of supervisory responsibilities.

In addition to participation with FSOC, the CFTC staff also is in regular contact with officials 

at the SEC, the Federal Reserve, the FDIC, the OCC, and the Treasury Department, which 

provides opportunity to discuss any emerging regulatory concerns. For example, in 

connection with its implementation of the Volcker rule, the CFTC staff is coordinating closely 

with the staffs of the SEC, the Federal Reserve, the FDIC and the OCC with regard to 

monitoring information provided by banking entities.

In the event that a particular concern is identified, the CFTC has formed joint study groups 

with the SEC. For example, the Joint CFTC-SEC Advisory Committee on Emerging Regulatory 

Issues was established on May 11, 2010, only a few days after the dramatic securities market 

events of May 6, 2010, called by some the “Flash Crash.” The Committee is charged with 

addressing regulatory issues of mutual concern to the CFTC and SEC. Subjects identified in 

the Committee’s charter include: identifying emerging regulatory risks; assessing and 

quantifying the impact of such risks and their implications for investors and market 

participants; and furthering the efforts of the CFTC and the SEC towards regulatory 

harmonization. See Joint Advisory Committee report: recommendations regarding 

regulatory responses to the market events of May 6, 2010 at: 

http://www.cftc.gov/PressRoom/Events/opaevent_cftcsec021811.

A more formal method of review occurs within the OCE. As discussed in response to 

Principle 6, Question 1, OCE provides economic support and advice to the Commission, 

conducts research on policy issues facing the Commission, and educates and trains 

Commission staff. OCE plays an integral role in the preparation of new financial market 

regulations by providing economic expertise and analysis of cost-benefit considerations 

underlying those regulations. As new financial market regulations are implemented, OCE 

will assess the impact of these regulations on derivatives markets. 

OCE maintains an economic research program focused on the quantitative analysis of the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 65

ever-evolving changes in trading technology, trading instruments, and types of market 

participants. Specifically, OCE focuses its quantitative research program to analyze the 

following four broad areas:

 Analysis of the composition of speculative market participants in futures and options 

markets. The analysis of the composition of speculative market participants provides 

input into the Commission’s policy decisions on the potential impact of these traders 

in markets. Such analyses include identifying certain categories of traders and 

whether their individual or collective positions or trading activity impact price, 

volatility, or liquidity in markets.

 Analysis of the linkages between futures, option, swap, securities, and cash markets. 

The analysis of the linkages between various markets helps to assess the 

transmission mechanisms between derivatives markets and securities and cash 

markets in order to monitor systemic risk issues. Such analysis includes identifying 

correlations among various markets and asset classes and determining whether an 

event in one market may trigger similar events in other markets.

 Analysis of the effects of swap markets and swap market participants on market 

structure. The analysis of the effects of swap execution facilities and swap market 

participants on the market structure of derivatives markets provides input into the 

Commission’s assessment of new market participants and trading venues. Further, 

economic analysis will serve as the basis for many studies mandated after the DoddFrank Act regulations are in effect.

 Analysis of high frequency and algorithmic trading. The analysis of high frequency 

and algorithmic trading provides tools to help the Commission’s surveillance and 

enforcement divisions to detect disruptive trading patterns and participants who 

attempt to manipulate markets.

The CFTC's Advisory Committees provide input and make recommendations to the 

Commission on a variety of regulatory and market issues that affect the integrity and 

competitiveness of U.S. markets. The committees facilitate communication between the 

Commission and U.S. futures and swaps markets, trading firms, market participants, and end 

users. The committees, governed by the provisions of the Federal Advisory Committee Act, 

currently include:

 Agricultural Advisory Committee

 Global Markets Advisory Committee

 Energy and Environmental Markets Advisory Committee

 Technology Advisory Committee

 CFTC-SEC Joint Advisory Committee

The agenda of a recent Technology Advisory Committee illustrates the “perimeter of 

regulation” type inquiries taking place within the Committee: working group 1 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

66 INTERNATIONAL MONETARY FUND 

presentations on automated and high frequency trading, including a gap analysis and issues 

related to oversight and surveillance, market microstructure issues. Available at 

http://www.cftc.gov/About/CFTCCommittees/TechnologyAdvisory/tac_meetings

2. Does the regulator have a process to review, where it is presented with evidence of changing 

circumstances, its past regulatory policy decisions on products, markets, entities, market 

participants or activities, especially decisions to exempt, and take measures as appropriate? 

Yes. Review of past regulatory policy decisions occurs through a variety of mechanisms:

(a) Executive Order 13563, ‘‘Improving Regulation and Regulatory Review’’ (issued Jan. 18, 

2011), calls on agencies to undertake an annual retrospective review of agency regulations. 

The Executive Order emphasizes several guiding principles, including that: agencies consider 

the costs and benefits of their regulations and choose the least burdensome path; the 

regulatory process must be transparent and include public participation; and agencies must 

attempt to coordinate, simplify and harmonize regulations to reduce costs and promote 

certainty for businesses and the public. Section 6 of the Executive Order focuses on the 

importance of maintaining a consistent culture of retrospective review and analysis by 

agencies of their regulatory programs. To that end, section 6 includes a ‘‘look-back’’ 

provision for agencies to develop a preliminary plan under which the agency will periodically 

review its existing significant regulations to determine whether any should be modified, 

streamlined, expanded or repealed in order to make the agency’s regulatory program more 

effective and less burdensome.

As part of the implementation of the Dodd-Frank Act, the Commission has reviewed many 

of its existing regulations. In determining the extent to which these existing regulations 

needed to be modified to conform to the Dodd-Frank Act’s new requirements, the 

Commission has subjected many of its rules to scrutiny in accordance with the Executive 

Order. The Commission’s retrospective review of its existing regulations is well underway.

After the substantial completion of the promulgation of final rules under the Dodd-Frank 

rulemaking process, the Commission’s Staff intends to begin the process of the periodic, 

retrospective examination of the remainder of its regulations (i.e., those regulations that 

were not reviewed as part of the Dodd-Frank effort). A Regulatory Review Group (‘‘Group’’), 

consisting of senior agency staff, will be formed to implement the further review of 

Commission regulations in accordance with the Executive Order. See 76 Federal Register 

38328, 38329 (June 30, 2011) available at: 

http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2011-16430a.pdf

See 2012 status report on retrospective review of agency regulations (June 7, 2012) at: 

http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oirastatusreport060712

.pdf. See 2013 status report on retrospective review of agency regulations (July 8, 2013) at: 

http://www.cftc.gov/ucm/groups/public/@aboutcftc/documents/file/oirastatusreport070813

.pdf

(b) Periodic reauthorization legislative proceedings in which the CFTC often makes various 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 67

legislative recommendations to amend the CEA.

(c) Internal review through the CFTC’s Strategic Plan, which sets out the CFTC’s regulatory

priorities. Although the plan covers five year periods, the Commission continuously reviews 

the continuing relevancy of the plan through discussions with the operating divisions. These 

discussions generally culminate in formal structured discussions. 

The approved Strategic Plan forms the basis for each fiscal year’s operating plan and 

associated activities. At the end of each fiscal year or the conclusion of individual activities, 

Staff evaluates performance and resource utilization against performance measures that 

have been identified in the Strategic Plan and in the CFTC’s budget submissions to Congress.

These evaluations tell the Commission how effective it has been and whether adjustments 

are needed in the future program activities or resource allocations. 

http://www.cftc.gov/reports/strategicplan/2015/

(d) Through initiatives raised by individual commissioners at advisory committee and formal 

Commission meetings.

3. Does the regulator participate in a process (with other financial system supervisors and 

regulators if appropriate) which reviews unregulated products, markets, market participants 

and activities, including the potential for regulatory arbitrage, in order to promote investor 

protection and fair, efficient and transparent markets and reduce systemic risks?

Yes. The same processes identified above in Question 2 are also used to address 

unregulated financial markets and products. See response to Principle 7, Question 1.

4. Does the regulator seek legislative or other changes when it identifies a regulatory weakness 

or risk to investor protection, market fairness, efficiency and transparency that requires 

legislative or other changes?

Yes. The Chairman, Commissioners, and Staff testify before various committees of Congress 

and it is not uncommon for such testimony to identify potential areas for legislative change. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

68 INTERNATIONAL MONETARY FUND 

Principle 8 The Regulator should seek to ensure that conflicts of interest and 

misalignment of incentives are avoided, eliminated, disclosed or otherwise 

managed.

Key Questions

1. Does the Regulator have in place a process designed to identify and evaluate potential and 

actual conflicts of interest regarding regulated entities and misalignment of incentives 

regarding issuers and regulated entities?

Yes. The Dodd-Frank Act requires SDs and MSPs to implement conflict of interest systems 

and procedures that establish structural and institutional safeguards to ensure that the 

activities of any person within the firm relating to research or analysis of the price or market 

for any commodity or swap, or acting in a role of providing clearing services, are separated 

by appropriate informational partitions from persons whose involvement in pricing , trading, 

or clearing activities might potentially bias their judgment and contravene open access 

requirements or business conduct standards set forth in the Act.66 The Dodd-Frank Act also 

prohibits SDs and MSPs from taking any action that would result in an unreasonable 

restraint of trade or impose a material anticompetitive burden on trading or clearing unless 

necessary or appropriate to achieve the purposes of the Act. CEA Section 4s(j)(6). 

Commission Regulation 23.605 implements the conflict of interest provisions set forth in the 

CEA for SDs and MSPs and requires, among other things, the disclosure of any financial 

interest in any derivative of a type that a research analyst follows, the general nature of the 

financial interest, and appropriate informational partitions between business trading units of 

a SD or MSP and clearing units of any affiliated clearing member of a DCO.

Section 732 of the Dodd-Frank Act amends section 4d of the CEA by directing FCMs and IBs 

to implement similar informational partitions between those researching or analyzing prices 

or markets for commodities and those involved in trading or clearing activities. Commission 

Regulation 1.71 implements the conflict of interest provisions for FCMs and IBs set forth in 

the Act and contains, among other things, provisions prohibiting improper interference with 

clearing decisions and undue influence on customers, as well as the disclosure of any 

financial interest that a research analyst maintains in any derivative of a type that the 

research analyst follows and the general nature of the financial interest. 

Section 726 of the Dodd-Frank Act requires the Commission to mitigate conflicts of interest 

in the operation of certain DCOs, DCMs, and SEFs. Section 726(a) provides that the 

Commission’s rules may include numerical limits on the control of, or the voting rights with 

respect to any DCO that clears swaps, or SEF or DCM that posts swaps or makes swaps 

available for trading, by a bank holding company with: (i) over $50,000,000,000 in total 

consolidated assets; (ii) a nonbank financial company supervised by the Board of Governors 

of the Federal Reserve System; an affiliate of (i) or (ii); (iv) an SD; (v) an MSP; or (vi) an AP of 

(iv) or (v). Section 726(b) directs the Commission to determine the manner in which its rules 

may be deemed necessary or appropriate to improve the governance of certain DCOs, 

 

66 CEA Section 4s(j)(5). 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 69

DCMs, or SEFs or to mitigate systemic risk, promote competition, or mitigate conflicts of 

interest in connection with the interaction between SDs and MSPs, on the one hand, and 

such DCOs, DCMs, and SEFs. Section 726(c) directs the Commission to consider the manner 

in which its rules address conflicts of interest in the above-mentioned interaction arising 

from equity ownership, voting structure, or other governance arrangements of the relevant 

DCOs, DCMs, and SEFs. The Commission proposed rules to implement these requirements 

in 2010.67 The Commission has not finalized the proposed regulations.

DCMs, DCOs, SEFs and SDRs, however, must satisfy certain conflicts of interest requirements 

in the CEA. DCM Core Principle 16, set forth in Section 5(d)(16) of the CEA; DCO Core 

Principle P, set forth in Section 5b(c)(2)(P)of the CEA; and SEF Core Principle 12, set forth in 

Section 5h(f)(12) require DCMs, DCOs and SEFs, respectively, to establish and enforce rules 

to minimize conflicts of interest in their decision-making processes and to establish a 

process for resolving conflicts of interest. Section 21(f)(3) of the CEA sets forth a conflict of 

interest Core Principle applicable to an SDR. The Commission has identified certain conflicts 

that may implicate access, disclosure, or use of SDR Information. SDR Information includes 

any information that an SDR receives from a reporting counterparty, including market

participants such as DCMs, DCOs, SEFs, SDs, MSPs and non-SD/MSP counterparties. The

requirement that SDRs have in place a Chief Compliance Officer—mandated by section 21(e) 

of the CEA and implemented in Commission Regulation 49.22—supports the importance of 

risk management and proper conflict of interest management going forward.

2. Where the Regulator identifies significant conflicts of interest among regulated entities or 

misaligned incentives, does it take steps so that these conflicts of interest or misalignments 

are avoided, eliminated, disclosed or otherwise managed?

Yes, as noted in the response to Principle 8, Question 1, SDs, MSPs, FCMs and IBs must 

disclose whether an affiliated research analyst maintains a financial interest in any derivative 

of a type that the research analyst follows, and the general nature of the financial interest. 

Additionally, SDs and MSPs must disclose certain material information to counterparties, 

including the material risks of the particular swap, which may include market, credit, 

liquidity, foreign currency, legal, and operational risks; the material characteristics of the 

particular swap, including material economic terms and the rights and obligations of the 

parties; and the material incentives and conflicts of interest that the SD or MSP may have in 

connection with a particular swap.68 

Additionally, pursuant to Sections 6(c), 6(d) or 6c of the CEA, the CFTC can bring an action 

against DCMs, DCOs, SEFs and SDRs for a failure to comply with their respective Core 

 

67 The proposed rules strengthened versions of the acceptable practices that the Commission previously adopted for 

DCMs prior to the passage of the Dodd-Frank Act. The proposed rules also incorporated certain elements of: (i) The

Proposal for a Regulation of the European Parliament and of the Council on OTC Derivatives, Central Counterparties, 

and Trade Depositories (the ‘‘European Commission Proposal’’); and (ii) the 2009 draft of the Principles for Financial 

Market Infrastructure (“PFMIs”). The European Commission Proposal was adopted on December 19, 2012. The PFMIs 

were finalized in April 2012.

68 See CFTC Regulation 23.431.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

70 INTERNATIONAL MONETARY FUND 

Principles. Pursuant to Sections 8a(3) and 8a(4)of the CEA, the CFTC also has the authority 

to suspend, restrict or revoke the registrations of any person for various reasons, including 

for general good cause shown.

3. Where the Regulator requires conflicts of interest or misaligned incentives to be disclosed, 

are the disclosures mandated in such a way that they are accessible by investors and/or the 

users of the services or products?

Yes. The disclosures regarding financial interests in any derivative of a type that a research 

analyst follows described in the response to Principle 8, Questions 1 and 2 must be disclosed 

in research reports and any public appearances by a research analyst. The disclosures must 

be clear, comprehensive, and prominent. With respect to public appearances by research 

analysts, the disclosures must be conspicuous.69 The disclosures of material information by 

SDs and MSPs described in the response to Principle 8, Question 2 must be made at a 

reasonably sufficient time prior to entering into a swap in a manner reasonably designed to 

allow the counterparty to assess the information.

70

 

 

69 See CFTC Regulations 1.71(c)(5) and 23.605(c)(5).

70 See CFTC Regulation 23.431.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 71

PRINCIPLE RELATING TO SELF-REGULATION (9)

Principle 9 Where the regulatory system makes use of Self-Regulatory Organizations 

(SROs) that exercise some direct oversight responsibility for their respective 

areas of competence, such SROs should be subject to the oversight of the 

Regulator and should observe standards of fairness and confidentiality when 

exercising powers and delegated responsibilities.

Key Questions

Performance of Functions of SRO 

1. Are there organizations that:

(a) Establish rules of eligibility that must be satisfied in order for individuals or firms to 

participate in any significant securities activity?

Yes. There are several categories of organizations authorized by the CEA which have selfregulatory responsibilities: futures exchanges (e.g., DCMs), SEFs, DCOs, and RFAs. Although 

CFTC Regulation 1.3(ee) defines the term self-regulatory organization as a contract market, 

SEF or RFA, DCOs also have self-regulatory obligations and are discussed (where 

appropriate) for completeness.

DCMs. DCMs are boards of trade (or exchanges) that operate under the regulatory 

oversight of the CFTC pursuant to Section 5 of the CEA. DCMs may list for trading swaps, 

futures or option contracts based on any underlying commodity, index, or instrument.

Currently Active DCMs:

 Cantor Futures Exchange, LLC

 CBOE Futures Exchange

 Chicago Climate Futures Exchange

 Chicago Mercantile Exchange

 Chicago Board of Trade

 COMEX Division of New York Mercantile Exchange

 ELX Futures, L.P.

 Eris Exchange

 ICE Futures U.S., Inc.

 Minneapolis Grain Exchange

 NASDAQ Futures, Inc. (pending)

 New York Mercantile Exchange

 Nodal Exchange, LLC

 North American Derivatives Exchange, Inc.

 NYSE Liffe US, LLC

 OneChicago, LLC

 trueEx LLC

SEFs. SEFs are trading systems or platforms in which multiple participants have the ability to 

execute or trade swaps by accepting bids and offers made by multiple participants in the 

facility or system, through any means of interstate commerce, including any trading facility 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

72 INTERNATIONAL MONETARY FUND 

that facilitates the execution of swaps between persons and is not a DCM. 

Current temporarily registered or pending temporary registration SEFs (as of 6/9/2014):

 360 Trading Networks, Inc.

 BGC Derivatives Markets, L.P.

 Bloomberg SEF LLC

 Chicago Mercantile Exchange, Inc.

 Clear Markets North America, Inc.

 DW SEF LLC

 EOX Exchange LLC

 GFI Swaps Exchange LLC

 GTX SEF LLC

 ICAP Global Derivatives Limited

 ICAP SEF (US) LLC

 ICE Swap Trade LLC

 INFX SEF Inc.

 Javelin SEF, LLC

 LatAm SEF, LLC

 MarketAxess SEF Corporation

 SDX Trading, LLC

 SwapEx LLC

 TeraExchange, LLC

 Thomson Reuters (SEF) LLC

 Tp SEF, Inc.

 Tradition SEF, Inc.

 trueEx LLC

 TW SEF LLC

DCOs. A derivatives clearing organization is a clearinghouse, clearing association, clearing 

corporation, or similar entity, facility, system, or organization that with respect to an 

agreement, contract, or transaction enables each party to an agreement, contract, or 

transaction to substitute, through novation or otherwise, the credit of the DCO for the credit

of the parties; arranges or provides, on a multilateral basis, for the settlement or netting of 

obligations resulting from such agreements, contracts, or transactions executed by 

participants in the DCO; or otherwise provides clearing services or arrangements that 

mutualize or transfer among participants in the DCO the credit risk arising from such 

agreements, contracts, or transactions executed by the participants. A DCO must establish 

participant eligibility standards that establish appropriate admission and continuing 

eligibility standards (including sufficient financial resources and operational capacity to meet 

obligations arising from participation in the DCO) for members of, and participants in, the 

DCO. Also, each DCO must establish and implement procedures to verify, on an ongoing 

basis, the compliance of each participation and membership requirement of the DCO. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 73

Current DCOs:

 Cantor Clearinghouse, L.P.

 Chicago Mercantile Exchange, Inc.

 Clearing Corporation

 ICE Clear Credit LLC

 ICE Clear Europe Limited

 ICE Clear US, Inc.

 LCH.Clearnet LLC

 LCH.Clearnet Ltd.

 LCH Clearnet SA

 Minneapolis Grain Exchange Inc.

 Natural Gas Exchange Inc

 North American Derivatives Exchange, Inc.

 Options Clearing Corporation

 Singapore Exchange Derivatives Clearing Limited

RFAs. Section 17 of the CEA establishes a framework for one or more RFAs to exist under 

the oversight of the CFTC. Part 170 of the CFTC’s regulations address RFAs. Section 17(m) 

of the CEA provides that the CFTC may approve rules of RFAs that require persons eligible 

for membership to become members of a least one such association. The NFA is the only 

existing RFA. With certain exceptions, all persons and organizations that intend to do 

business as professionals with respect to transactions regulated by the CFTC must register 

under Section 8a of the CEA. All individuals and firms that wish to act as market 

intermediaries must apply for NFA membership or associate status. 

Under CFTC Regulation 1.52, DCMs and RFAs may agree to perform certain examination and 

monitoring functions (for members’ compliance with financial reporting and other

compliance requirements) to reduce duplicative/multiple monitoring and auditing for 

compliance. All DCM SROs and NFA are participants in the existing Joint Audit Committee 

(“JAC”) and operate pursuant to the Joint Audit Agreement,

71 which has been approved by 

the CFTC. The CEA requires DCMs to establish trading rules, discipline violators, and ensure 

the financial integrity of transactions and member intermediaries. Through the JAC, DCM

SROs and NFA divide up primary SRO responsibility for monitoring the financial condition 

and rule compliance of joint members.

Consistent with its obligations under Section 17 of the CEA and Part 170 of the CFTC’s 

regulations, NFA has promulgated rules fulfilling its statutory and regulatory requirements. 

 

71 Since many FCMs are members of more than one DCM, the CFTC has allowed the SROs to agree among 

themselves which of the SROs will be the designated self-regulatory organization (DSRO) for the purpose of auditing 

and maintaining ongoing financial and sales practice surveillance over member FCMs. The DCM SROs have entered 

into such allocation agreements among themselves and have established the JAC to coordinate their oversight 

activities. The JAC has designated NFA as the SRO responsible for periodically advising the CFTC of changes in the 

allocation of DSRO responsibility. See CFTC Regulation 1.52(c)-(i).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

74 INTERNATIONAL MONETARY FUND 

See NFA’s Manual/Rules, available at http://www.nfa.futures.org/nfamanual/NFAManual.aspx.

Overview of NFA. The CFTC has delegated certain responsibilities to NFA, which became 

an RFA in 1981. This delegation includes requiring NFA to: adopt rules establishing training 

standards and proficiency testing for persons involved in the solicitation of transactions 

subject to the CEA, supervisors of such persons, and all persons for whom it has registration 

responsibilities and to create a program to audit and enforce compliance with such 

standards; establish minimum capital, segregation, and other financial requirements 

applicable to its members for whom such requirements are imposed by the CFTC and to 

implement a program to audit and enforce compliance with such requirements; establish 

minimum standards governing the sales practices of its members and members’ APs; and 

establish special supervisory guidelines to protect the public interest relating to the 

solicitation by telephone of new futures or options accounts.

NFA has incorporated into its rules, by reference, the CFTC’s segregation, recordkeeping, 

and related reporting requirements for SDs, MSPs, FCMs, CPOs, IBs, and CTAs. In addition, 

NFA has adopted net capital rules for FCMs and IBs which, as required by the CEA, are no 

less stringent than those of the CFTC. NFA’s member audit program primarily applies to 

registrants that are not members of a DCM.

The CFTC has delegated to NFA registration processing functions and the authority to take 

adverse action, such as to revoke or to deny registration, against registrants and applicants 

for registration based upon disqualifying conduct set forth in Sections 8a(2) and (3) of the 

CEA. The CFTC also retains authority to take such actions. NFA also has certain delegated 

functions with respect to ethics training required of registrants. 

In addition, the CFTC delegated to NFA the responsibility generally to review CPO and CTA 

Disclosure Documents as well as certain other tasks related to activities in the foreign futures 

and foreign options area and functions concerning agricultural trade option merchants and 

their APs; authorized NFA to revoke, after 30 days written notice, the confirmation of 

Regulation 30.10 relief for any firm that fails to comply with the terms and conditions upon 

which relief was confirmed; and authorized NFA to withdraw the confirmation of Regulation 

30.10 relief from any firm that notifies NFA of its decision to forfeit such relief. Regulation 

30.10 permits certain market professionals to conduct business in the U.S. based on 

substantial compliance with the rules of their home jurisdiction. 

Commission Regulation 37.204 allows a SEF to contract with an RFA or another registered 

entity for regulatory services to assist the SEF in complying with the CEA and Commission 

regulations. However, SEFs remain responsible for the execution of these functions and for 

compliance with the CEA and Commission regulations.

The CFTC has general oversight responsibility for all NFA functions and full access to 

information NFA maintains and obtains to ensure compliance with the CEA and rules 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 75

thereunder and assure that these functions are carried out fairly and effectively. The CFTC 

also monitors NFA for enforcement of NFA’s own rules and by-laws. 

In performing its delegated authority, NFA “stands in the shoes” of the CFTC and is subject to 

all relevant confidentiality requirements applicable to the CFTC.

(b) Establish and enforce binding rules of trading, business conduct and qualification for 

individuals and/or firms engaging in securities activities? 

Yes. See response to Questions 2(a) and (c).

(c) Establish disciplinary rules and/or conduct disciplinary proceedings, which would 

enable the SRO to impose appropriate sanctions for non compliance of its rules?

Yes. 

DCMs. DCM Core Principle 2, Compliance with Rules, requires a DCM to monitor and 

enforce compliance with the rules of the DCM. The Commission’s regulations interpreting 

this Core Principle are in CFTC Regulations 38.150-160; See also CFTC Regulation 1.52(a). 

DCM Core Principle 13, Disciplinary Procedures, requires the board of trade to establish and 

enforce disciplinary proceedings that authorize the board of trade to discipline, suspend, or 

expel members or market participants that violate the rules of the board of trade, or similar 

methods for performing the same functions, including delegation of the functions to third 

parties. The Commission’s regulations interpreting this Core Principle are in Parts 38.700-

38.712.

SEFs. SEF Core Principle 2, Compliance with Rules, requires a SEF to establish and enforce 

trading, trade processing, and participation rules that will deter abuses and have the 

capacity to detect, investigate, and enforce those rules. Through CFTC Regulation 37.206, a 

SEF must have rules in place that will deter abuses and have the capacity to enforce such 

rules through prompt and effective disciplinary action, including suspension or expulsion of 

members or market participants that violate the rules of the SEF. See also CFTC Regulations

37.201-205.

DCOs. DCO Core Principle H, Rule Enforcement, requires a DCO to (a) maintain adequate

arrangements and resources for: (i) the effective monitoring and enforcement of compliance 

with the rules of the DCO; and (ii) the resolution of disputes; (b) have the authority and 

ability to discipline, limit, suspend, or terminate the activities of a member or participant due 

to a violation by the member or participant of any rule of the DCO; and (c) report to the 

CFTC regarding rule enforcement activities and sanctions imposed against members and 

participants. Commission Regulation 39.17 implements these requirements, and requires a 

DCO to have adequate arrangements and resources for the effective monitoring and 

enforcement of compliance with the rules of the DCO and the resolution of disputes.

RFAs. Section 17(b)(8) of the CEA requires that an RFA develop rules that provide for the 

appropriate discipline of its members, whether by expulsion, suspension, fine, censure, or 

any other fitting penalty, for any violation of its rules. Section 17(i) provides that the CFTC 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

76 INTERNATIONAL MONETARY FUND 

may review the disciplinary action taken by an RFA. The review would identify the rules of 

the RFA violated by the person in question and confirm whether such rules were applied in a 

manner consistent with the purposes of the CEA. Pursuant to this authority, the CFTC also 

may, having found that a penalty is excessive or oppressive, cancel, reduce or require 

remission of the penalty. NFA’s bylaws and rules provide for the imposition of sanctions on 

members and associates of members for non-compliance with NFA’s rules. See NFA’s 

Manual/Rules at http://www.nfa.futures.org/nfamanual/NFAManual.aspx. 

Authorization or Delegation Subject to Oversight

2. As a condition to authorization, does the legislation or the regulator require the SRO to 

demonstrate that it:

(a) Has the capacity to carry out the purposes of governing laws, regulations and SRO 

rules consistent with the responsibility of the SRO, and to enforce compliance by its 

members and associated persons subject thereto those laws, regulations and rules?

Yes.

DCMs. The CEA, through DCM Core Principle 1, provides that as a condition to designation 

as a contract market, the applicant must demonstrate that it complies with 23 Core 

Principles: 

1. Designation as contract market 

2. Compliance with rules

3. Contracts not readily subject to manipulation

4. Prevention of market disruption

5. Position limits or accountability

6. Emergency authority

7. Availability of general information

8. Daily publication of trading information

9. Execution of transactions

10. Trade information

11. Financial integrity of contracts

12. Protection of markets and market participants

13. Disciplinary procedures

14. Dispute resolution

15. Governance fitness standards

16. Conflicts of interest

17. Composition of governing boards of contract markets

18. Recordkeeping

19. Antitrust considerations

20. System safeguards

21. Financial resources

22. Diversity of board of directors

23. Securities and Exchange Commission
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 77

See also CFTC Regulation 38.3. 

DCM Core Principle 2 requires a DCM to have rules that provide the board of trade with the 

ability and authority to obtain any necessary information to perform any function, including 

the capacity to carry out such international information-sharing agreements as the 

Commission may require. 

To ensure compliance with DCM Core Principle 2, the Commission promulgated regulations 

in Part 38 requiring a DCM to: (i) prohibit abusive trading practices on its markets by 

members and market participants, CFTC Regulation 38.152; (ii) have arrangements and 

resources for effective enforcement of its rules, CFTC Regulation 38.153; (iii) establish and 

maintain sufficient compliance department resources and staff to ensure that it can conduct 

effective audit trail reviews, trade practice surveillance, market surveillance, and real-time 

market monitoring, CFTC Regulation 38.155; (iv) maintain an automated trade surveillance 

system capable of detecting and investigating potential trade practice violations, CFTC 

Regulation 38.156; (v) conduct real-time market monitoring of all trading activity on its 

electronic trading platform(s) to identify disorderly trading and any market or system 

anomalies, CFTC Regulation 38.157; (vi) establish and maintain procedures that require its 

compliance staff to conduct investigations of possible rule violations, CFTC Regulation

38.158; and (vii) have the ability and authority to obtain any necessary information to 

perform any function required under Core Principle 2. 

Commission Regulation 38.154, promulgated under Core Principle 2, allows a DCM to use a 

RFA or other registered entity to provide services to assist in complying with the Core 

Principles. However, notwithstanding any delegation of function, the DCM retains 

responsibility for carrying out any function delegated or contracted to a third party. A DCM 

must ensure that the services received will enable the DCM to remain in compliance with the 

CEA.

Appendix B to Part 38 provides more specific information on guidance and acceptable 

practices to comply with the Core Principles.

See also CFTC Regulation 1.52 (SRO adoption and auditing of minimum financial and related 

reporting requirements); CFTC Regulation 38.257 (to comply with regulations under Core 

Principle 4, the DCM must use a dedicated regulatory department, or by delegation of that 

function to a registered futures association or a registered entity). 

SEFs. In order to register and maintain registration as a SEF, Section 5h of the CEA requires 

the SEF must demonstrate compliance with 15 Core Principles: 

1. Compliance with core principles

2. Compliance with rules

3. Swaps not readily subject to manipulation
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

78 INTERNATIONAL MONETARY FUND 

4. Monitoring of trading and trade processing

5. Ability to obtain information

6. Position limits or accountability

7. Financial integrity of transactions

8. Emergency authority

9. Timely publication of trading information

10. Recordkeeping and reporting

11. Antitrust considerations

12. Conflicts of interest

13. Financial resources

14. System safeguards

15. Designation of chief compliance officer

In the same way as described for DCMs, the CEA, through Core Principle 2 for SEFs, requires 

a SEF to establish and enforce compliance with any rule of the SEF, establish and enforce 

trading, trade processing, and participation rules that will deter abuses and have the 

capacity to detect, investigate, and enforce those rules, establish rules governing the 

operation of the facility, and require by its rules that when a SD or MSP enters into or 

facilitates a swap that is subject to mandatory clearing under Section 2(h)(1) of the CEA, the 

SD or MSP shall be responsible for compliance with the mandatory trading requirement 

under Section 2(h)(8) of the CEA. 

To ensure compliance with SEF Core Principle 2, the Commission’s regulations require a SEF 

to: (i) establish rules governing the operation of the SEF and impartially enforce compliance 

with the rules of the SEF, CFTC Regulation 37.201; (ii) prior to granting any eligible contract 

participant access to its facilities, require that the eligible contract participant consent to its 

jurisdiction, CFTC Regulation 37.202; (iii) establish and enforce trading, trade processing and 

participation rules that will deter abuses and have the capacity to detect, investigate and 

enforce those rules, CFTC Regulation 37.203; (iv) establish procedures to capture and retain 

information that may be used in establishing whether rule violations have occurred, CFTC 

Regulation 37.205; and (v) establish trading, trade processing, and participation rules that 

will deter abuses and have the capacity to enforce such rules through prompt and effective

disciplinary action, including suspension or expulsion of members or market participants 

that violate the rules of the SEF, CFTC Regulation 37.206. Additionally, a SEF may choose to 

contract with a RFA, or the Financial Industry Regulatory Authority for the provision of 

services to assist in complying with the CEA and Commission regulations. See CFTC 

Regulation 37.204.

DCOs. Core Principle A for DCOs, CEA Section 5b(c)(2)(A), requires compliance with 

eighteen Core Principles. 

1. Compliance 

2. Financial resources
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 79

3. Participant and product eligibility

4. Risk management

5. Settlement procedures 

6. Treatment of funds

7. Default rules and procedures

8. Rule enforcement

9. System safeguards

10. Reporting

11. Recordkeeping

12. Public information

13. Information sharing

14. Antitrust considerations

15. Governance fitness standards

16. Conflicts of interest

17. Composition of governing boards

18. Legal risk

CFTC Regulation 39.12(a)(6) requires a DCO to have the ability to enforce compliance with its 

participation requirements pursuant to Core Principle C (participant and product eligibility)

for DCOs and to establish procedures for the suspension and orderly removal of clearing 

members that no longer meet the requirements. Core Principle H, Rule Enforcement, 

requires a DCO to maintain adequate arrangements and resources for the effective 

monitoring and enforcement of compliance with its rules and resolution of disputes. In 

addition, as discussed above, DCO Core Principle H requires a DCO to have the authority and 

ability to discipline, limit, suspend, or terminate the activities of a member or participant due 

to a violation by the member or participant of any rule of the DCO. CFTC Regulation 39.17 

implements Core Principle H and requires a DCO to have adequate arrangements and 

resources for the effective monitoring and enforcement of compliance with the rules of the 

DCO and the resolution of disputes. 

RFAs. To be registered and maintain registration as an RFA, Section 17(b)(1) of the CEA 

requires that the RFA demonstrate through documentation submitted to the CFTC that the 

RFA is in the public interest, that it will comply with the provisions of Section 17 and the rules 

and regulations promulgated by the CFTC thereunder, and will fulfil the purposes of Section 

17. Section 17(b)(8) of the CEA requires that the RFA demonstrate that the rules of the 

association provide that its members and persons associated with its members shall be 

appropriately disciplined, by expulsion, suspension, fine, censure, or being suspended or 

barred from being associated with all members, or any other fitting penalty, for any violation 

of its rules.

(b) Treats all members of the SRO, applicants for membership and similarly situated market 

participants subject to its rules in a fair and consistent manner?

Yes. 

DCMs. DCM Core Principle 2 requires a DCM to establish, monitor and enforce compliance 

with access requirement rules. CFTC Regulation 38.151 requires that prior to granting any 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

80 INTERNATIONAL MONETARY FUND 

member or market participant access to its markets, a DCM must require the member or 

market participant to consent to its jurisdiction. Additionally, a DCM must provide its 

members, persons with trading privileges, and independent software vendors with impartial 

access to its markets and services, including access criteria that are impartial, transparent 

and applied in a non-discriminatory manner; and (2) comparable fee structures for members, 

persons with trading privileges and independent software vendors receiving equal access to, 

or services from, the DCM. See CFTC Regulation 38.151(b). A DCM must also establish and 

impartially enforce rules governing denials, suspensions, and revocations of a member’s and 

a person with trading privileges’ access privileges to the DCM, including when such actions 

are part of a disciplinary or emergency action by the DCM.

DCM Core Principle 12 requires a DCM to establish and enforce rules to promote fair and 

equitable trading on the contract market and to protect the market and market participants 

from abusive practices including fraudulent, noncompetitive or unfair actions, committed by 

any party. The DCM must have methods and resources appropriate to the nature of the 

trading system and the structure of the market to detect trade practice and market abuses 

and to discipline such behavior, in accordance with Core Principles 2 and 4, and their

associated Part 38 regulations. The DCM also must provide a competitive, open and

efficient market and mechanism for executing transactions in accordance with Core 

Principle 9.

In addition, there are specific Core Principles for DCMs with respect to minimizing conflicts 

of interest (Core Principle 16) and antitrust considerations (Core Principle 19) which have 

bearing on the fairness and consistency with which a DCM interacts with members. See 

CFTC Regulations 38.850-851 and 38.1000-1001.

SEFs. SEF Core Principle 2 requires a SEF to, among other things, establish and enforce 

compliance with any limitation on access to the SEF. CFTC regulations implementing the 

Core Principle require the SEF to provide any ECP and any independent software vendor with 

impartial access to its market(s) and market services, including any indicative quote screens 

or any similar pricing data displays, provided that the facility has: (1) Criteria governing such 

access that are impartial, transparent, and applied in a fair and nondiscriminatory manner; 

(2) Procedures whereby eligible contract participants provide the swap execution facility with 

written or electronic confirmation of their status as eligible contract participants, as defined 

by the Act and Commission regulations, prior to obtaining access; and (3) Comparable fee 

structures for eligible contract participants and independent software vendors receiving 

comparable access to, or services from, the SEF. CFTC Regulation 37.202(a). A SEF must also 

establish and impartially enforce rules governing any decision to allow, deny, suspend, or 

permanently bar eligible contract participants’ access to the SEF, including when such 

decisions are made as part of a disciplinary or emergency action taken by the SEF.

DCOs. DCO Core Principle C requires a DCO to have objective, publicly disclosed, fair and 

open access requirements. See CEA Section 5b(c)(2)(C)(iii). CFTC Regulation 39.12(a) 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 81

requires a DCO to establish appropriate admission and continuing participation 

requirements for clearing members of the DCO that are objective, publicly disclosed and risk 

based. 

RFAs. Section 17(b)(2) of the CEA mandates that an RFA’s rules provide that any person 

registered under the CEA, a registered entity, or any other person designated pursuant to 

the regulations of the CFTC as eligible for membership may become a member of such 

association. That section also states that the rules of the association may restrict 

membership in such association on the basis of the type of business conducted by its 

members. Further, Section 17(b)(5) of the CEA requires that the RFA’s rules assure a fair 

representation of its members in the adoption of any rule of the association or amendment 

thereto, the selection of its officers and directors, and in all other phases of the 

administration of its affairs. Consistent with the provisions of the CEA, CFTC Regulation 

170.3 provides for the fair and equitable representation of members with respect to the 

governing board of the association. In particular, the regulation provides that no single class 

or group of members may dominate or otherwise exercise disproportionate influence on the 

governing board.

(c) Develops rules that are designed to set standards for its members and to promote 

investor protection?

Yes.

DCMs. Trade practice, handling of customer funds, reporting, recordkeeping and other 

business standards for commodity professionals, many of whom constitute the class of 

exchange membership, are established in the first instance by CEA Sections 5(b) and (d), 

CFTC regulations (Part 38), DCM rules, and, as explained below, by RFA requirements. 

DCM Core Principle 21, Financial Resources, requires a DCM to have adequate financial, 

operational, and managerial resources to discharge each responsibility of the board of trade. 

The financial resources of the board of trade shall be considered to be adequate if the value 

of the financial resources exceeds the total amount that would enable the contract market to 

cover the operating costs of the contract market for a 1-year period, as calculated on a 

rolling basis. Commission regulations implementing the Core Principle are found at CFTC 

Regulation 38.1101.

DCMs must initially and on an ongoing basis demonstrate compliance with DCM Core 

Principle 12. DCM Core Principle 12, Protection of Market Participants, establishes that 

boards of trade must establish and enforce rules: (a) to protect market participants from 

abusive practices committed by any party, including abusive practices committed by a party

acting as an agent for a participant; and (b) to promote fair and equitable trading on the 

contract market. See CFTC Regulation 38.651.

DCM Core Principle 11 provides that the DCM must establish and enforce rules to ensure 

the financial integrity of FCMs and IBs, and the protection of customer funds. See CFTC 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

82 INTERNATIONAL MONETARY FUND 

Regulations 38.600-607.

SEFs. Core Principle 13, Financial Resources, requires a SEF to have adequate financial, 

operational, and managerial resources to discharge each responsibility of the SEF. The 

financial resources of a SEF shall be considered to be adequate if the value of the financial 

resources exceeds the total amount that would enable the swap execution facility to cover 

the operating costs of the SEF for a one-year period, as calculated on a rolling basis. 

Regulations implementing Core Principle 13 are found at CFTC Regulations 37.1301-1307.

SEF Core Principle 7 requires a SEF to establish and enforce rules and procedures for 

ensuring the financial integrity of swaps entered on or through the facilities of the SEF, 

including those that are required to be cleared under section 2(h)(1). A SEF must establish 

minimum financial standards for its members, which at a minimum must be that members 

qualify as an ECP as defined in Section 1a(18) of the CEA, and must monitor its members to 

ensure that they remain ECPs. See CFTC Regulations 37.701-703. 

SEF Core Principle 15 requires a SEF to designate a chief compliance officer to ensure 

compliance with the CEA and the rules and regulations issued under the CEA. See CFTC 

Regulation 37.1500. 

DCOs. DCO Core Principle B, Financial Resources, requires a DCO to have, at a minimum,

adequate financial, operational and managerial resources that are sufficient to meet its 

financial obligations to its clearing members notwithstanding the default by the clearing 

member creating the largest financial exposure for the DCO. Regulations implementing this

Core Principle are found in CFTC Regulation 39.11. The Commission has additional 

regulations designed to implement the CEA and protect investors: participant and product 

eligibility, CFTC Regulation 39.12; risk management, CFTC Regulation 39.13; treatment of 

funds, CFTC Regulation 39.15. Of particular relevance, CFTC Regulation 39.12(b) provides 

that a DCO’s participation requirements must require clearing members to have access to 

sufficient resources to meet obligations arising from participation in the DCO in extreme but 

plausible market conditions, and CFTC Regulation 39.12(c) provides that a DCO’s 

participation requirements must require clearing members to have adequate operational 

capacity to meet obligations arising from participation in the DCO. In addition to the above, 

CFTC Regulations 39.33, 39.35 and 39.36, respectively, impose enhanced financial resources, 

default rules and procedures and risk management standards on SIDCOs and DCOs that 

elect to become subject to them. Finally, section 4d of the CEA requires FCMs and DCOs to 

segregate customer property. .

RFAs. Section 17(b)(3) of the CEA requires the rules of an RFA to provide that membership 

must be denied to certain firms and individuals, including those subject to an order by the 

CFTC suspending, denying or revoking registration. Section 17(b)(4) of the CEA requires that 

the RFA rules provide that applicants for membership conform with specific and appropriate 

standards with respect to the training, experience and such other qualifications as the RFA 

deems necessary or desirable, including the financial responsibility of members. Section 

17(p) of the CEA further requires each RFA to establish rules that require the association to:
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 83

 Establish training standards and proficiency testing for persons involved in the 

solicitation of transactions, supervisors of such persons and all persons for which it has 

registration responsibilities, and a program to audit and enforce compliance with such 

standards;

 Establish minimum capital, segregation, and other financial requirements applicable 

to its members for which such requirements are imposed by the CFTC and implement a 

program to audit and enforce compliance with such requirements; 

 Establish minimum standards governing sales practices of its members and persons 

associated therewith for transactions subject to provisions of the CEA; and

 Establish supervisory guidelines to protect the public interest relating to the 

solicitation of new futures and options accounts and make such guidelines applicable to 

those members determined to require such guidelines in accordance with standards 

established by the CFTC.

In addition, NFA and DCMs must monitor and enforce compliance with CFTC regulations 

establishing standards for intermediaries, such as CFTC minimum financial and reporting 

requirements, and requirements for the protection of customer funds and 

communications with customers pursuant to CFTC Regulations 1.52.

Common to SROs. CFTC Regulation 1.59 prohibits certain trading on material, inside 

information by SRO members and by members of SRO governing boards and 

committees. See also response to Principle 9, Question 4(b).

(d) Submits to the regulator its rules and any amendments thereto, for review and/or 

approval, as the regulator deems appropriate, and ensures that the rules of the SRO 

are consistent with the public policy directives established by the regulator?

Yes.

DCMs, SEFs, and DCOs. Section 5c(c) of the CEA requires DCMs, SEFs, and DCOs to file 

with the Commission new products, new rules, and rule amendments. Under rules 

promulgated by the Commission, a DCM or SEF may list a new product by providing the 

CFTC with written certification that the product complies with the CEA and the 

Commission’s regulations. See CFTC Regulation 40.2. The DCM or SEF may list the selfcertified contract for trading no sooner than one full business day following receipt of the 

submission by the Commission. Alternatively, a DCM or SEF may request Commission 

approval of the new product. CFTC Regulation 40.3. DCMs, SEFs, and DCOs may selfcertify to the Commission new rules and rule amendments and implement such new rules 

and rule amendments no earlier than 10 business days following receipt by the 

Commission of the submission. CFTC Regulation 40.6. Alternatively, DCMs, SEFs, and

DCOs may voluntarily submit rules or rule amendments for Commission review and 

approval. CFTC Regulation 40.5. Amendments to terms and conditions of futures on 

agricultural commodities enumerated in Section 1a(4) of the CEA must be approved by 

the Commission if the amendments are material and would be applied to existing 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

84 INTERNATIONAL MONETARY FUND 

positions. CFTC Regulation 40.4. There are also special certification procedures for 

SIDCOs that give the CFTC 60 days to review any proposed change to a SIDCO’s rules, 

procedures, or operations that could materially affect, the nature or level of risks 

presented by the SIDCO. CFTC Regulation 40.10. 

RFAs. Section 17(a)(2) of the CEA requires an applicant for RFA status to provide the CFTC 

with copies of its constitution, charter or articles of incorporation or association, along with 

all bylaws. Section 17(j) of the CEA states that an RFA must file with the CFTC copies of any 

changes or additions to the RFA rules. Section 17(j) further provides that the RFA may make 

any proposed change or addition effective ten days after the receipt of such a filing by the 

Commission unless the RFA requests that the Commission review and approve the 

submission or the Commission informs the RFA of its intention to do so. If the Commission 

decides that it will review the rules for approval, the Commission must determine whether 

such change or addition is consistent with the requirements of Section 17 of the CEA and is 

not in violation of any other provision of the CEA. If the Commission disapproves the 

change or addition as inconsistent with the CEA, the Commission must provide the RFA with 

notice and opportunity to be heard. Further, if the Commission does not approve or 

institute disapproval proceedings with respect to a rule within 180 days after the receipt of 

such a rule, or if the Commission does not conclude disapproval proceedings within one 

year after the receipt of such rule, the RFA may implement the submitted rule until the 

Commission concludes the disapproval process.

(e) Cooperates with the regulator and other domestic SROs to investigate and enforce 

applicable laws, regulations and rules?

Yes. The CEA and CFTC regulations establish an obligation on the SROs to cooperate with 

the CFTC and with other SROs to investigate and enforce applicable laws and regulations. 

SEFs, DCMs, and DCOs,72 have SRO obligations under the CEA:

 SEF Core Principle 5 requires a SEF to have rules in place to provide the SEF with the 

ability to obtain any necessary information to perform any function required by the 

CEA. 

 DCM Core Principle 2 requires a DCM to have rules in place to provide the DCM with 

the ability to obtain any necessary information to perform any function required by 

the CEA.

 DCOs have rule enforcement responsibilities under Core Principle H and certain SRO 

responsibilities under DCO Core Principle A of Section 5b of the CEA.

CEA Section 8(a)(1) provides that for the efficient execution of the provisions of the CEA, and 

in order to provide information for the use of Congress, the CFTC may make such 

investigations as it deems necessary to ascertain facts regarding the operations of boards of 

 

72 As noted in response to Principle 9, Question 1(a), DCOs act as member organizations and enforce rules of 

participant eligibility, etc. However, DCOs are not included in the definition of SRO. CFTC Regulation 1.3(ee) defines 

“self-regulatory organization” to mean a contract market (as defined in Regulation 1.3(h)), a SEF (as defined in 

Regulation 1.3(rrrr)), or a RFA under section 17 of the Act,
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 85

trade and other persons subject to the CEA. CEA Section 5b authorizes the CFTC to suspend 

or revoke the designation of any board of trade which fails or refuses to comply with any of 

the provisions of the CEA or any of the rules, regulations or orders issued by the CFTC 

thereunder. 

The CFTC’s rules contemplate cooperation among exchanges. As discussed above in 

response to Principle 9, Question 1(a), CFTC Regulation 1.52 authorizes any two or more 

DCM and RFA SROs to file with the CFTC a plan (e.g., the JAC’s Joint Audit Agreement) for 

delegating to a DSRO the responsibility of monitoring and auditing for compliance with the 

minimum financial reporting and compliance requirements adopted by such SROs. Among 

other things, CFTC Regulation 1.52(d) also authorizes such SROs to establish programs 

among themselves to provide access to any necessary financial or related information. 

Cooperation with other SROs is not required for authorization to act as an SRO, and 

participation in the JAC is not mandatory, however, all current DCM SROs and NFA do 

participate. As discussed above, under CFTC Regulation 1.52, SROs with FCM members in 

common may establish joint audit plans, and, pursuant to such plans, delegate the 

responsibility to audit and conduct financial surveillance of an FCM to one of the SROs as 

the DSRO. The Commission requires that DSROs ensure that each FCM is subject to an onsite examination within nine to 18 months of the “as of” date of the previous examination by 

the DSRO. The JAC has established uniform procedures for such on-site examinations. 

3. Does the SRO: 

(a) Have statutory delegation or other formal recognition from the Regulator? 

Yes. See response to Principle 9, Question 1(a).

(b) Have MoUs or other arrangements in place in secure cooperation between it and the 

Regulator?

No. The obligation for an SRO to cooperate with the CFTC is statutory. In addition, 

enforceable Commission regulations implementing the SRO functions of registered entities 

ensure cooperation. 

(c) Have its own rules which are enforced and whose non-compliance is appropriately 

sanctioned?

Yes. See response to Principle 9, Question 1(c).

(d) Where applicable, e.g., a mutual organization, assures a fair representation of 

members in selection of its board of directors and administration of its affairs?

Yes. 

DCMs. DCM Core Principle 17 requires the governance arrangements of the board of trade 

be designed to permit consideration of the views of market participants.

DCM Core Principle 22 requires the board of trade, if a publicly-traded company, must

endeavor to recruit individuals to serve on the board of directors and the other decisionmaking bodies (as determined by the Commission) of the board of trade from among, and 

to have the composition of the bodies reflect, a broad and culturally diverse pool of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

86 INTERNATIONAL MONETARY FUND 

qualified candidates.

DCM Core Principle 15 requires the board of trade to establish and enforce appropriate 

fitness standards for directors, members of any disciplinary committee, members of contract 

market and any other persons with direct access to the facility. The Commission’s Guidance 

in Part 38, Appendix B details:

(1) A designated contract market should have appropriate eligibility criteria for the 

categories of persons set forth in the Core Principle that should include

standards for fitness and for the collection and verification of information 

supporting compliance with such standards. Minimum standards of fitness for 

persons who have member voting privileges, governing obligations or 

responsibilities, or who exercise disciplinary authority are those bases for refusal 

to register a person under section 8a(2) of the Act. In addition, persons who 

have governing obligations or responsibilities, or who exercise disciplinary

authority, should not have a significant history of serious disciplinary offenses, 

such as those that would be disqualifying under Commission Regulation 1.63. 

Members with trading privileges but having no, or only nominal, equity, in the 

facility and non-member market participants who are not intermediated and do 

not have these privileges, obligations, responsibilities or disciplinary authority 

could satisfy minimum fitness standards by meeting the standards that they 

must meet to qualify as ‘‘market participants.’’ Natural persons who directly or

indirectly have greater than a ten percent ownership interest in a DCM should 

meet the fitness standards applicable to members with voting rights.

(2) The Commission believes that such standards should include providing the

Commission with fitness information for such persons, whether registration

information, certification to the fitness of such persons, an affidavit of such 

persons’ fitness by the contract market’s counsel or other information 

substantiating the fitness of such persons. If a contract market provides

certification of the fitness of such a person, the Commission believes that such

certification should be based on verified information that the person is fit to be 

in his or her position.

DCM Core Principle 16 requires the board of trade to establish and enforce rules to 

minimize conflicts of interest in the decision making process of the contract market and 

establish a process for resolving such conflicts of interest. The Commission’s Guidance in 

Part 38, Appendix B specifies:

The means to address conflicts of interest in decision-making of a contract 

market should include methods to ascertain the presence of conflicts of interest 

and to make decisions in the event of such a conflict. In addition, the 

Commission believes that the contract market should provide for appropriate 

limitations on the use or disclosure of material non-public information gained 

through the performance of official duties by board members, committee 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 87

members and contract market employees or gained through an ownership 

interest in the contract market.

The Commission also includes Acceptable Practices in Appendix B to Part 38: 

All DCMs bear special responsibility to regulate effectively, impartially, and with due 

consideration of the public interest, as provided for in Section 3 of the CEA. Under 

DCM Core Principle 15, they are also required to minimize conflicts of interest in 

their decision-making processes. To comply with this DCM Core Principle, contract 

markets should be particularly vigilant for such conflicts between and among any of 

their self-regulatory responsibilities, their commercial interests, and the several 

interests of their management, members, owners, customers and market 

participants, other industry participants, and other constituencies. Acceptable 

Practices for minimizing conflicts of interest must include the following elements:

(1) Board Composition for Contract Markets 

(i) At least thirty-five percent of the directors on a contract market's board of 

directors shall be public directors; and

(ii) The executive committees (or similarly empowered bodies) shall be at 

least thirty-five percent public.

(2) Public Director 

(i) To qualify as a public director of a contract market, an individual must first 

be found, by the board of directors, on the record, to have no material 

relationship with the contract market. A “material relationship” is one that 

reasonably could affect the independent judgment or decision making of the 

director.

(ii) In addition, a director shall not be considered “public” if any of the 

following circumstances exist:

(A) The director is an officer or employee of the contract market or a 

director, officer or employee of its affiliate. In this context, “affiliate” 

includes parents or subsidiaries of the contract market or entities that 

share a common parent with the contract market;

(B) The director is a member of the contract market, or a person 

employed by or affiliated with a member. “Member” is defined according 

to Section 1a(34) of the CEA and CFTC Regulation 1.3(q). 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

88 INTERNATIONAL MONETARY FUND 

(C) The director, or a firm with which the director is affiliated, as defined 

above, receives more than $100,000 in combined annual payments from 

the contract market, any affiliate of the contract market, or from a 

member or any person or entity affiliated with a member of the contract 

market. Compensation for services as a director does not count toward 

the $100,000 payment limit, nor does deferred compensation for services 

prior to becoming a director, so long as such compensation is in no way 

contingent, conditioned, or revocable;

(D) Any of the relationships above apply to a member of the director's 

“immediate family,” i.e., spouse, parents, children, and siblings.

(iii) All of the disqualifying circumstances described in subsection (2)(ii) shall 

be subject to a one-year look back.

(iv) A contract market's public directors may also serve as directors of the 

contract market's affiliate if they otherwise meet the definition of public 

director in this Section (2).

(v) A contract market shall disclose to the Commission which members of its 

board are public directors, and the basis for those determinations.

(3) Regulatory Oversight Committee 

(i) A board of directors of any contract market shall establish a Regulatory 

Oversight Committee (“ROC”) as a standing committee, consisting of only 

public directors as defined in Section (2), to assist it in minimizing actual and 

potential conflicts of interest. The ROC shall oversee the contract market's 

regulatory program on behalf of the board. The board shall delegate 

sufficient authority, dedicate sufficient resources, and allow sufficient time for 

the ROC to fulfill its mandate.

(ii) The ROC shall:

(A) Monitor the contract market's regulatory program for sufficiency, 

effectiveness, and independence;

(B) Oversee all facets of the program, including trade practice and market 

surveillance; audits, examinations, and other regulatory responsibilities 

with respect to member firms (including ensuring compliance with 

financial integrity, financial reporting, sales practice, recordkeeping, and 

other requirements); and the conduct of investigations;
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 89

(C) Review the size and allocation of the regulatory budget and 

resources; and the number, hiring and termination, and compensation of 

regulatory personnel;

(D) Supervise the contract market's chief regulatory officer, who will 

report directly to the ROC;

(E) Prepare an annual report assessing the contract market's selfregulatory program for the board of directors and the Commission, 

which sets forth the regulatory program's expenses, describes its staffing 

and structure, catalogues disciplinary actions taken during the year, and 

reviews the performance of disciplinary committees and panels;

(F) Recommend changes that would ensure fair, vigorous, and effective 

regulation; and

(G) Review regulatory proposals and advise the board as to whether and 

how such changes may impact regulation.

(4) Disciplinary Panels 

All contract markets shall minimize conflicts of interest in their disciplinary 

processes through disciplinary panel composition rules that preclude any 

group or class of industry participants from dominating or exercising 

disproportionate influence on such panels. Contract markets can further 

minimize conflicts of interest by including in all disciplinary panels at least 

one person who would qualify as a public director, as defined in subsections 

(2)(ii) and (2)(iii) above, except in cases limited to decorum, attire, or the 

timely submission of accurate records required for clearing or verifying each 

day's transactions. If contract market rules provide for appeal to the board of 

directors, or to a committee of the board, then that appellate body shall also 

include at least one person who would qualify as a public director as defined 

in subsections (2)(ii) and (2)(iii) above.

See Appendix B to Part 38 at 

http://www.cftc.gov/industryoversight/tradingorganizations/designatedcontractmarkets/index.

htm.

SEFs. SEF Core Principle 12 requires a SEF to establish and enforce rules to minimize 

conflicts of interest in its decision-making process and to establish a process for resolving 

the conflicts of interest. Additionally, the Commission requires that the Chief compliance 

officer resolve conflicts of interest. See CFTC Regulation 37.1501.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

90 INTERNATIONAL MONETARY FUND 

DCOs. DCO Core Principle O requires each DCO to have: (i) governance arrangements that 

are transparent to fulfill public interest requirements and to permit the consideration of the 

views of owners and participants; and (ii) fitness standards for directors, members, any 

individual or entity with direct access to the settlement or clearing activities of the DCO, and 

any party affiliated with such director, member, or entity.

Core Principle P requires each DCO to establish and enforce rules to minimize conflicts of 

interest in the decision making process and to establish a process to resolve conflicts of 

interest. 

Core Principle Q requires each DCO to ensure that the composition of the governing board 

or committee of the DCO includes market participants. 

In addition, Commission regulation 39.32 sets forth governance requirements for SIDCOs 

that are consistent with Principle 2 of the PFMIs. For example, a SIDCO must have 

governance arrangements that clearly specify the roles and responsibilities of the board of 

directors and its committees, including the establishment of a clear and documented risk 

management framework, and that establish procedures for identifying, addressing, and 

managing conflicts of interest involving members of the board of directors. In addition, a 

SIDCO also must maintain policies to make certain that the performance of the board of 

directors and the performance of individual directors are reviewed on a regular basis.

RFAs. Section 17(b)(5) of the CEA requires that an RFA’s rules assure a fair representation of 

its members in the adoption of any rule of the association, the selection of its officers and 

directors, and in all other phases of the administration of its affairs. 

Section 17(b)(11) also requires that an RFA must provide for meaningful representation on 

the governing board of such an association a diversity of membership interests and provides 

that no less than 20 percent of the regular voting members of such board be comprised of 

qualified non-members of or persons who are not regulated by such association. 

Section 17(b)(12) requires that the RFA provide on all major disciplinary committees for a 

diversity of membership sufficient to ensure fairness and to prevent special treatment or 

preference for any person in the conduct of disciplinary proceedings and the assessment of 

penalties. 

Consistent with the provisions of the CEA, CFTC Regulation 170.3 provides for the fair and 

equitable representation of members with respect to the governing board of the association. 

In particular, the Regulation provides that no single class or group of members may 

dominate or otherwise exercise disproportionate influence on the governing board. 

Additionally, CFTC Regulation 170.6 mandates a fair and orderly procedure with respect to 

disciplinary actions brought against association members or persons associated with 

members.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 91

CFTC Regulation 1.64(b) requires that each SRO and RFA maintain rules that ensure that 20

percent of its governing board is comprised of knowledgeable individuals who are not 

members or employees of the SRO or RFA, who are not otherwise performing services for 

the SRO or RFA, and who are not officers, principals or employees of a firm that is a member 

of the SRO or RFA. Additionally, the SRO must be able to demonstrate that the board 

membership fairly represents the diversity of interests at that SRO and is otherwise 

consistent with the composition requirements of CFTC Regulation 1.64. CFTC Regulation 

1.64(c)(1) mandates that each SRO must have in effect rules ensuring that at least one 

member of each major disciplinary committee or hearing panel is a person who is not a 

member of the SRO where the disciplinary action is being taken against a member of the 

SRO, a member of the governing board, or the member of a major disciplinary committee, or 

if the alleged or adjudicated rule violations involve manipulation or attempted manipulation, 

or conduct which directly results in financial harm to a non-member of a contract market. 

With respect to RFAs, CFTC Regulation 1.64(c)(3) requires that RFAs include persons 

representing membership interests other than that of the subject of the disciplinary 

proceeding being considered on each major disciplinary committee or hearing panel thereof. 

Further, Section 17(k) of the CEA provides that the CFTC is authorized to abrogate any rule of 

an RFA if, after notice and opportunity for hearing, it appears to the CFTC that such 

abrogation is necessary or appropriate to assure fair dealing by the members of the 

association, to assure a fair representation of its members in the administration of its affairs, 

or effectuate the purposes of the CEA. The CFTC also may alter or supplement RFA rules, 

after notice and hearing. Section 17(c) of the CEA provides that the CFTC may, after notice 

and opportunity for hearing, suspend the registration of an RFA if it finds that the rules 

thereof do not conform to the requirements of the CFTC.

CFTC Regulation 1.69 requires that a member of an SRO’s governing board, disciplinary 

committee or oversight panel must abstain from voting on any matter and from deliberating 

on the same where that member is a named party in interest; is an employer, employee, or 

fellow employee of a named party in interest; is associated with a named party in interest 

through a broker association; has significant, ongoing business relationship with a named 

party in interest; or has a family relationship with the named party in interest. Moreover, 

each member of the SRO’s governing board, disciplinary committee, or oversight panel must 

disclose to the appropriate SRO staff whether such relationships exist. The SRO must 

establish procedures for determining whether a member of the SRO’s governing board 

disciplinary committee or oversight panel is subject to a conflict restriction in any matter 

involving a named party in interest based on information provided by the member and any 

other source of information reasonably available to the SRO. Under CFTC Regulation 

1.69(b)(2), if a member of an SRO’s governing board, disciplinary board or oversight board 

has a direct and substantial financial interest in the result of the vote based upon either 

exchange or non-exchange position that could reasonably be affected by the action, such 

member must abstain from deliberations and voting regarding the same. Pursuant to that 

regulation, the member must also disclose such interest to SRO staff and the SRO must have 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

92 INTERNATIONAL MONETARY FUND 

appropriate procedures in place to evaluate the conflict. 

Among other requirements enumerated in Section 17 of the CEA and Part 170, an RFA must:

 Assure fair and equitable representation of the views and interests of all association 

members;

 Impose dues equitably among all members, and may not be structured in a manner 

constituting a barrier to entry of any person seeking to engage in commodity-related 

business;

 Establish and maintain a program for the protection of customers, including the 

adoption of rules to protect customers and customer funds and to promote fair dealing 

with the public;

 Provide a fair and orderly procedure with respect to disciplinary actions brought 

against association members or persons associated with members;

 Provide a fair and orderly procedure for processing membership applications and for 

affording any person to be denied membership an opportunity to submit evidence in 

response to the grounds for denial; and

 Demonstrate its capacity to promulgate rules and to conduct proceedings that 

provide a fair, equitable and expeditious procedure, through arbitration or otherwise, for 

the voluntary settlement of a customer’s claim or grievance brought against any 

member or any employee of a member.

Section 17(a) of the CEA requires that an applicant to become an RFA, as part of the 

application process, must submit to the CFTC a registration statement in such form as the 

CFTC may prescribe. CFTC Regulation 170.11 provides that the applicant must file with the 

CFTC a letter requesting registration as an RFA, as well as, the constitution, charter or articles 

of incorporation of the association, the bylaws of the association, any other rules, 

resolutions, or regulations of the association corresponding to the aforementioned 

documents, a detailed description of the association’s organization, membership, and rules 

of procedure, and a detailed statement of the association’s capability to comply with the 

provisions of Section 17 of the CEA and Part 170 of the CFTC regulations. Pursuant to CFTC 

Regulation 170.12, the review of such registration statement has been delegated by the 

Commission to the Director of the Division of Swap Dealer and Intermediary Oversight

(“DSIO”). Following such review, the Commission may by order grant the registration if the 

requirements are satisfied or, after appropriate notice and opportunity to be heard, deny 

such registration if the application is deficient.

(e) Avoid rules that may create anti-competitive situations as defined in the Explanatory 

Note?

Yes. Section 15 of the CEA requires the CFTC to take into consideration the public 

interest to be protected by the antitrust laws and endeavor to take the least 

anticompetitive means of achieving the objectives of the CEA in, among other things, 

issuing any order or in approving any rule of a contract market or a registered futures 

association. CFTC Regulation 170.9 requires that an applicant to become an RFA must 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 93

demonstrate, among other things, that the association will promote fair and open 

competition among its members and will conduct its affairs consistent with the public 

interest to be protected by the antitrust laws.

DCM Core Principle 19 provides that unless necessary or appropriate to achieve the 

purposes of this Act, the board of trade shall not—(A) adopt any rule or take any action 

that results in any unreasonable restraint of trade; or (B) impose any material 

anticompetitive burden on trading on the contract market.

Appendix B to Part 38 of the CFTC’s regulations provides the following Guidance:

An entity seeking designation as a contract market may request that the Commission 

consider under the provisions of Section 15(b) of the CEA any of the entity's rules, 

including trading protocols or policies, and including both operational rules and the 

terms or conditions of products listed for trading, at the time of designation or 

thereafter. The Commission intends to apply Section 15(b) of the CEA to its 

consideration of issues under this Core Principle in a manner consistent with that 

previously applied to contract markets.

See Appendix B to Part 38 at 

http://www.cftc.gov/industryoversight/tradingorganizations/designatedcontractmarkets/index.

htm.

SEFs. SEF Core Principle 11 provides that unless necessary or appropriate to achieve the 

purposes of the Act, the SEF must not (a) adopt any rules or take any actions that result in 

any unreasonable restraint of trade; or (b) impose any material anticompetitive burden on 

trading or clearing.

Appendix B to Part 37 provides Guidance similar to the DCM guidance.

DCOs. DCO Core Principle N provides that unless necessary or appropriate to achieve the 

purposes of the Act, a DCO shall not adopt any rule or take any action that results in any 

unreasonable restraint of trade, or impose any material anticompetitive burden on the 

contract market.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

94 INTERNATIONAL MONETARY FUND 

(f) Avoid using the oversight role to allow any market participant unfairly to gain an 

advantage in the market?

Yes. 

DCM Core Principle 4, Prevention of Market Disruption, provides that the board of trade shall 

have the capacity and responsibility to prevent market manipulation, price distortion, and 

disruptions of the delivery or cash-settlement process through market surveillance, 

compliance, and enforcement practices and procedures, including methods for conducting 

real-time monitoring of trading and comprehensive and accurate trade reconstructions.

DCM Core Principle 12, Protection of Market Participants, provides that the board of trade 

shall establish and enforce rules to protect market participants from abusive trade practices 

committed by any party acting as an agent for the participants and to promote fair and 

equitable trading. Core Principle 12 would also apply to prohibit abusive practices by the 

DCM itself.

DCM Core Principle 16, Conflicts of Interest, provides that a board of trade shall establish 

and enforce rules to minimize conflicts of interest in the decision making process of the 

contract market. The Guidance to Part 38, Appendix B (discussed above in Principle 9, 

Question 3(d)), includes managing such conflicts through the use of a ROC of the Board of 

Directors, as well as maintaining a certain number of Public (disinterested) directors. 

SEF Core Principle 4, Monitoring of Trading and Trade Processing, requires a SEF to establish 

and enforce rules or terms and conditions defining or specifications detailing trading 

procedures to be used in entering and executing orders traded on or through the facilities of 

the SEF, procedures for trade processing of swaps on or through the SEF and monitor 

trading in swaps to prevent manipulation, price distortion, and disruptions of the delivery or 

cash settlement process through surveillance, compliance and disciplinary practices and 

procedures, including methods for conduction real-time monitoring of trading and 

comprehensive and accurate trade reconstructions.

SEF Core Principle 12, Conflicts of Interest, requires a SEF to establish and enforce rules to 

minimize conflicts of interest in its decision making process and to establish a process for 

resolving conflicts of interest. See response to Principle 9, Question 2(c).

DCO Core Principle P, Conflicts of Interest, requires each DCO to have and enforce rules to 

minimize conflicts of interest in the decision making process of the DCO and establish a 

process to resolve such conflicts.

Oversight 

4. Does the regulator:

(a) Have in place an effective on-going oversight program of the SRO, which may 

include:

(i) inspection of the SRO;
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 95

(ii) periodic reviews;

(iii) reporting requirements; 

(iv) review and revocation of SRO governing instruments and rules; and

(v) the monitoring of continuing compliance with the conditions of 

authorization or delegation.

Yes, to all of the above. The CFTC's regulatory scheme is based upon the assumption of selfregulatory responsibilities by its registrants following their registration under applicable 

provisions of the CEA and by an RFA following registration under Section 17 of the CEA. Each 

registrant must show compliance with Core Principles to obtain registration and maintain 

compliance with Core Principles to retain registration. 

DCM Core Principle 2, Compliance with Rules, requires DCMs to monitor and enforce 

compliance with the rules of the contract market, including access requirements, the terms 

and conditions of any contracts to be traded and rules prohibiting abusive trading practices 

on the contract market. 

DCM Core Principle 10, Trade Information, requires a DCM to maintain rules and procedures to 

provide for the recording and safe storage of all identifying trade information for purposes of 

assisting in the prevention of customer and market abuses and providing evidence of any 

violations of the rules of the contract market. 

DCM Core Principle 18, Recordkeeping, requires a DCM to maintain records of all activities 

related to the business of the contract market in a form and manner acceptable to the 

Commission for a period of at least 5 years. 

CFTC Rule Enforcement Program 

The CFTC's rule enforcement program for DCMs generally encompasses the review of exchange 

market surveillance, audit trail, trade practice surveillance, disciplinary, and dispute resolution 

programs. 

DMO’s Compliance Branch conducts periodic reviews (about every two to three years) of 

each DCM’s ongoing compliance with Core Principles through the self-regulatory programs 

operated by the exchange in order to enforce its rules, prevent market manipulation and 

customer and market abuses, and ensure the recording and safe storage of trade 

information. These reviews are known as rule enforcement reviews (“RERs”).

Objectives. The Compliance Branch staff typically reviews a one-year target period and, 

depending on the Core Principles covered, thoroughly examines a DCM’s audit trail reviews, 

trade practice and market surveillance investigations, investigation logs, hedge exemptions, 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

96 INTERNATIONAL MONETARY FUND 

surveillance systems, compliance manuals, summary fine schedules, disciplinary files, 

settlement agreements, and arbitration files. Staff also conducts on-the-record interviews 

with a DCM’s compliance officials. The Compliance Branch’s findings, any deficiencies 

identified, or recommendations for improvement are included in a report presented to the 

Commission, and the Commission votes on whether to accept the report. The report is 

publicly released and published on the Commission’s website and also sent to the DCM. 

Although a DCM may not fully agree with the Commission staff’s findings, responses from 

DCMs, which are typically required within 30 days, usually explain how the DCM intends to 

correct deficiencies or implement staff’s recommendations, if any. Because RER reports are 

public, deficiencies or recommendations for one DCM invariably leads to all DCMs with the 

same identified shortfall taking timely corrective action. Such corrective action usually 

includes modifying compliance procedures and/or adopting or modifying existing rules.

As discussed above, periodic RERs normally examine a DCM’s audit trail, trade practice 

surveillance, disciplinary, and dispute resolution programs for compliance with the relevant 

DCM Core Principles, which include DCM Core Principle 10 (Trade Information) and DCM 

Core Principle 18 (Recordkeeping), with respect to audit trail programs (see also CFTC 

Regulations 38.550-553 and 38.950-951); DCM Core Principle 2 (Compliance with Rules) and 

DCM Core Principle 12 (Protection of Market Participants), with respect to trade practice 

surveillance programs (see also CFTC Regulations 38.150-160 and 38.650-651); DCM Core 

Principle 13 (Disciplinary Procedures), with respect to disciplinary programs (see also CFTC 

Regulations 38.700-712); and DCM Core Principle 14 (Dispute Resolution), with respect to 

dispute resolution programs (see also CFTC Regulations 38.750-751). Since the last FSAP 

report in 2010, the Compliance Branch has not detected any diminution in the selfregulatory efforts among the demutualized DCMs. As part of the analysis in conducting 

RERs for all of the DCMs, the Compliance Branch evaluates whether the DCM maintains 

sufficient compliance staff and resources to ensure that it can conduct effective audit trail 

reviews, trade practice and market surveillance, real-time monitoring (see CFTC Regulation

38.155), and to promptly prosecute possible rule violations within the disciplinary jurisdiction 

of the DCM (see CFTC Regulation 38.701). Additionally, with respect to audit trail reviews, 

market surveillance and trade practice RERs, the Compliance Branch evaluates the overall 

adequacy of the reviews or investigations conducted by the DCMs (see CFTC Regulations 

38.158 and 38.553). With respect to disciplinary RERs, staff evaluates whether the sanctions 

imposed by the DCM are commensurate with the violations committed and clearly sufficient 

to deter recidivism or similar violations by other market participants (see CFTC Regulation

38.710).

Other periodic RERs usually examine a DCM’s market surveillance program for compliance 

with DCM Core Principle 4, Prevention of Market Disruption (see also CFTC Regulations

38.250-258), and DCM Core Principle 5, Position Limitations or Accountability (see also CFTC 

Regulations 38.300-301). The Compliance Branch can also conduct horizontal RERs of the 

compliance of multiple exchanges in regard to particular Core Principles.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 97

In 2013, DMO completed a total of five RERs, including a market surveillance RER of CME 

and CBOT. 

http://www.cftc.gov/ucm/groups/public/@iodcms/documents/file/rercmecbot072613.pdf

The most recent RER completed by DMO consisted of a review of the trade practice 

surveillance program for OneChicago, LLC and the report was issued in April 2014. 

http://www.cftc.gov/ucm/groups/public/@iodcms/documents/file/rerocx040714.pdf

For further information, see http://www.cftc.gov/industryoversight.

It is anticipated that DMO’s Compliance Branch will conduct RERs for a SEF after a SEF 

obtains permanent registration.

CFTC Audit Program

Review of Exchange Financial and Sales Practice Compliance Programs. DCM Core 

Principle 11—Financial Integrity of Contracts, requires a DCM to establish and enforce 

rules providing for the financial integrity of any contracts traded on the contract 

market, and rules to ensure the financial integrity of any FCMs and IBs and the 

protection of customer funds.

Objectives. CFTC staff examines the design and implementation of an exchange's financial and 

sales practice compliance program for a target period. In addition to assessing the overall 

effectiveness of such programs, staff's reviews are also intended to identify specific deficiencies 

or areas that could be improved or enhanced. 

As discussed above, all current DCMs, SROs, and NFA participate in a joint audit program under 

the auspices of the JAC, which must meet the requirements of Commission Regulation 1.52. 

Those requirements include, among other things, that the program be separately evaluated by 

an “examination expert” at least once every three years, and that a report containing the 

content and any related responses to the findings of the examination be provided to the CFTC.

CFTC staff also may conduct limited scope examinations of selected registrants from time to 

time.

The CFTC market surveillance program is structured to detect and prevent price manipulation in 

futures and option markets and compliance with Commission regulations and rules. A principal 

goal of market surveillance is to spot adverse situations in these markets and to pursue 

appropriate remedial actions, in coordination with the involved exchange, to avoid market 

disruption. To accomplish these objectives, the market surveillance staff must determine when a 

trader’s position in a futures market becomes so large relative to other market factors that the 

trader is capable of causing prices to diverge from legitimate supply and demand conditions. 

The surveillance staff regularly collects and analyzes daily data concerning overall supply and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

98 INTERNATIONAL MONETARY FUND 

demand conditions and cash market price data, cash and future prices and price relationships, 

and the size of hedgers’ and speculators’ positions in the futures market. Additionally, 

surveillance staff also issues Special Calls for participant portfolio data including cash trading, 

physical trades and all derivatives and structured products.

At the heart of the CFTC’s market surveillance system is a surveillance staff developed 

application that combines the large trader reporting system with transaction data and large 

swaps position data. In order to identify potentially disruptive futures positions, staff uses its 

reporting system to collect and analyze data on large trader positions in all commodities and 

related reported positions. Further, surveillance staff access SDRs to link other related positions 

to futures and options data. Reportable positions—daily reports of futures positions above 

specified levels set for reporting purposes—are obtained from FCMs, clearing members and 

foreign brokers. Exchanges also provide the daily positions that each clearing member is 

carrying in each futures and options contract on each underlying commodity.

Because traders frequently carry futures positions through more than one FCM and because 

individuals sometimes control, or have a financial interest in more than one account, the CFTC 

routinely collects information that enables its CFTC staff to aggregate related accounts for use 

by DMO surveillance staff. FCMs must file a form which identifies each new account with 

reportable positions for each futures contract. In addition, if a trader’s position reaches a 

reportable level, the trader may be required to file a more detailed identification report to 

identify accounts and reveal any relationships that may exist with other accounts or traders.

An additional monitoring mechanism allows surveillance analysts to investigate further the 

positions of large traders by instituting a “special call,” which requires a trader to report their 

futures and option positions with all brokerage firms, or their cash market or OTC positions. 

The trader may be required to give information on his or her trading and delivery activity. 

Special calls also may be used to examine cash market positions and commitments in relation 

to futures market positions to access the economic rationale of the trader’s overall activities. 

The CFTC thus has the authority and techniques to investigate and discover the identities of the 

true account owners and controllers of large positions, whether domestic or foreign and 

understand their market activities including physical, swaps and futures. 

On a daily basis, staff in DMO’s Market Compliance Section reviews details of transactions at 

each exchange. Additionally, DMO staff periodically observes trading activity on the floor of 

each exchange (for the exchanges that still have open outcry trading) and discusses potential 

issues of concern with compliance staff at the exchange.

Importantly, the CEA’s Core Principles applicable to DCOs require each DCO to maintain and 

enforce rules that address, among other things, the adequacy of financial resources, participant 

and product eligibility, risk management, settlement procedures, treatment of funds, default 

rules and procedures, rule enforcement, system safeguards, reporting to the CFTC, 

recordkeeping, public information, information sharing and antitrust concerns. The Division of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 99

Clearing and Risk (“DCR”) routinely conducts examinations of registered DCOs pursuant to 

applicable CFTC regulations. 

In addition, CFTC risk surveillance staff monitors the risk posed to and by DCOs, clearing 

members, and market participants, including market risk, liquidity risk, credit risk, and 

concentration risk. Relevant margin and financial resources are included within this 

monitoring program. CFTC staff regularly conducts back-testing to review margin coverage 

at the product level and follows up with the relevant clearing house regarding exceptional 

results. Independent stress testing of portfolios is conducted regularly. The independent 

stress tests often lead to individual trader reviews and/or FCM risk reviews. Traders and 

FCMs that have a higher risk profile are then reviewed during the Commission’s on-site 

review of a clearing house’s risk management procedures. In addition, CFTC risk surveillance 

staff also coordinates with other domestic and foreign regulators on matters of common 

jurisdictional interest. The CFTC also participates in implementation monitoring programs 

related to the PFMIs. 

NFA Oversight 

The CFTC has general oversight responsibility for all NFA functions (as an RFA) to ensure 

compliance with the CEA and Commission regulations. The CFTC also monitors NFA for 

enforcement of its own rules and bylaws. 

As an RFA, NFA is considered an SRO and, as noted above, must, in carrying out its financial 

audit and surveillance activities, comply with the requirements of the CFTC’s regulatory 

program. 

In addition to the FCMs for which it is responsible under the joint audit program, NFA is 

responsible for regulatory compliance matters with respect to its member IBs, except for IBs 

that are guaranteed by an FCM that does not have NFA as its DSRO. NFA also is responsible 

for sales practice surveillance over all member CPOs and CTAs. NFA’s oversight of CPOs and 

CTAs also extends to review of annual reports and disclosure documents filed pursuant to Part 

4 of the CFTC’s regulations consistent with the CFTC’s delegation of the same,73 and the 

conduct of examinations of such firms on a periodic basis.74

The CFTC ensures compliance by NFA with its self-regulatory obligations and DCMs with Core 

Principles by conducting periodic reviews of NFA’s compliance programs and Core Principle 

oversight reviews of DCMs. NFA oversight reviews focus on the specific program 

responsibilities of NFA, including review of the financial and sales practice compliance 

 

73 62 Fed. Reg. 52,088 (Oct. 6, 1997); 67 Fed. Reg. 77,470 (Dec. 18, 2002).

74 See Article III of NFA’s Articles of Incorporation at http://www.nfa.futures.org/nfamanual/NFAManual.aspx.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

100 INTERNATIONAL MONETARY FUND 

programs for registered intermediaries, as well as review of NFA’s programs for arbitration, 

registration and fitness, and disciplinary actions. 

In the implementation of such reviews, staff meets with NFA or DCM staff and reviews program 

materials and databases, evaluates procedures, and performs reviews of samples of NFA’s or 

the DCM’s files to determine whether the SRO’s procedures are consistent with its regulatory 

obligations, whether the SRO has properly executed its program, and that the files contain 

sufficient documentation. The results of these reviews are presented to the CFTC and reported 

back to NFA or the DCM. Consecutive reviews of the same program may focus on a particular 

aspect of the program in question, including following up on recommendations made in prior 

reviews. 

As an example of the CFTC’s oversight of NFA, the CFTC oversees NFA’s registration program 

through frequent contacts between staff members on specific matters, as well as formal 

reviews by CFTC staff of the operation of NFA’s program. These reviews have two general 

purposes: (1) to determine whether NFA’s written program properly addresses all relevant CFTC 

regulations and guidelines; and (2) to confirm that the execution of the written program is 

complete and is consistently applied in accordance with NFA’s written program. Following the 

completion of the review, the CFTC generates a report detailing its findings with respect to the 

reviewed program, including recommendations for correction of problems or improvements. 

CFTC staff also attends regular meetings of the JAC to deal with examination or supervision 

issues that arise among the SROs.

The CFTC conducted a review of NFA’s registration program in 2010, and within the past ten 

years has conducted reviews of NFA’s programs for CPO and CTA compliance, telemarketing 

supervision, FCM and IB financial reports, disciplinary actions, and arbitration. CFTC staff also 

has conducted oversight reviews of all the SROs during the same time period. 

Section 17(k) of the CEA provides that the CFTC is authorized to abrogate any rule of an RFA 

if it appears to the CFTC that such abrogation is necessary or appropriate to assure fair 

dealing by the members of the association, to assure a fair representation of its members in 

the administration of its affairs, or to effectuate the purposes of the CEA. The CFTC also may 

alter or supplement RFA rules, after notice and hearing. Section 17(c) of the CEA provides 

that the CFTC may suspend the registration of an RFA if it finds that the rules thereof do not 

conform to the requirements of the CFTC. Under Section 5c(d) of the CEA, if the CFTC 

determines that a DCM (or other registered entity such as a DCO) is violating Core Principles 

it will provide notice to the entity in writing of such determination and afford the registered 

entity an opportunity to make appropriate changes to come into compliance, after which the 

CFTC may take further steps, including suspension/revocation of certification.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 101

(b) Retain full authority to inquire into matters affecting the investors or the market?

Yes. Section 8 of the CEA allows the Commission to make such investigations as it deems 

necessary to ascertain the facts regarding the operations of the boards of trade and other 

persons subject to the provisions of the CEA. This includes the authority to investigate the 

market conditions of commodities, including the supply and demand for such commodities.

With regards to NFA, pursuant to Section 17 of the CEA, the CFTC broadly retains full 

authority over all matters undertaken by an RFA. 

See also response to Principle 9, Question 2(a).

(c) Take over or support an SRO’s responsibilities where the powers of an SRO are 

inadequate for inquiring into or addressing particular misconduct or allegations of 

misconduct or where a conflict of interest necessitates it?

Yes. Section 8a(9) of the CEA authorizes the CFTC to direct a registered entity, (e.g., a DCM, 

DCO, SEF, and SDR), whenever it has reason to believe that an emergency exists, to take such 

action as in the CFTC’s judgment is necessary to maintain or restore orderly trading in or 

liquidation of any futures contract. 

Section 8a(7) of the CEA authorizes the CFTC to alter or supplement the rules of a registered 

entity under certain circumstances. In order for the CFTC to take such action under Section 

8a(7), the CFTC must first make the appropriate request to a registered entity in writing 

specifying the desired rule change and, after appropriate notice and hearing, determine that 

the registrant did not make the requested changes and that such changes are necessary or 

appropriate for the protection of persons producing, handling, processing, or consuming 

any commodity traded for future delivery on such registered entity, or the product or 

byproduct thereof, or for the protection of traders or to insure fair dealing in commodities 

traded on such registered entity.

Enforcement can support the SRO responsibilities where their powers are inadequate for 

inquiring (e.g., where the investigation requires subpoenaing third party records) or 

sanctioning (e.g., in the case of a recidivist) by initiating its own investigation or enforcement 

proceeding. Also, the CEA gives the CFTC authority in some cases to enforce some exchange 

rules, for example, pursuant to Section 4a(e) of the CEA, violations of exchange speculative 

limit rules approved by the Commission are subject to enforcement action by the 

Commission.

RFAs. Section 17(k) of the CEA provides that the CFTC is authorized to abrogate any rule of 

an RFA if, after notice and opportunity for hearing, it appears to the CFTC that such 

abrogation is necessary or appropriate to assure fair dealing by the members of the 

association, to assure a fair representation of its members in the administration of its affairs, 

or to effectuate the purposes of the CEA. The CFTC also may alter or supplement RFA rules, 

after notice and hearing. 

Section 17(c) of the CEA provides that the CFTC may, after notice and opportunity for 

hearing, suspend the registration of an RFA if it finds that the rules thereof do not conform 

to the requirements of the CFTC.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

102 INTERNATIONAL MONETARY FUND 

Additionally, where the SRO does not have the ability to obtain necessary information (e.g., 

where the investigation requires subpoenaing third party records) or impose sanctions (e.g., 

in the case of a recidivist), DOE will “support” the SRO responsibilities. Also, as noted 

elsewhere, the CEA give the Commission the authority to enforce exchange rules (e.g., 

violations of exchange speculative position limit rules approved by the Commission are 

subject to enforcement action by the Commission).

Professional Standards Similar to those Expected of a Regulator

5. Does the regulator, the law or other applicable regulation require the SRO to follow similar 

professional standards of behaviour as would be expected of a regulator:

a) On matters relating to confidentiality and procedural fairness? 

Yes.

Confidentiality. The CEA requires SROs to maintain the confidentiality of material 

nonpublic information and information obtained from the CFTC in connection with the 

exercise of their self-regulatory responsibilities. See also response to Principle 9, Question 

(1)(a).

Section 9(e)(1) of the CEA makes it a felony for any person who is an employee, member of 

the governing board, or member of any committee of a board of trade, registered entity, 

SDR, or RFA, in violation of a regulation issued by the CFTC, willfully and knowingly . . . to 

disclose for any purpose inconsistent with the performance of such person’s official duties as 

an employee or member, any material nonpublic information obtained through special 

access related to the performance of such duties.

CFTC Regulation 1.59(d)(ii), prohibits employees, governing board members, committee 

members and consultants of SROs, from disclosing material non-public information 

obtained through their position with the SRO for any purpose that is not consistent with the 

performance of their duties with respect to the SRO, and requires that SROs and RFAs 

promulgate rules that prohibit governing board members, committee members and 

consultants from disclosing material, non-public information obtained as a result of the 

performance of such person’s official duties.

An exchange or RFA must maintain the confidentiality of information disclosed to it by the 

CFTC, except in limited circumstances. The CFTC is authorized under CEA Section 8a(6) to 

communicate to the proper committee or officer of any contract market, RFA or SRO the full 

facts concerning any transaction or market operation, including the names of parties, that in 

the judgment of the CFTC disrupts or tends to disrupt any market or is otherwise harmful or 

against the best interests of producers, consumers, or investors, or which is necessary or 

appropriate to effectuate the purposes of the CEA. However, Section 8a(6) provides that any 

information furnished by the CFTC under this authority “shall not be disclosed by such 

contract market, registered futures association, or SRO except in any self-regulatory action 

or proceeding.” See also CFTC Regulation 140.72, delegating such authority to certain Staff.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 103

An exchange must maintain the confidentiality of, and is prohibited from disclosing to third 

parties, information developed by the exchange in an investigation. A contract market is 

required by CEA Section 8c(2) to make public its findings in any exchange disciplinary 

proceeding pursuant to its internal rules (that is, a proceeding to suspend, expel, discipline 

or deny access to an exchange member), but may not disclose the evidence for its findings 

except to the person suspended, expelled, disciplined or denied access to the exchange or 

to the CFTC. The CFTC has clarified that its delegation of registration and disqualification 

functions to NFA permits exchanges to disclose to NFA all evidence underlying exchange 

disciplinary actions. 75

Procedural Fairness. DCM Core Principle 12, Protection of Markets and Market 

Participants, requires a DCM to establish and enforce rules designed to promote fair and 

equitable trading and to protect the market and market participants from abusive practices. 

DCMs should have rules prohibiting conduct by intermediaries that is fraudulent, 

noncompetitive, unfair, or an abusive practice in connection with the execution of trades and 

a program to detect and discipline such behavior. The DCM should have methods and 

resources appropriate to the nature of the trading system and the structure of the market to 

detect trade practice abuses. Additionally, Core Principle 13 requires the DCM establish and 

enforce disciplinary procedures that authorize the board of trade to discipline, suspend, or 

expel members or market participants that violated the rules of the board of trade. 

In addition, various CFTC regulations impose standards of procedural fairness on SRO 

programs. 

DCM Core Principle 2, Compliance with Rules, requires DCMs to monitor and enforce 

compliance with the rules of the contract market, including access requirements, the terms 

and conditions of any contracts to be traded and rules prohibiting abusive trading practices 

on the contract market. A DCM must also have the capacity to detect, investigate, and apply 

appropriate sanctions to any person that violates any rule of the contract market. 

In much the same way as DCM Core Principle 2, SEF Core Principle 2, Compliance with Rules, 

requires a SEF to establish and enforce trading, trade processing, and participation rules that 

will deter abuses. Additionally, under Core Principle 2, the SEF must have rules governing 

the operation of the facility, including rules specifying trading procedures to be used, in 

entering and executing orders traded or posted on the facility including block trades. 

Section 17(b)(9) of the CEA requires that an RFA have rules that provide for a fair and orderly 

procedure with respect to the disciplining of members and persons associated with 

members for the denial of membership. Each person subject to such a proceeding must be 

given an opportunity to be heard and must be informed of the specific grounds for 

 

75

 See CFTC Interpretative Letter No. 00-56 (April 13, 2000). 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

104 INTERNATIONAL MONETARY FUND 

discipline. Further, a record must be kept and, in the event that disciplinary action is taken, 

specific grounds supporting such action must be provided to the disciplined entity. 

In addition, an RFA, pursuant to CFTC Regulation 170.6, must conduct proceedings in a 

manner consistent with fundamental due process. Similarly, CFTC Regulation 170.8, requires 

RFAs to demonstrate a capability to promulgate rules and conduct proceedings which 

provide a fair, equitable and expeditious procedure, through arbitration or otherwise, for the 

voluntary settlement of customers’ claims or grievances brought against any member of the 

association or any employee thereof.

The CFTC has delegated to NFA responsibility for processing and granting applications for 

registration of various categories of registrants under the CEA. The various delegation 

orders have imposed procedural conditions and/or were accompanied by the approval of 

NFA rules that contained procedural protections. For example, in 1985 the CFTC approved 

rules adopted by NFA pursuant to which NFA would conduct proceedings to deny, condition, 

suspend, restrict or revoke the registration of any applicant for registration or registrant who 

may be subject to a statutory disqualification under Sections 8a(2) through 8a(4) of the CEA 

and for whom NFA has been authorized to perform the CFTC’s registration functions. The 

procedures embodied in those NFA rules closely parallel those specified by the CFTC in 

Subpart C of Part 3 of its regulations. Specifically, NFA adopted the CFTC’s standards defining 

the scope of evidence that may be presented by the applicant or registrant to challenge 

allegations of statutory disqualification, as well as the standards to be followed by the party 

reviewing the matter and making determinations. Wherever NFA has modified those 

procedures, the CFTC’s review concluded that the modifications would not adversely affect 

the rights of applicants and registrants.76

b) On the appropriate use of information obtained in the course of the SRO’s exercise of its 

powers and discharge of its responsibilities?

Yes. See response to Principle 9, Questions 1(a) and 5(a). Furthermore, Section 9(e)(2) of the 

CEA makes it a felony for any person who is an employee, member of the governing board, 

or member of any committee of a board of trade, registered entity, swap data repository, or 

RFA, in violation of a regulation issued by the CFTC, willfully and knowingly to trade for such 

person’s own account, or for or on behalf of any other account, in contracts for future 

delivery or options thereon, or swaps, on the basis of, or willfully and knowingly to disclose 

for any purpose of such person’s official duties as an employee or member, any material 

nonpublic information obtained through special access related to the performance of such 

duties.

CFTC Regulation 1.59(d)(i) prohibits any employee, member of the governing board or 

member of any committee of an SRO from trading for such person’s own account, or for or 

on behalf of any other account, in any commodity interest based on any material, nonpublic 

 

76

 See 50 FR 34885, 34886 (Aug. 28, 1985).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 105

information obtained through special access related to the performance of such person’s 

official duties. CFTC Regulation 1.59(d)(2) similarly prohibits any person from trading for 

such person’s own account on the basis of any material, nonpublic information that such 

person knows was obtained in violation of 1.59(d)(i).

Conflicts of Interest

6. Does the regulator, the law or other applicable regulation assure that potential conflicts of 

interest at the SRO are avoided or appropriately managed? 

Yes. See responses to Principle 9, Questions 2(b), 2(f) and 3(d).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

106 INTERNATIONAL MONETARY FUND 

PRINCIPLES RELATING TO ENFORCEMENT (10-12)

Principle 10 The Regulator should have comprehensive inspection, investigation and 

surveillance powers.

Key Questions

1. Does the regulator have the power to inspect a regulated entity's business operations, 

including its books and records: 

(a) Without giving prior notice?

Yes. Registrants are required to make certain filings with and disclose certain information to 

the Commission, and keep a variety of books, records, and other information on their futures 

and options and swaps related activities open to inspection by Commission representatives, 

as set forth below. These filings, disclosures, books and records are required to be readily 

available to the Commission and DOJ without compulsory process or notice. 

All books and records required to be kept, by either the CEA or the Commission's 

regulations, must be retained for five years and must be "readily accessible" during the first 

two years of that period. See CFTC Regulation 1.31(a). A copy of any such book or record 

must be furnished to any authorized representative of the Commission, upon request and at 

the expense of the person who is required to keep it. In lieu of furnishing a copy, the person 

may give the representative the original book or record for reproduction by the Commission. 

In either event, the copies or originals must be provided promptly. CFTC Regulation 1.31(a).

The record-keeping obligations of various Commission registrants and other market 

participants are in the following provisions of the CEA and/or the CFTC’s regulations:77

 FCMs, IBs, floor brokers and floor traders - Sections 4f and 4g of the CEA; CFTC 

Regulation 1.32 (segregated account, daily computation and record); 1.33 (monthly 

and confirmation statements), CFTC Regulation 1.34 (monthly point balance); CFTC 

Regulation 1.35 (records of cash commodity, futures and option transactions); CFTC 

Regulation 1.36 (record of securities and property received from customers and 

options customers); CFTC Regulation 1.37 (customer’s account identification record); 

and CFTC Regulation 1.40 (crop, market information letters, reports).

 CTAs and CPOs - Section 4n of the CEA; CFTC Regulations 4.23 and 4.33. 

 DCMs - Section 5(d)(18) of the CEA; CFTC Regulations 38.950-951; see also Part 16 of 

Commission Regulations. 

 SEFs - Section 5h(f)(10) of the CEA; CFTC Regulations 37.1000-1001.

 FBOTs – CFTC Regulation 48.8(a).

 DCOs - Section 5b(c)(2)(J) of the CEA; CFTC Regulation 39.20.

 Options dealers - Commission Regulation 32.7.

 Traders holding reportable futures or options positions on DCMs - Section 4i of the 

CEA; Commission regulations in Parts 17, 18 and 19.

 SDs and MSPs - Section 4s(g) of the CEA; CFTC Regulations 23.200-23.205.

 

77 See also CFTC Regulation 45.2.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 107

 SDRs - Section 21(c)(3) of the CEA; Commission Regulation 49.12.

 RFEDs – Section 2(c) of the CEA; Commission Regulations 1.31, 5.10 and 5.14.

The CFTC’s access to records includes nonpublic and public information held by individuals 

and entities regulated by the CFTC (FCMs, floor brokers, floor traders, IBs, CTAs, CPOs, SDs, 

MSPs, APs, leverage transaction merchants, SDRs, SEFs, DCMs RFEDs and FBOTs) including 

customer information and to information about persons that do business with such 

regulated individuals and entities.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

108 INTERNATIONAL MONETARY FUND 

(b) On-site?

Yes. CFTC Regulation 1.31(a) provides that all books and records required to be kept by the 

CEA and or by Commission regulation must be open to inspection by any representative of 

the Commission or the DOJ.

2. Does the regulator have the power to obtain books and records and request data or 

information from regulated entities without judicial action, even in the absence of suspected 

misconduct:

(a) In response to a particular inquiry?

Yes. Pursuant to the Commission’s inspection powers, the Commission can obtain 

information from registered individuals and entities without judicial action: 

a. Recordkeeping for persons registered with the Commission (other than Registered SDs

and MSPs). Sections 4f, 4g, and 4n of the CEA and Commission Regulations 1.12, 1.14, 

1.18, 1.25, 1.31, 1.33, 1.34, 1.35, 1.37, 1.55, 3.12, 4.23, 4.33, 32.7, 33.7 require persons 

registered with the Commission to keep records and reports (including electronic data) 

of transactions and positions in commodities for future delivery on any board of trade in 

the United States or elsewhere. Registered Persons must also keep books and records 

pertaining to such transactions (including daily trading records, customer records, and 

information concerning volume of trading) in the form and manner and for such period 

of time required by the Commission. All such books and records must be made available 

for inspection by any representative of the Commission or DOJ.

b. Recordkeeping for Members of a Registered Entity. Commission Regulations 1.31, 1.35 

and 1.37, require members of a registered entity to keep records and reports of 

transactions and positions in commodities for future delivery and options on any board 

of trade in the United States or elsewhere, as well as cash commodities. Members of a 

registered entity must also keep books and records pertaining to such transactions 

(including daily trading records, customer records, and information concerning volume 

of trading) in the form and manner and for such period of time required by the 

Commission. All such books and records must be made available for inspection upon 

request by any representative of the Commission or DOJ. Additionally, Commission 

Regulation 1.40 requires each member of a registered entity to furnish to the 

Commission certain reports concerning crop or market information or conditions that 

affect or tend to affect the price of any commodity.

c. Recordkeeping for Traders who hold or control a Reportable Futures or Options Position. 

Section 4i of the CEA and Commission Regulations 1.31 and 18.05 require traders who 

hold or control a reportable futures or options position (as defined in Commission 

Regulation 15.00(p)) to keep books and records showing, among other things, all details 

concerning all positions and transactions in the commodity, and in its products and byproducts, whether executed through a contract for future delivery, an option contract or 

a cash contract, and whether such contract is executed through a board of trade, an 

exempt commercial market, an exempt board of trade, a foreign board of trade or an 

over-the-counter transaction. All such books and records, and pertinent information 

concerning the underlying positions, transactions or activities, must be made available 

for inspection in a form acceptable to the Commission upon request by any 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 109

representative of the Commission.

d. Recordkeeping for Registered SDs and MSPs. Sections 4r and 4s of the CEA and 

Commission Regulations 1.31, 23.201, 23.202, 23.203, 23.504, 23.505, 23.606, 45.2, 46.2 

require SDs and MSPs to keep records of all activities relating to their business with 

respect to swaps. The records must be readily accessible throughout the life of the swap 

and for two years following its termination, and retrievable by the SD or MSP within 

three business days during the remainder of the retention period. Each SD and MSP 

must make available for disclosure to and inspection by the Commission and its 

prudential regulator, as applicable, all information required by, or related to, the CEA and 

Commission Regulations, including: (i) the terms and condition of its swaps; its swaps 

trading operations, mechanisms, and practices; financial integrity and risk management 

protections relating to swaps; and (iv) any other information relevant to its trading in 

swaps. Such information shall be made available promptly, upon request, to 

Commission Staff and the staff of the applicable prudential regulator, at such frequency 

and in such manner as is set forth in the CEA, Commission regulations, or the regulations 

of the applicable prudential regulator.

e. Recordkeeping by Swaps Participants who are not registered. Section 4r of the CEA and 

Commission Regulations 1.31, 45.2, 46.2 require non-SD/MSP counterparties to keep 

records with respect to each swap in which they are a counterparty. Required records 

must be kept by all swap counterparties throughout the existence of a swap and for five 

years following termination of the swap. In the case of a non-SD/MSP counterparty, the 

records must be retrievable by the counterparty within five business days throughout the 

retention period.

f. Recordkeeping for Large Physical Commodity Swaps Traders. Sections 4r and 4t of the 

CEA and Commission Regulations 1.31, 1.35, 20.6, 45.2, 46.2 require clearing 

organizations, reporting entities, and persons with positions in paired swaps above a 

certain futures equivalent threshold to keep records of transactions in paired swaps or 

swaptions as well as the methods used to convert paired swaps or swaptions into futures 

equivalents. Additionally, Regulation 20.6 requires every person with greater than 50 allmonths-combined futures equivalent positions on a gross basis in paired swaps or 

swaptions on the same commodity to keep books and records for transactions resulting 

in such swaps positions and, among other things, the cash commodity underlying such 

positions. The recordkeeping duties imposed by Regulation 20.6 are in accordance with 

the requirements of Regulation 1.31. Furthermore, Regulation 20.6(d) requires that all 

books and records required to be kept under Regulation 20.6 shall be furnished upon 

request to the Commission along with any pertinent information concerning such 

positions, transactions, or activities. 

(b) On a routine basis?

Yes. CFTC Staff carries out periodic, routine inspections and audits of SROs to ensure that 

those SROs are carrying out their obligations under the CEA and Commission regulations. 

The Commission’s regulations impose a duty in the first instance on DCMs and SEFs to 

establish a continuing affirmative action program to secure compliance with, among other 

things, the CEA and with exchange or facility rules and by-laws. CFTC Regulation 1.52 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

110 INTERNATIONAL MONETARY FUND 

provides direction on how an SRO must conduct its financial and sales practice programs 

over FCMs and IBs. A requirement under Regulation 1.52 is that SROs are required to 

conduct periodic on-site examinations of certain registrants.

Under this approach of self-regulation, the CFTC assesses the effectiveness of the SRO’s 

compliance programs. Staff also conducts selected reviews of registrants, including 

horizontal review and “for cause” examinations.

3. Does the regulator have the power to conduct or supervise surveillance of trading activity on 

its authorized exchanges and regulated trading platforms?

Yes. CFTC Staff carries out periodic routine inspections and audits of DCMs to ensure that 

they are carrying out their obligations under the CEA and Commission regulations. The Staff 

will conduct such routine audits and inspections on SEFs once a SEF has obtained permanent 

registration status.

4. Does the regulatory system have record-keeping and record retention requirements for 

regulated entities?

Yes. See responses to Principle 10, Question 1.

5. Are regulated entities required: 

(a) To maintain records concerning client identity?

Yes. FCMs, IBs and members of a contract market must keep a record which shows for each 

commodity futures or options account the true name and address of the person for whom 

such account is carried or introduced and the principal occupation or business of such 

person. They also must keep a record showing the name of any other person guaranteeing 

such account or exercising any trading control over the account.

78

 If an account becomes 

reportable, certain additional information is required to be obtained and filed with the 

Commission. See, e.g., CFTC Regulation 17.01 (requires the reporting of the identity of the 

owner of the account and its registration; the legal organization, and principal 

business/occupation of the owner of the account; the name and location of all persons 

having a ten percent or more financial interest in the account; and the names and addresses 

of all persons with trading authority, if there are five or fewer such persons); see also CFTC 

Regulation 18.04 (the Commission may require the reporting of the name, address, 

registration and principal business and occupation of the reporting trader; the name and 

address and business phone of each person who controls the trading of the reporting trader; 

and the names and locations of guarantors and persons with a financial interest of 10 

percent or more in the reporting trader or its accounts).

SDs and MSPs must obtain a record showing the true name and address of each 

counterparty whose identity is known to the SD or MSP prior to the execution of a swap 

transaction, the principal occupation or business of such counterparty, as well as the name 

and address of any other person guaranteeing the performance of such counterparty and 

any person exercising any control with respect to the positions of the counterparty.79

 

78 CFTC Regulation 1.37(a)(1).

79 CFTC Regulation 23.402(c).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 111

A customer identification program (CIP) regulation issued jointly by the CFTC and FinCEN

pursuant to the Bank Secrecy Act80 also requires that certain registrants obtain identification 

and verification information on their customers. An FCM’s or IB’s CIP procedures must 

enable it to form a reasonable belief that it knows the true identity of each customer. 

Commission Regulation 42.2 directs entities to comply with the CIP requirements.

NFA has also incorporated the CIP and know-your-customer (KYC) requirements within its 

membership rules. NFA’s KYC requirements are set forth in NFA Compliance Rule 2-30. This 

Rule requires NFA members to obtain the true name, address, and principal occupation or 

business of each customer that is a natural person; the customer’s current estimated annual 

income and net worth; age; and an indication of the customer’s previous investment and 

futures trading experience.

 

80 Public Law 91–508, codified as amended at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311–5314; 5316–

5332. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

112 INTERNATIONAL MONETARY FUND 

(b) To maintain records that permit tracing of funds and securities in and out of 

brokerage and bank accounts related to securities transactions?

Yes. Commission regulations require that there be a complete record, or audit trail, of the 

entry and execution of all orders for transactions in commodity interest and related cash or 

forward transactions. For example, each FCM, IB, RFED, and member of a DCM or SEF must 

keep all records, data, and memoranda, including copies of statements of purchase and sale, 

which have been prepared in the course of its business of dealing in commodity interest and 

related cash or forward transactions.

81

 Additionally, an FCM or IB receiving an oral order 

from a customer must immediately prepare a written record of the order including account 

identification and an order number, and the order must be time-stamped within one minute 

of its receipt.82 A member of a DCM receiving an oral order must do the same, and must 

also time-stamp the order when the report of its execution is made.83 

In addition, an FCM must maintain records for each commodity and option customer and 

foreign futures or options customer showing any customer funds carried with the FCM and a 

detailed accounting of all charges and credits to the customer account.84 These 

comprehensive record creation, retention and reporting requirements ensure that all 

transactions in futures and options can be reliably documented and reconstructed, and are 

readily available to investigating authorities. The Commission’s authority to obtain all the 

foregoing records is the same as set forth in response to Principle 10, Question 1.

FCMs and IBs are also covered financial institutions that are required to file suspicious 

activity reports under the Bank Secrecy Act.85 FCMs are equivalent to brokers and dealers in 

the securities industry. IBs are similar to FCMs in that they both solicit and accept orders for 

the purchase or sale of any commodity for future delivery on U.S. futures exchanges. They 

are distinguishable from FCMs in that, unlike FCMs, IBs are not permitted to accept money 

or other property to margin, guarantee, or secure any trades or contracts.

Under the Bank Secrecy Act, FCMs and IBs also must establish due diligence programs that 

include appropriate, specific, risk-based and, where necessary, enhanced policies, 

 

81 On May 22, 2014, the Division of Swap Dealer and Intermediary Oversight (“DSIO”) and the Division of Market 

Oversight (“DMO”) granted limited relief with respect to the requirement that Covered Members (i.e., members of a 

DCM or SEF that are not registered or required to be registered with the Commission) keep digital or electronic 

written communications, specifically with respect to keeping text messages. In addition, the relief extends to the 

requirement that Covered Members keep written records of all transactions relating to its business of dealing in 

commodity interests and related cash or forward transactions in a form and manner identifiable and searchable by 

transaction. However, Covered Members will continue to be required to keep all other written records required by 

Regulation 1.35(a). The relief provided by the Divisions will remain effective until the effective date of any final 

Commission action, including without limitation, a rulemaking, an order, or a determination not to take action. See

CFTC Letter 14-72.

82 CFTC Regulation 1.35(a-1)(1).

83 CFTC Regulations 1.35(a-1)(2) and (4).

84 CFTC Regulations 1.33, 1.35(a), and (b).

85 31 C.F.R. 1026.320.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 113

procedures and controls that are reasonably designed to detect and report, on an ongoing 

basis, any known or suspected money laundering activity conducted through or involving 

any correspondent account established, maintained, administered, or managed by such 

covered financial institution in the United States for a foreign financial institution.

86

 They 

must maintain due diligence programs that are reasonably designed to detect and report 

known or suspected money laundering or suspicious activity conducted through or involving 

any private banking account that is established, maintained, administered, or managed in 

the United States by such financial institution for a non-U.S. person.

87 FCMs and IBs are also 

required to file a report concerning a transaction (or series of related transactions) in excess 

of $10,000 in currency.

88

All of these Bank Secrecy Act requirements are intended to minimize potential money 

laundering and terrorist financing; however, they also set forth compliance obligations as 

well as recordkeeping and reporting requirements that complement the Commission’s 

efforts to ensure that futures and options transactions can be reliably documented and 

reconstructed.

Finally, as discussed in response to Principle 10, Question 1, the CEA, CFTC regulations and 

NFA rules also impose comprehensive record creation, retention and reporting requirements 

to ensure that all transactions can be reliably documented and reconstructed, and are readily 

available to investigating authorities.

6. Does the regulator have the authority to determine or have access to the identity of all 

clients of regulated entities?

Yes. As indicated in response to Principle 10, Question 5(a), registrants must keep a record 

of the identity of the owners, controllers and principals of accounts carried by or introduced 

to or by them. The Commission’s authority to obtain all the foregoing records is the same 

as set forth in the response to Principle 10, Question 1. 

As also indicated in response to Principle 10, Question 5(a), FCMs and IBs are required by 

the CIP regulation to have procedures to identify and verify the identity of customers.89 An 

FCM’s or IB’s CIP procedures must enable it to form a reasonable belief that it knows the 

true identity of each customer. Under the CIP regulation, FCMs and IBs must retain all 

identification information for five years after an account is closed and verification 

information for five years after the record is made.90 Further, FinCEN has delegated to the 

Commission its authority to examine FCMs and IBs for compliance with BSA requirements. 

This delegation provides the Commission with the authority to obtain the identification and 

verification information collected under the CIP regulation.

 

86 31 C.F.R. 1026.610, 1026.630.

87 31 C.F.R. 1026.620.

88 31 C.F.R. 1026.311, 1026.312.

89 31 C.F.R. 1026.220.

90 31 C.F.R. 1026.220(3)(iii).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

114 INTERNATIONAL MONETARY FUND 

7. Where a regulator out-sources or otherwise grants inspection or other regulatory 

enforcement authority to a third party, including a SRO: 

(a) Does the regulator supervise the outsourced functions of the third party? 

Yes. The CFTC’s supervisory approach to outsourcing to a RFA (in connection with Part 9 as 

noted below) or allowing registered entities (DCMs and SEFs) to outsource regulatory 

oversight to a DSRO or RFA is addressed in the context of (1) reviews of an exchange’s 

application for initial designation as a “contract market” or temporary registration as a SEF 

and (2) ongoing supervision, including RERs, which assess a DCM’s (or SEF’s) ongoing 

compliance with the Core Principles that govern the operation and conduct of such a 

regulated market. 

Commission Regulation 38.154(a) permits a DCM to use a RFA or another registered entity 

to provide services to assist in complying with the Core Principles. Any DCM that chooses to 

utilize a regulatory service provider must ensure that its regulatory service provider has the 

capacity and resources necessary to provide timely and effective regulatory services, 

including adequate staff and automated surveillance systems. A DCM remains responsible 

for the performance of any regulatory services received from a third party, for compliance 

with the DCM's obligations under the CEA and Commission regulations, and for the 

regulatory service provider's performance on its behalf. CFTC Regulation 38.154(a). In 

supervising the quality of regulatory services provided on its behalf, Commission Regulation 

38.154(b) requires the compliance staff of the DCM to hold regular meetings with the 

regulatory service provider to discuss ongoing investigations, trading patterns, market 

participants, and any other matters of regulatory concern. A DCM also must conduct 

periodic reviews of the adequacy and effectiveness of services provided on its behalf. Such 

reviews must be documented carefully and made available to the Commission upon request.

CFTC Regulation 38.154(b). Commission Regulation 38.154(c) requires the DCM to retain 

exclusive authority in decisions involving the cancellation of trades, the issuance of 

disciplinary charges against members or market participants, and the denials of access to the 

trading platform for disciplinary reasons. A DCM may also retain exclusive authority in other 

areas of its choosing. Further, a DCM must document any instances where its actions differ 

from those recommended by its regulatory service provider, including the reasons for the 

course of action recommended by the regulatory service provider and the reasons why the 

DCM chose a different course of action. CFTC Regulation 38.154(c).

With respect to SEFs, Commission Regulation 37.204(a) permits a SEF to contract with a 

registered futures association, another registered entity, or the Financial Industry 

Regulatory Authority for the provision of services to assist in complying with the Act and 

Commission regulations thereunder, as approved by the Commission. Any SEF that 

chooses to contract with a regulatory service provider must ensure that such provider has 

the capacity and resources necessary to provide timely and effective regulatory services, 

including adequate staff and automated surveillance systems. A SEF must at all times 

remain responsible for the performance of any regulatory services received, for 

compliance with the SEF's obligations under the Act and Commission regulations, and for 

the regulatory service provider's performance on its behalf. CFTC Regulation 37.204(a). 

Commission Regulation 37.204(b) requires a SEF to retain sufficient compliance staff to 

supervise the quality and effectiveness of the regulatory services provided on its behalf. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 115

Compliance staff of the SEF must hold regular meetings with the regulatory service 

provider to discuss ongoing investigations, trading patterns, market participants, and any 

other matters of regulatory concern. A SEF must also conduct periodic reviews of the 

adequacy and effectiveness of services provided on its behalf. Such reviews must be 

documented carefully and made available to the Commission upon request. CFTC 

Regulation 37.204(b). Commission Regulation 37.204(c) requires the SEF to retain 

exclusive authority in all substantive decisions made by its regulatory service provider, 

including, but not limited to, decisions involving the cancellation of trades, the issuance 

of disciplinary charges against members or market participants, and denials of access to 

the trading platform for disciplinary reasons. A SEF must also document any instances 

where its actions differ from those recommended by its regulatory service provider,

including the reasons for the course of action recommended by the regulatory service 

provider and the reasons why the SEF chose a different course of action. CFTC 

Regulation 37.204(c). 

Background Note. The Commission noted in the preamble discussion concerning the final 

DCM rules that with respect to Commission Regulation 38.154, the Commission has 

previously described acceptable ‘‘contracting’’ and ‘‘delegating’’ arrangements for the 

performance of Core Principle functions by third-parties.91 The Commission promulgated

Regulation 38.154 to clarify its previous guidance on such arrangements. In particular, the 

Commission stated that it does not draw substantive distinctions between ‘‘contracting’’ and 

‘‘delegating’’ arrangements as they pertain to Core Principle compliance functions. 

Regardless of the term by which a DCM may refer to its utilization of a third party, the 

Commission believes that the same regulatory requirements are applicable for purposes of 

Part 38. For purposes of Part 38, the Commission refers to such arrangements as 

‘‘delegation.’’ The Commission also noted that DCMs must remain responsible for carrying 

out any function delegated to a third party, and that DCMs must ensure that the services 

received will enable the DCM to remain in compliance with the CEA’s requirements.

Also, Section 5c(b) of the CEA allows a DCM to comply with any applicable Core Principle 

through delegation of any relevant function to a RFA or another registered entity that is not 

an electronic trading facility. A DCM that delegates a function remains responsible for 

carrying out the function.

 

91 77 Federal Register 36627 (June 19, 2012).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

116 INTERNATIONAL MONETARY FUND 

(b) Does the regulator have full access to information maintained or obtained by the 

third party? 

Yes. The CFTC would have access whether the function is characterized as a “delegation” or 

“outsourcing.” If an SRO “delegated” a function, the CFTC would have regulatory power with 

respect to both the SRO and the “registered entity” to which the SRO delegated a function. 

If an SRO “outsourced” a function, the CFTC would have power over the SRO. 

(c) Can the regulator cause changes/improvements to be made in the third parties ́ 

processes?

Yes. The Commission may cause changes/improvements to be made to the third parties’ 

processes through exercise of its powers over the registered entities. CFTC Staff conducts 

ongoing supervision that addresses the continuing compliance of DCMs and SEFs with the 

CEA and Commission regulations. 

Note that whether there may be a concern with respect to access to information or a need 

to “cause changes or improvements” in the third parties’ processes CFTC Staff requires a 

written regulatory services agreement “for purposes of determining compliance with Core 

Principles.” Among other things, Staff inquires into the ability of the exchange to monitor 

and supervise the service provider (as required by the CFTC) and as part of this process 

would raise any issues arising from such services agreement. 

(d) Is the third party subject to disclosure and confidentiality requirements that are no 

less stringent than those applicable to the regulator?

 Yes. Any delegation can only be made to another registered entity. An SRO that 

“outsourced” a function remains responsible for the exercise of all SRO responsibilities and, 

to the extent the matter involves a confidential matter, would be required to ensure that the 

entity carrying out the outsourced function maintains any required confidentiality.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 117

Principle 11 The Regulator should have comprehensive enforcement powers.

Key Questions

1. Does the regulator or other competent authority within the jurisdiction have the 

investigative and enforcement power to enforce compliance with the laws and regulations 

relating to securities activities?

Yes. The CFTC has comprehensive investigative and enforcement powers under the CEA. 

The CFTC enforces compliance with the laws and regulations relating to futures, options on 

futures, and swaps by conducting investigations and bringing enforcement actions where 

appropriate. The CFTC has broad authority to investigate actual or potential violations of 

the CEA and Commission regulations and to determine the scope of its investigations and 

the persons and entities subject to investigation.

Section 8(a)(1) authorizes the Commission to make such investigations as it deems necessary 

to ascertain the facts regarding the operations of boards of trade and other persons subject 

to the provisions of this chapter. Further, Section 6(c) of the CEA provides: 

For the purpose of securing effective enforcement of the provisions of this chapter, 

for the purpose of any investigation or proceeding under this chapter, ... any 

member of the Commission or any Administrative Law Judge or other officer 

designated by the Commission ... may administer oaths and affirmations, subpoena 

witnesses, compel their attendance, take evidence, and require the production of any 

books, papers, correspondence, memoranda, or other records that the Commission 

deems relevant or material to the inquiry.

Finally, Part 11 of the Commission’s regulations, Relating to Investigations, sets forth the 

rules applicable to investigatory proceedings conducted by the Commission to determine 

whether there have been violations of the CEA or the Commission’s regulations. 

Commission Regulation 11.2 sets out the authority of the DOE to carry out Section 6(c) and 

conduct the investigations, which includes obtaining evidence through voluntary statements 

and submissions, through exercise of inspection powers over registrants, and through the 

issuance of subpoenas. In addition, Part 11 of the Commission’s regulations provides 

witnesses certain procedural protections, such as the right to have a lawyer present when 

testifying and to review the Commission’s order of investigation. A witness can also assert 

his or her Fifth Amendment protection against self-incrimination. CFTC investigations are 

non-public.

Where the investigation indicates such a violation, the Director of DOE shall recommend an 

appropriate civil enforcement action, either administrative or in Federal court. See response 

to Principle 11, Question 2.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

118 INTERNATIONAL MONETARY FUND 

2. Does the regulator or other competent authority within the jurisdiction have the following 

powers: 

(a) Power to seek court or judicial orders, to refer matters for civil proceedings or to take 

other action to ensure compliance with regulatory, administrative, and investigative 

powers?

(b) Power to impose effective, proportionate and dissuasive administrative sanctions? 

(c) Power to initiate criminal proceedings or to refer matters for criminal prosecution?

(d) Power to order the suspension of trading in securities or to take other appropriate 

actions? 

Yes, to all of the above. Under Sections 6(c), 6(d) and 6c of the CEA, the CFTC has the 

authority to file a civil enforcement action in Federal district court or an administrative 

enforcement proceeding in an administrative tribunal to ensure compliance with the CEA

and Commission regulations. 

The relief available in Federal district court is composed of the remedies that Congress 

expressly authorized Federal courts to grant under Section 6c of the CEA and the Federal 

courts' general equitable powers. Thus, the Commission's Federal court enforcement 

actions may seek any or all of the following types of relief when appropriate:

 Preliminary and permanent injunctions barring future violations of the CEA and 

CFTC regulations and enforcing compliance with the CEA and regulations; 

 An ex parte order (i) prohibiting any person from destroying, altering or disposing 

of, or refusing to permit authorized representatives of the Commission to inspect, 

when and as requested, any books and records or other documents, (ii) 

prohibiting any person from withdrawing, transferring, removing, dissipating, or 

disposing of any funds, assets, or other property, or (iii) appointing a temporary 

receiver to administer such restraining order; 

 Imposition of civil monetary penalties; 

 Appointment of a receiver to administer a defendant's estate;

 An order directing that a defendant disgorge ill-gotten gains; 

 An order directing that a defendant make restitution to persons who have 

sustained losses proximately caused by such violations in the amount of such 

losses; 

 An order rescinding all contracts entered into by a defendant with any customer;

 An order directing that the defendant make an accounting (in a form and by an 

individual or firm approved by the Commission and the court) of the defendant's 

estate; and

 An award of pre-judgment interest on any sums to be disgorged or paid in 

restitution.

All complaints initiating an administrative action pursuant to Sections 6(c) and 6(d) of the 

CEA are conducted under the Commission's Rules of Practice contained in Part 10 of the 

Commission's regulations. The following sanctions are available in administrative actions 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 119

and all administrative complaints notify respondents of these possible sanctions that can be 

imposed if liability is found:

 An order prohibiting a respondent from trading on or subject to the rules of any 

contract market and requiring all contract markets to refuse such person all trading 

privileges thereon for such period as may be specified in the order; 

 An order suspending (for a period of not more than six months), revoking or 

restricting a respondent's registration with the Commission;

 An order assessing civil monetary penalties against a respondent, not to exceed 

$140,000 per violation ($1 million for manipulation); 

 An order directing that a respondent make restitution to customers of damages 

proximately caused by the respondent's violations; and

 An order directing a respondent to cease and desist from violating the CEA or CFTC 

regulations in an administrative action brought pursuant to Section 6(d).

As set forth above, the Commission has a myriad of tools at its disposal to deter and 

remediate violations of the CEA. The interplay of many factors influences the particular 

mix of sanctions imposed in any given matter. The Commission bases its analysis of an 

appropriate sanction in a matter on the gravity of the offense, the specific circumstances 

of each violation and violator, the deterrent and remedial effect of each package of 

sanctions and penalties imposed in analogous cases. The Commission has identified a 

variety of factors relevant to ascertaining the gravity of an offense, including whether the 

violation involves core provisions of the Act, like fraud and manipulation, and whether the 

violator acted willfully. The Commission may also consider the impact of the case on 

Commission resources as a result of cooperation or settlement. These factors provide 

guidance for all parties in the Commission’s adjudicatory process. 

In addition to other substantive violations of the CEA, as set forth in Section 6(c), if an 

individual or firm named in a subpoena refuses to comply with its terms, the Commission 

may apply to a Federal district court to enforce the subpoena. The Commission has 

delegated its authority to file a subpoena enforcement action to the Director of DOE.

In pertinent part, Section 6(c) of the CEA provides as follows:

In case of contumacy by, or refusal to obey a subpoena issued to, any person, the 

Commission may invoke the aid of any court of the United States within the 

jurisdiction in which the investigation . . . is conducted, or where such person resides 

or transacts business, in requiring the attendance and testimony of witnesses and 

the production of books, papers, correspondence, memoranda, and other records. 

Such court may issue an order requiring such person to appear before the . . . officer 

designated by the Commission, there to produce records, if so ordered, or to give 

testimony touching the matter under investigation or in question.

If the subpoenaed party refuses to comply with the district court's order enforcing the 

subpoena, the court can punish the party for contempt. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

120 INTERNATIONAL MONETARY FUND 

The CFTC has the power to refer matters for criminal prosecution to DOJ, but cannot 

independently initiate such actions. Alleged criminal violations of the CEA pursuant to 

Section 9 of the CEA or violations of other Federal laws that involve commodity futures 

trading are frequently referred to DOJ for prosecution.

The CFTC also works closely with criminal and civil state agencies, particularly members of 

the North American Securities Administrators Association, Inc. and offices of State attorney 

generals. Pursuant to statutory authority under the CEA, States can join as co-plaintiffs in 

CFTC Federal court injunctive enforcement actions and have done so in over 80 matters 

since afforded that authority. 

3. Does the regulator or other competent authority have the investigative and enforcement 

power to require and to obtain from any person, including third party entities and 

individuals (whether regulated or unregulated), that are either involved in relevant conduct 

or who may have information relevant to a regulatory or enforcement inquiry/investigation:

(a) Contemporaneous records sufficient to reconstruct all securities and derivatives 

transactions, including records of all funds and assets transferred into and out of 

bank and brokerage accounts relating to those transactions? 

(b) Records for securities and derivatives transactions that identify: 

(i) The client:

(1) Name of the account holder?

(2) Person authorized to transact business? 

(ii) The amount purchased or sold? 

(iii) The time of the transaction? 

(iv) The price of the transaction? 

(v) The individual and the bank or broker and brokerage house that handled the 

transaction?

(c) Information located in its jurisdiction identifying persons who beneficially own or 

control non-natural persons organized in its jurisdiction?

(d) Statements or testimony?

(e) Any other information including documents and bank records?

Yes, to all of the above. Through its inspection power, the CFTC can obtain information from 

registered individuals and entities, large traders and market members, without judicial 

action. See response to Principle 10, Question 2. Sections 4g and 4n of the CEA provide the 

CFTC with the authority to require certain reports and books and records be maintained by 

FCMs, IBs, floor brokers, floor traders, CPOs and CTAs. These books and records must be

open at all times to inspection by any representative of the CFTC or DOJ. DCMs under Part 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 121

38 are also required to keep records of all activities relating to its business and subject such 

books and records to inspection by the CFTC and DOJ. Pursuant to Sections 5h(f)(5), and 

5b(2)(K), all records required to be maintained by SEFs and DCOs respectively, must be 

provided to the Commission upon request. Under Section 4i of the CEA, all records required 

to be maintained by large traders are open at all times to inspection by any representative of 

the CFTC or DOJ. See responses to Principle 10, Question 1 and Principle 12, Question 1. 

Similarly, the books and records of SDRs are also subject to inspection upon request by any 

representative of the CFTC and DOJ. In addition, the general recordkeeping provision set 

forth in CFTC Regulation 1.31 provides that all books and records required to be kept and 

maintained by the CEA or the CFTC Regulations are subject to inspection by any 

representative of the CFTC or the DOJ.

The CFTC’s access to records includes nonpublic and public information held by individuals 

and entities regulated by the CFTC (DCOs, FCMs, floor brokers, floor traders, IBs, CTAs, CPOs,

RFEDs, SEFs, SDs, MSPs, SDRs, APs, leverage transaction merchants, agricultural trade option 

merchants and exchanges) including customer information and to information about 

persons that do business with such regulated individuals and entities.

In addition to its inspection powers, the CFTC has broad subpoena powers and may obtain 

information from any individual or entity, whether registered or not, in connection with 

possible violations of the CEA and Commission regulations. Section 6(c) of the CEA 

authorizes the CFTC to subpoena the production of documentary and testimonial evidence 

"from any place in the United States, any State, or any foreign country or jurisdiction.”
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

122 INTERNATIONAL MONETARY FUND 

4. Can private persons seek their own remedies for misconduct relating to the securities laws? 

Yes. Section 22 of the CEA permits private rights of action under certain circumstances. 

Section 22(a) permits, under certain circumstances, private damage actions against anyone 

other than a SRO who violates, or wilfully aids and abets a violation, of the CEA. Section 

22(b) establishes, under certain circumstances, a private damage remedy against SROs and 

their officials, which in bad faith refuse to enforce their own rules, or enforce their own rules 

in violation of the CEA, and cause monetary loss to the plaintiff. 

Section 14 of the CEA permits anyone complaining of a violation of the CEA or the CFTC’s 

rules to apply to the CFTC for an order awarding damages caused by the violation. These 

so-called reparations procedures offer a variety of methods to resolve claims, including a 

voluntary procedure based on the submission of written documents, a summary procedure 

for claims of less than $30,000 where evidence is submitted in writing and an oral hearing 

may be held by telephone and a formal procedure before an Administrative Law Judge. See 

CFTC Regulations Part 12 relating to Reparations procedures.

The CFTC also requires each DCM to adopt rules which provide for the fair and equitable 

procedure through arbitration or otherwise for the settlement of customer’s claims and 

grievances against any member or employee of the contract market.92 The use by customers 

of the dispute resolution mechanism established by contract markets is voluntary.93

Section 17(a)(10) of the CEA requires that any RFA provide a fair, equitable, and expeditious 

procedure through arbitration or otherwise for the settlement of customers’ claims and 

grievances against any member or employee thereof.

5. Where an authority other than the regulator must take enforcement or other corrective 

action, can the regulator share information obtained through its regulatory or investigation 

activities with that authority? 

Yes. Sections 8(a)(2) and 12(a) specifically authorize the Commission to request the 

assistance of and cooperate with other state and Federal agencies, including DOJ, in the 

conduct of its investigations.

6. Where the regulator is unable to obtain information in its jurisdiction necessary to an 

investigation is there another authority that can obtain the information? 

Yes. To the extent the information is available from another Federal or State agency, such 

as a State securities regulator, the SEC or FERC, the CFTC may obtain this information by 

seeking access to the public and non-public information in that agency’s files. The CFTC 

cooperates with other domestic enforcement authorities through explicit statutory 

authorization, formal MOUs and informal arrangements to combat fraud and other illegal 

practices that could harm customers or threaten market integrity.

 

92 CFTC Regulation 180. 

93 CFTC Regulation 180.3.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 123

7. If yes: Are there respective arrangements between the regulator and the other domestic 

authority as regards the respective exchange of information in place?

The only limitation on the sharing of information is in the context of information that is 

obtained by DOJ in a criminal investigation through the grand jury process. Under the 

Federal Rules of Criminal Procedure, DOJ cannot share this information with the CFTC, 

though it can share any information obtained through means other than the grand jury.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

124 INTERNATIONAL MONETARY FUND 

Principle 12 The regulatory system should ensure an effective and credible use of 

inspection, investigation, surveillance and enforcement powers and 

implementation of an effective compliance program.

Key Questions

Detecting Breaches

1. Is there an effective system of inspection in place whereby the regulator carries out 

inspections:

(a) On a routine periodic basis?

Yes. See response to Principle 9, Question 4.

The Commission has a direct examinations program for DCOs and DCMs, and it will soon 

directly examine SEFs and SDRs. However, the agency does not at this time have the 

resources to place full-time staff on site at these registered entities, unlike a number of other 

financial regulators that have on-the-ground staff at the firms they oversee. DMO and DCR 

collectively have a total of 47 examinations positions in FY 2014. 

The Commission today performs only high-level, limited scope reviews of the nearly 100 

FCMs holding over $218 billion in customer funds and 102 swap dealers. The Commission 

currently has a staff of only 38 to examine these firms, and to review and analyse, among 

other things, over 1,200 financial filings and over 2,400 regulatory notices each year.

Although it has begun legal compliance oversight of SDs and MSPs, the Commission has 

been able to allocate only 13 employees for this purpose. The Commission itself does not 

conduct routine on-site direct inspections of intermediaries, but it does conduct such 

examinations for cause or to test the quality of the DSRO’s work. In FY 2014, the 

Commission overall will have 95 staff positions dedicated to examinations of the thousands 

of different registrants that should be subject to thorough oversight and examinations. The 

Commission’s regulatory scheme is based upon the assumption of self-regulatory 

responsibilities by the DCMs, SROs and continuing oversight by the Commission of the 

exercise of those responsibilities. See response to Principle 9.

The Commission’s Staff periodically reviews the programs and procedures adopted by each 

DCM to ensure compliance with the relevant Core principles and to assess the effectiveness 

of those rules and procedures. 

The operational integrity of exchanges is addressed through the CFTC’s periodic RERs 

(typically every year for the larger exchanges and about every two to three years for the 

smaller exchanges) that broadly address audit trail, market surveillance, trade practice 

surveillance, and/or disciplinary programs. DMO’s Compliance Section conducts periodic

reviews of each DCM’s ongoing compliance with Core Principles through the self-regulatory 

programs operated by the exchange in order to enforce its rules, prevent market 

manipulation and customer and market abuses, and ensure the recording and safe storage 

of trade information. 

On some occasions, the Compliance Section may conduct horizontal RERs of the compliance 

of multiple exchanges in regard to particular Core Principles.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 125

Under the CEA, SROs also are required to develop programs to assess whether FCMs and IBs 

are in compliance with exchange and Commission minimum financial and related reporting 

requirements. Each examination must assess the FCM’s compliance with minimum capital 

and customer funds protection requirements.

Under Regulation 1.52, SROs with FCM members in common may establish joint audit plans, 

and pursuant to such plans delegate the responsibility to audit and conduct financial 

surveillance of an FCM to one of the SROs as the DSRO. As discussed in response to 

Principle 9, all DCM SROs and NFA are participants in the JAC and divide up DSRO 

responsibility for monitoring the financial condition and rule compliance of joint members. 

The Commission requires DSROs to ensure that each FCM is subject to an on-site 

examination within nine to 18 months of the “as of” date of the previous examination by the 

DSRO. The JAC has established uniform procedures for such on-site examinations. 

In addition, CFTC risk surveillance staff regularly monitors the risk posed to and by DCOs, 

clearing members, and market participants, including market risk, liquidity risk, credit risk, 

and concentration risk. Relevant margin and financial resources are included within this 

monitoring program. CFTC staff regularly conducts back-testing to review margin coverage 

at the product level and follows up with the relevant clearing house regarding exceptional 

results. Independent stress testing of portfolios is conducted regularly. The independent 

stress tests may lead to individual trader reviews and/or FCM risk reviews. Traders and FCMs 

that have a higher risk profile are then reviewed during the Commission’s on-site review of a 

clearing house’s risk management procedures. In addition, CFTC risk surveillance also 

coordinates with other domestic and foreign regulators on matters of common jurisdictional 

interest.

(b) Based upon a risk assessment? 

See response to Question 1(a). With respect to testing the work performed by DSROs, Staff 

conducts risk-based reviews that focus on five areas of an SRO’s supervisory program: 

financial stability, customer protection, risk management, market moves and operational 

capabilities.

(c) On a non-periodic basis in response to intelligence received (e.g. investor complaints 

and tips and complaints from other sources)? 

On a daily basis, staff in DMO’s Surveillance staff reviews details of transactions at each 

exchange by using the Commission’s automated surveillance system. The Commission is 

currently in the process of significantly upgrading this system to enhance the Commission’s 

ability to detect trade practice violations, including wash trading and trading ahead. 

Additionally, DMO staff periodically observes trading activity on the floor of each exchange 

(for the exchanges that still have open outcry trading) and discusses potential issues of 

concern with compliance staff at the exchange. Where appropriate, Surveillance staff makes 

referrals to DOE.

In addition, DCR’s risk surveillance staff regularly monitors the risk posed to and by DCOs, 

clearing members, and market participants, including market risk, liquidity risk, credit risk, 

and concentration risk. Traders and FCMs that have a higher risk profile are then reviewed 

during the Commission’s on-site review of a clearing house’s risk management procedures

and discusses potential issues of concern with compliance staff at the clearing house.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

126 INTERNATIONAL MONETARY FUND 

2. Is there an automated system which identifies unusual transactions on authorized exchanges 

and regulated trading systems?

Yes. DCM Core Principle 2 requires a DCM to monitor and enforce compliance with rules of 

the contract market, including access requirements, the terms and conditions of any 

contracts to be traded on the contract market, and rules prohibiting abusive trading 

practices of the contract market. See CFTC Regulation 38.150. Commission Regulation 

38.156 requires a DCM to maintain an automated trade surveillance system capable of 

detecting potential trade practice violations. The automated system must load and process 

daily orders and trades no later than 24 hours after the completion of the trading day. In 

addition, the automated trade surveillance system must have the capability to detect and 

flag specific trade execution patterns and trade anomalies; compute, retain, and compare 

trading statistics; compute trade gains, losses, and futures-equivalent positions; reconstruct 

the sequence of market activity; perform market analyses; and support system users to 

perform in-depth analyses and ad hoc queries of trade-related data. Additionally, 

Commission Regulation 38.158 requires a DCM to establish and maintain procedures that 

require its compliance staff to conduct investigations of possible rule violations.

DCM Core Principle 4 requires the DCM to monitor trading to prevent manipulation, price 

distortion, and disruptions of the delivery or cash-settlement process. See also CFTC 

Regulation 38.250.

DCM Core Principle 5 requires the DCM to reduce the potential threat of market 

manipulation or congestion, especially during trading in the delivery month. The board of 

trade must adopt position limitations or position accountability levels for speculators, where 

necessary and appropriate. For any contract that is subject to a position limitation 

established by the Commission, pursuant to section 4a(a), the board of trade shall set the 

position limitation of the board of trade at a level not higher than the position limitation 

established by the Commission. See also CFTC Regulation 38.300).

DCM Core Principle 12 requires a DCM to establish and enforce rules to protect market 

participants from abusive practices committed by any party acting as an agent for the 

participants. See also CFTC Regulation 38.650.

DCM Core Principle 13 requires a DCM to establish and enforce disciplinary procedures that 

authorize the DCM to discipline, suspend, or expel members or market participants that 

violate the rules of the DCM. See also CFTC Regulation 38.700.

Commission Regulation 38.251 requires a DCM to, among other things, collect and evaluate 

data on individual traders’ market activity on an ongoing basis in order to detect and 

prevent manipulation, price distortions and, where possible, disruptions of the physicaldelivery or cash settlement process. In addition, a DCM must monitor and evaluate general 

market data in order to detect and prevent manipulative activity that would result in the 

failure of the market price to reflect the normal forces of supply and demand. See CFTC 

Regulation 38.251.

Commission Regulation 38.254 requires a DCM to have rules that require traders in its 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 127

contracts to keep records of their trading, including records of their activity in the underlying 

commodity and related derivatives markets, and make such records available upon request. 

Additionally, a DCM with participants trading through intermediaries must either use a 

comprehensive large-trader reporting system or be able to demonstrate that it can obtain 

position data from other sources in order to conduct an effective surveillance program. See

CFTC Regulation 38.254.

With respect to SEFs, SEF Core Principle 2 requires the SEF to establish and enforce trading, 

trade processing, and participation rules that will deter abuses and have the capacity to 

detect, investigate, and enforce those rules, including means to provide market participants 

with impartial access to the market. See also CFTC Regulation 37.200. Commission 

Regulation 37.203(d) requires a SEF to maintain an automated trade surveillance system 

capable of detecting potential trade practice violations. The automated trade surveillance 

system must load and process daily orders and trades no later than 24 hours after the 

completion of the trading day. The automated trade surveillance system shall have the 

capability to detect and flag specific trade execution patterns and trade anomalies; compute, 

retain, and compare trading statistics; compute trade gains, losses, and swap-equivalent 

positions; reconstruct the sequence of market activity; perform market analyses; and support 

system users to perform in-depth analyses and ad hoc queries of trade-related data. CFTC 

Regulation 37.203(d). Additionally, Commission Regulation 37.203(f) requires a SEF to 

establish and maintain procedures that require its compliance staff to conduct investigations 

of possible rule violations. CFTC Regulation 37.203(f). Commission Regulation 37.206 

requires a SEF to establish trading, trade processing, and participation rules that will deter 

abuses and have the capacity to enforce such rules through prompt and effective 

disciplinary action, including suspension or expulsion of members or market participants 

that violate the rules of the swap execution facility. CFTC Regulation 37.206.

SEF Core Principle 4 requires the SEF to monitor trading in swaps to prevent manipulation, 

price distortion, and disruptions of the delivery or cash settlement process through 

surveillance, compliance, and disciplinary practices and procedures, including conducting 

real-time monitoring of trading and comprehensive and accurate trade reconstructions. See 

also CFTC Regulation 37.400.

SEF Core Principle 6 requires the SEF to reduce the potential threat of market manipulation 

or congestion, especially during trading in the delivery month. A SEF that is a trading facility 

must adopt for each of the contracts of the facility, as is necessary and appropriate, position 

limitations or position accountability for speculators. For any contract that is subject to a 

position limitation established by the Commission pursuant to Section 4a(a) of the CEA, the 

SEF is required to set its position limitation at a level no higher than the Commission 

limitation. The SEF is also required to monitor positions established on or through the SEF 

for compliance with the limit set by the Commission and the limit, if any, set by the SEF. See 

also CFTC Regulation 37.600.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

128 INTERNATIONAL MONETARY FUND 

Commission Regulation 37.205 requires the SEF to capture and retain all audit trail data 

necessary to detect, investigate, and prevent customer and market abuses, including the 

capability to safely store all audit such data. 

Commission Regulation 37.401 requires the SEF to collect and evaluate data on its market 

participants' market activity on an ongoing basis in order to detect and prevent 

manipulation, price distortions, and, where possible, disruptions of the physical-delivery or 

cash-settlement process. The SEF must also monitor and evaluate general market data in 

order to detect and prevent manipulative activity that would result in the failure of the 

market price to reflect the normal forces of supply and demand. 

Commission Regulation 37.404 requires the SEF to have rules that require its market 

participants to keep records of their trading, including records of their activity in the index or 

instrument used as a reference price, the underlying commodity, and related derivatives 

markets, and make such records available, upon request, to the swap execution facility or, if 

applicable, to its regulatory service provider, and the Commission. 

3. Can the regulator demonstrate adequate mechanisms and procedures to detect and 

investigate:

(a) Market and/or price manipulation?

Yes. The exchanges are obliged to detect and deter unlawful conduct and use a 

combination of direct surveillance, inspection, reporting, product design requirements, 

position limits, settlement price rules or market halts complemented by vigorous 

enforcement of their rules. The CFTC conducts oversight of the exchanges’ programs to 

ensure effectiveness. In addition to the exchange surveillance program, the CFTC 

independently conducts an extensive market surveillance program, utilizing large trader 

reports. DOE also aggressively pursues leads to detect and deter violations, including 

manipulation. See response to Principle 34, Question 2.

With respect to a specific inquiry, the CFTC has power to investigate possible violations of 

the CEA, as discussed in Response to Principle 11, Question 1. In particular, DOE employs its 

full panoply of investigative powers to examine conduct that affects the integrity of the 

commodity futures and swaps markets, including price manipulation, cornering, 

communication of false information that tend to affect commodity prices (Sections 6(c), 6(d) 

and 9(a)(2) of the CEA); position limit violations (Section 4a(e) of the CEA); enumerated trade 

practice violations, such as wash trades, accommodation trades and fictitious sales (Section 

4c(a) of the CEA); and disruptive practices, such as violating bids or offers, spoofing 

disregard for the orderly execution of transactions during the closing period (Section 4c(a) 

of the CEA); and prohibits the use or attempted use of any manipulative device, scheme or 

artifice to defraud, untrue or misleading statement, false report or any act that operates or 

would operate as a fraud. See CFTC Regulation 180.1.

To the extent the investigation indicates a violation of the CEA or Commission regulations, 

the Commission takes appropriate enforcement action as described in response to Question 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 129

2 in Principle 11. 

In addition, DOE is empowered to investigate violations of Core Principles relating to 

registered entities.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

130 INTERNATIONAL MONETARY FUND 

(b) Insider trading?

The CEA has not historically prohibited insider trading in the commodity futures and options 

markets. The premise has been that insider trading has limited applicability to futures 

trading because it would defeat the market’s basic economic function of allowing traders to 

hedge the risks of their commercial enterprises.94 The price discovery function of futures 

markets depends on traders bringing information to the market through their trading. From 

an economic perspective, regulation has not focused on the source or quality of the 

information; rather, rational traders have been presumed to trade in their best economic 

interests. However, the knowing communication of false or misleading information that 

tends to affect commodity prices is a violation of Section 9(a)(2) of the CEA. . 

An exception to this general rule is for information obtained by employees of the CFTC and 

registered entities. Section 9(e) of the CEA provides an explicit prohibition against insider 

trading for certain persons, making it a felony: 

(1) for any person who is an employee, member of the governing board, or member of 

any committee of a board of trade, registered entity, or registered futures association, in 

violation of a regulation issued by the Commission, wilfully and knowingly to trade for 

such person’s own account, or for or on behalf of any other account, in contracts for 

future delivery or options thereon on the basis of, or wilfully and knowingly disclose for 

any purpose inconsistent with the performance of such person’s official duties as an 

employee or member, any material non-public information obtained through special 

access related to the performance of such duties; and 

(2) wilfully and knowingly to trade for such person’s own account, or for or on behalf of 

any other account, in contracts for future delivery or options thereon on the basis of 

material, non-public information that such person knows was obtained in violation of 

paragraph (1) from an employee, member of the governing board, or member of any 

committee of a board of trade, registered entity, or registered futures association. 

It should be noted that the CEA’s prohibitions of insider trading in Sections 9(c) and (d) apply

to Commission employees and employees of SROs, as well as the SRO’s board and 

committee members. See CEA Section 9(e); CFTC Regulation 1.59.

Section 746 of the Dodd-Frank Act added an insider trading prohibition regarding 

information emanating from Federal government departments and agencies that may affect 

or tend to affect the price of any commodity in interstate commerce or swap and persons 

who receive and trade in this information. See CEA Section 4c(a)(4). This prohibition applies 

to employees or agents of a Federal government department or agency or any person who 

receives information imparted by such an employee or agent and who knowingly uses the 

 

94 Testimony of Commission Chairman Phillip McBride before the SEC/CFTC Jurisdictional Issues and 

Oversight: Hearings on H.R. 5447, H.R. 5515 and H.R. 6156 Before the Subcommittee on Telecommunications, 

Consumer Protection and Finance of the House Committee on Energy and Commerce, 97th Cong., 2nd Sess,. Part 1 at 

21 (1982); A Study of the Nature, Extent and Effects of Futures Trading by Persons Possessing Material Non-Public 

Information (Sept. 1986). See also, Markham, Jerry W., “Front-Running” – Insider Trading Under the CEA,” 38 Cath. U. 

L. rev. 69 (Fall 1988).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 131

information to trade.

There is no explicit insider trading prohibition that applies to others in the futures industry, 

though some situations might allow for charges under the CEA’s general fraud authority (e.g., 

a broker trading ahead of an executable customer order).

To the extent an investigation indicates a violation of the CEA, the Commission takes 

appropriate enforcement action as described in response to Principle 11, Question 2.

(c) Misrepresentations of material information or other fraudulent or manipulative 

practices relating to securities and derivatives?

One mainstay of the CFTC’s enforcement program is the detection, investigation and 

prosecution of fraudulent and manipulative practices. To that end, the Commission has the 

power to investigate possible violations of the CEA and employ its full panoply of 

investigative powers to examine the conduct at issue. To the extent an investigation 

indicates a violation of the CEA, the Commission takes appropriate enforcement action as 

described in response to Principle 11, Question 2.

In general, CEA Section 4b(a) makes it unlawful for any person, in or in connection with any

order, or the making of, any contract of sale of any commodity in interstate commerce or for 

future delivery on or subject to the rules of a DCM, for or on behalf of any other person:

 To cheat or defraud or attempt to cheat or defraud another person;

 Willfully to make or cause to be made to another person any false report or 

statement or willfully to enter or cause to be entered for the other person any false 

record;

 Willfully to deceive or attempt to deceive another person; 

 Bucket such order (if such order is represented as an order to be executed); or

 Fill such order by offset against the order of any other person, or willfully or 

knowingly and without prior consent of the other person to become the buyer in 

respect to any selling orders or become the seller in respect to any buying order of 

such person.

CEA Section 4c prohibits “enter[ing] into a swap knowing, or acting in reckless disregard of 

the fact, that [a] counterparty will use the swap as part of a device, scheme, or artifice to 

defraud any third party.” Sections 6c of the CEA authorizes the Commission to bring legal

action against “any registered entity or other person [that] has engaged, is engaging, or is 

about to engage in any act or practice constituting a violation of any provision of [the CEA 

or any regulation thereunder],” including manipulation. 

CEA Section 4o unlawful for a commodity trading advisor, associated person of a commodity 

trading advisor, commodity pool operator, or associated person of a commodity pool 

operator by use of the mails or any means or instrumentality of interstate commerce, 

directly or indirectly (A) to employ any device, scheme, or artifice to defraud any client or 

participant or prospective client or participant; or (B) to engage in any transaction, practice, 

or course of business which operates as a fraud or deceit upon any client or participant or 

prospective client or participant. Section 4o further makes it unlawful for any commodity 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

132 INTERNATIONAL MONETARY FUND 

trading advisor, associated person of a commodity trading advisor, commodity pool 

operator, or associated person of a commodity pool operator registered under this Act to 

represent or imply in any manner whatsoever that such person has been sponsored, 

recommended, or approved, or that such person's abilities or qualifications have in any 

respect been passed upon, by the United States or any agency or officer thereof. 

CFTC Regulation 33.10 (which applies to DCMs pursuant to CFTC Regulation 38.2) makes it 

unlawful for any person to cheat, defraud or attempt to cheat or defraud any other person; 

to make or cause to be made to any other person any false report or statement or record; or 

to deceive or attempt to deceive any other person by any means whatsoever in connection 

with commodity option transactions.

Section 753 of the Dodd-Frank Act significantly enhanced the Commission’s enforcement 

anti-fraud and anti-manipulation authority. For example, Section 6(c)(1) prohibits the use of 

any “manipulative or deceptive device or contrivance” in connection with any swap or 

contract of sale of any commodity in interstate commerce of for future deliver on or subject 

to the rules of any registered entity and includes a special provision for manipulation by 

false or misleading or inaccurate reporting. See also Regulation 180.1(a). These provisions 

lessened the intent requirement to prohibit "the reckless use of fraud-based manipulative 

schemes.”

The Dodd-Frank Act also expanded the CFTC's authority to bring new types of enforcement 

actions alleging false statements to the CFTC. Section 6(c)(2) makes it unlawful to make any 

false or misleading statement of a material fact to the Commission in any form relating to a 

future, swap or commodity in interstate commerce. Section 6(c)(3) prohibits any person 

from directly or indirectly manipulating or attempting to manipulate the price of any 

product regulated by the Commission. 

In Section 747 of the Dodd-Frank Act, Congress amended the CEA to expressly prohibit 

certain trading practices that it determined were disruptive of fair and equitable trading. 

Dodd-Frank Section 747 amends Section 4c(a) of the CEA to make it unlawful for any person 

to engage in any trading, practice, or conduct on or subject to the rules of a registered 

entity that:

 violates bids or offers; 

 demonstrates intentional or reckless disregard for the orderly execution of 

transactions during the closing period; or 

 is of the character of, or is commonly known to the trade as, “spoofing” (bidding or 

offering with the intent to cancel the bid or offer before execution). 

See Principle 11, Question 9 for a summary of the enforcement matters from FY 2013 which 

provides some measure of the effectiveness of the Commission’s anti-fraud and antimanipulation enforcement program.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 133

(d) Failure of compliance with other regulatory requirements, for example: conduct of 

business, capital adequacy, disclosure or segregation of client assets? 

Yes. The CFTC has adequate mechanisms and procedures to detect and investigate a failure 

to comply with regulatory requirements. For example, FCMs must segregate customer funds 

and cannot commingle firm assets with customer funds. Clearing organizations and 

depositories also must treat such funds as customer assets (Section 4d of the CEA); DCM 

Core Principle 11 requires DCMs to have and enforce rules to provide for the financial 

integrity of contracts traded on the DCM (including clearing and settlement through a DCO); 

SEF Core Principle 7 requires SEFs to establish and enforce rules and procedures for ensuring 

the financial integrity of swaps entered on or through the facilities of the SEF, including the 

clearance and settlement of the swaps pursuant to Section 2(h)(1) of the Act; and capital, 

accounting, internal controls, and segregation requirements for FCMs and IBs are 

enumerated in CFTC Regulations 1.16 - 1.34. Where Staff in an operational Division believes 

a potential violation has occurred, it can make referrals to DOE.

Moreover, as noted above in response to Question 1, DCR’s risk surveillance staff regularly 

monitors the risk posed to and by DCOs, clearing members, and market participants, 

including market risk, liquidity risk, credit risk, and concentration risk. Under the DCO Core 

Principles and CFTC regulations, DCOs are required to establish a risk management 

framework that clearly identifies and documents the range of risks to which the DCO is 

exposed, addresses the monitoring and management of the entirety of those risks, and 

provides a mechanism for internal audit.95 As part of the risk management program, DCOs 

are required to review on a daily basis all Large Trader Reports that are filed with the 

Commission by, or on behalf of, clearing members, in order to ascertain the risk of the 

overall portfolio of each large trader.96 DCOs are also required to (a) maintain adequate 

arrangements and resources for: (i) the effective monitoring and enforcement of compliance 

with the rules of the DCO; and (ii) the resolution of disputes; (b) have the authority and 

ability to discipline, limit, suspend, or terminate the activities of a member or participant due 

to a violation by the member or participant of any rule of the DCO; and (c) report to the 

CFTC regarding rule enforcement activities and sanctions imposed against members and 

participants.97 Further, DCOs are required to have adequate arrangements and resources for 

the effective monitoring and enforcement of compliance with the rules of the DCO and the 

resolution of disputes.98 As noted in response to Principle 34, Question, 1(b), the CFTC 

examines and oversees a DCO’s risk management program to ensure effectiveness.

All of the investigative tools available to the DOE are employed in the investigation of these 

types of matters. These tools include:

 

95 See DCO Core Principle D and CFTC Regulations 39.13(a)-(b).

96 CFTC Regulation 39.13(h)(2).

97 See DCO Core Principle H, 7 USC § 7a-1(c)(2)(H), and 17 CFR § 39.17(a).

98 17 CFR § 39.17(b).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

134 INTERNATIONAL MONETARY FUND 

 Ability to obtain records and information via inspection powers and subpoena 

powers;

 Ability to obtain voluntary statements and sworn testimony;

 Trade analysis; and

 Financial analysis.

To the extent the investigation indicates a violation of the CEA, the Commission takes 

appropriate enforcement action as described in response to Question 2 in Principle 11.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 135

4. Does the regulator have an adequate system to receive and respond to the intelligence that 

it receives?

Yes. The CFTC has authority to collect information and evidence pertinent to the effective 

enforcement of the CEA and Commission regulations. See CEA Sections 2, 5,8a, 6c, and 

applicable CFTC regulations. The Commission may also collect information and evidence 

relating to futures, options on futures and swaps on behalf of foreign authorities pursuant to

CEA Section 12(f)(1). This includes information provided by the public.

DOE investigates and prosecutes alleged violations of the CEA and Commission regulations, 

which often emanate from customer complaints. And, while the Commission does not 

represent any particular customer or claimant, the Commission relies on the public as an 

important source of information in carrying out its regulatory and enforcement 

responsibilities. The public may contact DOE to report suspicious activities or transactions 

which may involve the trading of commodity futures contracts or commodity options by 

calling the CFTC toll-free (866-366-2382), submitting a form on the CFTC’s Web site 

(http://www.cftc.gov/customerprotection/redressandreparations/index.htm) or e-mailing the 

Commission (Questions@cftc.gov). 

Section 748 of the Dodd-Frank Act amended the CEA by adding a new Section 23, 

“Commodity Whistleblower Incentives and Protection.” Pursuant to Section 23, the 

Commission established a whistleblower program under which the CFTC will pay awards, 

based on collected monetary sanctions and under regulations prescribed by the Commission 

to eligible whistleblowers who voluntarily provide the Commission with original information 

about violations of the CEA that lead either to a covered judicial or administrative action or a 

related action. In order to be eligible, the whistleblower must submit information on a Form 

TCR (http://www.cftc.gov/ConsumerProtection/WhistleblowerProgram/index.htm) and 

provide additional information and assistance as requested. 

The information provided by the public is used in the routine operation of the Commission, 

which includes law enforcement, review of legislative and regulatory proposals, regulation of 

the commodity interest and swaps markets, and review of reports and documents filed with 

the Commission. Specifically, in connection with its law enforcement function, DOE will 

review the complaint and, if warranted, conduct an investigation into the activity. In the 

event the investigation results in an enforcement action alleging violations of the CEA, the 

Commission may use the information provided by the public in any administrative or civil 

proceeding in which it is a party, or in which any member of the Commission or its staff 

participates as a party. The CFTC may also provide the information to other state and 

Federal agencies, and foreign authorities. 

As indicated in response to Principle 11, Question 4, the Commission may also direct 

customers to the Commission’s reparations program as a mechanism for resolving 

appropriate complaints.

Compliance System

5. Does the regulator require regulated entities to have in place supervisory and compliance 

procedures reasonably designed to prevent securities laws violations? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

136 INTERNATIONAL MONETARY FUND 

Yes. As noted in the Rule Enforcement Review section of the response to Principle 9, 

Question 4(a), DMO staff conducts a review of DCMs for compliance with DCM Core 

Principle 2 to ensure that the Exchange is enforcing the rules of the contract market, 

including the terms and conditions of any contracts to be traded and any limitations on 

access to the contract market. See also CFTC Regulation 38.150.

DCM Core Principle 4 requires the DCM to monitor trading to prevent market manipulation, 

price distortion, and disruptions of the delivery or cash-settlement process. See also CFTC 

Regulation 38.250.

DCM Core Principle 5 requires the DCM to reduce the potential threat of market 

manipulation or congestion, especially during trading in the delivery month. A DCM must 

adopt position limitations or position accountability for speculators, where necessary and 

appropriate. See also CFTC Regulation 38.300.

DCM Core Principle 9 requires the DCM to provide a competitive, open, and efficient market 

and mechanism for executing transactions. See also CFTC Regulation 38.500.

DCM Core Principle 10 requires the DCM to maintain rules and procedures to provide for the 

recording and safe storage of all identifying trade information in a manner that enables the 

contract market to use the information for purposes of assisting in the prevention of 

customer and market abuses and providing evidence of any violations of the rules of the 

contract market. See also CFTC Regulation 38.550.

DCM Core Principle 11 requires the DCM to establish and enforce rules providing for the 

financial integrity of any contracts traded on the contract market (including the clearance 

and settlement of the transactions with a DCO), and rules to ensure the financial integrity of 

any FCMs and IBs and the protection of customer funds. See also CFTC Regulation 38.600.

DCM Core Principle 12 requires the DCM to establish and enforce rules to protect market 

participants from abusive practices committed by any party acting as an agent for the 

participants. See also CFTC Regulation 38.650.

With respect to SEFs, SEF Core Principle 2 requires the SEF to establish and enforce trading, 

trade processing, and participation rules that will deter abuses and have the capacity to 

detect, investigate, and enforce those rules, including means to provide market participants 

with impartial access to the market. See also CFTC Regulation 37.200.

SEF Core Principle 4 requires the SEF to monitor trading in swaps to prevent manipulation, 

price distortion, and disruptions of the delivery or cash settlement process through 

surveillance, compliance, and disciplinary practices and procedures, including conducting 

real-time monitoring of trading and comprehensive and accurate trade reconstructions. See 

also CFTC Regulation 37.400.

SEF Core Principle 6 requires the SEF to reduce the potential threat of market manipulation 

or congestion, especially during trading in the delivery month. A SEF that is a trading facility 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 137

shall adopt for each of the contracts of the facility, as is necessary and appropriate, position 

limitations or position accountability for speculators. See also CFTC Regulation 37.600.

SEF Core Principle 7 requires the SEF to establish and enforce rules and procedures for 

ensuring the financial integrity of swaps entered on or through the facilities of the SEF, 

including the clearance and settlement of the swaps pursuant to Section 2(h)(1) of the Act. 

See also CFTC Regulation 37.700.

Commission Regulation 37.205 requires the SEF to capture and retain all audit trail data 

necessary to detect, investigate, and prevent customer and market abuses, including the 

capability to safely store all audit such data.

For information on intermediaries, see response to Principle 12, Question 1(c).

6. Does the regulator monitor how compliance procedures are executed and communicated to 

employees of such entities?

Yes. During RERs conducted by DMO, Staff reviews the DCM’s compliance program to 

ensure, among other things, that the exchange is adhering to the procedures prescribed in 

the exchange’s Compliance Manual. DMO staff also conducts a review of the DCM to ensure 

that the exchange has adequate staff to fulfil its self-regulatory responsibilities. See CFTC 

Regulations 38.155 and 38.701. As noted above in response to Question 5, it is anticipated 

that DMO staff will conduct RERs for SEFs after a SEF obtains permanent registration and 

these reviews will also ensure that the SEF is adhering to the procedures prescribed in the 

SEF’s Compliance Manual. Commission Regulation 37.203(c) requires the SEF to maintain 

sufficient compliance staff and resources to ensure that it can conduct effective audit trail 

reviews, trade practice surveillance, market surveillance, and real-time market monitoring. In 

addition, Commission Regulation 37.206(a) requires a SEF to establish and maintain 

sufficient enforcement staff and resources to effectively and promptly prosecute possible 

rule violations within the disciplinary jurisdiction of the SEF.

To help ensure compliance by registrants with the operational conduct requirements, 

Commission Regulation 166.3 requires each registrant (except APs with no supervisory 

duties), to “diligently supervise” the handling by its partners, officers, employees and agents 

of all activities relating to its business as a CFTC registrant. Also, the review of FCM internal 

procedures falls within the scope of SRO audit and surveillance obligations under Regulation 

1.52. SRO obligations under this regulation include monitoring and auditing compliance by 

FCMs with their minimum financial and related reporting requirements, and also receiving 

the financial reports that all FCMs are required to file. 

In the context of an enforcement investigation, DOE will review and investigate the 

supervisory and compliance procedures of Commission registrants. As set forth more fully 

in response to Principle 12, Question 9, below, failure to supervise is a separate violation of 

the Commission’s regulations. 

7. Can the regulator take measures against or discipline or sanction regulated entities for 

failure to supervise reasonably subordinate personnel whose activities violate the securities 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

138 INTERNATIONAL MONETARY FUND 

laws?

Yes. Commission Regulation 166.3 requires each Commission registrant to “diligently 

supervise the handling ... of all commodity interest accounts” by its partners, officers, 

employees and agents. Thus, any violation of the CEA by a supervised person creates a 

liability on the supervisor for failure to supervise. Independently, Section 2(a)(1)(B) of the 

CEA imposes respondeat superior liability on the principal for the acts of its agents. “The act, 

omission, or failure of any official, agent or other person acting for any individual, 

association, partnership, corporation or trust within the scope of his employment or office 

shall be deemed the act, omission, or failure of such individual, association, partnership, 

corporation, or trust, as well as of such official, agent or other person.” The full panoply of 

remedies is available in an enforcement proceeding alleging these violations. See Response 

to Principle 12, Question 2.

8. Does the regulator require market surveillance mechanisms that permit an audit of the 

execution and trading of all transactions on authorized exchanges and regulated trading 

systems?

Yes. DCM Core Principle 10 requires the DCM to provide for the recording and safe storage 

of all identifying trade information in a manner that enables the contract market to use the 

information for purposes of assisting in the prevention of customer and market abuses and 

providing evidence of any violations of the rules of the contract market. See also CFTC 

Regulation 38.550.

DCM Core Principle 18 requires the DCM to maintain records of all activities related to the 

business of the contract market in a form and manner acceptable to the Commission for a 

period of at least five years. See also CFTC Regulation 38.950.

Pursuant to Commission Regulation 38.551, a DCM must capture and retain all audit trail 

data necessary to detect, investigate, and prevent customer and market abuses. Such data 

must be to reconstruct all transactions within a reasonable period of time. An acceptable 

audit trail also must permit the DCM to track a customer order from time of receipt through 

fill, allocation or other disposition, and must include both order and trade data. Further, the

audit trail must include original source documents, a transaction history database, electronic 

analysis capability, and safe storage capability. 

Commission Regulation 38.552 requires original source documents to include unalterable, 

sequentially identified records on which trade execution information is originally recorded, 

whether manually or electronically. A transaction history database includes a history of all 

trades executed via open outcry or via entry into an electronic trading system, including all 

orders entered into an electronic system, including all order modifications and cancellations. 

A transaction history database also includes all data that are input into the trade entry or 

matching system for the transaction to match and clear the customer type indicator code, 

timing and sequencing data adequate to reconstruct trading, and identification of each 

account to which fills are allocated. An electronic analysis capability must include electronic 

analysis capability with respect to all audit trail data in the transaction history database. 

Such electronic analysis capability must ensure that the designated contract market has the 

ability to reconstruct trading and identify possible trading violations with respect to both 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 139

customer and market abuse. The safe storage capability of the designated contract market 

must include the capability to safely store all audit trail data retained in its transaction 

history database. Such safe storage must include the capability to store all data in the 

database in a manner that protects it from unauthorized alternation, as well as from 

accidental erasure or other loss. 

With respect to SEFs, SEF Core Principle 2 requires a SEF to establish and enforce trading, 

trade processing, and participation rules that will deter abuses and have the capacity to

detect, investigate, and enforce those rules, including means to provide market participants 

with impartial access to the market and to capture information that may be used in 

establishing whether rule violations have occurred. See also Commission Regulation 37.200. 

SEF Core Principle 10 requires the SEF to maintain records of all activities relating to the 

business of the facility in a form and manner acceptable to the Commission for a period of 

five years. See also CFTC Regulation 37.1000.

Commission Regulation 37.205 requires a SEF to capture and retain all audit trail data 

necessary to detect, investigate, and prevent customer and market abuses. Such data shall 

be sufficient to reconstruct all indications of interest, requests for quotes, orders, and trades 

within a reasonable period of time and to provide evidence of any violations of the rules of 

the SEF. An acceptable audit trail shall also permit the swap execution facility to track a 

customer order from the time of receipt through fill, allocation, or other disposition, and 

shall include both order and trade data. The audit trail must also include original source 

documents, a transaction history database, electronic analysis capability, and safe storage 

capability.

CFTC Regulation 1.31 governs the manner in which an exchange is required to maintain 

trade-related records. The Regulation mandates that all records required to be kept under 

the CEA or CFTC regulations be maintained for five years and be readily accessible during 

the first two years. However, trading cards, documents on which trade information is 

originally recorded in writing, and order tickets must be retained in hard copy for five years. 

See also response to Principle 10.

Effectiveness

9. Based on articulated criteria, does the regulator or other competent authority have an 

effective enforcement program in place in order to enforce securities laws?

Yes.

The CFTC has approximately 115 attorneys and 23 investigators and 3 economists in the 

Enforcement Division who are charged with investigating and prosecuting violations of the 

CEA.

When an investigation indicates that there is reason to believe that violative conduct has 

occurred, the CFTC files either an administrative or civil injunctive enforcement action 

against the alleged wrongdoers. In an administrative action, wrongdoers who are found to 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

140 INTERNATIONAL MONETARY FUND 

have violated the CEA or CFTC regulations or orders can be prohibited from trading on U.S. 

futures markets and, if registered, have their registrations suspended or revoked. Violators 

also can be ordered to cease and desist from further violations, to pay civil monetary 

penalties of $140,00099 per violation ($1 million for manipulation) or triple their monetary 

gain, and to pay restitution to those persons harmed by the misconduct. See CEA Sections

6(c), 6(d), and 8a. In civil injunctive actions, defendants can be enjoined from further 

violations, their assets can be frozen and their books and records impounded. Defendants 

also can be ordered to disgorge all illegally obtained funds, to make full restitution to 

customers, and to pay civil monetary penalties. See CEA Section 6(c).

Currently, DOE has approximately 99 litigation matters pending in United States District 

Courts throughout the U.S., approximately 433 pending investigations, and 77 preliminary 

inquiries. These matters target certain program areas, for example: 1) allegations of 

manipulation, attempted manipulation, and false reporting; 2) trade practice violations; 3) 

fraud and other misconduct by commodity pools, hedge funds, CPOs, and CTAs; and 4) 

financial, supervision, recordkeeping and other violations committed by registered 

entities. In addition, the Enforcement program continues to battle pervasive fraud involving 

retail forex futures, forex options, and/or off-exchange retail forex transactions.

By way of example, the following summary of enforcement matters from FY2013 provides 

some measure of the effectiveness of the Commission’s enforcement program.100 

LIBOR and other Interest Rate Benchmarks

• The Commission simultaneously filed and settled charges against UBS, finding that it 

engaged in manipulation, attempted manipulation and false reporting of LIBOR and other 

benchmark interest rates for at least six years. The Commission found that UBS engaged in 

more than 2,000 instances of unlawful conduct involving dozens of employees on several 

continents, including colluding with other banks; inducing interdealer brokers to spread false 

information and influence other banks; and making false LIBOR submissions to protect UBS’s 

reputation during the global financial crisis. The Commission ordered UBS to pay a $700 

million civil monetary penalty. In re UBS AG, et al., CFTC Docket No. 13-09 (CFTC filed Dec. 

19, 2012), Press Release 6472-12.

• The Commission simultaneously filed and settled charges against The Royal Bank of 

Scotland plc and RBS Securities Japan Limited, finding that they engaged in manipulation, 

 

99 CFTC Regulation 143.8 provides an inflation adjustment for civil monetary penalties assessed under CEA Section

6(c) and 6b pursuant to the authority Debt Collection Improvement Act of 1996 at least once every four years. The 

inflation adjustment applies only to violations of the CEA, CFTC regulations or orders that occur after November 27, 

1996 or the date when the inflation adjustment becomes effective.

100 Additional non-public information showing the number of investigations and litigations opened and closed for 

the last three fiscal years, as well as those pending, will be made available to assessors on a confidential basis at a 

later date.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 141

attempted manipulation, and false reporting relating to LIBOR for Yen and Swiss Franc for 

approximately four years, as recently as 2010 and dating back to at least mid-2006. The 

Commission ordered RBS to pay a $325 million civil monetary penalty. In re The Royal Bank 

of Scotland plc, et al., CFTC Docket No. 13-14 (CFTC filed Feb. 6, 2013), Press Release 6510-

13.

• The Commission simultaneously filed and settled charges against ICAP Europe Limited 

(ICAP), an interdealer broker, finding that for more than four years, from at least October 

2006 through at least January 2011, ICAP engaged in manipulation, attempted manipulation, 

false reporting, and aiding and abetting derivatives traders’ manipulation and attempted 

manipulation, relating to the LIBOR for Yen. The Commission ordered ICAP to pay a $65 

million civil monetary penalty. In re ICAP Europe Ltd., CFTC Docket NO. 13-38 (CFTC Filed 

Sept. 25, 2013), Press Release 6708-13.

• Taking these FY 13 actions together with the action against Barclays Bank in FY 12 (Press 

Release 6289-12), the CFTC’s benchmark-related cases have yielded total penalties of just 

under $1.3 billion.

Protection of Customer Funds (MF Global, Peregrine and Others)

• The Commission filed charges in Federal court against MF Global Inc., MF Global Holdings 

Ltd., former Chief Executive Officer Jon S. Corzine, and former Assistant Treasurer of MF 

Global Edith O’Brien alleging, among other violations, MF Global’s unlawful use of customer 

funds that harmed thousands of customers and violated fundamental customer protection 

laws on an unprecedented scale. On November 8, 2013, the court entered a consent order 

requiring MF Global requiring it to pay $1.212 billion in restitution to customers, which 

represents 100% restitution funds lost by all commodity customers when the firm failed on 

October 31, 2011. CFTC v. MF Global Inc., et al., No. 13 CIV 4463 (S.D.N.Y. filed June 27, 

2013), Press Releases 6626-13 (filing) and 6776-13 (settlement).

• The Commission obtained Federal court orders against Peregrine Financial Group, Inc. 

(PFG), and its owner, Russell Wasendorf, Sr., finding that they misappropriated in excess of 

$200 million of customer funds, violated customer fund segregation requirements and made 

false statements to the CFTC. The Court enjoined further violations and ordered trading and 

registration bans, while reserving for future consideration the issues of a civil monetary 

penalty for both PFG and Wasendorf and restitution from Wasendorf. CFTC v. Peregrine 

Financial Group, Inc., et al., No. 1:12-cv-05383, Default Judgment (N.D. IL. entered Feb. 13, 

2013), Press Release 6300-12 (regarding the Commission’s filing of an enforcement action 

on July 10, 2012).

• The Commission simultaneously filed and settled charges against PFG’s longtime auditor, 

Jeannie Veraja-Snelling, a sole practitioner certified public accountant, finding that her 

audits were not performed in accordance with GAAS and did not include appropriate review 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

142 INTERNATIONAL MONETARY FUND 

and tests of internal accounting controls and procedures for safeguarding customer assets, 

as required by CFTC Regulations. The Commission permanently barred Veraja-Snelling from 

appearing or practicing as an accountant before the Commission. In re Veraja-Snelling, 

CFTC Docket No. 13-29 (CFTC filed Aug. 26, 2013), Press Release 6675-13.

• The Commission filed charges in Federal court against U.S. Bank National Association for 

unlawfully using and holding PFG customer segregated funds. According to the complaint, 

U.S. Bank, among other things, (i) unlawfully accepted Peregrine’s customers’ funds as 

security on loans it made to Wasendorf, his wife and his construction company; and (ii) 

knowingly facilitated Wasendorf’s transfers of millions of dollars of customers’ funds to pay 

for Wasendorf’s private jet, his restaurant, and his divorce settlement. CFTC v. U.S. Bank, NA, 

No. 13–Civ–2041–EJM (N.D. Iowa filed June 5, 2013), Press Release 6601-13.

• The Commission filed charges in Federal court against the accounting firm Tunney & 

Associates, P.C. related to its audits for a registered FCM. According to the complaint, 

neither Tunney & Associates nor its owner certified public accountant, Michael Tunney, had 

experience auditing FCMs or any entity that holds customer segregated accounts, nor did 

they have an understanding of the applicable Commodity Exchange Act or CFTC regulatory 

provisions prior to accepting the audit engagements. On April 28, 2014, the court entered a 

consent order requiring defendants to pay, jointly and severally, a $100,000 civil monetary 

penalty. CFTC v. Tunney & Associates, P.C., et al., No. 1:13-cv-02919 (N.D. Ill. filed Apr. 18, 

2013), Press Releases 6571-13 (filing), and 6916-14 (settlement).

• The Commission simultaneously filed and settled 14 actions against FCMs alleging 

violations of customer segregation, secured, and net capital rules and/or related supervision 

failures, and obtained over $5.5 million in civil monetary penalties, including: In re ABN 

AMRO Clearing Chicago LLC, CFTC Docket No. 13-25 (CFTC filed June 18, 2013) (Press 

Release 6614-13; ABN AMRO failed to segregate or secure sufficient customer funds, meet 

minimum net capital requirements, maintain accurate books and records, and supervise its 

employees; $1 million civil monetary penalty); and In re Cantor Fitzgerald & Co, Inc., CFTC 

Docket No. 13-06 (CFTC filed Nov. 21, 2012) (Press Release 6419-12; Cantor failed to 

maintain sufficient funds in its customer segregation account for a period of three days and 

failed to provide the CFTC timely notice of its under-segregation, as required; $700,000 civil 

monetary penalty).

• The Commission also settled Federal charges previously filed against MBF Clearing Corp. 

alleging that from September 2008 through March 2010, MBF routinely held between $30 

million and $90 million of its customer funds in an account at another financial institution, 

but that account was not legally qualified to hold customer segregated funds. MBF paid a 

$650,000 civil monetary penalty. CFTC v. MBF Clearing Corp., No. 1:12-cv-01830-SAS, 

Consent Order (S.D.N.Y. entered Nov. 28, 2012), Press Release 6437-12. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 143

Other Manipulation and Trading Violations; Pre- and Post-Dodd-Frank Authority

• The Commission filed charges in Federal court against Eric Moncada, BES Capital LLC, and 

Serdika LLC alleging that they attempted to manipulate wheat futures prices, and engaged 

in fictitious sales and non-competitive transactions. According to the complaint, Moncada 

entered and immediately canceled numerous large-lot orders for wheat futures that he did 

not intend to fill, intending to create a misleading impression of increasing liquidity in the 

marketplace. Moncada allegedly would then seek to take advantage of any price movements 

that may have resulted from this manipulative scheme by placing smaller orders, which he 

hoped to fill at beneficial prices, on the opposite side of market from his large-lot cancelled 

orders. CFTC v. Moncada, et al., No. 12-cv-8791 (S.D.N.Y. filed Dec. 4, 2012), Press Release 

6441-12.

• In the first case under Dodd-Frank Act’s spoofing prohibition (bidding or offering with 

intent to cancel before execution), the Commission simultaneously filed and settled charges 

against Panther Energy Trading LLC and Michael J. Coscia. Per the Order, Defendants utilized 

a computer algorithm designed to illegally place and quickly cancel large bids and offers in 

futures contracts on CME Group’s Globex trading platform. These orders gave the 

impression of significant trading interest, which Defendants exploited. The Commission 

ordered Panther and Coscia to pay a $1.4 million civil monetary penalty, and disgorge $1.4 

million in trading profits. In re Panther Energy Trading LLC, et al., No. 13-26 (CFTC filed July 

22, 2013), Press Release 6649-13.

• The Commission simultaneously filed and settled two related enforcement actions finding 

that: Gelber Group, LLC (Gelber), an FCM, reported orders during the pre-opening trading 

sessions it had no intention of executing; and Gelber and former Gelber trading manager, 

Martin A. Lorenzen, engaged in wash sales. In re Gelber Group, LLC, CFTC Docket No. 13-15 

(CFTC filed Feb. 8, 2013) (ordering a $750,000 civil monetary penalty); In re Lorenzen, CFTC 

Docket No. 13-16 (CFTC filed Feb. 8, 2013) (ordering a $250,000 civil monetary penalty), 

Press Release 6512-13.

Designated Contract Market Violations

• The Commission filed charges in Federal court against the New York Mercantile Exchange, 

Inc. (CME NYMEX), which is owned and operated by the CME Group, and two former CME 

NYMEX employees, William Byrnes and Christopher Curtin, alleging that they unlawfully

repeatedly disclosed material nonpublic customer information over two and a half years to 

an outside commodity broker who was not authorized to receive the information. CFTC v. 

Byrnes, et al., No. 13 CIV 1174 (S.D.N.Y. filed Feb. 21, 2013), Press Release 6519-13, and 

Press Release 6584-13 (regarding amended complaint to charge Ron Eibschutz, who 

received the confidential information, with aiding and abetting the violations).

Futures Commission Merchant and Introducing Broker Supervision Violations
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

144 INTERNATIONAL MONETARY FUND 

• The Commission simultaneously filed and settled charges against FXDirectDealer, LLC 

(FXDD), a registered RFED and FCM, finding that from at least December 10, 2009, until June 

2011, it violated its supervision obligations by employing a trading system that gave FXDD 

pricing advantages over and harmed thousands of its retail customers. The Commission 

ordered FXDD to make full restitution of $1,828,261 to FXDD’s current and former customers 

that were harmed by its violation and imposed a $914,131 civil monetary penalty. In re 

FXDirectDealer, LLC, CFTC Docket No. 13-34 (CFTC filed Sept. 18, 2013), Press Release 6697-

13. 

• The Commission simultaneously filed and settled charges against FCStone LLC, an FCM, 

finding that it failed to implement adequate customer credit and concentration risk policies 

and controls in 2008 and part of 2009, allowing one account to acquire a massive options 

position that the account owners could not afford to maintain. FCStone, which was 

ultimately obligated to take over the account in question, lost approximately $127 million. 

The Commission ordered FCStone to pay a civil monetary penalty of $1.5 million. In re 

FCStone, LLC, CFTC Docket No. 13-24 (CFTC filed May 29, 2013), Press Release 6594-13.

• The Commission simultaneously filed and settled charges against Goldman, Sachs & Co. 

finding that it failed to supervise diligently its employees for several months in late 2007 

when a then-Goldman trader was able to conceal an $8.3 billion trading position from the 

firm. The Commission ordered Goldman to pay a $1.5 million civil monetary penalty. In re 

Goldman Sachs & Co., CFTC Docket No. 13-08 (CFTC Dec. 7, 2012), Press Release 6450-12, 

and Press Release 6677-13 (regarding settlement by former Goldman employee Matthew 

Marshall Taylor for defrauding Goldman by intentionally concealing from Goldman the true 

position size, as well as the risk and potential profits or losses associated with a futures 

position in a firm account traded by him; CFTC v. Taylor, No. 1:12-cv-8170-RJS, Consent 

Order (S.D.N.Y. filed Aug. 29, 2013) (imposing $500,000 civil monetary penalty)).

• The Commission simultaneously filed and settled charges against Foremost Trading LLC, an 

IB, finding that the firm failed to diligently supervise the handling of accounts held by clients 

that were referred to Foremost from three unregistered entities that sold futures trading 

systems (the Systems Providers). Foremost’s officers, employees, and agents ignored 

warning signs that the Systems Providers were procuring their clients through fraudulent 

means and engaging in fraudulent business practices. The Commission ordered Foremost to 

pay a $400,000 civil monetary penalty. In re Foremost Trading LLC, CFTC Docket No. 13-35 

(CFTC filed Sep. 20, 2013), Press Release 6700-13. 

False Statements under Dodd-Frank

• The Commission used new Dodd-Frank authority prohibiting the making of false and 

misleading statements. The Commission filed and settled charges against a defendant who 

gave false testimony in a Division investigation, imposing a $50,000 penalty on the 

defendant. In re Butterfield, CFTC Docket No. 13-33 (CFTC filed Sept. 16, 2013), Press Release 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 145

6693-13.

• The Commission filed charges in Federal court against Arista LLC and its principals, Abdul 

Sultan Walji (a/k/a Abdul Sultan Valji) and Reniero Francisco (who had previously been 

charged with fraud), alleging that the defendants misrepresented certain information in a 

letter sent to the CFTC’s DOE during the course of an investigation. On December 3, 2013, 

the court entered a consent order that requires the defendants to pay more than $8.25 

million in restitution for the losses of defrauded investors. In addition, the order imposes 

civil monetary penalties of $6.45 million on Walji, $5.925 million on Francisco, and $1.54 

million on Arista. CFTC v. Arista LLC, et al., 12-CV-9043 (SDNY amended complaint filed May 

28, 2013), Press Releases 6600-13 (filing) and 6786-13 (settlement).

• The Commission also used this new authority in its Peregrine enforcement action to charge 

the defendants for filing false statements on required forms with the Commission. See 

above, Protection of Customer Funds (MF Global, Peregrine and Others).

Precious Metals Fraud Charges under Dodd-Frank 

 • Under the Dodd-Frank Act and implementing regulations, the Commission filed charges in 

Federal court against Hunter Wise Commodities, LLC, and related entities, charging them 

with fraudulently marketing illegal, off-exchange retail commodity contracts involving 

physical metals, including gold, silver, platinum, palladium, and copper since July 2011. The 

Division initially obtained summary judgment on the offering of the illegal contracts and, on 

May 16, 2014, Judge Middlebrooks issued an opinion and order following the trial of the 

fraud case against Hunter Wise and its control persons, Fred Jager and Harold Edward 

Martin, Jr. The court found that the defendants “repeated[ly], callous[ly], and blatant[ly]” 

defrauded approximately 3,200 retail customers who lost over $52 million over an 18 month 

period and aided and abetted others in committing similar acts. As a result, the court 

permanently enjoined all defendants from future violations of the Commodity Exchange Act.

The court ordered Hunter Wise Commodities, LLC, Hunter Wise Services, LLC, Hunter Wise 

Credit, LLC, and Hunter Wise Trading, LLC and the individuals running the companies, Fred 

Jager and Harold Edward Martin, Jr., to pay, jointly and severally, $52.6 million in restitution 

to the defrauded customers, and to pay a civil monetary penalty, jointly and severally, of 

$55.4 million, the maximum provided by law. CFTC v. Hunter Wise Commodities, LLC, et al., 

No. 12-cv-81311 (S.D. Fla. filed Dec. 5, 2012), Press Releases 6447-12 (filing) and 6935-14

(trial result).

• The Commission also filed and settled actions against 9 firms and 8 individuals who 

solicited retail customers to invest in financed precious metals transactions, which were 

executed through Hunter Wise, alleging that the firms were engaging in illegal, off-exchange 

precious metals transactions and requiring the firms and their principals to pay more than 

$4.1 million in restitution. See In re Secured Precious Metals Int’l, Inc., et al., CFTC Docket No. 

13-12 (CFTC filed Jan. 28, 2013) (Press Release 6503-13; imposing a cease and desist order 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

146 INTERNATIONAL MONETARY FUND 

and five-year trading ban); In re Barclay Metals, Inc., et al., CFTC Docket No. 13-13 (CFTC 

Jan. 28, 2013) (same); In re Joseph Glenn Commodities, LLC, et al., CFTC Docket No. 13-18 

(CFTC filed Mar. 27, 2013) (Press Release 6542-13; ordering defendants to pay 

approximately $635,000 in restitution and to return approximately $330,000 remaining in 

customers’ accounts, and requiring one of the principals to pay a civil monetary penalty of 

$100,000); In re Pan American Metals of Miami, LLC, et al., CFTC Docket No. 13-27 (CFTC 

filed July 29, 2013) (Press Release 6653-13; ordering defendants to jointly pay restitution of 

approximately $3.2 million and a $1.5 million civil monetary penalty); In re London Metals 

Market, LLC, et al., CFTC Docket No. 13-32 (CFTC filed Sept. 4, 2013) (Press Release 6680-13; 

ordering defendants to pay $121,665.75 in restitution); In re Hall, CFTC Docket No. 13-32 

(CFTC filed Sept. 4, 2013) (Press Release 6681-13; ordering Hall to pay $202,577 in 

restitution). 

• The Commission also brought actions against other firms that purported to directly deal in 

precious metal. See CFTC v. Global Precious Metals, LLC, et al., No. 13-cv-21708, Default 

Judgment (S.D. Fla. entered Aug. 12, 2013) (Press Release 6670-13; defendants ordered to 

pay a $1.26 million civil monetary penalty, $736,979 in restitution, and to disgorge $186,860 

in ill-gotten gains); CFTC v. AmeriFirst Management LLC, et al., No. 13-cv-61637 (S.D. Fla. 

filed July 29. 2013) (Press Release 6655-13; Division charges defendants with operating a 

precious metals scheme marketing illegal, off-exchange financed commodity transactions, 

claiming that they operated through a network of more than 30 dealers, and fraudulently 

misrepresenting the nature of those transactions); and CFTC v. Worth Group, Inc., et al., No. 

13-cv-80796 (S.D. Fla. filed Aug. 13, 2013) (Press Release 6666-13; Worth is alleged to have 

taken in over $73 million from hundreds of retail customers located throughout the United 

States). 

• The Commission settled previously filed charges against Ronnie Gene Wilson and his 

company, Atlantic Bullion & Coin, Inc. (Atlantic Bullion), alleging that they defrauded 

investors in connection with a multi-million dollar silver bullion Ponzi scheme. The June 6, 

2012 complaint charged defendants under new Dodd-Frank Act anti-fraud prohibition in 

connection with a contract of sale of a commodity in interstate commerce. Wilson was 

ordered to pay a $23 million civil monetary penalty and $11,530,000 of restitution (and in a 

parallel criminal case, sentenced to 235 months’ imprisonment). CFTC v. Atlantic Bullion & 

Coin, Inc., et al., No. 8:12-cv-01503-JMC, Consent Order (D.S.C. filed Feb. 27, 2013), Press 

Release 6524-13. 

Ponzi Fraud -- Trial Victory

• On April 24, 2013, following a bench trial, the U.S. District Court for the Southern District of 

Florida ordered William Center to pay restitution of $455,430 individually and $8,652,140.41 

jointly and severally with Trade, LLC, as well as a $4 million civil monetary penalty; and 

Gregory Center to pay $265,661 restitution and a $2 million civil monetary penalty. The 

Commission filed charges against the defendants on June 22, 2010 (Press Release 5848-10) 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 147

alleging that they operated a Ponzi scheme. CFTC v. Milton, et al., No. 9:10-cv-80738-DTKH, 

Memorandum Opinion (S.D. Fla. May 17, 2013), Press Release 6593-13.

“Prediction Market” Off-Exchange Options Trading

• The Commission filed charges in Federal court against Intrade The Prediction Market 

Limited and Trade Exchange Network Limited (TEN), companies based in Dublin, Ireland, 

with offering prohibited off-exchange commodity option contracts to U.S. customers by 

operating an online “prediction market” trading website, through which customers buy or 

sell binary options that allow them to predict (“yes” or “no”) whether a specific future event 

will occur. The Commission also alleged that defendants made false statements to the 

Commission about their website and that TEN violated a 2005 CFTC cease and desist order 

(Press Release 5124-05). CFTC v. Trade Exchange Network Limited, No. 1:12-cv-01902 

(D.D.C. Nov. 26, 2012), Press Release 6423-12. 

• The Commission filed charges in Federal court against Banc de Binary, Ltd., a foreign 

company, alleging that it operated an unregistered FCM and, from May 2011 through March 

2013, operated an online trading website that allowed U.S. customers to trade options 

products prohibited by the CFTC’s ban on off-exchange options trading. On May 6, 2014, 

the Commission filed an amended complaint charging three corporate affiliates of Banc de 

Binary, Ltd. – E.T. Binary Options Ltd. (incorporated in Israel), BO Systems Ltd., and BDB 

Services Ltd. (both incorporated in the Republic of Seychelles) – also with violating the 

CFTC’s ban on off-exchange options trading. CFTC v. Banc De Binary LTD, No. 2:13-cv-00992 

(D. Nev. filed June 5, 2013, amended May 6, 2014), Press Releases 6602-13 (original filing) 

and 6923-14 (amended filing).

Cooperation with Domestic Law Enforcement Partners

DOE works actively with Federal and state criminal and civil law enforcement authorities, 

including by sharing information in just under 300 investigations and prosecutions. These 

efforts reflect the high priority that the CFTC places on supporting criminal prosecution of 

willful violations of the commodities laws. Approximately 93 percent of the CFTC’s major 

fraud cases filed during FY 13 involved a parallel criminal proceeding, with violators 

sentenced up to 50 years’ imprisonment. 

During the last three fiscal years, October 1, 2010 through September 30, 2013, the CFTC 

referred an average of approximately 50 matters to domestic criminal and civil authorities 

annually, of which an average of 40 matters were referred to criminal authorities. As a result 

of these criminal referrals, an average of 45 indictments were filed annually alleging a range 

of criminal misconduct arising out of activity in the futures and swaps markets – including 

mail fraud, wire fraud, conspiracy, securities fraud, commodities fraud, registration violations, 

market manipulation, tax violations, conversion, money laundering, theft, forgery, and 

threats to Federal officials. The principal criminal sanctions in those cases reaching 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

148 INTERNATIONAL MONETARY FUND 

judgment included prison sentences, fines, and restitution. Defendants received prison 

sentences of up to 50 years, others received fines of over $100 million, and still others were 

ordered to pay restitution of more than $250 million.101

Cooperation with International Regulators 

The Commission has entered into bilateral cooperative enforcement/information sharing 

arrangements with more than twenty-five foreign authorities. In 2002, the Commission 

entered into a multilateral information sharing arrangement established by IOSCO which has 

become the international benchmark for such international MOUs. In FY 2013, DOE made 

300 requests for assistance to 60 foreign authorities and received 69 requests from 23 

different foreign authorities to which it responded.

Please also refer to the CFTC’s responses to Principles13 – 15.

Overall Monetary Relief Ordered 

The Commission has obtained the following monetary relief102 in its civil and administrative 

enforcement actions over the last 3 fiscal years. 

Fiscal Year Civil Monetary 

Penalties

Restitution and 

Disgorgement

FY11 $316,682,679 $181,844,807 

FY12 $475,360,925 $456,581,900 

FY13 $1,570,700,568 $201,409,408 

FY14103 $961,072,836 $1,330,365,570 

Total $4,831,648,447 $3,686,210,358 

 

101 Additional non-public information listing criminal referrals and sanctions will be made available to Assessors on a 

confidential basis at a later date.

102 As indicated in response to Principle 11, Question 2 above, the Commission may also obtain non-monetary 

sanctions in its enforcement cases.

103 Amount as of April 30, 2014.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 149

PRINCIPLES RELATING TO COOPERATION (13-15)

Principle 13 Regulator should have the authority to share both public and non-public 

information with domestic and foreign counterparts.

Key Questions

1. For each of the regulators identified, does the regulator have authority to share with other

domestic regulators and authorities information on:

(a) Matters of investigation and enforcement? 

(b) Determinations in connection with authorization, licensing or approvals? 

(c) Surveillance?

(d) Market conditions and events? 

(e) Client identification including persons who beneficially own or control non-natural 

persons organized in the regulator’s jurisdiction?

(f) Regulated entities?

(g) Listed companies and companies that seek a listing of their securities?

Yes.104 The CFTC may share public information without restriction. Section 8(e) of the CEA

governs the sharing of non-public information by the CFTC, including with any Federal 

department or agency or with any department or agency of any State or any political 

subdivision thereof (“Domestic Regulator or Authority”) acting within the scope of its 

jurisdiction.

The CFTC may share non-public information with Domestic Regulators and Authorities, 

provided that the requirements in Section 8(e) are satisfied. Information shared with a 

Domestic Regulator or Authority that is a Federal department or agency may not be 

disclosed except in any action or proceeding under the laws of the United States to which it, 

the CFTC, or the United States is a party. Information shared with a Domestic Regulator or 

Authority that is a department or agency of a State or a political subdivision thereof may not 

be disclosed except in connection with an adjudicatory action or proceeding brought under 

the CEA or the laws of such State or political subdivision to which the State or political 

subdivision or any department or agency thereof is a party.

In order to obtain adequate assurances that the requirements in Section 8(e) will be satisfied, 

the CFTC shares non-public information pursuant to an MOU or less formal arrangement 

that includes undertakings related to, among other things, confidentiality and use of the 

information.

In addition to the general information-sharing provisions in Section 8(e), the CFTC may share 

information pursuant to the following statutory provisions:

 

104 Please note that subparagraph (g) falls within the regulatory purview of the SEC.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

150 INTERNATIONAL MONETARY FUND 

Section 8(g) of the CEA states that the CFTC shall share any registration information 

maintained by the Commission upon reasonable request by any department or agency of 

any State or any political subdivision thereof. Whenever the CFTC determines that the 

information is appropriate for use by such department or agency, the Commission shall 

provide it without request.

Section 12(a) of the CEA states that the CFTC may cooperate with any department or agency 

of the Federal government, any State, territory, district or possession, or any department, 

agency or political subdivision thereof.

Section 2(a)(9)(B)(i) of the CEA states that the CFTC shall maintain communications with the 

Treasury Department, Federal Reserve, and SEC for the purpose of keeping them informed 

of Commission activities that relate to their responsibilities.

Sections 112(d)(1)-(2) of the Dodd-Frank Act states that the FSOC may request and receive, 

and member agencies are authorized to provide, any data or information as necessary to 

monitor the financial services marketplace to identify potential risks to the financial stability 

of the United States or to otherwise carry out any of the provisions of Subchapter I of 

Chapter 53 of Title 12 of the Dodd-Frank Act.

Section 809(e)(1) of the Dodd-Frank Act states that the FSOC, Federal Reserve, appropriate 

financial regulators and supervisory agencies are authorized to provide notice of and share 

appropriate reports, information or data related to material concerns about a designated 

financial market utility (“DFMU”) or financial institution engaged in designated activities 

(“DFMI”). In addition, Section 809(e)(2) of the Dodd-Frank Act permits them to provide, 

subject to appropriate terms, conditions and assurances of confidentiality, confidential 

supervisory and other information to each other and to, among others, the Secretary of the 

Treasury, Federal Reserve banks and State financial institution supervisory agencies.

With respect to matters of investigation and enforcement:

Section 8(a)(2) of the CEA states that the CFTC shall as necessary cooperate with appropriate 

Federal agencies in the conduct of investigations.105

 

105 To the extent that non-public information sought by an authority includes bank records that are subject to the 

Right to Financial Privacy Act (“RFPA”) or electronic communications subject to the Electronic Communications 

Privacy Act (“ECPA”), the CFTC must ascertain, before sharing the records, that the material is relevant to a legitimate 

law enforcement inquiry of the requesting authority and, for Domestic Regulators and Authorities, ensure that there 

is an approved access request that includes RFPA and/or ECPA materials. The RFPA provides a procedure for 

obtaining bank records that includes notice to the account holder and an opportunity to be heard but, in certain 

circumstances, such notice can be delayed.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 151

Section 8(a)(3) of the CEA states that the CFTC shall provide the SEC with notice of the 

commencement of any proceeding and a copy of any order entered by the Commission 

against any FCM or IB registered pursuant to Section 4f(a)(2) of the CEA; any floor broker or 

floor trader exempt from registration pursuant to Section 4f(a)(3) of the CEA; any AP exempt 

from registration pursuant to Section 4k(6) of the CEA; or any board of trade that is a DCM 

pursuant to Section 5f of the CEA.

2. Can the regulator share the information described in Key Question 1 for regulatory and 

enforcement purposes with other domestic authorities without the need for external 

approval such as from a relevant government minister or attorney? 

Yes. The CFTC has the authority to share such information with Domestic Regulators and 

Authorities, subject to the conditions set forth in Section 8(e) of the CEA and as discussed in 

response to Principle 13, Question 1, above, without the need for external approval.

3. Does the regulator have the authority to share information with foreign counterparts with 

respect to each of the matters listed in Key Question 1, specifically?

(a) Matters of investigation and enforcement?

(b) Determinations in connection with authorization, licensing or approvals? 

(c) Surveillance? 

(d) Market conditions and events? 

(e) Client identification including persons who beneficially own or control non-natural 

persons organized in the regulator’s jurisdiction? 

(f) Regulated entities?

(g) Listed companies and companies that seek a listing of their securities?

Yes.106 The CFTC may share public information without restriction. Section 8(e) of the CEA 

governs the sharing of non-public information by the CFTC, including with any foreign 

futures authority107 or with any department, central bank, ministry or agency of any foreign 

government or any political subdivision thereof (“Foreign Regulator or Authority”) acting 

within the scope of its jurisdiction. No secrecy or blocking laws in the United States restrict 

the CFTC’s ability to share information with Foreign Regulators and Authorities.

The CFTC may share non-public information with Foreign Regulators and Authorities, 

provided that the requirements in Section 8(e) are satisfied. Information shared with a 

Foreign Regulator or Authority may not be disclosed except in connection with an 

adjudicatory action or proceeding brought under the laws of such foreign government or 

political subdivision to which the foreign government or political subdivision or any Foreign 

Regulator or Authority is a party.

 

106 Please note that subparagraph (g) falls within the regulatory purview of the SEC.

107 The term “foreign futures authority” is defined in Section 1a(26) of the CEA as “any foreign government, or any 

department, agency, governmental body, or regulatory organization empowered by a foreign government to 

administer or enforce a law, rule, or regulation as it relates to a futures or options matter, or any department or 

agency of a political subdivision of a foreign government empowered to administer or enforce a law, rule, or 

regulation as it relates to a futures or options matter.” Section 723(a)(2) of the Dodd-Frank Act added Section 2(d) to 

the CEA to provide that several enumerated provisions, including Section 1a and Section 8, apply to swaps.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

152 INTERNATIONAL MONETARY FUND 

In order to obtain adequate assurances that the requirements in Section 8(e) will be satisfied, 

the CFTC shares non-public information pursuant to an MOU or less formal arrangement 

that includes undertakings related to, among other things, confidentiality and use of the 

information.

In addition to the general information-sharing provisions in Section 8(e), the CFTC may share 

information pursuant to the following statutory provision:

Section 809(e)(2) of the Dodd-Frank Act states that the FSOC, Federal Reserve, appropriate 

financial regulators and supervisory agencies may provide, subject to appropriate terms, 

conditions and assurances of confidentiality, confidential supervisory and other information 

to, among others, foreign financial supervisors, foreign central banks and foreign finance 

ministries.

With respect to matters of investigation and enforcement:

Section 12(f)(1) of the CEA states that, upon request from a foreign futures authority, the 

CFTC may, in its discretion, provide assistance in conducting an investigation that the foreign 

futures authority108 “deems necessary to determine whether any person has violated, is 

violating, or is about to violate any laws, rules or regulations relating to futures or options 

matters that the requesting authority administers or enforces. The Commission may 

conduct such investigation as the Commission deems necessary to collect information and

evidence pertinent to the request for assistance. Such assistance may be provided without 

regard to whether the facts stated in the request would also constitute a violation of the 

laws of the United States.” Section 12(f)(2) of the CEA states that, in deciding whether to 

provide assistance, the CFTC shall consider whether “the requesting authority has agreed to 

provide reciprocal assistance to the Commission in futures and options matters” and 

whether compliance with the request would prejudice the U.S. public interest.

4. Can the regulator share the information identified in Key Question 3 above, for enforcement 

and regulatory purposes with foreign counterparts without the need for external approval, 

such as from a relevant government minister or attorney? 

Yes. The CFTC has the authority to share such information with Foreign Regulators and 

Authorities, subject to the conditions set forth in Section 8(e) of the CEA and as discussed in 

response to Principle 13, Question 3, above, without the need for external approval.

5. Can the regulator provide information to other domestic and foreign authorities on an 

unsolicited basis?

Yes. The CFTC has the authority to share information, subject to the conditions set forth in 

Section 8(e) of the CEA and as discussed in response to Principle 13, Questions 1 and 3, 

above. Section 8(g) of the CEA provides that the CFTC may provide, on its own initiative,

 

108 As explained above, Section 723(a)(2) of the Dodd-Frank Act added Section 2(d) to the CEA to provide that 

several enumerated provisions, including Section 1a (which includes the definition of “foreign futures authority”) and 

Section 12(f), apply to swaps.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 153

registration information to certain authorities.

6. Can the regulator share information with foreign counterparts even if the alleged conduct 

would not constitute a breach of the laws of the regulator's jurisdiction if conducted within 

that jurisdiction? 

Yes. As discussed in response to Principle 13, Question 3, above, Section 12(f)(1) of the CEA 

expressly states that the CFTC may provide investigative assistance to a foreign futures 

authority, including collecting and sharing information, “without regard to whether the facts 

stated in the request would also constitute a violation of the laws of the United States.”

7. Can the regulator share with domestic and foreign counterparts information and records 

identifying the person or persons beneficially owning or controlling bank accounts related to 

securities and derivatives transactions and brokerage accounts as well as the necessary 

information to reconstruct a transaction, including bank records? 

Yes.109 As discussed in response to Principle 13, Questions 1 and 3, above, the CFTC can 

share such information.

8. Does the regulatory system provide enough assurance that the confidential information 

gathered by the Regulator in the exercise of its functions or powers that is shared with 

another competent authority, either domestically or internationally, is subject to appropriate 

rules of confidentiality?

Yes. As discussed in response to Principle 13, Questions 1 and 3, above, Section 8(e) of the 

CEA provides such assurances and the CFTC shares non-public information pursuant to an 

MOU or less formal arrangement that includes undertakings related to, among other things, 

confidentiality and use of the information.

 

109 Please note that securities transactions fall within the regulatory purview of the SEC.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

154 INTERNATIONAL MONETARY FUND 

Principle 14 Regulators should establish information sharing mechanisms that set out 

when and how they will share both public and non-public information with 

their domestic and foreign counterparts

Key Questions 

1. Does the regulator have the power, by legislation, rules or as a matter of administrative 

practice, to enter into information-sharing agreements (whether formal or informal) with 

other domestic authorities?

Yes. The CFTC has the authority, and has entered into, information-sharing arrangements 

with Domestic Regulators and Authorities.

As discussed in response to Principle 13, Question 1, above, the CFTC may share public 

information without restriction and may share non-public information provided that the 

requirements in Section 8(e) of the CEA are satisfied. The CFTC obtains assurances that 

Section 8(e) requirements will be satisfied by entering into an MOU or less formal 

arrangement (“Cooperative Arrangement”) that includes undertakings related to, among 

other things, confidentiality and use of the information.

Cooperative Arrangements facilitate cooperation and the exchange of information, public or 

non-public, with Domestic Regulators and Authorities. MOUs are approved by the 

Commission and signed by the Chairman or his/her designee, but the CFTC may use less 

formal arrangements, either on an ongoing or ad hoc basis, to exchange information. 

Cooperative Arrangements establish understandings on various issues related to 

cooperation and provide clear mechanisms for the exchange of information, including the 

terms and conditions for sharing information.

2. Does the regulator have the power, by legislation, rules or as a matter of administrative 

practice, to enter into information-sharing agreements (whether formal or informal) with 

foreign counterparts? 

Yes. The CFTC has the authority, and has entered into, information-sharing arrangements 

with Foreign Regulators and Authorities.

As discussed in response to Principle 13, Question 3, above, the CFTC may share public 

information without restriction and may share non-public information provided that the 

requirements in Section 8(e) of the CEA are satisfied. The CFTC obtains assurances that 

Section 8(e) requirements will be satisfied by entering into a Cooperative Arrangement that 

includes undertakings related to, among other things, confidentiality and use of the 

information.

Cooperative Arrangements facilitate cooperation and the exchange of information, public or 

non-public, with Foreign Regulators and Authorities. As discussed in response to Principle 

14, Question 1, above, Cooperative Arrangements may be formal or informal. They establish 

understandings on various issues related to cooperation and provide clear mechanisms for 

the exchange of information, including the terms and conditions for sharing information.

In addition to the information-sharing authority discussed in response to Principle 13, 

Question 3, above, Section 8(a)(l)(B)(ii) of the CEA identifies MOUs as a means through which 

the CFTC may receive confidential information from foreign futures authorities. More 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 155

recently, the Dodd-Frank Act included two provisions that explicitly relate to informationsharing arrangements: Section 752(a) of the Dodd-Frank Act states that, in order to 

promote effective and consistent global regulation of swaps and security-based swaps, the 

CFTC, SEC, and prudential regulators, as appropriate, “may agree to such informationsharing arrangements as may be deemed to be necessary or appropriate in the public 

interest or for the protection of investors, swap counterparties, and security-based swap 

counterparties.” Section 752(b) of the Dodd-Frank Act states that, in order to promote 

effective and consistent global regulation of futures contracts and options on futures 

contracts, the CFTC “may agree to such information-sharing arrangements as may be 

deemed necessary or appropriate in the public interest for the protection of users of 

contracts of sale of a commodity for future delivery.”

3. Is the regulator a signatory to the IOSCO MMoU (in the affirmative, please skip Question 

4(a))?

Yes. The CFTC has been a signatory to the IOSCO Multilateral Memorandum of 

Understanding Concerning Consultation and Cooperation and the Exchange of Information 

(revised May 2012) (“IOSCO MMOU”) since 2002.

4. Has the relevant regulator developed information-sharing mechanisms to:

(a) Facilitate the detection and deterrence of cross-border misconduct? 

(b) Assist in the discharge of licensing, surveillance and enforcement responsibilities?

Yes. The CFTC has developed information-sharing mechanisms to assist in the discharge 

of licensing, surveillance and enforcement responsibilities.

The CFTC is a signatory to a wide range of Cooperative Arrangements, for both 

supervisory and enforcement purposes. Cooperation and information sharing among 

market authorities is beneficial in licensing and supervising registrants, plays an integral 

role in market surveillance and enhances enforcement capabilities.

Cooperative Arrangements for supervisory purposes typically specify shared 

understandings with respect to consultation and cooperation, information sharing, eventtriggered notification, on-site visits, permissible uses of non-public information, and 

confidentiality and onward-sharing requirements.

The CFTC has entered into 14 Cooperative Arrangements for supervisory, prudential and 

risk assessment purposes; two for financial information sharing; and 29 for supervision of 

collective investment schemes (“CIS”) and the alternative investment fund industry. 

Copies of these arrangements are available at 

http://www.cftc.gov/International/MemorandaofUnderstanding/mouInfo_Sharing_for_Sup

ervisor, 

http://www.cftc.gov/International/MemorandaofUnderstanding/mouFinancial_Informatio

n_Shari, and 

http://www.cftc.gov/International/MemorandaofUnderstanding/mouSupervision_of_Alter

native. The Commission also is a signatory to the Boca Declaration on Cooperation and 

Supervision of International Futures Exchanges and Clearing Organizations, which is 

available at http://www.cftc.gov/International/InternationalInitiatives/oia_bocadec0398. 

In addition, the CFTC has signed six Cooperative Arrangements related to technical 

assistance, which are available at 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

156 INTERNATIONAL MONETARY FUND 

http://www.cftc.gov/International/MemorandaofUnderstanding/mouInformation_Sharing

_Related.

Cooperative Arrangements for enforcement purposes typically provide for access to nonpublic documents and information in an authority’s possession and often include 

undertakings to obtain documents and to take testimony of, or statements from, 

witnesses on behalf of a requesting authority. Such arrangements also identify the 

agreed upon handling and uses of the information provided.

The primary MOU used by the CFTC for enforcement purposes is the IOSCO MMOU, to 

which the CFTC, SEC, and more than 100 Foreign Regulators and Authorities are 

signatories. Where a Foreign Regulator or Authority is not a signatory to the IOSCO 

MMOU, the CFTC may use bilateral Cooperative Arrangements entered into primarily for 

enforcement purposes. In addition to numerous informal letter arrangements, copies of 

26 formal bilateral arrangements are available at 

http://www.cftc.gov/International/MemorandaofUnderstanding/mouCooperativeEnforce

ment.

5. Where warranted by the scope of cross-border activity and the ability to provide reciprocal 

assistance does the regulator actively try to establish information-sharing arrangements with 

foreign regulators? 

Yes. As discussed in response to Principle 14, Question 4, above, the CFTC has a longstanding practice of entering into Cooperative Arrangements with Foreign Regulators and 

Authorities.

Most recently, the CFTC has entered into broad-scope supervisory arrangements for 

Singapore,110 Japan,111 and Canada112 that include, among others, DCOs, SDRs, SEFs, SDs, 

and MSPs. In addition, the CFTC recently signed an MOU related to DCO supervision with 

authorities in Australia.113

 

110 Memorandum of Understanding Concerning Cooperation and the Exchange of Information Related to the 

Supervision of Cross-Border Covered Entities with the Monetary Authority of Singapore (December 27, 2013), which is 

available at http://www.cftc.gov/ucm/groups/public/@internationalaffairs/documents/file/masmou2013.pdf.

111 Memorandum of Cooperation Related to the Supervision of Cross-Border Covered Entities with the Financial Services 

Agency of Japan (March 10, 2014), which is available at 

http://www.cftc.gov/ucm/groups/public/@internationalaffairs/documents/file/cftc-jfsamoc031014.pdf.

112 Memorandum of Understanding Concerning Cooperation and the Exchange of Information Related to the 

Supervision of Cross-Border Covered Entities with the Alberta Securities Commission, British Columbia Securities 

Commission, Ontario Securities Commission, and Québec Autorité des marchés financiers (March 25, 2014), which is 

available at http://www.cftc.gov/ucm/groups/public/@internationalaffairs/documents/file/asc-bcsc-oscamfmou032514.pdf.

113 Memorandum of Understanding Concerning Cooperation and the Exchange of Information Related to the 

Supervision of Cross-Border Clearing Organizations with the Reserve Bank of Australia and Australian Securities and 

Investments Commission (June 5, 2014), which is available at 

http://www.cftc.gov/ucm/groups/public/@internationalaffairs/documents/file/cftc-rba-asic-clearingmou06051.pdf.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 157

CFTC Staff in the Office of International Affairs (OIA) currently is negotiating Cooperative 

Arrangements for supervisory purposes with approximately 20 Foreign Regulators and 

Authorities. OIA has drafted some of these arrangements to be broad in scope; others focus 

on, e.g., SDs and MSPs.

6. Are these arrangements documented in writing?

Yes. As discussed in response to Principle 14, Questions 4 and 5, above, arrangements with 

Foreign Regulators and Authorities are documented in writing and generally are available on 

the CFTC’s website.

7. Does the regulator take steps to assure safeguards are in place to protect the confidentiality 

of information transmitted consistent with its uses?

Yes. As discussed in response to Principle 13, Question 3, and Principle 14, Question 2, 

above, the CFTC takes steps to assure that safeguards are in place to protect the 

confidentiality of non-public information transmitted to Foreign Regulators and Authorities 

consistent with its uses.

The CFTC may share non-public information with Foreign Regulators and Authorities, 

provided that the requirements in Section 8(e) of the CEA are satisfied. The CFTC obtains 

assurances that these requirements will be satisfied by entering into Cooperative 

Arrangements that include undertakings related to, among other things, confidentiality and 

use of the information.

8. Can the regulator maintain the confidentiality of the request for information received from a 

foreign regulator consistent with Art. 11 of the IOSCO MMOU? 

Yes. The CFTC can maintain the confidentiality of a request from a Foreign Regulator or 

Authority in a manner consistent with Article 11 of the IOSCO MMOU, which states:

(a) Each Authority will keep confidential requests made under this Memorandum of 

Understanding, the contents of such requests, and any matters arising under this 

Memorandum of Understanding, including consultations between or among the 

Authorities, and unsolicited assistance. After consultation with the Requesting Authority, 

the Requested Authority may disclose the fact that the Requesting Authority has made 

the request if such disclosure is required to carry out the request.

(b) The Requesting Authority will not disclose non-public documents and information 

received under this Memorandum of Understanding, except as contemplated by 

paragraph 10(a) or in response to a legally enforceable demand. In the event of a legally 

enforceable demand, the Requesting Authority will notify the Requested Authority prior 

to complying with the demand, and will assert such appropriate legal exemptions or 

privileges with respect to such information as may be available. The Requesting 

Authority will use its best efforts to protect the confidentiality of non-public documents 

and information received under this Memorandum of Understanding.

(c) Prior to providing information to a self-regulatory organization in accordance with 

paragraph 10(a)(ii), the Requesting Authority will ensure that the self-regulatory 

organization is able and will comply on an ongoing basis with the confidentiality 

provisions set forth in paragraphs 11(a) and (b) of this Memorandum of Understanding, 

and that the information will be used only in accordance with paragraph 10(a) of this 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

158 INTERNATIONAL MONETARY FUND 

Memorandum of Understanding, and will not be used for competitive advantage.

As discussed in response to Principle 14, Questions 3 and 4, above, the CFTC is a signatory to 

the IOSCO MMOU.

All CFTC investigations are non-public. Specifically, Section 8(a)(1) of the CEA prohibits the 

CFTC from making public any data and information that would separately disclose the 

business transactions or market positions of any person or trade secrets and names of 

customers. Pursuant to CFTC Regulation 11.3, information and documents obtained by the 

CFTC in the course of any investigation (including investigations initiated to assist a foreign 

futures authority) are deemed non-public and confidential, unless made a matter of public 

record (e.g., as part of a civil or administrative proceeding).

The CFTC has additional authority to protect from disclosure information regarding requests 

made by foreign futures authorities as well as information received from foreign futures 

authorities. With the exception of legally enforceable demands, pursuant to Section 8(a)(1) 

of the CEA, the CFTC shall not be compelled to disclose any information obtained from a 

foreign futures authority if: (1) the foreign futures authority has stated that public disclosure 

of the information would violate its laws; and (2) the CFTC has obtained the information 

pursuant to an MOU with that authority (or other procedure authorized by the CFTC).

In addition, CFTC Regulation 10.42(b)(2)(v) provides that the CFTC’s DOE may withhold from 

production in an administrative enforcement proceeding information obtained from a 

foreign (or domestic) governmental entity or from a foreign futures authority that either is 

not relevant to the resolution of the proceeding or was provided on condition that the 

information not be disclosed or that it only be disclosed by the Commission as evidence in 

an enforcement or other proceeding. CFTC Regulations 145.5(g)(1) and (4) permit the CFTC

to refuse to make public, under FOIA, documents where disclosure could reasonably be 

expected to interfere with enforcement activities undertaken or likely to be undertaken by 

the CFTC or any other authority, or where disclosure could reasonably be expected to 

disclose the identity of a confidential source including a foreign agency or authority. CFTC 

Regulation 140.735-5 prohibits CFTC officers and employees from divulging, or causing or 

allowing to be divulged, confidential or non-public commercial, economic, or official 

information to any unauthorized person, or to release such information in advance of 

authorization for its release by the Commission.

9. Can the regulator demonstrate that it shares information, where appropriate safeguards are 

in place, when it is requested by another domestic authority or foreign counterpart? 

Yes. The CFTC can demonstrate that it shares information, where appropriate safeguards are 

in place, when it is requested to do so by a Domestic Regulator or Authority or a Foreign 

Regulator or Authority. CFTC Staff shares information and has informal discussions in both 

supervisory and enforcement contexts, but only maintains statistics with respect to

enforcement.

Domestic: The CFTC’s DOE has a Cooperative Enforcement unit whose mission is to make 

referrals and provide assistance to criminal authorities, both Federal and State, so that they 

can prosecute violations of laws pertaining to derivatives, as well as general criminal anti-
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 159

fraud statutes. DOE has a policy requiring staff to make a referral to a criminal authority in 

all appropriate matters, but each authority makes its own decision concerning which cases it 

will prosecute based upon its own criteria and staffing. During FY2013, cooperative efforts 

resulted in 35 cases being filed by domestic criminal law enforcement authorities and 

Domestic Regulators and Authorities that included cooperative assistance from the CFTC. 

See Principle 12, Question 9.

Foreign: The CFTC’s DOE has an International unit whose mission is to seek the assistance of 

and provide assistance to Foreign Regulators and Authorities during the investigation and 

prosecution of laws pertaining to derivatives, including the CEA. DOE has a practice of 

making referrals to a Foreign Regulator or Authority that may have an interest in the matter, 

but each Foreign Regulator or Authority makes its own decision concerning which matters it

will pursue. During FY2013, the CFTC made 300 requests for assistance to 60 Foreign 

Regulators and Authorities, and received and responded to 69 requests from 23 Foreign 

Regulators and Authorities.

114

 Over the past three fiscal years, the CFTC responded to 173 

requests, with an average response time of 39.6 days. (FY2011: 46 matters, average 

response 35.9 days; FY2012: 62 matters, average response 46.6 days; FY2013: 65 matters, 

35.7 days.)115

 

114 Included in the “incoming” numbers are requests for assistance as well as referrals to the CFTC. Included in the 

“outgoing” numbers are requests for assistance as well as referrals made by the CFTC. Please note that each request 

for new information in an investigation is considered a separate request.

115 With respect to calculations of response time for requests made to the CFTC, the average response times 

indicated include only closed or withdrawn requests. Pending requests are not included in the calculation.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

160 INTERNATIONAL MONETARY FUND 

Principle 15 The regulatory system should allow for assistance to be provided to foreign 

Regulators who need to make inquiries in the discharge of their functions 

and exercise of their powers. 

Key Questions 

1. Is the domestic regulator able to offer effective and timely assistance to foreign regulators in 

obtaining: 

(a) Contemporaneous records sufficient to reconstruct all securities and derivatives 

transactions, including records of all funds and assets transferred into and out of 

bank and brokerage accounts relating to those transactions? 

(b) records for securities and derivatives transactions that identify: 

(i) The client:

(1) Name of the account holder?

(2) Person authorized to transact business? 

(ii) The amount purchased or sold? 

(iii) The time of the transaction? 

(iv) The price of the transaction? 

(v) The individual and the bank or broker and brokerage house that handled the 

transaction?

(c) Information located in its jurisdiction identifying persons who beneficially own or 

control non-natural persons organized in its jurisdiction?

Yes.116 The CFTC is able to offer effective and timely assistance to foreign futures authorities 

by obtaining the records and information set forth above. As discussed in response to 

Principle 13, Question 3, above, Section 12(f)(1) of the CEA permits the CFTC to assist a 

foreign futures authority117 in conducting an investigation that the foreign futures authority 

“deems necessary to determine whether any person has violated, is violating, or is about to 

violate any laws, rules or regulations relating to futures or options matters that the 

requesting authority administers or enforces. The Commission may conduct such 

investigation as the Commission deems necessary to collect information and evidence 

pertinent to the request for assistance. Such assistance may be provided without regard to 

whether the facts stated in the request would also constitute a violation of the laws of the 

United States.” Section 12(f)(2) of the CEA states that, in deciding whether to provide 

assistance, the CFTC shall consider whether “the requesting authority has agreed to provide 

reciprocal assistance to the Commission in futures and options matters” and whether 

compliance with the request would prejudice the U.S. public interest.

The CFTC may compel, on behalf of a foreign futures authority: (1) the production of 

documents, including, but not limited to, bank records, trading records, and records 

identifying the beneficial owners that are critical to such investigations; and (2) the taking of 

 

116 Please note that securities transactions fall within the regulatory purview of the SEC.

117 As explained above, Section 723(a)(2) of the Dodd-Frank Act added Section 2(d) to the CEA to provide that several 

enumerated provisions, including Section 1a (which includes the definition of “foreign futures authority”) and Section 

12(f), apply to swaps.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 161

statements. As discussed in response to Principle 13, Question 1, above, to the extent that 

banking and other financial records are subject to the RFPA118 or electronic communications 

are subject to the ECPA, the CFTC must ascertain, before sharing the records, that the 

material is relevant to a legitimate law enforcement inquiry of the requesting authority and, 

for Domestic Regulators and Authorities, ensure that there is an approved access request 

that includes RFPA and/or ECPA materials.

2. Is the domestic regulator able to offer effective and timely assistance to foreign regulators in 

securing compliance with laws and regulations related to:

(a) Insider dealing, market manipulation, misrepresentation of material information and 

other fraudulent or manipulative practices relating to securities and derivatives, 

including solicitation practices, handling of investor funds and customer orders?

(b) The registration, issuance, offer, or sale of securities and derivatives, and reporting 

requirements related thereto? 

(c) Market intermediaries, including investment and trading advisers who are required to 

be licensed or registered, collective investment schemes, brokers, dealers and 

transfer agents? 

(d) Markets, exchanges and clearing and settlement entities? 

Yes.119 The CFTC is able to offer effective and timely assistance to foreign futures authorities 

in securing compliance with their laws and regulations. As discussed in response to Principle 

13, Question 3, and Principle 15, Question 1, above, the CFTC is authorized to conduct an 

investigation, including the use of compulsory process, in response to a request from a 

foreign regulatory authority. As discussed in response to Principle 13, Question 6, above, 

the CFTC may render assistance to a foreign futures authority even if the matter would not 

constitute a violation of the laws of the United States.

3. Is the domestic regulator able, according to its domestic laws and regulations, to provide 

effective and timely assistance to foreign regulators regardless of whether the domestic

regulator has an independent interest in the matter? 

Yes. The CFTC is able to provide effective and timely assistance to foreign futures

authorities, even without an independent interest in the matter. As discussed in response to 

Principle 13, Question 6, above, the CFTC may render assistance to a foreign futures 

authority even if the matter would not constitute a violation of the laws of the United States.

4. Is the domestic regulator able to offer effective and timely assistance to foreign regulators in 

obtaining information on the regulatory processes in its jurisdiction? 

Yes. The CFTC is able to offer effective and timely assistance to foreign futures authorities in 

obtaining information on the regulatory processes in the United States. The CFTC has the 

authority to share such information with Foreign Regulators and Authorities, subject to the 

conditions set forth in Section 8(e) of the CEA and as discussed in response to Principle 13, 

Question 3, above.

 

118 The RFPA provides a procedure for obtaining bank records that includes notice to the account holder and an 

opportunity to be heard but, in certain circumstances, such notice can be delayed.

119 Please note that securities fall within the regulatory purview of the SEC.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

162 INTERNATIONAL MONETARY FUND 

5. Is the domestic regulator able to offer effective and timely assistance to foreign regulators in 

requiring or requesting:

(a) The production of documents? 

(b) Taking a person’s statement or, where permissible, testimony under oath?

Yes. As discussed in response to Principle 15, Question 1, above, the CFTC is able to offer 

effective and timely assistance to foreign futures authorities in requiring or requesting 

documents, statements, or testimony under oath.

6. Is the domestic regulator able to offer effective and timely assistance to foreign regulators in 

obtaining court orders, if permitted, for example, urgent injunctions? 

Yes. The CFTC is able to offer effective and timely assistance to a foreign futures authority in 

obtaining court orders, including, e.g., injunctions in urgent circumstances. Using its full 

investigatory powers pursuant to Section 12(f)(1) of the CEA, the CFTC may obtain 

information for a foreign futures authority that can be used in proceedings to obtain a court 

order.

7. Is the domestic regulator able to provide effective and timely assistance to foreign regulators 

regarding information about financial conglomerates subject to its supervision and more 

precisely assistance in relation, for example, to: 

(a) The structure of financial conglomerates?

(b) The capital requirements in conglomerate groups?

(c) Investments in companies within the same group?

(d) Intra-group exposures and group-wide exposures?

(e) Relationships with shareholders?

(f) Management responsibility and the control of regulated entities? 

Yes. The CFTC is able to provide effective and timely assistance with respect to information 

on its registrants. As discussed in response to Principle 13, Question 3, above, the CFTC may 

share information in its files with Foreign Regulators and Authorities so long as, for nonpublic information, the requirements of Section 8(e) of the CEA are satisfied. In addition, as 

discussed in response to Principle 13, Question 3, and Principle 15, Question 1, above, the 

CFTC also may, pursuant to Section 12(f)(1) of the CEA, obtain information for a foreign 

futures authority.

For FCMs, the CFTC could provide information such as:

 an organizational chart depicting the various entities with which the FCM is affiliated 

(including subsidiaries) and specifically identifying the FCM’s material affiliates, as 

determined by the criteria identified in CFTC Regulation 1.14(a);120

 capital requirements of an FCM or its affiliate(s) required by the CFTC;

 financing and capital adequacy, including sources of funding, management of liquidity 

of material assets of the FCM, the structure of debt capital and sources of alternative 

 

120 Please note that all non-material entities or affiliates in large organizational groups may not necessarily be 

included. Information relating to other related entities only is reported if it impacts whether an affiliate is deemed to 

be material.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 163

funding;

 direct ownership of 10 percent or more of the FCM (available through the registration 

database maintained by the NFA; and

 risk management policies and procedures that describe the methods followed to 

mitigate exposures resulting from related party transactions.

See generally CFTC Regulations 1.12 (maintenance of minimum financial requirements), 1.14 

(risk assessment recordkeeping), 1.15 (risk assessment reporting) and 1.17 (minimum 

financial requirements). In addition, to the extent the CFTC becomes concerned about the 

financial condition of an FCM, Section 4f(c)(3)(A) of the CEA empowers the Commission to 

require an FCM to make reports concerning the financial activities of affiliated persons 

whose business activities are reasonably likely to have a material impact on the financial or 

operational condition of the FCM.

For SDs and MSPs, the CFTC could provide similar information for the business activities of 

such entities. As discussed in response to Principle 14, Question 5, above, the CFTC has 

signed, and CFTC staff also currently is negotiating, supervisory arrangements with foreign 

regulators and authorities, which would facilitate such information sharing.

For DCOs, the CFTC could provide information related to their ability to comply with the 

Core Principles in Section 5b(c)(2) of the CEA or other relevant CEA requirements. For 

example, each DCO, on an ongoing basis, must demonstrate to the CFTC that it has 

adequate financial, operational and managerial resources to discharge the responsibilities of 

a DCO. See Core Principle B – Financial Resources. Moreover, a SIDCO is required to comply 

with additional risk management standards, which are promulgated, in part, pursuant to 

Section 805(a) of the Dodd-Frank Act and are set forth in Subchapter C of Part 39 of the 

CFTC’s regulations.121 In addition, each DCO must provide to the CFTC all information that 

the Commission determines to be necessary to conduct oversight of the DCO. See Core 

Principle J – Reporting. Thus, to the extent information regarding financial conglomerates is 

related to a DCO’s ability to comply with CEA requirements and/or a SIDCO’s or Subpart C 

DCO’s ability to comply with Subchapter C of Part 39 of the CFTC’s regulations, the CFTC 

could provide such information.

8. If the regulator cannot directly obtain the information set out in Key Question 1, can the 

regulator obtain that information from another domestic authority and share that 

information with the requesting regulator?

Yes. The CFTC could obtain such non-public information from a Domestic Regulator or 

Authority and share it with the requesting regulator, provided that the requirements of 

Section 8(e) of the CEA are satisfied.

9. May the requesting authority use the information furnished by the domestic authority for 

the purposes set forth under Art. 10(a) of the IOSCO MMoU?

Yes. The requesting authority may use information from a Domestic Regulator or Authority 

 

121 These requirements also apply to DCOs that have elected to opt in to the additional risk management standards 

set forth in Subchapter C of Part 39 of the CFTC’s regulations (each, a “Subpart C DCO”).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

164 INTERNATIONAL MONETARY FUND 

furnished by the CFTC for the purposes set forth in Article 10(a) of the IOSCO MMOU, which 

states:

(a) The Requesting Authority may use non-public information and non-public 

documents furnished in response to a request for assistance under this Memorandum of 

Understanding solely for:

(i) the purposes set forth in the request for assistance, including ensuring compliance 

with the Laws and Regulations related to the request; and

(ii) a purpose within the general framework of the use stated in the request for 

assistance, including conducting a civil or administrative enforcement proceeding, 

assisting in a self-regulatory organization’s surveillance or enforcement activities 

(insofar as it is involved in the supervision of trading or conduct that is the subject of 

the request), assisting in a criminal prosecution, or conducting any investigation for 

any general charge applicable to the violation of the provision specified in the 

request where such general charge pertains to a violation of the Laws and 

Regulations administered by the Requesting Authority. This use may include 

enforcement proceedings which are public.

As discussed in response to Principle 14, Questions 3 and 4, above, the CFTC is a signatory to 

the IOSCO MMOU.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 165

PRINCIPLES RELATING TO ISSUERS (16-18) – Not applicable to the CFTC

Principle 16 There should be full, accurate and timely disclosure of financial results, risk 

and other information which is material to investors’ decisions.

Key Questions 

Full Disclosure 

1. Does the regulatory framework have clear, comprehensive and reasonably specific disclosure 

requirements that apply to: 

(a) Public offerings, including the conditions applicable to an offering of securities for 

public sale, the content and distribution of prospectuses and other offering 

documents (and, where relevant, short form profile or introductory documents) and 

supplementary documents prepared in the offering? 

(b) Annual reports? 

(c) Other periodic reports? 

(d) Shareholder voting decisions? 

(e) Advertising of public offerings outside of the prospectus? 

2. Does the regulatory framework require accurate, sufficiently clear and comprehensive, and 

reasonably specific and timely disclosure of: 

(a) events that are material to the price or value of securities;

(b) the most significant risks of investing in the security; and

(c) important relevant information about the issuer and its activities?

3. Does the regulatory framework require:

(a) Financial information and other required disclosure in prospectuses, listing 

documents, annual and other periodic reports, and, where applicable, in connection 

with shareholder voting decisions, to be of sufficient timeliness to be useful to 

investors? 

(b) Periodic information about financial position and results of operations (which may be 

in summary form) to be made publicly available to investors? 

(c) Appropriate measures to be taken (for example, provision of more recent unaudited 

financial information) when the audited financial statements included in a prospectus 

for public offerings are not current? 

General Disclosure 

4. In addition to specific disclosure requirements, is there a general requirement to disclose 

either all material information or all information necessary to keep the disclosures made 

from being misleading? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

166 INTERNATIONAL MONETARY FUND 

Sufficiency, Accuracy, Timeliness and Accountability for Disclosure 

5. Are there measures available to the regulator (e.g., review, certification, supporting 

documentation, sanctions) to address concerns with the sufficiency, accuracy and timeliness 

of the required disclosures?

6. Does regulation ensure that issuers and others involved in the issuing process, which may 

include underwriters, directors, authorizing officers, promoters, experts and advisers, are 

liable for the content of disclosures they make?

Derogations 

7. Are the circumstances where disclosures may be omitted or delayed limited to trade secrets, 

similar proprietary information or other valid business purposes, such as incomplete 

negotiations? 

8. Where there are derogations from disclosure, is regulation sufficient to provide for fulfilment 

of the objective of full and timely disclosure by allowing for: 

(a) Temporary suspensions of trading? 

(b) Restrictions on, or sanctions regarding, the trading activities of persons with superior 

information? 

Cross-Border Matters 

9. If public offerings or listings by foreign issuers are significant within the jurisdiction, are the 

jurisdiction’s disclosure requirements for such offerings or listings of equity and debt 

securities by foreign issuers consistent with IOSCO’s International Disclosure Standards for (i) 

Cross-Border Offerings and Initial Listings by Foreign Issuers and (ii) Cross-Border Offerings 

and Listings of Debt Securities by Foreign Issuers? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 167

This principle is not applicable to the CFTC.

Principle 17 Holders of securities in a company should be treated in a fair and equitable 

manner.

Key Questions 

Rights of Shareholders 

1. Does the regulatory and legal frameworks address the rights and equitable treatment of 

shareholders in connection with the following: 

(a) Voting: 

(i) For election of directors? 

(ii) On corporate changes affecting the terms and conditions of their securities? 

(iii) On other fundamental corporate changes? 

(b) Timely notice of shareholder meetings and voting decisions? 

(c) Procedures that enable beneficial owners to give proxies or voting instructions 

efficiently? 

(d) Ownership registration (in the case of registered shares) and transfer of their shares? 

(e) Receipt of dividends and other distributions, when, as, and if declared? 

(f) Transactions involving: 

(i) A takeover bid? 

(ii) Other change of control transactions? 

(g) Holding the company, its directors and senior management accountable for their 

involvement or oversight resulting in violations of law? 

(h) Bankruptcy or insolvency of the company? 

2. Is full disclosure of all information material to an investment or voting decision required in 

connection with shareholder voting decisions generally and the transactions referred to in 

Questions 1(a)(iii), 1(f)(i) and 1(f)(ii) specifically?

Control 

3. With respect to transactions referred to in Question 1(f)(i) and 1(f)(ii), are shareholders of the 

class or classes of securities affected by the proposal: 

(a) Given a reasonable time in which to consider the proposal? 

(b) Supplied with adequate information to enable them to assess the merits of the 

proposal? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

168 INTERNATIONAL MONETARY FUND 

(c) As far as practicable, given reasonable and equitable opportunities to participate in 

any benefits accruing to the shareholders under the proposal? 

(d) Given fair and equitable treatment (in particular, minority security holders) in relation 

to the proposal? 

(e) Not unfairly disadvantaged by the treatment and conduct of directors of any party to 

the transaction or by the failure of the directors to act in good faith in responding to 

or making recommendations with respect to the proposal?

4. With respect to substantial holdings of voting securities: 

(a) Is information about the identity and holdings of persons who hold a substantial 

(well below controlling) beneficial ownership interest in a company required to be 

timely disclosed: 

(i) In public offering and listing particulars documents? 

(ii) Once the ownership threshold requiring disclosure has been reached? 

(iii) At least annually (e.g., in the issuer’s annual report)? 

(b) Is it mandatory for material changes in such ownership and other required 

information to be disclosed in a timely manner? 

(c) Are these disclosure requirements applicable to two or more persons acting in 

concert even though their individual beneficial ownership might not have to be 

disclosed? 

5. With respect to holdings of voting securities by directors and senior management: 

(a) Is information about the beneficial ownership interest and material changes in 

beneficial ownership in a company required to be timely disclosed? 

(b) Is such information available: 

(i) In public offering and listing particulars documents? 

(ii) At least annually (e.g., in the issuer’s annual report)? 

(c) Is the legal infrastructure sufficient to ensure enforcement of and compliance with 

these requirements? 

Cross-Border 

6. If public offerings or listings by foreign issuers are significant within the jurisdiction, does the 

jurisdiction require disclosure in foreign issuers’ offering and listing particulars documents of 

any governance provisions or information relating to the foreign issuer’s jurisdiction that 

may materially affect the fair and equitable treatment of shareholders?
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 169

This principle is not applicable to the CFTC.

Principle 18 Accounting standards used by issuers to prepare financial statements should 

be of a high and internationally acceptable quality.

Key Questions

1. Are issuers required to include audited financial statements in: 

(a) Public offering and listing documents? 

(b) Publicly available annual reports? 

2. Do the required audited financial statements include: 

(a) A balance sheet or statement of financial position? 

(b) A statement of the results of operations? 

(c) A statement of cash flow? 

(d) A statement of changes in ownership equity or comparable information included 

elsewhere in the audited financial statements or footnotes? 

3. With respect to the financial statements required in public offering and listing documents 

and publicly available annual reports: 

(a) Are these required to be prepared and presented in accordance with a 

comprehensive body of accounting standards? 

(b) Do these accounting standards require financial statements to 

(i) Be comprehensive? 

(ii) Be designed to serve the needs of investors? 

(iii) Reflect consistent application of accounting standards? 

(iv) Be comparable if more than one accounting period is presented? 

(c) Are the prevailing accounting standards of an internationally acceptable quality?

4. Where unaudited financial statements are used, for example, in interim reports, and interim 

period financial statements in public offering and listing documents, in full or summary 

format, are the financial statements presented in accordance with accounting standards that 

are of a high and internationally acceptable quality? 

5. In regard to oversight, interpretation and independence with respect to accounting 

standards: 

(a) Does the regulatory framework provide for an organization responsible for the 

establishment and timely interpretation of accounting standards? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

170 INTERNATIONAL MONETARY FUND 

(b) If yes, are the organization’s processes open and transparent, and, if the organization 

is independent, is the standard setting or interpretation process undertaken in 

cooperation with, or subject to oversight by, the regulator or another body that acts 

in the public interest? 

6. Is there a system for enforcing compliance with accounting standards?

7. If public offerings or listings by foreign issuers are significant within the jurisdiction, does the 

regulator permit the use of high quality, internationally acceptable accounting standards by 

foreign companies that wish to list or offer securities in the country?
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 171

PRINCIPLES FOR AUDITORS, CREDIT RATING AGENICES, AND OTHER INFORMATION SERVICE 

PROVIDERS (19-23)

Principle 19 Auditors should be subject to adequate levels of oversight.

Key Questions

1. Does the regulatory system provide a framework for overseeing the quality and 

implementation of auditing, independence, and ethical standards, including the quality 

control environments in which auditors operate?

Yes. The Commission’s framework for overseeing auditors is three-pronged with respect to 

the financial and operational compliance of registered intermediaries. First, the Commission 

requires that all financial statements and schedules of its registrants be at least annually 

certified (opinion expressed) by a qualified outside accountant/auditor in accordance with 

requirements of Commission Regulation 1.16. Among other things, these qualified outside 

accountants must at a minimum be duly registered, in good standing and be independent. 

Second, the Commission oversees a self-regulatory examination regime, wherein 

SROs/DSROs are responsible for conducting financial and operational examinations over 

their respective members. Commission Regulation 1.52 outlines this SRO examination 

framework, describing the function, quality, and competency of examiners and evaluation of 

these examinations. Finally, Commission Staff conducts reviews of SROs’ examination 

programs whereby Commission Staff selects a sample of an SRO’s work papers to review. In 

addition, the Commission conducts limited-scope reviews of registrants in “for cause” 

situations.

2. Are auditors required to be qualified and competent pursuant to minimum requirements 

before being licensed to perform audits, and to maintain professional competency?

Yes. Commission Regulation 1.16 requires that the accountant’s report state whether the 

audit was made in accordance with the auditing standards adopted by the PCAOB, and must 

designate any auditing procedures deemed necessary by the accountant under the 

circumstances of the particular case which have been omitted and the reasons for their 

omission. Commission Regulation 1.16 also addresses the minimum requirements a public 

accountant must meet in order to be recognized by the Commission as qualified to conduct 

an examination for the purpose of expressing an opinion on the financial statements of an 

FCM. Commission regulation 1.16(b)(1) requires a public accountant to be registered and in 

good standing under the laws of the place of the accountant’s principal officer or principal 

residence in order to be qualified to conduct examinations of FCMs. Additionally, all public 

accountants must be registered with the PCAOB. 

CFTC Regulation 1.16 also requires the governing body of each FCM to ensure that the 

certified public accountant engaged is duly qualified to perform an audit of the FCM. Such 

an evaluation of the qualifications of the certified public accountant should include, among 

other issues, the certified public accountant’s experience in auditing FCMs, the depth of the 

certified public accountant’s staff, the certified public accountant’s knowledge of the CEA 

and Commission regulations, the size and geographic location of the FCM, and the 

independence of the certified public accountant. The governing body should also review 

and consider the inspection reports issued by the PCAOB as part of the assessment of the 

qualifications of the public accountant to perform an audit of the FCM.

Under Commission Regulation 1.52, an SRO must cause an examinations expert to evaluate 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

172 INTERNATIONAL MONETARY FUND 

the supervisory program and such SRO’s application of the supervisory program at least 

once every three years. Regulation 1.52 defines an “examinations expert” as a nationally 

recognized accounting and auditing firm with substantial expertise in audits of FCMs, risk 

assessment and internal control reviews, and which is an accounting and auditing firm that is 

acceptable to the Commission. It is important to note, that this “examinations expert” is 

engaged to provide an assessment of only the SROs examination program, that is, an 

examination program that is separate and in addition to that which is normally undertaken 

by the PCAOB over registered outside auditors generally.

3. Is there an oversight body that operates in the public interest, has an appropriate 

membership, an adequate charter of responsibilities and powers, and adequate funding, 

such that the oversight responsibilities are carried out in a manner independent of the 

auditing profession? 

Yes. Commission Regulation 1.16 requires that all certified public accountants engaged to 

conduct an examination of FCM must be registered with the PCAOB. The PCAOB is a nonprofit corporation established by the U.S. Congress under the Sarbanes-Oxley Act of 2002 to 

oversee the audits of public companies and broker-dealers of securities registered with the 

SEC in order to protect investors and the public interest by promoting informative, accurate, 

and independent audit reports. The SEC has oversight authority over the PCAOB, including 

the approval of the PCAOB’s rules, auditing and other standards, approval of its budget, and 

appointment of members of its board, after consultation with the Chairman of the Board of 

Governors of the Federal Reserve Systems and the Secretary of the Treasury. Commission 

Regulation 1.16(b)(1) also requires a public accountant to have undergone a PCAOB 

examination in order to be qualified to conduct examinations of FCMs. A PCAOB 

examination involves the review of the accounting firm’s compliance with PCAOB issued 

audit, quality control, independence and ethics standards.

For auditors of other Commission registrants, Commission Regulation 1.16 requires that 

auditors be duly registered, in good standing under the laws of the place of residence or 

principal residence. In the United States, each respective state has licensing, conduct and 

membership requirements developed by independent State Accountancy Boards, which are 

self-funded, generally through professional membership. These individual state 

requirements are in addition to those imposed separately through registration with the 

PCAOB, the AICPA, or by accountants operating subject to the SEC or CFTC’s jurisdiction.

4. Does the auditor oversight body have an established process for performing regular reviews 

of audit procedures and practices of firms that audit financial statements of public issuers?

The Commission does not have authority over public issuers; this authority resides 

principally with the SEC. However, the Commission does have requirements applicable to 

auditors of its registrant’s through Commission Regulation 1.16. As mentioned previously, 

Commission Regulation 1.16 requires that auditors be duly registered, in good standing 

under the laws of the place of residence or principal residence, and in the case of auditors 

conducting examinations of an FCM, be registered with the PCAOB. These auditors, by 

means of their registration with the PCAOB, are required to follow and comply with PCAOB 

issued standards on competency, ethics, quality, independence and auditing. The PCAOB 

has an extensive review program over the auditors of public issuers, as well as an 

examination program specifically tailored to the review of auditors of/for Broker-Dealers, 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 173

which also may be auditors of FCMs. 

5. Are there standards and processes for regular assessments by the oversight body to assess 

whether the auditor is and remains independent, both in fact and in appearance, of the 

enterprises that it audits? 

Yes. By requiring outside auditors of FCMs to be registered with the PCAOB, the PCAOB 

routinely conducts reviews of auditors for compliance with their quality control and ethics 

and independence standards. In addition, Commission Regulation 1.16(b)(2) has its own 

independence requirements imposed on outside auditors. Commission Regulation 

1.16(b)(4) also requires that the governing body of each FCM ensure that the outside auditor 

is duly qualified, and among other things, is in fact independent. 

Additionally, for examiners under the SRO examination program, Commission Regulation 

1.52 requires that the SRO program have standards addressing, among other things, the 

ethics of an examiner and the independence of an examiner. As mentioned above in 

response to Question 2, Commission Regulation 1.52 also requires that SRO programs to be

reviewed by an “examination expert” at least every three years. 

6.

(a) If the oversight process is performed in coordination with similar quality control 

mechanisms that are in place within the audit profession, does the oversight body 

maintain control over key issues such as the scope of reviews, access to and 

retention of audit work papers and other information needed in reviews, and follow 

up of the outcome of reviews?

Yes. The PCAOB remains responsible for the development and implementation of auditing 

standards, including the scope, and access to and retention of audit work-papers, imposed 

on registrant auditors, as well as the continual review of those registrants’ compliance with 

those standards. A similar responsibility is shared by the AICPA and respective State 

Accounting Licensing Boards, over auditors on non-public issuers, which may include some 

auditors engaged to conduct audits of certain Commission registrants.

With respect to oversight of the SRO examinations program, Commission Regulation 1.52 

establishes the requirements of the SRO examination program generally, including the scope 

of exams, and access to and retention of examination work papers. The specific standards of 

the SRO examination program are determined and agreed upon by the JAC, as discussed in 

response to Principle 9. Should an SRO choose not to join the JAC, the SRO would remain 

responsible for designing and establishing an SRO examination program consistent with the 

requirements of Commission Regulation 1.52. In both instances, an “examinations expert” is 

required to review the SRO examination program at least every three years according to 

certain Commission-established criteria.

(b) Are reviews conducted on a recurring basis, and designed to determine the extent to 

which audit firms have and adhere to adequate quality control policies and 

procedures that address all significant aspects of auditing?

Yes. The PCAOB has an extensive review program for conducting reviews of auditors of 

public issuers depending on the size of the firm’s audit practice. In addition, the PCAOB has 

a separate review program for auditors of Broker-Dealers, focusing specifically on issues, and 

quality control policies specific to that industry. In addition, under Commission Regulation 

1.16(b)(4), the governing body of each FCM is responsible for evaluating the qualifications of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

174 INTERNATIONAL MONETARY FUND 

the outside auditor, which includes, reviewing the inspection reports issued by the PCAOB. 

These reviews are typically done in concert with SRO examinations of each FCM in 

accordance with established SRO examination procedures in accordance with Commission 

Regulation 1.52. 

Additionally, as mentioned above, Commission Regulation 1.52 also requires that the SRO 

examination program be reviewed every three years by an “examination expert” assessing 

the design and adequacy of the SRO examination program.

7. Does the auditor oversight body have the authority to stipulate remedial measures for 

problems detected, and to initiate and/or carry out disciplinary proceedings to impose 

sanctions on auditors and audit firms, as appropriate?

Yes. The PCAOB has authority under the Sarbanes-Oxley Act of 2002 to impose various 

sanctions on auditors under its jurisdiction, including temporary or permanent bars of 

registration, as well as certain civil monetary penalties. In addition, the SEC and the CFTC 

have authority to bring civil actions against any accountant practicing before them for 

violation of their respective rules and regulations. Similarly, the CFTC has jurisdiction over

any SRO, DSRO, the JAC and NFA for violations of Commission Regulation 1.52.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 175

Principle 20 Auditors should be independent of the issuing entity that they audit

Key Questions

1. Does the regulatory framework set standards for the independence of external auditors?

Yes. As discussed in Principle 19, Question 5, by requiring outside auditors of FCMs to be 

registered with the PCAOB, the PCAOB routinely conducts reviews of auditors for compliance 

with their quality control and ethics and independence standards. In addition, Commission 

Regulation 1.16(b)(2) has its own independence requirements imposed on external auditors. 

Commission Regulation 1.16(b)(4) also requires that the governing body of each FCM ensure 

that the external auditor is duly qualified, and among other things, is in fact independent. 

2. Do the standards contain restrictions relating to audit firms and individuals within the audit 

firm regarding financial, business or other relationships with an entity that the firm audits?

Yes. The PCAOB independence requirements include by reference all specific independence 

requirements under SEC Regulation 210.2-01, which include very detailed and extensive 

restrictions relating to audit firms and individuals within the audit firm regarding financial, 

business or other relationships. In addition and consistent with the SEC’s restrictions, 

Commission Regulation 1.16(b)(2) also contains examples of non-independence while 

performing certain activities and/or maintaining certain financial or business relationships 

with the entity. 

3. Do the standards address the following:

(a) self-interest?

Yes. See PCAOB Rule 3520; SEC Regulation 210.2-01; CFTC Regulation 1.16(b)(2).

(b) self-review?

Yes. See PCAOB Rule 3520; SEC Regulation 210.2-01; CFTC Regulation 1.16(b)(2).

(c) advocacy?

Yes. See PCAOB Rule 3520; SEC Regulation 210.2-01; CFTC Regulation 1.16(b)(2).

(d) familiarity? 

Yes. See PCAOB Rule 3520; SEC Regulation 210.2-01; CFTC Regulation 1.16(b)(2).

(e) intimidation?

Yes. Yes. See PCAOB Rule 3520; SEC Regulation 210.2-01; CFTC Regulation 1.16(b)(2).

4. Are there regulatory standards that govern the provision of non-audit services to an entity 

that an audit firm audits?

Yes. See generally PCAOB Rule 3520; SEC Regulation 210.2-01; CFTC Regulation 1.16(b)(2).

Under Commission Regulation 1.16(b)(2), an accountant will not be considered independent 

if he or she, or his or her firm or a member thereof, performs manual or automated 

bookkeeping services or assumes responsibility for maintenance of the accounting records, 

including accounting classification decisions, of such applicant or registrant or any of its 

affiliates. For the purposes of CFTC Regulation 1.16(b), the term “member” means all

partners in the firm and all professional employees participating in the audit or located in 

the office of the firm participating in a significant portion of the audit.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

176 INTERNATIONAL MONETARY FUND 

5. Are auditors required to establish and maintain internal systems, governance arrangements 

and processes for monitoring, identifying and addressing threats to independence, including 

the rotation of auditors and/or senior member(s) of the audit engagement team, and 

ensuring compliance with the standards?

Yes. PCAOB Auditing Standard No. 7 and PCAOB Quality Control standards impose various 

requirements surrounding the establishment and maintenance of various quality controls 

involving auditor independence and compliance with numerous auditing standards. In 

addition the SRO examination program is required to address the supervision, review and 

quality control of an examiner’s work product, and to have procedures to ensure that quality 

control is maintained. Also, SROs are required to provide annual ethics training to all 

supervisory program staff and maintain independent judgement in matters related to the 

supervisory program. See Commission Regulations 1.52(c)(1)(i) and 1.52(d)(2)(ii)(C)(1).

6. From the perspective of public issuers: Not Applicable to the CFTC

(a) Is the external auditor required to be independent in both fact and appearance of 

the entity being audited?

(b) Is there a governance body independent in both fact and appearance of the 

management of the entity (e.g., audit committee, board of corporate statutory 

auditors or other body independent of the entity’s management) that oversees the 

process of selection and appointment of the external auditor?

(c) Are governance standards intended to promote and contribute to the monitoring 

and safeguarding of the independence of the external auditor?

(d) Is prompt disclosure of information about the resignation, removal or replacement of 

an external auditor required?

7. Is there an adequate mechanism in place for enforcing compliance with auditor 

independence standards, for example, to stipulate remedial measures for problems detected 

and to initiate and carry out disciplinary proceedings to impose sanction on auditors and 

audit firms as appropriate, or to refuse to accept, or require revision of, audit reports, or for 

lack of independence?

Yes. The PCAOB has authority under the Sarbanes-Oxley Act of 2002 to impose various 

sanctions on auditors under the PCAOB’s jurisdiction, including temporary or permanent 

bars of registration, as well as, certain civil monetary penalties. In addition, the SEC and the 

CFTC have authority to bring a civil action against any accountant practicing before them for 

violation of their respective rules and regulations. Similarly, the CFTC has jurisdiction over 

any SRO, DSRO, the JAC and NFA for violations of Commission Regulation 1.52.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 177

Principle 21 Audit standards should be of a high and internationally acceptable quality

Key Questions

1. Does the regulatory framework require that financial statements included in public offering 

and listing particulars documents and publicly available annual reports be audited in 

accordance with a comprehensive set of auditing standards? 

Yes. The Commission does not have authority over public issuers; this authority resides 

principally with the SEC. However, Commission Regulation 1.10 requires each FCM to file 

certified annual financial reports containing basic financial statements. Commission 

Regulation 1.16 requires that an accountant’s audit be done in accordance with generally 

accepted auditing standards. In addition, the auditors of FCMs must follow auditing 

standards issued by the PCAOB.

2. Are the prevailing auditing standards of a high and internationally acceptable quality?

Yes. Auditing standards of both the PCAOB and U.S. Generally Accepted Auditing Standards 

(GAAS) are of a high and internationally accepted quality. 

3.

(a) Does the regulatory framework provide for an organization responsible for the 

establishment and timely updating of auditing standards?

Yes. The PCAOB is responsible for adoption of auditing standards and is subject to direct 

SEC oversight. U.S. GAAS are promulgated by the Auditing Standards Board, a division of 

the AICPA. They are regularly reviewed and updated.

(b) If yes, are the organization's processes open, transparent and subject to public 

oversight, and, if the organization is independent, is the standard setting and 

interpretation process undertaken in cooperation with, or subject to oversight by, the 

regulator or another body that acts in the public interest?

Yes. The SEC has direct supervisory authority over the PCAOB. The Auditing Standards 

Board includes membership from academia, representatives from the National Association of 

State Boards of Accountancy and private industry.

4. Is there an adequate mechanism in place for enforcing compliance with auditing standards?

Yes. As discussed above in Principle 19, Question .1, the Commission’s framework for 

overseeing auditors is three-pronged with respect to the financial and operational 

compliance of registered intermediaries. First, the Commission requires that all financial 

statements and schedules of its registrants be at least annually certified (opinion expressed) 

by a qualified outside accountant/auditor in accordance with requirements of Commission 

Regulation 1.16. Among other things, these qualified outside accountants must, at a 

minimum, be duly registered, in good standing and be independent. Second, the 

Commission oversees a self-regulatory examination regime, wherein SROs/DSROs are 

responsible for conducting financial and operational audits over their respective members. 

Commission Regulation 1.52 outlines this SRO examination framework, describing the 

function, quality and competency of examiners and evaluation of these examinations. 

Finally, Commission Staff conducts reviews of SROs’ examination programs, whereby

Commission Staff selects a sample of the SRO’s work papers to review. In addition, the 

Commission conducts limited-scope reviews of registrants in “for cause” situations.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

178 INTERNATIONAL MONETARY FUND 

This Principle is not applicable to the CFTC. 

Principle 22 Credit rating agencies should be subject to adequate levels of oversight. 

The regulatory system should ensure that credit rating agencies whose 

ratings are used for regulatory purposes are subject to registration and 

ongoing supervision.

Key Questions

Section 939A(a) of the Dodd-Frank Act directs each Federal agency to review ‘‘any regulation 

issued by such agency that requires the use of an assessment of the credit-worthiness of a 

security or money market instrument [and] any references to or requirements in such regulations 

regarding credit ratings.’’ Second, Section 939A(b) requires that each Federal agency ‘‘modify any 

such regulations identified by the review conducted under subsection (a) to remove any reference 

to or requirement of reliance on credit ratings and to substitute in such regulations such standard 

of credit-worthiness as each respective agency shall determine as appropriate for such 

regulations.’’ The Commission reviewed its regulations and identified instances in which credit 

ratings were referred to or relied upon. The identified regulations could be categorized into two 

groups: (1) those that rely on ratings to limit how Commission registrants may invest or deposit 

customer funds; and (2) those that require disclosing a credit rating to describe an investment’s 

characteristics. The Commission subsequently removed any reference to or requirement of 

reliance on credit ratings in its regulations.

Registration:

1.

(a) Does the jurisdiction have a definition of “credit rating” and/or “credit rating 

agency” or otherwise define a scope of activities for the purpose of imposing 

registration and supervision requirements on entities that engage in the business 

of determining and issuing credit ratings that are used for regulatory purposes?

(b) Are CRAs located in the jurisdiction and whose ratings are used for regulatory 

purposes in the jurisdiction subject to registration (“regulated CRAs”)?

(c) Do the jurisdiction’s registration requirements provide the Regulator with the 

ability to obtain all information it deems necessary from a CRA seeking 

registration in order to determine whether the requirements for registration have 

been fulfilled?

(d) If a CRA’s ratings are used for regulatory purposes but the CRA itself is not located 

in the Regulator’s market and the Regulator does not require registration or 

oversight of the CRA in question, has the Regulator made a reasonable judgment 

to ensure that the CRA is subject to registration and oversight as required by 

Principle 22?
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 179

Ongoing Supervision:

2.

(a) Do the jurisdiction’s requirements provide the Regulator with the ability to obtain 

all information about a regulated CRA that the Regulator deems necessary to 

perform adequate oversight of the regulated CRA?

(b) Are CRAs whose ratings are used for regulatory purposes in the jurisdiction and 

located in the jurisdiction supervised on an ongoing basis, subject to examination 

by the Regulator, and subject to enforcement of the jurisdiction’s requirements?

Registering Authority:

3. Does the Regulator have the power to:

(a) Refuse to register a CRA if the registration requirements have not been met, and 

to withdraw, suspend or condition a registration or authorization in the event of a 

failure of a regulated CRA to meet relevant requirements?

(b) Impose adequate measures and sanctions to address a failure of a regulated CRA 

to meet relevant requirements?

Oversight Requirements: Quality and Integrity

4. Does oversight of regulated CRAs incorporate requirements that address whether:

(a) Regulated CRAs adopt and implement written procedures and methodologies 

designed to ensure that they issue initial credit ratings based on a fair and 

thorough analysis of all information known to the CRA that is relevant to its 

analysis according to the CRA’s published rating methodology, and except for 

credit ratings that clearly indicate they do not entail ongoing surveillance, that the 

regulated CRA updates credit ratings as new information becomes available 

according to the regulated CRA’s published rating methodology for monitoring

credit ratings?

(b) Regulated CRAs maintain internal records to support their credit ratings?

(c) Regulated CRAs have sufficient resources to carry out high-quality credit 

assessments?

Oversight Requirements: Conflicts of Interest

5. Does oversight of regulated CRAs incorporate requirements that address whether:

(a) Regulated CRA credit rating decisions are independent and free from political or 

economic pressures and from conflicts of interest arising due to the regulated 

CRA’s ownership structure, business or financial activities, securities or derivatives 

trading, or the financial interests of the regulated CRA’s employees (including 

securities and derivatives trading by the employees and their compensation 

arrangements)?

(b) Regulated CRAs (1) identify, and (2) eliminate, or manage and disclose, as 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

180 INTERNATIONAL MONETARY FUND 

appropriate, any actual or potential conflicts of interest that may influence the 

opinions and analyses regulated CRAs make or the judgment and analyses of the 

individuals the regulated CRAs employ who have an influence on ratings 

decisions?

(c) Regulated CRAs disclose actual and potential conflicts of interest arising from the 

nature of compensation arrangements for producing credit ratings?

Oversight Requirements: Transparency and Timeliness

6. Does oversight of regulated CRAs incorporate requirements that address whether:

(a) Regulated CRAs distribute their credit ratings in a timely manner?

(b) Regulated CRAs disclose credit ratings on a non-selective basis?

N/A

(c) Regulated CRAs publish sufficient information about their procedures, 

methodologies and assumptions so that outside parties can understand how a 

rating was arrived at by the regulated CRA, and the attributes and limitations of 

such a rating?

(d) Regulated CRAs publish sufficient information about the historical default rates of 

their credit ratings so that interested parties can understand the historical 

performance of their credit ratings?

Oversight Requirements: Confidential Information

7. Does oversight of regulated CRAs incorporate requirements that address whether CRAs 

protect non-public information:

(a) provided by issuers so that such information is only used for the purposes related 

to their rating activities; and

(b) with respect to pending rating actions?
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 181

Principle 23 Other entities that offer investors analytical or evaluative services should 

be subject to oversight and regulation appropriate to the impact their 

activities have on the market or the degree to which the regulatory system 

relies on them.

Key Questions

1. Does the regulator periodically consider whether the different types of entities that 

provide analytical or evaluative services warrant regulation and oversight because of the 

impact of their activities on the market or because of the degree to which the regulatory 

system relies on them?

See responses to Principle 9, Self-Regulatory Organizations.

The Commission’s regulations require that any registrant that uses the services of another 

to comply with a Core Principle must at all times remain responsible for the performance 

of any regulatory services received.

Section 1a(12) of the CEA defines the term CTA as any person who for compensation or 

profit:

 Engages in the business of advising others, either directly or through publications,

writings, or electronic media, as to the value of or the advisability of trading in 

commodity interests; or

 As part of a regular business, issues or promulgates analyses or reports concerning 

the value or advisability of trading in commodity interests.

Pursuant to Section 4m of the CEA, CTAs are required to be registered with the CFTC. The 

CEA provides exemptions for CTAs that do not engage in a significant amount of advising 

with respect to commodity interests. Specifically, CTAs that advise 15 or fewer persons 

during a 12 month period and that do not hold themselves out as a CTA to the public are 

exempt from registration. Additionally, where a CTA is registered with the SEC, and its 

business does not consist primarily of acting as a CTA, and it does not act as a CTA to a 

commodity pool that is engaged primarily in trading commodity interests, that CTA is not 

required to be registered with the CFTC.

2. Where the regulator identifies the need for regulation and oversight, is the regulation and 

oversight put into place appropriate to the risks posed by these types of entities?

Yes. With respect to CTAs, where a CTA is required to be registered, the CTA is subject to 

the CFTC’s compliance regime as set forth in Part 4 of the CFTC’s regulations. CFTC 

Regulation 4.30 prohibits CTAs from holding customer funds as a protection against 

potential fraud or misappropriation. CFTC Regulation 4.31 requires all registered CTAs to 

provide a Disclosure Document to all prospective clients, which must contain the 

information described in CFTC Regulation 4.34 and 4.35, including, but not limited to:

 The past performance of the offered trading program;

 The principal risk factors of investing in the program;

 A complete discussion of each fee assessed by the CTA;

 A complete description of the trading program; and

 A full description of all actual and potential conflicts of interest.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

182 INTERNATIONAL MONETARY FUND 

CFTC Regulation 4.27 also requires all CTAs that are registered or required to be registered 

to file a Form CTA-PR on an annual basis.

3. With respect to sell-side securities analysts:

(a) Does regulation contain provisions directed at eliminating, avoiding, managing or 

disclosing conflicts of interest that can arise from:

(i) Analysts’ trading activities or financial interests?

(ii) The trading activities or financial interests of the entities that employ 

them?

(iii) The business relationships of the entities that employ them?

(iv) The reporting lines for analysts and their compensation arrangements?

Yes. See Answers to Principle 8, Questions 1, 2, and 3.

(b) Does regulation contain provision directed at firm compliance systems and senior 

management responsibility:

(i) Requiring written internal procedures or controls to identify and eliminate, 

manage or disclose actual and potential analyst conflicts of interest?

(ii) Requiring procedures to eliminate or manage the undue influence of 

issuers, institutional investors and other outside parties upon analysts?

(iii) Requiring complete, timely, clear, concise, specific and prominent 

disclosures of actual and potential conflicts of interest?

Yes. See Answers to Principle 8, Questions 1, 2, and 3.

(c) Does regulation contain provisions directed at integrity and ethical behaviour, such 

as requiring analysts and/or the firms that employ analysts to act honestly and 

fairly with clients?

Yes. See Answers to Principle 8, Questions 1, 2, and 3.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 183

PRINCIPLES RELATING TO COLLECTIVE INVESTMENT SCHEMES AND HEDGE FUNDS (24-28)

Principle 24 The regulatory system should set standards for the eligibility, governance, 

organization and operational conduct of those who wish to market or 

operate a collective investment scheme. 

Key Questions 

Eligibility Criteria 

1. Does the regulatory system set standards for the eligibility of those who wish to: 

(a) Market a CIS? 

(b) Operate a CIS?

Yes, to all of the above. The CEA, as amended by the Dodd-Frank Act, defines a CPO in 

Section 1a(11) as any person engaged in a business that is of the nature of a commodity 

pool, investment trust, syndicate, or similar form of enterprise, and who, in connection 

therewith, solicits, accepts, or receives from others, funds, securities, or property, either 

directly or through capital contributions, the sale of stock or other forms of securities, or 

otherwise, for the purpose of trading in commodity interests. Commodity interest is 

defined in CFTC Regulation 1.3(yy) and includes, among other things, futures, options, and 

swap transactions. Section 1a(10) of the CEA and CFTC Regulation 4.10(d) define a 

commodity pool as any investment trust, syndicate, or similar form of enterprise operated 

for the purpose of trading in commodity interests. Under Section 4m of the CEA, all 

individuals and firms, with limited exceptions, that intend to do business as a CPO must 

register with the CFTC. 

In 1984, the CFTC delegated to NFA the registration of CPOs. NFA reviews applications for 

registration to determine, among other things, whether an application is subject to 

statutory disqualification under Sections 8a(2) and (3) of the CEA. NFA performs an 

extensive background check, which includes fingerprinting of natural person principals 

and related Federal Bureau of Investigations clearances, to determine whether a statutory 

disqualification exists. For foreign applicants, NFA may perform additional background 

checks such as checks with foreign regulatory and self-regulatory bodies and Interpol. 

NFA also imposes proficiency testing requirements upon individual applicants. 

The fitness requirements for all market intermediaries are incorporated into the basic 

registration application form, Form 7-R. Form 7-R requires disclosure of the applicant's 

name, address, branch offices, and principals, as well as detailed information about the 

disciplinary and criminal history of the firm. A Form 8-R, which requires similar 

information to the Form 7-R, is required for each natural person principal and AP 

applicant. CFTC Regulation 1.3(aa) defines an AP of a CPO as a partner, employee, 

consultant, agent, or other individual involved with the solicitation of funds, securities, or 

property for participation in a commodity pool, or the supervision of any person or 

persons so engaged. Additionally, applicants for CPO registration who have previously 

operated a CIS under an exemption from registration pursuant to CFTC Regulation 4.13 

must accompany their Form 7-R with financial statements consistent with the applicable 

provisions of Part 4 of the CFTC’s regulations. 

Part 4 of the CFTC’s regulations mandate the filing with NFA, as a delegate of the CFTC, of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

184 INTERNATIONAL MONETARY FUND 

Disclosure Documents for review prior to their use by a CPO in its solicitation of 

participants in the commodity pool. Additionally, the CPO must file with NFA the annual 

financial statements for the pool to determine compliance with the provisions of Part 4 of 

the Commission’s regulations.

2. Do the eligibility criteria for a CIS operator include the following: 

(a) Honesty and integrity of the operator? 

(b) Having appropriate and sufficient human and technical resources to ensure that is 

capable of carrying out the necessary functions of CIS operator? 

(c) Financial capacity of the CIS or the CIS operator that would allow the launching 

and operation of the CIS in appropriate conditions? 

(d) Ability to perform specific powers and duties?

(e) Having or employing an appropriate identification, monitoring and management 

of risks, based on, among other things, the size, the complexity and the risk profile 

of the CIS? 

(f) Having internal controls and compliance arrangements sufficient to ensure it can 

carry out its business diligently, effectively, honestly and fairly?

Yes. The CEA specifies certain factors that would disqualify an applicant from registering 

with the CFTC, including prior proceedings in which the applicant was found to have 

violated the law or in which the applicant was formally enjoined from engaging in certain 

activities. The CFTC has authorized NFA to receive and review registration applications and 

grant or deny registrations, subject to appeal by the applicant to the CFTC and the courts. 

NFA performs an extensive background check to determine whether a disqualification 

exists. Three essential elements of the background check are:

 The Disciplinary Information questions on the application forms, which require the 

applicant to disclose and supply detailed information concerning possible 

disqualifications;

 A check against the Financial Industry Regulatory Authority’s (“FINRA’s”) Central 

Registration Depository database; and 

 The fingerprint cards provided by individuals.

Although Form 7-R is only required of entities applying for registration, Form 8-R, as 

discussed above, is required of each natural person who is a principal of the applicant, as 

well as for individuals seeking AP registration. Persons filing a Form 8-R also must provide 

fingerprints on a card provided by NFA. In addition, Form 8-R requires disclosure of 

information on the employment, residential, educational, disciplinary and criminal history 

of the individual principal or applicant. The CFTC defines "principal" under CFTC 

Regulation 3.1 as a sole proprietor, general partner, director, officer, manager or managing 

member, or person who is in charge of a principal business unit, division or function 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 185

subject to CFTC regulation, or any person occupying a similar position who exercises a 

controlling influence over the regulated activities of the firm. In addition, any holder or 

beneficial owner of 10 percent or more of the outstanding shares of stock in the firm, or 

any person who has contributed 10 percent or more of the firm's capital, is a principal. It 

is through this requirement that the CFTC and NFA can consider the knowledge, resources, 

skills and ethical attitude of senior management, directors and substantial 

owners/shareholders. However, it should be noted that the CFTC uses an objective 

approach to assessing ethical attitude, based, in part, on past conduct that could indicate 

a potential lack of appropriate ethical standards. No subjective inquiry is performed with 

respect to the business model or management capabilities of the applicant for 

registration. With regard to APs, however, each AP applicant must take and pass 

proficiency tests before being able to market commodity interest investments to potential 

customers.

Moreover, all CFTC registrants, including CPOs, are subject to Section 4o(1) of the CEA, 

which prohibits, among other things, engaging in any transaction practice, or course of 

business which operates as a fraud or deceit upon any client or participant, or prospective 

client or participant.

There are no specific requirements in the CEA or CFTC regulations mandating specific 

human and technical resources to register as a CPO. However, as explained below, the 

CFTC and NFA monitor CPOs on an ongoing basis to determine their compliance with a 

myriad of obligations in the Part 4 regulations, e.g., audited financial statements and 

Disclosure Documents, and entities intending to register as CPOs and operate commodity 

pools are implicitly required to have the human and technical resources necessary to meet 

these compliance obligations. Additionally, the CFTC has recently implemented data 

collection on Form CPO-PQR, which requires in-depth reporting of a pool’s positions, 

counterparties, risk metrics, and other operational considerations. Together, these 

requirements necessitate the use of often substantial technical and human resources.

CPOs are not required to comply with any minimum financial requirements.

APs are required to pass certain proficiency tests before soliciting customers for 

participation in a pool operated by a CPO. Principals are not required to have the ability 

to perform any specific powers or duties, aside from those implicit in meeting the 

established compliance obligations of CFTC regulations and NFA rules. Their educational 

and professional backgrounds are required by CFTC Regulation 4.24(f) to be included in 

Disclosure Documents distributed to pool participants.

Pursuant to CFTC Regulation 4.21, CPOs are required to provide potential participants in 

their commodity pools a Disclosure Document prepared in accordance with CFTC 

Regulations 4.24 and 4.25. CFTC Regulation 4.24(g) requires CPOs to include in the 

Disclosure Document a summary of the principal risk factors of the offered commodity 

pool. The principal risk factor discussion must be tailored to the individual commodity 

pool, including risks related to the volatility, leverage, and counterparty creditworthiness, 

as applicable to the types of trading programs to be followed, trading structures to be 

employed, and investment activities expected to be engaged in by the offered commodity 

pool. CFTC Regulation 4.24(g) therefore requires CPOs to be able to identify and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

186 INTERNATIONAL MONETARY FUND 

understand the principal risk factors of their investment schemes, in order to accurately 

and fully disclose said risks to potential commodity pool participants. Additionally, CFTC

Regulation 4.26 provides that if a CPO knows or should know that the Disclosure 

Document is materially inaccurate or incomplete in any respect, including the principal 

risk factors, the CPO must correct that defect and distribute the correction to all existing 

participants, as well as any previously solicited potential participants prior to the CPO 

accepting or receiving their funds, with limited exceptions, within 21 calendar days of the 

date upon which the CPO first knows or has reason to know of the defect. The 

combination of these CFTC regulations requires CPOs to continuously monitor and assess 

the risks of their commodity pools, and to not only make pool participants aware of these 

risks prior to their initial investment, but to ensure that the participants are aware of any 

material changes for as long as they are invested in the commodity pool.

Additionally, all CPOs that are registered or required to be registered are subject to 

compliance with CFTC Regulation 4.27, which requires CPOs, depending upon their assets 

under management, to provide information regarding the relationships and investments 

of their operated pools. CPOs with assets under management in excess of $500 million

are required to provide the following information: pool borrowings, counterparty credit 

exposure, pool strategy, derivatives exposure, and a full schedule of investments. Further, 

CPOs with greater than $1.5 billion in assets under management must provide the 

following information to the CFTC: their operated pools’ geographical exposure, liquidity, 

and risk testing based upon a number of specific scenarios.

The CEA and CFTC regulations form a regulatory system for CPOs that is primarily 

disclosure-based. This requires CPOs to, among other things, evaluate the materiality of 

events and transactions; to include material information in their periodic Account 

Statements, Disclosure Documents, and Annual Reports containing financial statements 

certified by an independent accountant; and to adequately disclose the risks of 

commodity interest investments, the educational and business background of CPOs’ 

principals and senior management staff, and any potential or actual conflicts of interest 

involving the CPO or its staff to potential CIS participants. The CFTC believes its detailed 

compliance obligations require CPOs to establish internal controls and procedures in 

order to maintain and demonstrate compliance with the CEA and CFTC regulations. 

Furthermore, as noted above, NFA assists the CFTC in the oversight of CPOs. NFA also 

requires CPOs to be NFA Members, and therefore, to be subject to and comply with the 

panoply of NFA Member rules, which sometimes require the establishment of policies and 

procedures to address certain issues. One example is NFA Compliance Rule 2-38, which 

requires all NFA Members to establish written business continuity and disaster recovery 

plans – a related interpretive notice requires the plan to be distributed to key personnel 

and to be tested periodically. NFA also has rules that are applicable to all entities required 

to be NFA Members. The combination of the two systems is designed to require CPOs to 

operate their commodity pools diligently, effectively, honestly, and fairly.

3. Does the regulatory system provide for effective mechanisms to assess compliance with 

the criteria referred to in Questions 2(a) to 2(f)?

Yes. As discussed below, NFA conducts regular examinations of CPOs operating 

commodity pools, pursuant to authority delegated to it by the CFTC. NFA also reviews 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 187

Annual Reports from CPOs containing, among other things, independently certified 

financial statements of the pools, and regularly reviews Disclosure Documents drafted by 

CPOs before they can be distributed to potential pool participants. Additionally, Part 21 

of the CFTC’s regulations allows the CFTC to engage in special calls, facilitating CFTC

access to account ownership and commodity interest transaction information in the form 

and manner, and at the time, the CFTC requests it.

4. Does the regulatory system set standards for the CIS governance seeking to ensure that 

CIS are organized and operated in the interests of CIS investors, and not in the interests of 

CIS connected persons? 

Yes. CFTC Regulation 4.20 requires a CPO to operate its pool as an entity cognizable as a 

legal entity separate from the CPO. That regulation also requires that the pool accept 

funds, securities, or other property from its participants in the name of the pool, rather 

than the CPO, and it prohibits the commingling of pool assets with the property of any 

other person. NFA regulations also provide specific prohibitions and limitations on the 

circumstances under which a CPO may enter into transactions with a pool it operates for 

the benefit of the pool. The CFTC regulatory system further ensures that commodity 

pools are operated in the interests of the participants, rather than persons connected to 

the CPO or pool, through a highly detailed disclosure regime. CFTC Regulation 4.24 

requires CPOs to disclose to participants, in addition to the principal risks and 

performance of the investment activity of the commodity pool, a detailed description of 

any fees and expenses expected to be incurred; any actual or potential conflicts between 

the CPO, the trading manager, the commodity trading advisor, or any principals, or any 

other material conflicts; a full description of any material transactions between the CPO 

and any person affiliated with a person providing services to the pool, among other 

significant factors; the extent of any ownership in the pool by the CPO, trading manager, 

major commodity trading advisors, or principals. CFTC Regulation 4.24(w) requires the 

CPO to disclose all material information to prospective and existing pool participants, 

even if the information is not explicitly required by any other CFTC regulation.

5. Does the authorization/registration of CIS take into account the possible need for 

international cooperation in the case of CIS marketed across jurisdictions or where 

promoters, managers or custodians are located in several different jurisdictions? 

Yes. For foreign applicants, NFA may perform additional background checks such as 

checks with foreign regulatory and self-regulatory bodies and Interpol. In certain cases, 

NFA consults with foreign regulatory authorities to assess the fitness of applicants for 

registration whose applications disclose prior employment with a non-U.S. firm, or where 

the U.S. registrant has foreign principals. In addition, as discussed in response to Principle 

14, Question 4, above, the CFTC recently entered into MOUs with 29 European authorities 

related to supervision of CIS and the alternative investment fund industry. Moreover, 

other less specific Cooperative Arrangements could be used in order to cooperate with 

respect to CIS.

Supervision and Ongoing Monitoring 

6. Is the regulator responsible for monitoring ongoing compliance with the standards 

applicable to CIS and CIS operators? In particular, does the regulator have clear 

responsibilities and powers with respect to: 

(a) Registration or authorization of a CIS? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

188 INTERNATIONAL MONETARY FUND 

(b) Inspections to ensure compliance by CIS operators? 

(c) Investigation of suspected breaches? 

(d) Remedial action in the event of breach or default? 

Yes, to all of the above. The CFTC and NFA are responsible for oversight of CPOs. As 

discussed in the response to Principle 24, Question 1, the CFTC has delegated to NFA 

responsibility for registration of CPOs. 

NFA, as an RFA, has oversight responsibility for CPOs and has instituted a program that 

monitors compliance by CPOs with all applicable CFTC regulations and NFA rules. 

Pursuant to Section 17 of the CEA, as a RFA, NFA must:

 Establish training standards and proficiency testing for persons involved in the 

solicitation of transactions, supervisors of such persons and all persons for which 

it has registration responsibilities, and a program to audit and enforce compliance 

with such standards; and

 Establish minimum standards governing sales practices of its members and 

persons associated therewith for transactions subject to provisions of the CEA.

Additionally, when an entity seeks to be registered as a CPO, it must submit a Disclosure 

Document to NFA, as the CFTC’s delegate, for review to determine compliance with CFTC 

regulations as well as NFA rules prior to holding itself out to be a duly registered CPO and 

soliciting participants. CFTC staff regularly reviews NFA’s review of Disclosure Documents 

as part of the CFTC’s oversight of NFA.

NFA also conducts examinations of registered CPOs generally within the first year after 

becoming active and then every 3 to 4 years thereafter to ensure compliance with the 

CFTC’s regulations and NFA’s rules. NFA conducts a risk-based analysis to determine the 

frequency with which it conducts examinations of CPOs. This analysis considers many 

different business factors, as well as information such as customer complaints or concerns 

that arise during NFA's review of a firm's Disclosure Document, financial statement or 

promotional material. 

In the event that a registered CPO fails to comply with its regulatory obligations, NFA’s 

Business Conduct Committee (BCC) is empowered to take action against the entity and 

impose sanctions, including expulsion, suspension, fine, censure, or any other fitting 

penalty, for any violation of its rules. Similarly, the CFTC, through its DOE, may impose 

civil penalties for violations of CFTC regulations ranging from a ban from registration to a 

monetary penalty, as well as seek criminal penalties.

7. Does the ongoing monitoring involve review of reports submitted to the regulator with 

regard to CIS and entities involved in the operation of a CIS (CIS operators, custodians, 

etc.) on a routine basis or on a risk assessment basis? 

Yes. NFA routinely reviews annual financial statements and Disclosure Documents filed by 

registered CPOs, and CFTC staff conducts ongoing oversight of NFA with respect to these 

responsibilities. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 189

8. Does the ongoing monitoring involve where appropriate performance of on-site 

inspections of entities involved in operating CIS (CIS operators, custodians, etc.)? 

Yes. NFA conducts regular on-site inspections of registered CPOs as part of its ongoing 

monitoring of their operations. Additionally, as stated previously, NFA conducts a riskbased analysis to determine the frequency with which it conducts examinations of CPOs. 

This analysis considers many different business factors, as well as information such as 

customer complaints or concerns that arise during NFA's review of a firm's Disclosure 

Document, financial statement or promotional material. NFA generally conducts 

examinations of registered CPOs within the first year after becoming active and then every 

3 to 4 years thereafter. 

9. Do the regulatory authorities proactively perform investigative activities in order to 

identify suspected breaches with respect to entities involved in the operation of a CIS? 

Yes. Although the CFTC retains authority to conduct inspections, NFA has primary 

responsibility for inspections of CPOs, and performs periodic examinations as discussed 

above.

10. Is the operator of a CIS subject to a general and continuing obligation to report to the 

regulatory authority or investors, either prior to or after the event, any information 

relating to material changes in its management or organization or in the by-laws of the 

CIS or the CIS operator?

Yes. CFTC Regulation 4.26 requires each CPO to correct any defect in its Disclosure 

Document that it knows to be materially inaccurate or incomplete in any respect. The 

correction must be made to all existing participants within 21 days of the date upon which 

the CPO first knows or has reason to know of the defect. Any amendments to the

Disclosure Document must be filed electronically with NFA. In addition, CFTC Regulation 

4.22(a) requires that the periodic Account Statement distributed for the pool disclose any 

material business dealings involving the CPO and any other persons providing services to 

the pool if they have not previously been disclosed to the pool’s participants. NFA also 

requires CPOs to provide annual updates regarding their registration information and 

business operations. CPOs relying on registration exemptions or definitional exclusions 

provided under CFTC Regulations 4.13 and 4.5 must annually affirm their reliance on the 

exemption or exclusion through an electronic filing with NFA, or if applicable, notify NFA 

of a material change in their operations, such that the CPO can no longer rely on the 

exemption or exclusion and must apply for registration, within 60 days of the calendar 

year end. Also, with respect to CFTC Regulations 4.13 and 4.5, with each new commodity 

interest position, CPOs continually assess their pools’ compliance with the de minimis

thresholds outlined in those regulations.

11. Does the regulatory system assign clear responsibilities for maintaining records on the 

organization and business of the CIS operator? Does the regulatory system provide for 

the keeping of books and records in relation to transactions involving CIS assets and all 

transactions in CIS shares or units or interests?

Yes. CFTC Regulation 4.23 states that each CPO must make and keep books and records 

relating to the pool as well as to its operation as a CPO in an accurate, current and orderly 

manner in its main business office and in accordance with CFTC Regulation 1.31. 

According to these regulations, records must be made available to the CFTC and DOJ. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

190 INTERNATIONAL MONETARY FUND 

Conflicts of Interest and operational conduct

12. Are there provisions:

(a) To prohibit, restrict or manage (including if appropriate by disclosure) certain 

conduct likely to give rise to conflicts of interest between a CIS and its operators 

or their associates or connected parties? 

Yes. CFTC Regulation 4.24(j) requires a CPO to include in its Disclosure Document a full 

description of any actual or potential conflicts of interest regarding any aspect of the pool 

on the part of the CPO, the trading manager (if any), any major CTA, the CPO of any major 

investee pool, any principal of the foregoing entities, and any other persons providing 

services to the commodity pool. The CPO also must describe any other material conflict 

of interest with respect to the pool. 

(b) To require a CIS operator to seek to minimize potential conflicts of interest and 

ensure that any conflicts that do arise are identified and properly managed by 

taking appropriate actions (including, where appropriate, through disclosure) so 

that the interests of investors are not adversely affected? 

CFTC regulations do not mandate that a CPO take any actions to minimize conflicts of 

interest; rather, CFTC Regulation 4.24(j) requires the disclosure of a full description of any 

actual or potential conflicts of interest regarding any aspect of the pool on the part of the 

CPO, the trading manager (if any), any major CTA, the CPO of any major investee pool, any 

principal of the foregoing entities, and any other persons providing services to the 

commodity pool.

13.

(a) Does the regulatory system require the CIS operator to comply with operational 

conduct standards? 

(b) In particular, is the CIS operator required to act in the best interest of investors 

and in accordance with the principle of fair treatment?

Yes. See responses to Principle 24, Questions 2, 4, 11, and 12. A CPO of commodity pools 

that are organized as limited liability companies or limited partnerships, and who serves

as the managing member or general partner of such pools, may also have specific 

obligations regarding its conduct and a duty to act in the best interests of the pool’s 

participants arising out of the applicable state statutory or common law. 

14. Does the regulatory system address the regulatory issues associated with: 

(a) Best execution? 

(b) Appropriate trading and timely allocation of transactions? 

(c) Churning? 

(d) Related party transactions? 

(e) Underwriting arrangements? 

(f) Due diligence in the selection of investments?
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 191

(g) Fees and expenses, in order to ensure that no unauthorized charges or expenses 

are levied against a CIS or CIS investors and that commission rebates, soft 

commission arrangements and inducements do not conflict with the CIS 

operator’s duty to act in the best interest of investors?

Yes, to all of the above. Within the CFTC’s disclosure-based regime, CPOs are responsible 

for adhering to trading strategies and other information set forth in the Disclosure 

Document and other documents governing the operation of the pool, and are required 

under CFTC Regulation 4.24(h)(2) to disclose any material restrictions or limitations on 

trading. 

With respect to CPOs, CFTC Regulation 4.24(k) requires that, if there are any material 

transactions or arrangements for which there is no publicly disseminated price between 

the pool and any person affiliated with a person providing services to the pool, the CPO 

must disclose a full description of such arrangements, including a discussion of the costs 

associated therewith.

Additionally, CFTC Regulation 1.35(b)(5) specifically governs post-execution allocation of 

bunched orders and provides that specific account identifiers for accounts included in 

bunched orders need not be recorded at the time of order placement or upon report of 

execution if: (1) the person placing and directing the allocation of an order eligible for 

post-execution allocation has been granted written investment discretion with respect to 

the customer account; (2) eligible account managers must make certain information 

available to customers, including the general nature of the allocation methodology to be 

used, whether accounts in which the manager has an interest have been included in the 

bunched order, and a summary of data sufficient to compare one customer’s results with 

another customer’s or the manager’s; (3) the orders eligible for post-execution allocation 

must be allocated by an eligible account manager as soon as practicable after the entire 

transaction is executed or not later than the end of the day on which the order is 

executed, be allocated in a fair and equitable manner, and be in accordance with an 

allocation methodology that is objective and specific to permit independent verification of 

its fairness; and (4) eligible account managers must make available upon request of any 

representative of the CFTC, DOJ, or other appropriate regulatory agency records sufficient 

to demonstrate that all allocations meet the standards articulated in CFTC Regulation 

1.35(b)(5) and to permit reconstruction of the handling of the order from the time of 

placement to the allocation. 

Further, CFTC Regulation 1.46 governs the application and closing out of offsetting and 

short positions by FCMs and provides that where an FCM purchases any commodity for 

future delivery for a customer when the account of such customer at the time of such

purchase has a short position in the same future of the same commodity on the same 

market or sells any commodity for future delivery for a customer when the account of 

such customer at the time of such sale has a long position in the same future of the same 

commodity on the same market, the FCM must apply such purchase or sale against such 

previously held short or long futures position and promptly furnish the customer with a 

statement showing the financial result of the transactions involved. The FCM is required 

to perform the same function with respect to the purchase or sale of puts and calls with 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

192 INTERNATIONAL MONETARY FUND 

respect to options, with the exception of providing a statement to the customer. Under 

CFTC Regulation 1.46(b), where the short or long futures or option position in such 

customer’s or option customer’s account immediately prior to such offsetting purchase or 

sale is greater than the quantity purchased or sold, the FCM must apply such offsetting 

purchase or sale to the oldest portion of the previously held short or long position, absent 

specific instructions from the customer to the contrary. CFTC Regulation 4.24(h)(2) 

requires the CPO to disclose the manner in which the FCMs holding the pool’s accounts 

will treat offsetting positions pursuant to CFTC Regulation 1.46, if the method is other 

than to close out all offsetting positions, or to close out offsetting positions other than on 

a first-in, first-out basis.

While there are no requirements in the CEA or CFTC regulations regarding the CPO’s due 

diligence in the selection of investments for its commodity pool, CFTC Regulation 4.24(h) 

requires CPOs to provide a detailed description of the commodity pool’s investment 

program, including the types of commodity interests and other investments the pool will 

trade, the trading programs of any commodity trading advisors the CPO will employ, and 

the trading programs of funds or commodity pools in which the CPO plans to invest pool 

assets. CFTC Regulation 4.25 also requires detailed past performance statistics and 

information to be included in a CPO’s Disclosure Document.

CFTC Regulation 4.24(i) requires CPOs to include in their Disclosure Documents a 

complete description of each fee, commission and other expense which the CPO knows or 

should know has been incurred by the commodity pool for its preceding fiscal year and is 

expected to be incurred by the pool in its current fiscal year, including fees or other 

expenses incurred in connection with the pool’s participation in investee commodity pools 

and funds. CFTC Regulation 4.22(c) requires the distribution to pool participants of an 

Annual Report, including among other things financial statements of pool investments, 

and CFTC Regulation 4.22(d)(1) requires that such statements be presented and computed 

in accordance with generally accepted accounting principles consistently applied, and that 

the financial statements be audited by an independent public accountant. This serves as 

an independent check on the operations of the commodity pool by the CPO.

Delegation 

15. Does the regulatory system provide for clear indication of circumstances under which 

delegation is allowed and is there prohibition of systematic and complete delegation of 

core functions of the CIS operator to the extent that there is a transformation, gradual or 

otherwise, into an empty box? 

Neither the CEA nor CFTC regulations prohibit a CPO from delegating functions to 

another person or entity. Although the CPO may delegate its functions to another person 

or entity, the CPO remains legally responsible for its obligations under the CEA and CFTC 

regulations despite any delegations to any other parties. Through CFTC staff letters 

allowing for such delegation, the person or entity to whom the CPO delegates its 

functions is required to register with the CFTC as a CPO with regard to the commodity 

pool in question. 

Additionally, CFTC Regulation 4.23 allows CPOs to rely on third-party recordkeepers, who 

may be the commodity pool administrator, distributor, or custodian, or a bank or 

registered broker or dealer acting in a similar capacity with respect to the commodity 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 193

pool. The books and records are maintained by the third-party must be kept in 

accordance with CFTC Regulation 1.31 and the conditions in CFTC Regulation 4.23, and 

made available for inspection by the CFTC, generally within 24 hours of such a request. 

16. If delegation is permitted, is the delegation done in such a way so as not to deprive the 

investor of the means of identifying the company legally responsible for the delegated 

functions? In particular: 

(a) Is the CIS operator responsible for the actions or omissions, as though they were 

its own, of any party, to whom it delegates a function, including compliance with 

the rules of conduct and other operating conditions?

(b) Does the regulatory system require the CIS operator to retain adequate capacity 

and resources and have in place suitable processes to monitor the activity of the 

delegate and evaluate the performance of the delegate? 

(c) Can the CIS operator terminate the delegation and make alternative arrangements 

for the performance of the delegated function where appropriate? 

(d) Are there requirements for disclosure to investors in relation to the delegation 

arrangements and the identity of the delegates? 

(e) Does the regulatory system allow the regulator to take appropriate actions in case 

of delegations which may give rise to a conflict of interest between the delegate 

and the investors? 

As set forth above, CPOs are not prohibited from delegating functions to another person 

or entity. A CPO, however, remains legally responsible for its obligations under the CEA 

and CFTC regulations, as it is held jointly and severally liable with the entity to whom the 

CPO delegates its functions where the delegate is a related party. Furthermore, the entity 

to whom the CPO delegates its functions and responsibilities must be registered with the 

CFTC as a CPO, and its registration status is publicly available through NFA’s website. 

Regulatory oversight is maintained through periodic audits of CPOs by NFA, with 

oversight of reviews of NFA by the CFTC. Generally speaking, delegation by a CPO is 

performed through a contractual arrangement, and the CPO’s ability to terminate that 

arrangement would be dependent upon the terms of the contract between the CPO and 

the person or entity to whom the CPO is delegating its functions. Moreover, the CPO is 

required under CFTC Regulation 4.24 to disclose information about entities and 

individuals who provide services to the commodity pool as well as any conflicts of interest 

that may arise and any related party transactions, i.e., transactions between the CPO or 

commodity pool and any person affiliated with a person or entity providing services to 

the commodity pool.

17. If delegation is permitted, is the delegation done in such a way so as not to jeopardize the 

ability of the regulator to effectively access data related to the delegated functions, either 

directly through the delegate(s) or through the CIS operator?

Yes. Historically, in approving requests for relief allowing CPOs to delegate their functions 

to another CPO, CFTC staff has required that the delegate CPO be registered with the 

CFTC (and thus, also an NFA Member subject to NFA’s membership rules). The delegate 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

194 INTERNATIONAL MONETARY FUND 

CPO, as a CFTC registrant, is subject to all of the compliance obligations discussed above, 

including, but not limited to, the recordkeeping requirements in CFTC Regulations 4.23 

and 1.31, which requires the CPO to maintain books and records in an accurate, current, 

and orderly manner, and to allow the CFTC or DOJ access to the CPO’s books and records 

upon request. Third-party service providers, to the extent they assist the CPO in meeting 

its compliance obligations under the CEA and CFTC regulations, are required to provide 

the CFTC access to the records and information meeting those obligations.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 195

Principle 25 The regulatory system should provide for rules governing the legal form 

and structure of CIS and the segregation and protection of client assets. 

Key Questions 

Legal Form/Investors’ Rights 

1. Does the regulatory system provide for requirements as to the legal form and structure of 

CIS that delineate the interests of participants and their related rights? 

Yes. CFTC Regulation 4.20(a) generally requires that a CPO operate its pool as an entity 

cognizable as a legal entity separate from that of the CPO. The CFTC may exempt a CPO 

from this requirement if it sets up a corporation that: (1) represents in writing that each 

participant will be issued stock or other evidence of ownership in the corporation for all 

property received from participants; (2) demonstrates that it has adequate procedures in 

place to ensure that all property from participants is received in the corporation’s name 

and that no property of the pool is commingled with any other person; and (3) is not 

found by the CFTC to be organized contrary to the public interest. The creation of any 

legal entity does, of necessity, require the preparation of an organizational document, 

which delineates the structure of the entity and the rights and obligations associated with 

holding an ownership interest therein. 

2. Does the regulatory system provide that the legal form and structure of a CIS, as well as 

the implications thereof for the nature of risks associated with the CIS, be disclosed to 

investors in such a way that they are not dependent upon the discretion of the CIS 

operator?

Yes. CFTC Regulation 4.24(d) requires a CPO to disclose the form of organization of the 

pool in the Disclosure Document of the pool that is distributed to prospective 

participants. As a matter of course, the offering of an interest in the pool generally 

involves the provision of the organizational documents for the pool in conjunction with 

the Disclosure Document. Further, pursuant to CFTC Regulation 4.24(g), a CPO is required 

to disclose in the Disclosure Document the principal risk factors relating to participation in 

the pool, including, but not limited to, risks relating to volatility, leverage, liquidity, and 

counterparty creditworthiness with respect to the trading structures employed and 

investment activity expected to be engaged in by the pool.

3. Is there a regulatory authority responsible for ensuring that the form and structure 

requirements are observed? 

Yes. When an entity seeks to be registered as a CPO, it must submit a Disclosure 

Document to NFA, as the CFTC’s delegate, for review to determine compliance with the 

CFTC’s regulations as well as NFA’s rules prior to holding itself out to be a duly registered 

CPO and soliciting participants. CFTC staff regularly reviews NFA’s review of Disclosure 

Documents as part of the CFTC’s oversight of NFA. NFA also conducts periodic 

examinations of CPOs, as discussed above.

4. Does the regulatory system provide that where material changes are made to investor 

rights that do not require prior approval from investors, notice is given to them before the 

changes take effect? 

Yes. CFTC Regulation 4.26(a)(1) requires that all information contained in the Disclosure 

Document must be current as of the date of the document, including information relating 

to rights of participants. CFTC Regulation 4.26 states that a CPO must provide participants 

with notice of changes to the information in the Disclosure Document within 21 days of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

196 INTERNATIONAL MONETARY FUND 

the date on which the CPO knows or has reason to know about such changes. 

Additionally, CFTC Regulation 4.24(w) requires a CPO to disclose all material information 

to existing or prospective pool participants even if the information is not specifically 

required by CFTC regulations.

5. Does the regulatory system provide that where material changes are made to investor 

rights, notice is given to the relevant regulatory authority? 

Yes. CFTC Regulation 4.26 provides that a CPO must file with NFA any amendments to the 

Disclosure Document, including those changes made to the rights of commodity pool 

participants.

6. Does the regulator have powers aimed at ensuring that any restrictions on type or level of 

investment or borrowing are being complied with?

CFTC Regulation 4.24(h)(2) requires a CPO to disclose in the Disclosure Document any 

material restrictions or limitations on trading required by the pool’s organizational 

documents or otherwise. The Disclosure Document is required to be up to date and 

materially correct pursuant to CFTC Regulation 4.26. CFTC Regulation 4.24(w) requires a 

CPO to disclose all material information to existing or prospective pool participants even if 

the information is not specifically required by CFTC regulations. NFA’s rules also generally 

prohibit loans between a commodity pool and a registered CPO and its affiliates. 

In the event that a registered CPO fails to comply with its regulatory obligations, NFA’s 

BCC is empowered to take action against the entity and impose sanctions, including 

expulsion, suspension, fine, censure, or any other fitting penalty, for any violation of its 

rules. Similarly, the CFTC, through its DOE, may impose civil penalties for violations of 

CFTC regulations ranging from a ban from registration to a monetary penalty, as well as 

seek criminal penalties.

Furthermore, Part 165 of CFTC regulations provide a whistleblower program which allows 

for the payment of monetary awards to eligible whistleblowers, and provides antiretaliation protections for whistleblowers that share information with or assist the CFTC.

Separation of Assets/Safekeeping 

7. Does the regulatory system require adequate segregation of CIS assets from the assets of 

the CIS operator and its managers or other entities? 

Yes. CFTC Regulation 4.20(b) states that all funds, securities and property received by a 

CPO must be received in the name of the commodity pool. CFTC Regulation 4.20(c) states 

that no CPO may commingle the property of any commodity pool with the property of 

any other person. NFA’s rules also generally prohibit loans between a commodity pool 

and a registered CPO and its affiliates. 

CFTC Regulation 4.24(h)(1)(iii)(A) requires a CPO to disclose in a Disclosure Document the 

identity of the custodian or other entity (e.g., bank or broker-dealer) which will hold the 

pool’s assets. CFTC Regulation 4.24(h)(4)(i) requires a CPO to disclose in a Disclosure 

Document the manner in which the pool’s assets will be held in segregation.

8. Does the regulatory system provide for requirements governing the safekeeping of CIS 

assets such as: 

(a) the obligation to entrust the assets to custodians and/or depositaries that are in 

appropriate circumstances independent; or 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 197

(b) special legal or regulatory safeguards in cases where the functions of custodian 

and/or depositary are performed by the same legal entity responsible for 

investment functions (or related entities); or

(c) adequate protection of client assets from losses or insolvency of the CIS operator 

and the obligation that, where third party custodians are used, client assets are 

identified as such to any such custodian and equivalent protection is afforded to 

the client assets, including when the custodian has entrusted all or some of the 

assets in its safekeeping to a the third party?

Yes, to all of the above. CFTC Regulation 4.24(h)(1)(iii)(A) requires a CPO to disclose in a 

Disclosure Document the identity of the custodian or other entity (i.e., bank or brokerdealer) which will hold the pool’s assets. CFTC Regulation 4.24(h)(4)(i) requires a CPO to 

disclose in a Disclosure Document the manner in which the pool’s assets will be held in 

segregation. CFTC Regulation 4.20(a) generally requires a CPO to operate its pool as an 

entity cognizable as a legal entity separate from that of the CPO. CFTC Regulation 4.20(b) 

states that all funds, securities and property received by a CPO must be received in the 

name of the commodity pool. CFTC Regulation 4.20(c) states that no CPO may 

commingle the property of any commodity pool with the property of any other person. 

NFA’s rules generally prohibit loans between a commodity pool and a registered CPO and 

its affiliates. 

9. Does the regulatory system adequately provide for an orderly winding up of CIS business, 

if needed? 

Yes. CFTC Regulation 4.22(c) requires the filing of a final Annual Report containing 

financial statements within 90 days of the pool’s permanent cessation of trading or the 

return of funds to participants. If necessary, Section 6c of the CEA provides the CFTC with 

the ability to obtain court orders to freeze pool and/or CPO assets and have receivers 

appointed to operate the commodity pool for the benefit of participants.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

198 INTERNATIONAL MONETARY FUND 

Principle 26 Regulation should require disclosure, as set forth under the principles for 

issuers, which is necessary to evaluate the suitability of a CIS for a 

particular investor and the value of the investor’s interest in the CIS. 

Key Questions

1. Does the regulatory system require that all matters material to the valuation of a CIS are 

disclosed to investors and potential investors on a timely basis? 

Yes. The CFTC regime for oversight of commodity pools and CPOs is disclosure-based. 

CFTC regulations require that a CPO provide a detailed Disclosure Document to 

prospective pool participants before accepting their subscriptions for interests in a 

commodity pool. This Disclosure Document includes: the name, address, phone number, 

and form of organization of the commodity pool and the CPO; whether the commodity 

pool is privately offered, continuously offered, traded by multiple advisors, or has a 

principal-protection feature; the date when the Disclosure Document may be used; and 

the break-even point per unit of initial investment. The document must also disclose the 

business background of the operator and advisors of the pool as well as their respective 

principals; all fees and expenses of the pool; conflicts of interest relating to the operation 

of the pool; relevant material actions against persons managing, trading, or maintaining 

accounts for the pool; risks of futures trading and specific risks of the pool; information on 

the pool’s investment program and use of proceeds; and provisions relating to 

redemption. In addition, performance information must be in a prescribed capsule 

format, the performance of the offered pool must be presented prior to any other 

performance disclosures, and any information that is not specifically required to be 

disclosed generally must appear after required information.

Additionally, the CPO must provide an Account Statement to each participant at least 

monthly, which contains, among other things, the realized and unrealized gains and losses 

for the pool, all management and advisory fees and brokerage commissions paid by the 

pool, and the net asset value of the pool. 

The CPO must further provide to each participant an Annual Report, which must contain 

all of the items of the monthly report, plus additional financial disclosures by way of a 

Statement of Financial Condition of the pool for both the current and preceding fiscal 

year. 

2. Does the regulatory system require that the information referred to in Question 1 above 

be disclosed to investors and potential investors in an easy to understand format and 

language having regard to the type of investor? 

Yes. NFA rules require that the Disclosure Document be written using plain English 

principles, including: 

 Avoiding legal jargon;

 Using short sentences and paragraphs;

 Using words that are definite and part of everyday language;

 Using glossaries to define technical terms that cannot be avoided; and
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 199

 Using table and bullet lists, where appropriate.

3. Does the regulatory system require the use of standard formats for disclosure of offering 

documents and periodic reports to investors?

Yes. As mentioned in the answer to question 1 above, the CFTC’s regulations are 

prescriptive with respect to the content and timing of the delivery of statements to pool 

participants. This standardization can also be seen with respect to the mandatory 

cautionary language that is required to be contained in the Disclosure Documents 

provided to prospective participants, as well as both the contents and construction of 

performance data contained therein. 

4. Does the regulatory system include a general disclosure obligation to allow investors, and 

potential investors, to evaluate the suitability of the CIS for that investor or potential 

investor? 

Yes. As discussed in the response to Question 1, the CFTC’s disclosure-based regime 

requires that a CPO provide a Disclosure Document to prospective participants in each 

pool that it offers, and to inform existing participants with respect to material changes 

regarding the operation of the pool. The Disclosure Document includes information, such 

as the minimum subscription amount required to participate, the risks of the investments 

to be undertaken, and the costs associated with the investment, that would allow the 

investor or potential investor to evaluate the suitability of the investment.

5. Does the regulatory system specifically require that the offering documents, or other 

publicly available information, include the following: 

(a) The date of issuance of the offering document? 

(b) Information concerning the legal constitution of the CIS? 

(c) The rights of investors in the CIS? 

(d) Information on the operator and its principals? 

(e) Information on the methodology of asset valuation? 

(f) Procedures for purchase, redemption and pricing of units/shares? 

(g) Relevant, audited financial information concerning the CIS? 

(h) Information on the custodial arrangements (if any)? 

(i) The investment policy(ies) of the CIS? 

(j) Information on the risks involved in achieving the investment objectives? 

(k) The appointment of any external administrator or investment managers or 

advisers who have a significant and independent role in relation to the CIS 

(including delegates)? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

200 INTERNATIONAL MONETARY FUND 

(l) Fees and charges in relation to the CIS, in a way that enables investors to 

understand their nature, structure and impact on the CIS’ performance? 

Yes, to all of the above. In response to questions (a)-(l), the Disclosure Document must 

include: 

 The date on which the CPO first intends to use the Disclosure Document;

 The form of organization of the pool;

 Whether or not a participant’s liability is limited and restrictions on the 

transferability of a participant’s interest; 

 Identity, business background, and past performance of the CPO, CTAs, and their 

principals;

 The net asset value included in the pool’s past performance and financial reports 

is required to be calculated in accordance with generally accepted accounting 

principles (U.S GAAP); 

 The minimum and maximum subscriptions that may be contributed to the pool, 

where funds will be held prior to trading, the value at which a participant’s interest 

may be redeemed, conditions or restrictions on redemption, any fees associated 

with redemption, and liquidity risks relative to the pool’s redemption capabilities;

 The most recent Account Statement and audited Annual Report for the pool must 

be attached to the Disclosure Document;

 The custodian that will hold the pool’s assets;

 A description of the trading and investment programs and policies that will be 

followed by the pool, including an explanation of how the pool’s advisors, investee 

funds, and types of investments are selected; 

 The general risks of investing in a commodity pool, including the financial risks 

presented by futures contracts, options on futures contracts, and swaps, and the 

fact that the commodity pool may be subject to substantial charges for 

management, advisory, and brokerage fees which will require the pool to make 

substantial trading profit in order to cover the fees; also, the particular risks of the 

pool, including risks related to volatility, leverage, liquidity, and counterparty 

creditworthiness, as applicable to the types of trading and investing strategies 

expected to be employed;

 Information on external administrators or any other person providing services to 

the pool, such as disclosure of fees paid by the pool or potential conflicts of 

interest relating to such arrangements; and

 A complete description of each fee and expense incurred or expected to be 

incurred by the pool, and the “break-even'' point where profits exceed fees and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 201

expenses.

6. Does the regulatory authority have the power to hold back, or intervene, with regard to 

offering documents? For example, are there regulatory actions available in the event that 

the information is inaccurate, misleading or false, or does not satisfy the filing/approval 

requirements? 

Yes. Pursuant to authority delegated from the CFTC, NFA is responsible for reviewing all 

Disclosure Documents. Prior to using a Disclosure Document, a CPO must submit the 

Disclosure Document to NFA and receive an acceptance letter confirming that the 

Disclosure Document can be used to solicit. If the Disclosure Document does not meet 

regulatory requirements, NFA will provide notice of deficiencies and state that the 

Disclosure Document may not be used until all issues are addressed. All Disclosure 

Documents are filed through the NFA’s Electronic Disclosure Document Filing System.

7. Does the regulatory system cover advertising material outside of the offering documents? 

In particular, does it prohibit inaccurate, false or misleading advertising? Are there 

regulatory actions available to the regulator with regard to advertising material outside of 

the offering document?

Yes. Pursuant to CFTC Regulation 4.41, no CPO may advertise in a manner which:

 Employs any device, scheme or artifice to defraud any participant or prospective 

participant;

 Involves any transaction, practice or course of business which operates as a fraud 

or deceit on any participant or prospective participant; and

 Refers to any testimonial unless the advertisement or sales literature providing the 

testimonial prominently discloses that the testimonial may not be representative 

of all participants, the testimonial is no guarantee of future performance, and, if 

applicable, a non-nominal sum was paid for the testimonial.

In addition, CPOs are subject to NFA rules that prohibit any false or misleading 

communications with the public, and also provide specific guidance regarding the content 

and use of promotional material.

8. Does the regulatory system require that the offering documents be kept up to date to 

take account of any material changes affecting the CIS? 

Yes. CFTC Regulation 4.26 requires that all information contained in a Disclosure 

Document must be current as of the date of the document, provided, however, that 

performance information may be current as of a date not more than three months prior 

to the date of the document. No CPO may use a Disclosure Document dated more than 

twelve months prior to the date of its use. If a CPO knows or should know that the 

Disclosure Document is materially inaccurate or incomplete, with limited exceptions, it 

must correct that defect and distribute the correction within 21 calendar days.

9. Does the regulatory system require a report to be prepared in respect of a CIS’s activities 

either on an annual, semi-annual or other periodic basis? 

Yes. CFTC regulations require both periodic and Annual Reports. CFTC Regulation 4.22(a) 

requires each CPO to distribute a periodic report (either monthly for pools with assets 

greater than $500,000, otherwise quarterly) within 30 calendar days of the end of each 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

202 INTERNATIONAL MONETARY FUND 

reporting period. The periodic report must contain a statement of operations and a 

statement of changes in net assets. Regulation 4.22(c) requires each CPO to distribute an 

Annual Report to each participant within 90 calendar days after the end of the pool’s fiscal 

year. The Annual Report, which also must be filed with NFA, must contain certain 

information, including, but not limited to: the pool’s Net Asset Value and Statements of 

Financial Condition, Operations, and Changes in Net Assets.

10. Does the regulatory system require the timely distribution of periodic reports? 

Yes. As described in the response to Question 9, CFTC Regulation 4.22(a) requires each 

CPO to distribute an Account Statement to each pool participant in each pool that it 

operates within 30 calendar days after the last date of the reporting period.

11. Does the regulatory system require that the accounts of a CIS be prepared in accordance 

with high quality, internationally acceptable accounting standards? 

Yes. CFTC Regulation 4.22 requires that the financial statements in the periodic and 

Annual Reports must be presented and computed in accordance with generally accepted 

accounting principles consistently applied. In addition, the pool’s Annual Report must be 

certified by an independent public accountant.

12. Does the regulator have powers to ensure that the stated investment policy or trading 

strategy, the authorized investments that the CIS is able to undertake or any policy 

required by regulation, is being followed? 

Yes. All offering materials and Account Statements provided by a CPO to its participants 

must also be filed with NFA pursuant to CFTC regulations. NFA reviews these documents, 

and conducts periodic on-site examinations of the CPO as a means of monitoring and 

assuring compliance with CFTC regulations. Examinations are performed regularly, as well 

as more frequently in response to potential risks posed to the participants in a pool. 

Document review by NFA that gives rise to a concern regarding the trading or soundness 

of the pool may trigger an examination. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 203

Principle 27 Regulation should ensure that there is a proper and disclosed basis for 

asset valuation and the pricing and the redemption of units/shares in a 

CIS. 

Key Questions 

Asset Valuation 

1. Are there specific regulatory requirements in respect of the valuation of CIS assets? 

Yes. CFTC Regulations 4.10(b), 4.22, and 4.25 specifically require the use of generally 

accepted accounting principles in calculating the net asset value of a pool.

2. Are there regulatory requirements that the NAV of CIS be calculated: 

(a) On a regular basis? 

(b) In accordance with high-quality, accepted accounting standards used on a 

consistent basis? 

Yes, to all of the above. CFTC Regulation 4.22 requires that valuations are to be reported 

in the Statement of Changes in Net Assets included in the periodic and Annual Reports of 

the pool. As noted above, net asset value is required to be computed in accordance with 

generally accepted accounting principles consistently applied.

3. Are there specific regulatory requirements in respect of the fair valuation of assets where 

market prices are not available? 

Yes. Because CFTC regulations require the use of generally accepted accounting principles 

in calculating pool valuations, CPOs are subject to FAS 157, Fair Value Measurements, 

issued by FASB. This statement defines fair value for commodity pools, establishes a 

framework for measuring fair value under generally accepted accounting principles, and 

expands disclosure about fair value measurements.

4. Are independent auditors required to check the valuations of CIS assets?

Yes. Annual financial reports of commodity pools are required to be audited by an 

independent public accountant.

Pricing and Redemption Issues 

5. Does the regulatory system:

(a) Require the basis upon which investors may redeem units/shares to be made clear 

in the constituent documents and/or the prospectus? 

(b) Provide for specific regulatory requirements in respect of the pricing upon 

redemption or subscription of units/shares in a CIS? 

Yes. CFTC Regulation 4.24(p) requires a CPO to provide in its Disclosure Document a 

complete description of any restrictions upon the transferability of a participant’s interest 

in the pool, and a complete description of the frequency, timing, and manner in which a 

participant may redeem interests in the pool. Specifically, the description regarding 

redemption must specify how the redemption value of a participant’s interest will be 

calculated, the conditions under which redemption will be made (including time between 

request for redemption and payment) and any restrictions on redemptions.

6. Does regulation ensure that the valuations made are fair and reliable? 

Yes. See responses to Principle 27, Questions 1-4.

7. Does regulation require the price of the CIS be disclosed or published on a regular basis 

to investors or prospective investors? 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

204 INTERNATIONAL MONETARY FUND 

Yes. CFTC Regulation 4.22 requires CPOs to distribute Account Statements to participants 

on at least a quarterly basis (and monthly if the pool has at least $500,000 in assets). 

These reports include all material information relevant to the net asset value per 

participation of the pool. Similar information must be included in the Disclosure 

Document provided to any prospective participant.

8. Are there regulatory requirements, rules of practice, and/or rules addressing pricing 

errors? Are the relevant regulatory authorities able to enforce these rules? 

Yes. See responses to Principle 25, Question 6, and Principle 27, Questions 2, 4, and 7.

9. Does the regulatory system address the general or specific circumstances which there 

may be suspension or deferral of routine valuation and pricing or of regular redemption? 

Yes. See response to Principle 27, Question 5.

10. Does the regulator have the power to ensure compliance with the rules applicable to 

asset valuation and pricing? 

Yes. See response to Principle 25, Question 6. Section 4n of the CEA states that each CPO 

must regularly furnish statements of account to each participant. Such statements must 

include all the information contained in the relevant CFTC regulations. Violations of the 

CEA and CFTC regulations subject a person to a wide variety of sanctions, including, but 

not limited to, suspension or revocation of registration, monetary penalties, and 

restitution.

The CFTC also takes a proactive approach to ensuring compliance by CPOs with respect to 

pool operations. For example, DSIO has regularly issued a CPO guidance letter to assist 

CPOs and their public accountants with the preparation and filing of Annual Reports. 

Each CPO guidance letter highlights regulatory and accounting changes affecting CPOs 

with respect to financial filing and provides reminders of requirements in response to 

common deficiencies observed in prior years’ Annual Reports. CPO guidance letters are 

available on the CFTC’s Web site at:

http://www.cftc.gov/industryoversight/intermediaries/guidancecporeports.html.

11. Does the regulatory system require that the regulator: 

(a) Be kept informed of any suspension or deferral of redemption rights? 

(b) Have the authority to address situations where the CIS operator is failing to 

honour redemptions or is imposing a suspension of redemptions in a manner that 

is not consistent with the CIS constitutive documents and prospectus, or the 

contractual relationship between the CIS participants and the CIS operator, or is 

otherwise deemed to be in violation with national law? 

Yes, to all of the above. CFTC Regulation 4.26 requires a CPO to provide NFA with a copy 

of any amendments to its Disclosure Document, including notice of any suspension or 

deferral of redemption rights. The CFTC and NFA have the power to take action where a 

CPO has violated either CFTC or NFA rules with respect to valuation and redemption.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 205

Principle 28 Regulation should ensure that hedge funds and/or hedge funds 

managers/advisers are subject to appropriate oversight.

Key Questions

Registration/authorization of hedge fund managers/advisers and/or, where relevant, the hedge fund

1. Does the regulatory system set standards for:

(a) The registration/authorization and the regulation of those who wish to operate 

hedge funds (managers/advisers)? 

(b) And/or the registration of the fund? 

There is no definition of the term “hedge fund” in either the CEA or CFTC regulations. 

IOSCO has previously defined the term “hedge fund” to be any investment vehicle 

exhibiting a combination of some of the following characteristics: (1) borrowing and 

leverage restrictions are not applicable and the fund may use high levels of leverage; (2) 

significant performance fees (often in the form of a percentage of profits) are paid to the 

manager in addition to an annual management fee; (3) investors are typically permitted to 

redeem their interests periodically; (4) often there is significant investment by the 

manager of the fund; (5) derivatives are used, often for speculative purposes, and there is 

an ability to short sell securities; and (6) more diverse risks or complex underlying 

products are involved. See Hedge Funds Oversight – Final Report, Report of the Technical 

Committee of IOSCO, June 2009, pp. 4-5. To the extent that a “hedge fund” meets the 

definition of commodity pool in the CEA and CFTC regulations, and absent an applicable 

exclusion or exemption, the CPO for that pool is required to be registered with the CFTC. 

Commodity pools are not themselves registered with the CFTC.

2. Does the regulatory system specify the information contemplated by Key Issue 2 that 

must be provided to the regulator at the time of the registration/authorization?

Yes. See responses to Principle 24, Questions 1 and 2.

Standards for internal organization and operational conduct

3. Does the regulatory system set (in view of the risk posed) standards for internal 

organization and operational conduct to be observed on an on-going basis by the hedge 

fund manager/adviser, including appropriate risk management and protection and 

segregation of client money and assets?

Yes. See responses to Principle 24, Question 2, and Principle 25, Question 7.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

206 INTERNATIONAL MONETARY FUND 

Conflicts of interests and other conduct of business rules

4. Does the regulatory system set standards for hedge fund managers/advisers to 

appropriately manage conflicts of interest, and provide full disclosure and transparency to 

the regulator and investors (including potential investors) about such conflicts and how 

they manage them?

Yes. See response to Principle 24, Question 12.

Disclosure to the regulator and to investors

5. Is the regulator able to obtain from hedge fund managers/advisers appropriate 

information about their operations and about the funds that they manage that allow it to 

assess the risks that hedge funds pose to systemic stability? 

Yes. CFTC Regulation 4.24 requires CPOs to prepare and file with NFA a Disclosure 

Document which describes in detail the investment strategy, costs, and risks associated 

with investment in the operated commodity pool. The CFTC oversees NFA’s review of the 

filed Disclosure Documents through periodic review. 

CFTC Regulation 4.27 requires all CPO that are registered or required to be registered to 

file a Form CPO-PQR on a periodic basis depending upon their assets under management 

with detailed information regarding the investments held by their operated commodity 

pools, their relationships with service providers, and stress testing. Specifically, all CPOs 

with assets under management in the amount of $500 million or greater are required to 

provide the CFTC with the following information: pool borrowings, counterparty credit 

exposure, fund strategy, derivatives exposure, and a full schedule of investments. Further, 

all CPOs with assets under management greater than $1.5 billion must also provide the 

following information to the CFTC: their operated pools’ geographical exposure, liquidity, 

and risk testing based upon several specific scenarios.

6. Does the regulatory system, in view of the risk posed, set standards for the proper 

disclosure by hedge fund managers/advisers or the fund to investors?

Yes. See responses to Principle 25, Questions 2, 6, and 8; Principle 26, Questions 4 and 5;

and Principle 28, Question 5.

Prudential regulation

7. Are hedge fund managers/advisers, which are required to register, subject to appropriate 

ongoing prudential requirements that reflect the risks they pose?

Under the CEA, the CFTC does not have the authority to act as a prudential regulator of 

hedge funds. 

Supervision and enforcement

8.

(a) Does the regulatory system provide for on-going supervision of the hedge fund 

managers/advisers which are required to register? 

(b) Does the regulator have the power to access and inspect the hedge fund 

managers/advisers and their records and/or the hedge funds?

(c) Does the regulator have the authority to enforce against wrongdoers?

Yes. See responses to Principle 24, Questions 6, 7, 8, 9, 10, and 11; and Principle 25, 

Question 6.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 207

9. Subject to appropriate confidentiality safeguards and national law restrictions, from the 

point of view of supervision and enforcement, does the regulator have the power to: 

(a) Collect where necessary relevant information from hedge fund managers/advisers 

and/or hedge funds (and through cooperation with other domestic regulators 

from hedge fund counterparties) also on behalf of a foreign Regulator? 

(b) Exchange information on a timely and on-going basis, as deemed appropriate, 

with other relevant regulators on internationally active funds that may pose 

systemic or other significant risks? 

As discussed in response to Principle 13, Question 3, the CFTC may share information with 

a Foreign Regulator or Authority acting within the scope of its jurisdiction, provided that 

the requirements in Section 8(e) of the CEA are satisfied, and may provide investigative 

assistance to a foreign regulatory authority pursuant to Section 12(f)(1) of the CEA, 

including collecting and sharing information. See also the discussion in response to 

Principle 15, Question 1. As discussed in response to Principle 14, Questions 2 and 4, 

above, the CFTC has entered into many Cooperative Arrangements to facilitate 

cooperation and the exchange of information with Foreign Regulators and Authorities. In 

particular, the CFTC recently entered into MOUs with 29 European authorities related to 

supervision of CIS and the alternative investment fund industry.

10. Is the securities’ regulator able to obtain from the hedge fund operator/adviser - if 

necessary working with other regulators - non-public reporting of information on the 

hedge funds’ exposure to counterparties, (which may include prime brokers, banks or OTC 

derivative counterparties)? 

Yes. CFTC Regulation 4.27 requires all CPOs that are registered or required to be 

registered to file a Form CPO-PQR on a periodic basis depending upon the assets under 

management by the CPO. This form includes information regarding the CPO’s brokers, 

counterparties, custodians, and other service providers. CPOs that are also registered 

with the SEC as investment advisers to private funds provide substantively identical 

information on Form PF, which is filed with FINRA and made available to the CFTC.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

208 INTERNATIONAL MONETARY FUND 

PRINCIPLES RELATING TO MARKET INTERMEDIARIES (29-32)

Principle 29 Regulation should provide for minimum entry standards for market 

intermediaries.

Key Questions

Authorization

1. Does the jurisdiction require that, as a condition of operating a securities business, the 

market intermediaries (as defined above) are licensed?

Yes. Section 8a of the CEA requires individuals and firms that intend to do business in the 

markets regulated by the Commission (“intermediaries”), with certain exceptions, to be 

“licensed” with the CFTC, which is implemented through registration requirements. The 

primary purposes of registration are to screen an applicant's fitness to engage in business 

as an intermediary and to identify those individuals and organizations whose activities are 

subject to federal regulation. In addition, all individuals and firms that wish to act as 

market intermediaries must apply for NFA membership or associate status. 

The CFTC divides market intermediaries into distinct categories according to the types of 

commodity transaction intermediated and the intermediary’s function, and each of these 

categories is generally subject to registration requirements as a condition to operating as 

an intermediary. Registration is performed for the CFTC by NFA pursuant to authority 

delegated by the CFTC to NFA. Registration categories include SDs, MSPs, FCMs, CPOs, 

CTAs, IBs, and RFEDs. Individuals performing certain functions and principals of the 

foregoing must also be individually registered or listed. There are exemptions from 

registration for certain categories and registration for one category is not transferable to 

another.

With respect to swap transactions, Sections 4s(a) and 4s(b) of the CEA prohibit any person 

from acting as an SD or MSP unless such person is registered with the CFTC, and prohibits 

an SD or MSP from permitting any person associated with it to effect or be involved in 

effecting swaps on its behalf if such person is subject to a statutory disqualification. CFTC 

regulations provide a limited exception to this prohibition for any person associated with 

an SD or MSP who has been duly listed as a principal122 or registered as an AP123 of 

another registrant (e.g., an FCM, CPO or CTA). 

Section 4s of the CEA requires SDs and MSPs to meet specific requirements with regard 

to, among other things, capital and margin, reporting and recordkeeping, daily trading 

records, business conduct standards, documentation standards, trading duties, 

 

122 A “principal” is defined by CFTC Regulation 3.1(a) as a sole proprietor, general partner, director, officer, manager 

or managing member, or person who is in charge of a principal business unit, division or function subject to CFTC 

regulation, or any person occupying a similar position who exercises a controlling influence over the regulated 

activities of the firm. In addition, any holder or beneficial owner of 10 percent or more of the outstanding shares of 

stock in the firm, or any person who has contributed 10 percent or more of the firm’s capital, is a principal.

123 An AP is an individual who solicits orders, customers, or customer funds (or who supervises persons so engaged) 

on behalf of an FCM, RFED, IB, CTA, or CPO.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 209

designation of a chief compliance officer, and with respect to uncleared swaps, 

segregation of customer funds (the “Section 4s Requirements”).124

Persons who apply for registration as an SD or MSP must file a Form 7-R, and a Form 8-R 

and a fingerprint card for each principal of the applicant who is a natural person, 

accompanied by such documentation as may be required to demonstrate compliance with 

applicable Section 4s requirements and CFTC requirements. For an FCM, RFED, IB, CPO, or 

CTA, registration also requires the submission of a Form 7-R, which requires:

 Disclosure of business information, including information concerning any holding 

company and/or branch offices;

 Disclosure of criminal or regulatory actions, as well as financial information; and

 Nomination of contact persons for membership, accounting arbitration, 

compliance and enforcement issues.

Additionally, FCMs, RFEDs and IBs may be required to submit for approval their 

procedures and/or materials concerning some or all of the following: (a) anti-money 

laundering; (b) business continuity; (c) electronic order routing systems (for FCMs) or 

automated order routing systems (for IBs); (d) promotional materials; (e) supervision of 

APs; (f) handling of customer complaints; and (g) margins and/or segregation procedures 

(for FCMs). FCMs, RFEDs and IBs may also be required to provide copies of their Source of 

Assets letters and any subordinated loan agreements.

Principals or APs of an FCM,RFED, IB, CPO or CTA, and floor traders and floor brokers, 

must submit a Form 8-R, which requires:

 Criminal, civil, regulatory, financial, professional, educational and residential 

background disclosures;

 Evidence of the satisfaction of proficiency examination requirements; and

 Completion of a fingerprint card (to be used by the FBI in conducting a 

background check on the applicant).

As is discussed in further detail below, in addition to the CFTC’s registration requirement, 

certain categories of market intermediaries are subject to minimum capital requirements 

as a condition to operating as a market intermediary.

2. Are there minimum standards or criteria that all applicants for licensing must meet before 

a licence is granted (or denied) and that are clear and publicly available which:

(a) Are fair and equitable for similarly situated intermediaries?

Yes. The CFTC’s and NFA’s registration requirements are applied fairly and equitably to all 

similarly situated intermediaries. 

 

124 Segregation of customer funds for cleared swaps is governed by CEA Section 4d(f)(2).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

210 INTERNATIONAL MONETARY FUND 

As explained in the answer to Question 1 of this Principle, the CFTC and NFA both impose 

minimum standards and criteria that all applicants for registration must meet as a 

condition to becoming registered as an intermediary. The minimum standards concerning 

registration of intermediaries are published on the CFTC and NFA websites. The CFTC’s 

rules concerning registration are set forth in Parts 3 and 23 of its regulations. NFA’s

requirements and procedures for registration are set forth in Part 200 of its Manual/Rules.

(b) Are consistently applied?

Yes. The CFTC’s and NFA’s minimum standards and criteria for registration of market

intermediaries are consistently applied. As explained in the answer to Question 1 of this 

Principle, all similarly situated entities of the same category of registrant (i.e., all similarly 

situated FCMs, all similarly situated IBs, etc.) are subject to identical registration 

requirements.

(c) Include an initial capital requirement, as applicable?

Yes. CEA Section 4s(e) requires the adoption of rules establishing capital and margin 

requirements for SDs and MSPs, and applies a bifurcated approach that requires each SD 

and MSP for which there is a prudential regulator125 to meet the capital and margin 

requirements established by the applicable prudential regulator, and each SD and MSP for 

which there is no prudential regulator to comply with the CFTC’s capital and margin 

regulations. The CFTC published proposed margin and capital requirements for SDs and 

MSPs in 2011,

126 and recently voted out a revised margin proposal in close coordination 

with the SEC and prudential regulators in light of the Basel Committee on Banking 

Supervision-International Organization of Securities Commissions September 2013 

“Margin Requirements for Non-Centrally Cleared Derivatives.” 

CFTC Regulation 1.17 prescribes the minimum levels of adjusted net capital that FCM and 

IBs must possess. CFTC Regulation 5.7 prescribes the minimum level of adjusted net 

capital for RFEDs.

(d) Include a comprehensive assessment of the applicant and all those in a position to 

control or materially influence the applicant that addresses a demonstration of 

appropriate knowledge, business conduct, resources, skills, ethical attitude 

(including a consideration of past conduct)?

Yes. As explained in the response to Question 1 of this Principle, NFA’s registration 

process does include an examination of an applicant’s past conduct and satisfaction of 

proficiency requirements. NFA requires the submission of a Form 8-R by any individual 

 

125 The term “prudential regulator” is defined in Section 1a(39) of the CEA to include the Federal Reserve; the OCC; 

the FDIC; the Farm Credit Administration; and the FHFA. The definition also specifies the entities for which these 

agencies act as prudential regulators, and these consist generally of federally insured deposit institutions; farm credit 

banks; federal home loan banks; the Federal Home Loan Mortgage Corporation; and the Federal National Mortgage 

Association. In the case of the Federal Reserve, it is the prudential regulator not only for certain banks, but also for 

bank holding companies and any foreign banks treated as bank holding companies. The Federal Reserve Board also 

is the prudential regulator for subsidiaries of these bank holding companies and foreign banks, but excluding their 

nonbank subsidiaries that are required to be registered with the CFTC as SDs or MSPs. 

126 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 76 FR 23732 (Apr. 28, 

2011); Capital Requirements for Swap Dealers and Major Swap Participants, 76 FR 27802 (May 12, 2011).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 211

serving as a principal or an AP of the applicant. It is through this requirement that the 

CFTC and NFA can consider the knowledge, resources, business conduct, skills and ethical 

attitude of senior management, directors and substantial owners/shareholders.

As previously discussed, Form 8-R examines an individual’s background as concerns any 

criminal, civil or regulatory issues, any financial issues, professional work experience, and 

education. Additionally, Form 8-R requires evidence of the satisfaction of any necessary 

proficiency examination requirements. The individual applicant also is required to 

complete a fingerprint card, which is used by the FBI in conducting a background check 

on the applicant.

It should be noted that the CFTC uses the information gained during the registration 

process as part of an objective approach to assessing ethical compliance, based, in part, 

on past conduct that could indicate a potential lack of appropriate ethical standards. No 

subjective inquiry is performed.

(e) Include an assessment of the sufficiency of internal organization and risk 

management and supervisory systems in place, including relevant written policies 

and procedures, which also enable ongoing monitoring as to whether the 

minimum standards are still met?

Yes. As described in response to Question 1 of this Principle, SDs and MSPs submit 

documentation to NFA demonstrating compliance with the Section 4s Requirements and 

CFTC regulations. As a part of the review process, NFA may request additional 

information or supporting materials from an SD or MSP. 

With respect to ongoing monitoring, the CFTC reserves the right to conduct on-site 

examinations of the operations and activities of SDs and MSPs. Further, market 

intermediaries are required to report to NFA, deficiencies, inaccuracies, and changes in the 

forms previously filed with NFA. 

As explained in the response to Question 1 of this Principle, FCMs, RFEDs and IBs may be 

required to submit for approval their procedures and/or materials concerning: (a) antimoney laundering; (b) business continuity; (c) electronic order routing systems (for FCMs) 

or automated order routing systems (for IBs); (d) promotional materials; (e) supervision of 

APs; (f) handling of customer complaints; and (g) margins and/or segregation procedures 

(for FCMs). FCMs and IBs may also be required to provide copies of their Source of Assets 

letters and any subordinated loan agreements. However, NFA is not required to conduct a 

specific assessment of the sufficiency of an applicant’s internal controls and risk 

management prior to granting an FCM or IB registration. Nonetheless, it should be noted 

that certified financial statements are required for such entities prior to registration and, 

should material inadequacies in the accounting system, internal accounting control, or in 

the procedures for safeguarding customer funds or firm assets, exist, the certified 

accountant must notify the applicant/registrant, who must notify NFA, the DSRO, and the 

CFTC.

3. Does the regulator or the SRO subject to the regulator’s oversight have in place processes 

and resources to effectively carry out a review of applications for licence?

Yes. If an SD or MSP files a Form 7-R, Form 8-R and fingerprint card, application fee and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

212 INTERNATIONAL MONETARY FUND 

documentation required to demonstrate compliance with the Section 4s Requirements, 

then NFA will notify the SD or MSP that it is provisionally registered. Subsequent to 

providing notice of provisional registration to an applicant for registration as an SD or 

MSP, NFA must also determine whether the documentation submitted by the applicant 

demonstrates compliance with the applicable CFTC regulations. On and after the date on 

which NFA confirms that the applicant for registration as an SD or MSP has demonstrated 

its initial compliance with the Section 4s Requirements and all other applicable 

registration requirements under the CEA and CFTC regulations, the provisional 

registration of the applicant shall cease and it shall be registered as an SD or MSP, as the 

case may be. 

FCM and RFED applicants must submit the online Form 7-R, and file financial information, 

copies of their policies and procedures, and certain other documents.

127

 The financial 

statements can be either a certified financial statement as of a date no more than 45 days 

before it is filed or a certified financial statement as of a date no more than one year 

before it is filed and an uncertified financial statement as of a date no more than 17 

business days before it is filed. 

IB applicants must provide the information requested on NFA’s Online Registration 

System. An independent IB applicant must file financial information and copies of its 

policies and procedures. A guaranteed IB must file a guarantee agreement and copies of 

its policies and procedures. The financial filing requirement can be fulfilled by filing a 

financial statement certified by an independent public accountant as of a date not more 

than 45 days prior to the date on which such report is filed; a financial statement as of a 

date not more than 17 business days prior to the date on which such report is filed and a 

financial statement certified by an independent public accountant as of a date not more 

than one year prior to the date on which such report is filed; or a financial statement as of 

a date not more than 17 business days prior to the date on which such report is filed. 

NFA will grant a temporary license to a guaranteed IB after all filings have been made for 

the IB and NFA has determined that the IB and each of its individual principals meet the 

eligibility requirements for obtaining a temporary license. The FCM or RFED that 

guarantees the IB must also file its certification before the temporary license can be 

issued.

All applicants for registration as an FCM, RFED or independent IB must submit a letter 

written on the applicant's business stationery describing the source of its current assets 

and representing that its capital has been contributed for the purpose of operating the 

business for which it is applying for registration and that it will continue to be used for 

that purpose. The letter must be signed by a principal of the firm. 

With respect to the CFTC’s resources, the total number of registrants and registered 

 

127 A list of the additional documents that may be required are available at: http://www.nfa.futures.org/NFAcompliance/NFA-futures-commission-merchants/fcm-applicants.HTML. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 213

entities that are subject to the CFTC’s jurisdiction, depending on the measure, has 

increased by at least 40 percent in the last four years. This includes 102 SDs and two 

MSPs as of June 16, 2014.

128

 In addition, there are more than 4,000 advisers and 

operators of managed funds, some of which have significant outward exposures in and 

across multiple markets. 

Additionally, there are another approximately 64,000 registrants, mostly APs that solicit or 

accept customer orders or participate in certain managed funds, or that invest customer 

funds through discretionary accounts. The CFTC provides guidance and interpretations to 

the SROs which oversee these registrants. 

The Commission today performs only high-level, limited-scope reviews of the 

approximately 85 FCMs holding over $230 billion in customer funds. In fact, the 

Commission has a staff of only 35 examiners to review these firms and analyze, among 

other things, over 1,200 financial filings each year. This staff level is less than the number 

the Commission had in 2010, yet the number of firms has almost doubled. Additionally, 

the Commission currently has only 14 FTEs engaged in review of SDs and MSPs. 

In FY2014, the Commission overall will have approximately 100 staff positions dedicated 

to examinations of the thousands of different registrants subject to its jurisdiction. 

For FY2013, the CFTC operated under an operating budget of $195 million. For FY2014, 

the CFTC appropriation was $215 million. As directed by Congress, the agency has 

submitted a FY2014 Spend Plan outlining its allocation of current resources, which reflects 

an increased emphasis on examinations and technology-related staff.

With respect to the NFA’s resources, there too, costs associated with a substantial 

expansion of regulatory duties resulted in a 27 percent increase in NFA's operating budget 

for FY2013, which began July 1. NFA projects operating expenses in FY2013 will be $60.8 

million. NFA's Board of Directors approved the proposed budget at its meeting on May 

17, 2014 in New York. With these increased regulatory responsibilities comes the need for 

additional staffing. NFA anticipates its staffing level will increase by about 60 employees 

in FY 2013. To accommodate the new staff, NFA is expanding its office in Chicago and has 

relocated its New York offices to a larger space. NFA continues to operate on the premise 

that each regulatory program (futures, swaps, forex, market regulation) should be 

financially self-sufficient, and that each program should generate enough revenue to 

recover the costs associated with operating the program. See 

https://www.nfa.futures.org/news/member-newsletter2012/newsletterSummer2012.HTML

 

128

 Provisionally registered SDs are listed at: http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

214 INTERNATIONAL MONETARY FUND 

Authority of Regulator

4. Does the relevant authority have the power to:

(a) Refuse licensing, subject only to administrative or judicial review, if authorization 

requirements have not been met?

Yes. With respect to SDs and MSPs, CFTC Regulation 3.10(a)(1)(v)(D)(1) provides that 

where an applicant for registration fails to demonstrate compliance with the Section 4s 

Requirements, NFA will notify the applicant that its application is deficient, whereupon the 

applicant must withdraw its application, must not engage in any new activity as a SD or 

MSP, and shall cease to be provisionally registered. In the event the applicant fails to 

withdraw its application or cure the deficiency within 90 days following receipt of notice 

from NFA that the applicant’s application is deficient, the applicant will be deemed 

withdrawn and thereupon its provisional registration shall cease. Upon written request,

the CFTC may, in its discretion, extend the time by which the applicant must cure the 

deficiency. 

With respect to FCMs, IBs, FBs, FTs, CTAs, CPOs, and APs, CEA Section 8a(2), 8a(3) and 

8a(4) provide the CFTC with authority to statutorily disqualify the person’s or entity’s 

registration in certain enumerated situations. Pursuant to this authority, the CFTC has 

enacted Regulations 3.60 through 3.64, which establish the procedures by which the CFTC 

may deny, condition, suspend, revoke or place restrictions upon registration.

(b) Withdraw, suspend or apply a condition to a licence where a change in control or 

other change results in a failure to meet relevant requirements on an ongoing 

basis?

Yes. NFA rule 501 allows NFA to suspend or revoke the registration of any registrant 

based on the standards of fitness set forth in the CEA. CFTC Regulation 3.31(a)(3) requires 

a registrant to file a Form 8-R on behalf of each new natural person principal who was not 

listed on the registrant's Form 7-R promptly after the change occurs. (NFA Rule 208 

prescribes a 20-day period after the inclusion of a new natural principal in which the Form 

8-R must be filed.) 

CFTC Regulation 1.17 provides that, should an FCM not be in compliance with its net 

capital requirements, it must transfer all customer accounts and immediately cease doing 

business as an FCM, subject to a 10-business day period during which the CFTC may have 

discretion to permit it to continue operating pursuant to a demonstration that it will be 

able to achieve compliance. CFTC Regulation 5.7 has a similar provision for RFEDs. 

(c) Take effective steps to prevent the employment of persons (or seek the removal of 

persons) who have committed securities violations or who are otherwise 

unsuitable, so that they cannot continue to engage in intermediary activities, even 

if these persons are not separately licensed intermediaries if they can have a 

material influence on the firm? 

Yes. CEA Section 4s(b)(6) states that except to the extent otherwise specifically provided 

by rule, regulation or order, it shall be unlawful for an SD or MSP to permit any person 

associated with an SD or MSP who is subject to a statutory disqualification to effect or be 

involved in effecting swaps on behalf of the SD or MSP, if the SD or MSP knows or in the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 215

exercise of reasonable care should have known, of the statutory disqualification.

CFTC Regulation 23.22 provides that SDs and MSPs cannot permit a person who is subject 

to a statutory disqualification under CEA Sections 8a(2) or 8a(3) to effect or be involved in 

effecting swaps on behalf of the SD or MSP, if the SD or MSP knows, or in the exercise of 

reasonable care should know, of the statutory disqualification. 

Section 8a(4) of the CEA permits the CFTC to suspend, revoke or place restrictions upon 

the registration of any person registered under the CEA based on certain criteria set forth 

in Section 8a(3). These include, but are not limited to, violations of the CEA or rules 

thereunder, any wilful material misstatement or omission on an application, as well as for 

“other good cause.” Section 8a(2) empowers the CFTC to refuse to register any person 

whose prior registration is under suspension or has been revoked. 

Additionally, CFTC Regulation 3.51 provides that, when information comes to the attention 

of the CFTC that an applicant for initial registration in any capacity under the CEA is 

subject to statutory disqualification, the CFTC may take steps to have the application 

withdrawn on a voluntary basis, or through the institution of legal proceedings.

Ongoing Requirements

5. Are market intermediaries required to update periodically relevant information with 

respect to their licence and to report immediately to the regulator (or licensing authority) 

material changes in the circumstances affecting the conditions of the licence?

Yes. Pursuant to CFTC Regulation 3.31, each registrant or applicant for registration must 

promptly correct any deficiency or inaccuracy in its registration information including 

information about its principals and APs.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

216 INTERNATIONAL MONETARY FUND 

6. Is the following relevant information about licensed intermediaries available to the public:

(a) The existence of a licence, its category and status?

(b) The scope of permitted activities and the identity of senior management and 

names of other authorized individuals who act in the name of the intermediary?

Yes, to both of the above. NFA’s Background Affiliation Status Information Center (BASIC), 

which can be accessed from NFA’s website (https://www.nfa.futures.org/BasicNet/), 

includes information on each registrant, the category of license held by the firm or 

individual, the main office, its listed principals, and membership/registration history. 

Disciplinary actions against the firm or individual are also included. 

Investment Advisers

7. Does the regulatory scheme for investment advisers require that, as applicable:

(a) If an investment adviser deals on behalf of clients, the capital and other 

operational controls (explained in Principles 29 to 32) applicable to other market 

intermediaries also should apply to the adviser?

Not Applicable to the CFTC. 

A CTA is any person who, for compensation or profit, is engaged in the business of 

providing commodity interest advisory services to others. CTAs are not permitted to deal 

on behalf of customers under this license. If a CTA engages in other activities requiring 

separate registration, then it must comply with the applicable requirements. 

(b) If the adviser does not deal, but is permitted to have custody of client assets, 

regulation provides for the protection of client assets, including segregation and 

periodic or risk-based inspections (either by the regulator or an independent third 

party) and capital and organizational requirements as explained under Principles 

29 to 32?

Not Applicable to the CFTC. 

CTAs are not permitted to have custody of client assets. There is a limited exclusion from 

the definition of a CTA for FCMs, with respect to advising which occurs and is solely 

incidental to its other business as an FCM, in such case, all the FCM requirements 

regarding protection of client assets, including, segregation and periodic risk-based 

inspections, capital, and organizational requirements would fully apply.

(c) In the case of both (a) and (b), as well as advisers who manage client portfolios 

without dealing on behalf of clients or holding client assets, does regulation 

impose relevant requirements that cover record keeping, disclosure and conflicts 

of interest as explained in Principle 31?

Yes. CFTC Regulation 4.33 requires CTAs to keep accurate, current and orderly books and 

records concerning the clients and subscribers of the CTA and of the activities of the CTA 

itself. 

Yes. CFTC Regulations 4.34 and 4.35 require that a CTA disclose specific information, 

including the business background of the CTA and its principals that will make trading or 

operational decisions, any material actions against the CTA and principals, a description of 

the trading program and related risk factors, fees, any actual or potential conflicts of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 217

interest, and past performance of its client accounts.

Yes. CFTC Regulation 4.35(a)(9) requires the prominent disclosure of the following 

statement with past performance information presented in CTA Disclosure Documents: 

“PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.”

CFTC Regulation 4.34(j) requires a CTA to provide a full description of any actual or 

potential conflicts of interest regarding any aspect of the CTA’s trading program on the 

part of:

 The CTA;

 Any FCM with which the client will be required to maintain its commodity interest 

account;

 Any IB through which the client will be required to introduce its account to an 

FCM; and

 Any principal of the foregoing.

The CTA also must disclose any other material conflict involving any aspect of the offered 

trading program, including any arrangement whereby the CTA or principal thereof may 

benefit, directly or indirectly, from the maintenance of the client’s commodity interest 

account with an FCM or IB (such as payment for order flow or soft dollar arrangements).

Section 4o of the CEA and CFTC Regulation 4.41 prohibit, among other things, a CTA from 

employing any device, scheme or artifice to defraud any client.

FCMs are required to maintain books and records (CFTC Regulation 1.31) and offer very 

specific disclosures to customers (CFTC Regulation 1.55), and must have in place policies 

and procedures to ensure advertising and solicitations are not misleading (CFTC 

Regulation 1.55(l)). See Principle 8 for a discussion of conflict of interest provisions 

applicable to SDs, MSPs, FCMs and IBs.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

218 INTERNATIONAL MONETARY FUND 

Principle 30 There should be initial and ongoing capital and other prudential 

requirements for market intermediaries that reflect the risks that the 

intermediaries undertake.

Key Questions

1. Are there initial and ongoing minimum capital requirements for market intermediaries? 

Are there also liquidity standards? Do the capital and liquidity standards address 

solvency?

Yes. As discussed in response to Principle 29, Question 2(c), CEA Section 4s(e) requires the 

adoption of rules establishing capital and margin requirements for SDs and MSPs, and 

applies a bifurcated approach that requires each SD and MSP for which there is a 

prudential regulator to meet the capital and margin requirements established by the 

applicable prudential regulator, and each SD and MSP for which there is no prudential 

regulator to comply with the CFTC’s capital and margin regulations. The CFTC published 

proposed margin and capital requirements for SDs and MSPs on May 12, 2011 and is 

drafting revised capital and margin proposals in close coordination with the SEC and 

prudential regulators. 

The proposed rules address the SD’s or MSP’s qualifying capital and the minimum levels 

of such qualifying capital that the SD or MSP would be required to maintain. The 

proposed requirements also include amendments to existing CFTC regulations governing 

FCM capital requirements, in addition to new capital rules that would apply to SDs and 

MSPs that are not FCMs. The proposed rules also address when internal models may be 

used for purposes of the required capital calculations.

SDs and MSPs that are also FCMs are required to meet existing FCM requirements to hold 

minimum levels of adjusted net capital, with a higher minimum fixed dollar net capital 

requirement of $20 million. SDs and MSPs that are not FCMs and are nonbank 

subsidiaries of U.S. bank holding companies would be required to meet a minimum capital 

requirement of $20 million Tier 1 capital as defined in bank regulations, the minimum riskbased ratio requirement that would apply as if the SD itself were a bank holding company, 

or any higher amount required by a registered futures association of which such SD or 

MSP is a member.

SDs and MSPs that are neither FCMs nor a bank holding company subsidiary would be 

required to maintain tangible net equity equal to $20 million, plus additional amounts for 

market risk and OTC derivatives credit risk. 

The proposed capital requirements for SDs and MSPs do not have the same liquid assets 

requirements as the FCM capital requirements, as entities which may be SDs and MSPs 

could have operating businesses, which would make liquidity requirements impracticable. 

However, SDs and MSPs are not permitted to clear swaps for customers. Under the CEA, 

customer clearing for swaps must be performed through FCMs, which are subject to liquid 

assets capital requirements.

FCM capital requirements are designed to require a minimum level of liquid assets in 

excess of the FCM’s liabilities to provide resources for the FCM to meet its financial 

obligations as a market intermediary. The capital requirements also are intended to 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 219

ensure that an FCM maintains sufficient liquid assets to wind-down its operations by 

transferring customer accounts in the event that the FCM decides, or is forced, to cease 

operations as an FCM.

CFTC Proposed Regulation 1.17(a) addresses the first component of the FCM capital rule 

by specifying the minimum amount of adjusted net capital that a registered FCM is 

required to maintain. Specifically, CFTC proposed regulation 1.17 sets the minimum 

adjusted net capital requirement as the greatest of: (1) $1,000,000; (2) for an FCM that 

engages in off-exchange foreign currency transactions with retail participants, 

$20,000,000, plus 5 percent of the FCM’s liabilities to the retail forex participants that 

exceeds $10,000,000; (3) 8 percent of the risk margin (as defined in CFTC Regulation 

1.17(b)(8)) of customer and non-customer exchange-traded futures positions and OTC 

swap positions that are cleared by a clearing organization and carried by the FCM; (4) the 

amount of adjusted net capital required by a registered futures association of which the 

FCM is a member; and (5) for an FCM that also is registered as securities broker or dealer, 

the amount of net capital required by rules of the SEC. The requirements for the 

calculation of the FCM’s adjusted net capital represent the second component of the FCM 

capital rule. CFTC proposed Regulation 1.17(c)(5) generally defines the term ‘‘adjusted net 

capital’’ as an FCM’s ‘‘current assets,’’ i.e., generally liquid assets, less all of its liabilities 

(except certain qualifying subordinated debt), and further reduced by certain capital 

charges (or haircuts) to reflect potential market and credit risk of the firm’s current assets.

FCMs and IBs are subject to minimum capital requirements. Customer protection and the 

financial stability of the marketplace are central objectives of the CEA, and their 

achievement can be facilitated by ensuring an adequate minimum capital requirement for 

FCMs and IBs.129 With respect to FCM capital requirements, the CFTC has stated in 

various rule revisions concerning its net capital regulation that its goal is to enhance the 

protection of customers' segregated funds and to ensure that the capital of FCMs 

appropriately takes into account risks undertaken by the firm, and those two results are of 

the greatest importance to the security and overall well-being of market participants and 

the markets themselves. 

Section 4f(b) of the CEA provides that FCMs and IBs must meet the minimum financial 

requirements that the CFTC “may by regulation prescribe as necessary to insure” that 

FCMs and IBs meets their obligations as registrants. The minimum capital requirements 

for FCMs and IBs are set forth in CFTC Regulation 1.17. This regulation requires each FCM 

and IB to maintain at all times adjusted net capital (as defined below) in an amount that 

meets or exceeds the greatest of several capital computations required under the 

regulation. Regulation 1.17 also provides an alternative means for IBs to satisfy net capital 

requirements, by operating pursuant to a guarantee agreement that meets the 

requirements set forth in Regulation 1.10(j). Such guaranteed IBs must place their trades 

 

129 45 FR 79416 (Dec. 1, 1980).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

220 INTERNATIONAL MONETARY FUND 

only with the FCM guaranteeing the IB. 

It also should be noted that FCMs generally have treated “early warning” notice 

requirements under CFTC Regulation 1.12(b) as establishing a de facto higher capital 

requirement for FCMs. Specifically, Regulation 1.12(b) requires FCMs to provide 

immediate notification to the CFTC and their DSROs if the FCM’s capital falls below the 

following levels:

 110 percent of the risk-based capital requirement; 

 150 percent of the minimum dollar requirement, or of the requirement for 

minimum capital under NFA rules; or

 If the FCM is a securities broker-dealer, the early warning level established under 

SEC rules. 

In order to avoid triggering the notice requirement under Regulation 1.12(b), FCMs 

generally seek to maintain capital at levels above the early warning levels described 

above.

FCMs are registered entities which may intermediate customer business to clearing, and 

hold customer funds related thereto. Thus, they have net capital requirements designed 

to ensure current assets comprise adequate capital, with charges, or haircuts, designed to 

capture market risks of holding certain types of assets or proprietary trading, and the 

discounting of non-current assets as well as undermargined capital charges designed to 

address credit risk. In addition, CFTC Regulation 1.17(a)(4) provides that the CFTC may 

demand certification from an FCM, with verifiable evidence, of sufficient access to liquidity 

to continue operating as a going concern. If certification is not made immediately upon 

such request, or verifiable evidence is not provided, the FCM must transfer all customer 

accounts and cease doing business as an FCM until such time as the firm is able to 

demonstrate compliance. The CFTC may in its discretion permit the FCM up to a 

maximum of 10 business days grace period to achieve compliance if the FCM immediately 

demonstrates to the satisfaction of the Commission the ability to achieve compliance.

The minimum capital requirements for IBs are lower than for FCMs, as the CEA does not 

permit IBs to receive or hold customer funds. The capital requirements for IBs that are not 

guaranteed are the greatest of the following:

1. $45,000; 

2. The minimum amount required by the NFA; and

3. For IBs also registered as securities brokers or dealers, the amount of capital 

required by the SEC. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 221

2. Are the capital adequacy requirements structured to result in capital addressed to the full 

range of risks to which market intermediaries are subject, e.g., market, credit, liquidity and 

operational risks? 

The CFTC’s proposed capital regulations for SDs and MSPs are structured to result in 

capital addressed specifically to market and credit risk. The CFTC’s capital treatment for 

liquidity risks is limited to the FCM registration category that is solely permitted to 

intermediate the clearing of futures and swaps transactions and holding of customer 

funds related thereto. The CFTC’s early warning and notices provisions create likely 

additional capital buffers which may mitigate operational risks. The CFTC has recently 

imposed new risk management requirements which may further mitigate operational risk 

outside of capital adequacy. The CFTC’s proposed regulations for SDs and MSPs set forth 

capital calculations for OTC derivatives credit risk that are based on Basel requirements 

that do not incorporate internal models. The proposed rule required credit risk deduction 

also includes a concentration charge specified in SEC Rule 15c3–1e. The charge as 

proposed would equal the sum of (1) a counterparty exposure charge (summarized 

below) and (2) a counterparty concentration charge, which would equal 50 percent of the

amount of the current exposure to any counterparty in excess of 5 percent of the SD’s or 

MSP’s applicable minimum capital requirement, plus a portfolio concentration charge of 

100 percent of the amount of the SD’s or MSP’s aggregate current exposure for all

counterparties in excess of 50 percent of the SD’s or MSP’s applicable minimum capital 

requirement.

The counterparty exposure charge would equal the sum of the net replacement values in 

the accounts of insolvent or bankrupt counterparties plus the ‘‘credit equivalent amount’’ 

of the SD’s or MSP’s exposure to its other counterparties. The SD or MSP would be 

permitted to offset the net replacement value and the credit equivalent amount by the 

value of collateral submitted by the counterparty, as specified and subject to certain 

haircuts in the proposed rule. The resultant calculation would be multiplied by a credit risk 

factor of 8 percent. 

For purposes of this computation, the credit equivalent amount would equal the sum of 

the SD’s or MSP’s current exposure and potential future exposure to each of its 

counterparties that is not insolvent or bankrupt. The current exposure for multiple OTC 

positions would equal the greater of (i) the net sum of all positive and negative mark-tomarket values of the individual OTC positions, subject to permitted netting pursuant to a 

qualifying master netting agreement; or (ii) zero.130 The potential future exposure for 

multiple OTC positions that are subject to a qualifying master netting agreement is 

calculated in accordance with the following formula: Anet = (0.4 × Agross) + (0.6 × NGR × 

 

130 For a single OTC position, the current exposure is the greater of the mark-to-market value of the OTC position or 

zero.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

222 INTERNATIONAL MONETARY FUND 

Agross), where: (i) Agross equals the sum of the potential future exposure for each 

individual OTC position131 subject to the swap trading relationship documentation that 

permits netting;132 and (ii) NGR equals the ratio of the net current credit exposure to the 

gross current credit exposure. In calculating the NGR, the gross current credit exposure 

equals the sum of the positive current credit exposures of all individual OTC derivative 

contracts subject to any netting provisions of the swap trading relationship

documentation, which must be legally enforceable in each relevant jurisdiction, including 

in insolvency proceedings. The proposed rule also requires that the gross receivables and

gross payables subject to the netting agreement can be determined at any time; and that 

the SD or MSP, for internal risk management purposes, monitors and controls its exposure 

to the counterparty on a net basis. The credit risk equivalent amount may be reduced to 

the extent of the market value of collateral pledged to and held by the swap dealer or 

major swap participant to secure an OTC position. The collateral would be subject to the 

following requirements:

 The collateral must be in the swap dealer or major swap participant’s physical 

possession or control; provided, however, collateral may include collateral held in 

independent third party accounts as provided under CFTC Regulations Part 23;

 The collateral must meet the requirements specified in a credit support agreement 

meeting the requirements of CFTC Proposed Regulation 23.151;

 If the counterparty is a SD, MSP or financial entity, as defined in CFTC Regulation 

23.150, certain additional requirements apply as described in the proposed CFTC 

Regulation 23.104(j); and

 Applicable haircuts must be applied to the market value of the collateral.

Once the credit equivalent amount is computed as described above, the SD or MSP would 

be required to apply a credit risk factor of 50 percent, regardless of any credit rating of 

the counterparty by any credit rating agency.133 However, the SD or MSP also may apply 

to the CFTC for approval to assign internal individual ratings to each of its counterparties, 

or for an affiliated bank or affiliated broker-dealer to do so. The application will specify 

which internal ratings will result in application of a 20 percent risk weight, 50 percent risk

 

131 For a single over-the-counter position, the potential future exposure, including an OTC position with a negative 

mark-to-market value, is calculated by multiplying the notional principal amount of the position by the appropriate 

conversion factor in Table E of the proposed rules. Table E is the same as the table proposed as ‘‘Table to 1.3(sss)’’ in 

proposed rulemaking issued jointly by the CFTC and SEC for purposes of the further definition of the term ‘‘major 

swap participant.’’ See 75 FR 80174, 80214 (Dec. 21, 2010). Both tables remove any references to credit ratings and 

require the same charge to be applied to all corporate debt regardless of rating.

132 76 FR 6715.

133 The Basel credit risk factors are determined for counterparties based on credit ratings assigned by credit rating 

agencies to such counterparties. Section 939A of the Dodd-Frank Act required the CFTC to review and modify 

regulations that place reliance on credit rating agencies. Accordingly, the CFTC is proposing a 50 percent credit risk 

factor in lieu of assigning a credit risk factor based on ratings issued by credit rating agencies.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 223

weight, or 150 percent risk weight. Based on the strength of the applicant’s internal credit 

risk management system, the CFTC may approve the application. The SD or MSP must 

make and keep current a record of the basis for the credit rating for each counterparty, 

and the records must be maintained in accordance with CFTC Regulation 1.31.

CFTC Proposed Regulation 23.103 specifies required calculations for market risk that are

based on Basel ‘‘standardized’’ measurement procedures for assessing market risk arising 

from positions in traded debt and equity and in commodities and foreign currencies. The 

Basel standardized approach also includes market risk exposure requirements for options 

that have debt instruments, equities, foreign currency, or commodities as the underlying

positions.

The standardized measure of market risk for equities applies to direct holdings of equity 

securities, equity derivatives and off-balance-sheet positions whose market values are

directly affected by equity prices. The required charge is the sum of the specific risk 

charge, calculated as described above, and of the general market risk charge, which is 

equal to 8.0 percent of the difference between the sum of the firm’s long and the sum of

the firm’s short positions. The net long or short position must be calculated separately for 

each national market.

With respect to debt instruments, applying the ‘‘maturity’’ method under the Basel 

standardized approach, on and off-balance-sheet debt positions are distributed among a 

range of timebands and zones that are specified by the Basel Accord, which are designed 

to take into account differences in price sensitivities and interest rate volatilities across 

various maturities. The timeband into which a position is distributed is determined by its 

maturity (fixed rate instruments) or the nearest interest rate reset date of the instrument

(floating rates). Long positions are treated as positive amounts and short positions are 

treated as negative amounts. The net long or short position for each time-band is 

multiplied by the risk weight specified in a table set forth in the Basel Accord.134 The 

resulting risk-weighted position represents the amount by which the market value of that 

debt position is expected to change for a specified movement in interest rates. The sum of 

all risk-weighted positions (long or short) across all timebands is the base capital charge 

for general market risk.

The standardized approach also requires a ‘‘time-band disallowance’’ to address the basis 

risk that exists between instruments with the same or similar maturities and also the 

possibly different price movements that may be experienced by different instruments

 

134 The risk-weights provided in the table approximate the price sensitivity of various instruments. The price 

sensitivity of zero coupon and low coupon instruments can be materially greater than that of instruments with higher 

coupons, and the table therefore assigns higher risk weights to low coupon instruments.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

224 INTERNATIONAL MONETARY FUND 

within the same time-band due to the range of maturities (or repricing periods) that may 

exist within a time-band. To capture this risk, a disallowance of 10 percent is applied to 

the smaller of the offsetting (long or short) positions within a time-band. This amount

would be added to the SD’s or MSP’s base capital charge.

Additional disallowances address the risk that interest rates along the yield curve are not 

perfectly correlated and that the risk-weighted positions may not be offset fully. The 

required disallowances, which apply to the smaller of the offsetting positions, are

specified in a table provided under the Basel Accord, and range from 30 percent to 100

percent. The amount of each disallowance varies in size by zone: greater netting is 

allowed for positions in different time bands but within the same zone than is allowed for 

positions that are in different zones. An SD’s or MSP’s general market risk requirement 

for debt instruments within a given currency would be the sum of (1) the value of its net 

risk-weighted position and (2) all of its time-band, intra-zone and inter-zone

disallowances. The capital charges would be separately computed for each currency in 

which an SD or MSP has significant positions.

With respect to commodities, the market risk capital requirement for commodities risk 

applies to holdings or positions taken in commodities, including precious metals, but

excluding gold (which is treated as a foreign currency because of its market liquidity). The 

required charge addresses directional risk, which is the risk that a commodity’s spot price 

will increase or decrease, as well as other important risks such as basis risk, interest rate 

risk, and forward gap risk.

For purposes of determining the charge, the firm is required to calculate its net position in 

each commodity on the basis of spot rates. Long and short positions in the same 

commodity may be netted, and different categories of commodities may be netted if

deliverable against each other. Under the ‘‘simple’’ approach under the Basel Accord, the 

firm’s capital charge for directional risk would equal 15 percent of its net position, long or 

short, in each commodity, and a supplemental charge of 3.0 percent of the gross position 

in each commodity is added to cover basis, interest rate and forward gap risk.135

With respect to foreign exchange, the market risk capital requirement for foreign 

exchange covers the risk of holding or taking positions in foreign currencies (including 

gold). The charge is determined by the firm’s net positions in a given currency, including 

its net spot and forward positions; any guarantees that are certain to be called and likely 

to be irrecoverable; its net future income and expenses that are not yet accrued, but that 

 

135 The standardized approach will in certain instances offer more than one measurement technique, of increasing 

degrees of complexity. The ‘‘simplified’’ method for calculating general market risk charges for positions in 

commodities has been included in the proposed rules.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 225

are already fully hedged; and any other items representing a profit or loss in foreign

currencies. For purposes of the calculation, forward and future positions are converted 

into the reporting currency at spot market rates.

The standardized approach assumes the same volatility for all currencies and requires an 

SD or MSP to take capital charge equal to 8.0 percent of the sum of (a) its net position in 

gold and (b) the greater of the sum of the net short positions or the sum of the net long

positions in each foreign currency.

With respect to options, the proposed rule is based on the ‘‘delta-plus method’’ under the 

Basel standardized approach, which includes capital charges related to the option’s delta 

(its price sensitivity relative to price changes in the underlying security, rate, or index); 

gamma (the change in delta for a given change in the underlying); and vega (the effect of

changes in the volatility of the underlying). The three separate capital charges are 

computed as follows:

 Delta risk charge—This charge is determined by incorporating options positions in 

the calculations (including specific risk if applicable) that are required elsewhere in 

the proposed rule for positions in commodities, foreign currencies, equities, and 

debt instruments. Specifically, options are included as positions equal to the

market value of the underlying instrument multiplied by the delta. To determine 

the delta, and also gamma and vega, sensitivities of the options, the firm will use 

option pricing models that will be subject to CFTC’s review.

 Total gamma risk charge—This charge requires the following steps: (1) For each 

option, perform a ‘‘gamma impact’’ calculation that is based on a Taylor series 

expansion and expressed in the Basel Accord as: Gamma impact = .05 × Gamma × 

VU2. In this formula, VU refers to the variation of the underlying of the option and 

is computed by multiplying the market value of the underlying by percentages 

derived from those specified elsewhere in the proposal for commodities, foreign

currencies, equities and debt instruments.136 (2) The gamma impact for each 

option will be positive or negative, and for options on the same underlying, the 

individual gamma impacts will be summed, resulting in a net gamma impact for 

each underlying that is either positive or negative. (3) Net positive gamma impacts

amounts are disregarded, and the capital charge equals the absolute value of the

sum of all of the net negative gamma impact amounts.

 

136 Applying the required percentages, VU would be determined for a commodity option by multiplying the market 

value of the underlying commodity by 15 percent; for a foreign currency by multiplying the market value of the 

underlying by 8 percent; for an equity or index by multiplying the market value of the underlying by 12 percent or 8 

percent respectively, and for options on debt instruments or interest rates, the market value of the underlying 

multiplied by the risk weights for the appropriate time band as derived from Table A. The text of the rules for the 

gamma risk charge simplifies the required computation for options with debt instruments or interest rates as the 

underlying, by providing a table of specific risks weights to be used.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

226 INTERNATIONAL MONETARY FUND 

 Total vega risk charge—This charge requires the following steps: (1) Sum the 

vegas for all options on the same underlying, and multiply by a proportional shift 

in volatility of ± 25 percent; 45 and (2) The total capital charge for vega risk will be 

the sum of the absolute value of the individual capital charges computed for 

options positions in the same underlying.

The key regulatory objective of the CFTC’s FCM and IB net capital rule is to require 

registrants to maintain a minimum base of liquid assets in excess of their liabilities to 

finance their business activity. The requirements in CFTC Regulation 1.17 are mostly 

focused on mitigating market risk, credit risk, and liquidity risk. The early warning notice 

requirements under CFTC Regulation 1.12, and more particularly the de facto higher 

capital requirements under that regulation, also help increase the cushion available to 

address the various risks to firm capital, which would include operational and legal risk.

The definitions of the terms “current assets” and “net capital” in CFTC Regulation 

1.17(c)(2) and (5) require the FCM to include only generally liquid assets when 

determining the amount of capital maintained by the firm. “Net capital” means the 

amount by which the FCM’s “current assets,” i.e., cash and other assets “commonly 

identified as expected to be realized as cash or sold during the next 12 months”, exceed 

the firm’s total liabilities (except certain subordinated liabilities meeting the specific 

limitations of CFTC Regulation 1.17(h)). When determining current assets, Regulation 

1.17(c)(2) specifically excludes certain items such as unsecured receivables, and further 

requires that unrealized losses shall be deducted, and unrealized profits shall be added to 

the extent that they are secured or on exchange-traded positions (as such, the CFTC’s

capital requirements take account of certain off-balance sheet items in addition to onbalance sheet items). Other assets must be marked to market, including all long and all 

short positions in commodity options which are traded on a contract market; all listed 

security options; and all long and all short securities and commodities positions. Further, 

the rule describes values to be attributed to any commodity option that is not traded on a 

contract market and to any unlisted security option. 

In light of the regulatory emphasis on maintaining liquid assets, CFTC Regulation 

1.17(c)(5) also requires deductions from the market values of certain assets to reflect the 

possibility of price depreciation when liquidated. For example, the definition of “adjusted 

net capital” in CFTC Regulation 1.17(c)(5) specifies certain required deductions with 

respect to the FCM’s or IB’s proprietary futures and options on futures positions; its 

inventory, fixed price commitments, and forward contracts; and also its securities and 

security options. The required deductions are also referred to as “haircuts”, and are 

reductions of the market values of these assets by a set percentage, e.g., the firm must 

generally deduct twenty percent of the market value of its proprietary forward contracts. 

The SEC’s net capital rule for securities broker-dealers also specifies “haircuts” for certain 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 227

assets of the broker-dealer. The CFTC generally has harmonized the haircuts applied to 

securities and securities options under CFTC Regulation 1.17(c)(5) with the haircuts 

required under the SEC’s net capital rule. For example, both the SEC’s and the CFTC’s 

regulations require a deduction of fifteen percent of the value of equities. For certain 

firms, the SEC and CFTC also may permit the firm to apply internal models to determine 

“alternative” market risk and credit risk charges to be applied to a portfolio of trading 

securities. 

3. Are capital adequacy requirements sensitive to the quantum of risks undertaken; that is, 

does required capital increase as risk increases, e.g., in the event of large market moves?

Yes. CEA Section 4s(e)(2)(C) requires the CFTC, in setting capital requirements for a person 

designated as a swap registrant for a single type or single class or category of swap or 

activities, to take into account the risks associated with other types/classes/categories of 

swap and other activities conducted by that person that are not otherwise subject to 

regulation by virtue of their status as an SD or MSP. CEA Section 4s(e)(3)(A) also refers to 

the need to offset the greater risk that swaps that are not cleared pose to SDs, MSPs, and 

the financial system, and the CFTC, SEC, and prudential regulators are directed to adopt 

capital requirements that: (1) help ensure the safety and soundness of the registrant; and 

(2) are appropriate for the risk associated with the uncleared swaps held by the 

registrants.

The “risk-based” capital requirements of FCMs are directly related to increases in margin 

requirements for the futures and options positions of their customers and noncustomers. 

Further, FCMs and IBs with proprietary positions in futures or options on futures must 

deduct from their net capital 100 percent of the margin requirements for such positions 

(or 150 percent if the FCM is not a clearing member of the organization clearing such 

positions). Also, FCMs’ and IBs’ capital requirements reflect market moves because their 

assets are required to be marked to market.

4. Are capital standards designed to allow an intermediary to absorb some losses and to 

wind down its business over a relatively short period without loss to its clients or 

disrupting the orderly functioning of the markets?

Yes. CFTC Regulation 23.603 requires an SD or MSP to establish and maintain a written 

business continuity and disaster recovery plan that outlines the procedures to be followed 

in the event of an emergency or other disruption of its normal business activities. The 

business continuity and disaster recovery plan must be designed to enable the SD or MSP 

to continue or to resume any operations by the next business day with minimal 

disturbance to its counterparties and the market, and to recover all documentation and 

data required to be maintained by applicable law and regulation.

CFTC Regulation 1.17, which is the net capital requirement for FCMs, is designed for 

exactly such purpose, along with the CFTC regulations which govern the treatment of the 

customer funds of commodity and swaps customers. Reporting of customer funds 

custody is now daily, and the CFTC has independent access to verify balances with 

depositories should concerns arise. Should there be any discrepancy in the reported 

segregation of customer funds, the CFTC has the ability to order the transfer of customer 

accounts and cessation of FCM business. The net capital requirement is designed to 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

228 INTERNATIONAL MONETARY FUND 

provide a buffer of assets as a backstop to any customers bearing losses. Significant new 

customer protection regulations were adopted by the CFTC in the aftermath of the MF 

Global bankruptcy. Accounts were transferred in that bankruptcy to solvent FCMs and 

such bankruptcy did not result in market disruption despite a shortfall in customer funds, 

but customer accounts were not able to be transferred with full customer funds as there 

was a reported shortfall in the customer funds. However eventually, all customers were 

able to be fully repaid as capital and claims were liquidated.

5. Are relevant market intermediaries required to maintain records such that capital levels 

can be readily determined at any time? 

Yes. CFTC Regulation 23.201(b)(2) requires SDs and MSPs to maintain records reflecting 

all assets and liabilities, income and expenses, and capital accounts as required by the CEA 

and CFTC regulations. 

CFTC Regulation 1.17(a)(3) expressly provides that each FCM and IB must be in 

compliance with capital requirements “at all times and must be able to demonstrate such 

compliance to the satisfaction of the CFTC or the designated SRO.” CFTC Regulation 1.12 

requires immediate notification to the CFTC and the designated SRO should an FCM not 

be in compliance with minimum capital requirements. Net capital computations are 

routinely reported to the Commission and SROs as of month end in the regular financial 

reporting required by Commission Regulation 1.10. Other relevant recordkeeping 

requirements relating to the financial condition of FCMs and IBs and to the customer 

funds held by FCMs are summarized below. 

CFTC Regulation 1.18 requires FCMs and IBs to prepare and keep current ledgers which 

show each transaction affecting asset, liability, income, expense and capital accounts 

consistently with the Form 1-FR (or the FOCUS Report if a securities broker-dealer). CFTC 

Regulation 1.27 requires each FCM that invests customer funds to keep a record which 

shows the details of the investment, including the size and type of investment, the date of 

the investment, and any disposition made of the investment. CFTC Regulation 1.32 

requires an FCM to compute each day the customer funds in segregated accounts and the 

FCM's residual interest in those funds, and to keep a record of each such computation. 

Pursuant to Regulation 1.31, all books and records required by the CEA and CFTC 

regulations must be kept for a period of five years and must be readily accessible during 

the first 2 years of the 5-year period. All books and records must be open to inspection 

by any representative of the CFTC or DOJ.

6. Are the detail, format, frequency and timeliness of reporting to the regulator and/or the 

SRO sufficient to reveal a significant deterioration in the capital adequacy position of 

market intermediaries?

Yes. Section 4s(f)(1)(A) of the CEA requires each registered SD and MSP to make such 

reports as are required by CFTC rule or regulation regarding the SD’s or MSP’s financial 

condition. The CFTC has proposed Regulation 23.106, which requires certain SDs and 

MSPs to file monthly unaudited financial statements and annual audited financial 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 229

statements with the CFTC and with any registered futures association of which they are 

members.137

The proposed financial statements under proposed Part 23 would include a statement of 

financial condition; a statement of income or loss; a statement of cash flows; and a 

statement of changes in stockholders’, members’, partners’, or sole proprietor’s equity. 

The financial statements also would include a schedule reconciling the firm’s equity, as set 

forth in the statement of financial condition, to the firm’s regulatory capital by detailing 

any goodwill or other intangible assets that are required to be deducted from the SD’s or 

MSP’s equity in order to compute its net tangible equity as required under CFTC Proposed 

Regulation 23.101. The schedule would further disclose the firm’s minimum required 

capital under CFTC Proposed Regulation 23.101 as of the end of the month or end of its 

fiscal year, as applicable, and the amount of regulatory capital it held at such date.

The proposed financial statements would be required to be prepared in accordance with 

generally accepted accounting principles as established in the United States, using the 

English language, and in U.S dollars. The unaudited financial statements would be 

required to be filed within 17 business days of the end of each month and the annual 

audited financial statements would be required to be filed within 90 days of the end of the 

SD’s or MSP’s fiscal year. 

CFTC Proposed Regulation 23.105 would require SDs and MSPs to provide the CFTC, and 

the registered futures association of which the SDs or MSPs are members, with written 

notice in the event of certain enumerated financial or operational issues. The proposed 

notice provisions would require an SD or MSP to give telephonic notice to the CFTC, 

followed by a written notice, whenever it knows or should know that the firm does not 

maintain tangible net equity in excess of its minimum requirement under CFTC proposed 

Regulation 23.101. The SD or MSP also would be required to file documentation 

containing a calculation of its current tangible net equity with its notice of 

undercapitalization.

CFTC Proposed Regulation 23.105 also would require an SD or MSP to file a written notice 

with the CFTC whenever its tangible net equity fails to exceed 110 percent of its minimum 

tangible net equity requirement as computed under CFTC proposed Regulation 23.101. 

The SD or MSP would be required to file the notice within 24 hours of failing to maintain 

tangible net equity at a level that is 110 percent or more above its minimum tangible net 

equity requirement. CFTC Proposed Regulation 23.105 also would require a registered SD 

or MSP to provide written notice of its failure to maintain current books and records, or of 

a substantial reduction in capital as previously reported to the CFTC. Pursuant to CFTC 

proposed Regulation 23.105(g), the CFTC could require the SD or MSP to file financial or 

 

137 CFTC Proposed Regulation 23.106 would apply to SDs and MSPs, except any SDs or MSPs that are subject to the 

capital requirements of a prudential regulator, or designated by the FSOC as a Systemically Important Financial 

Institution (“SIFI”). SDs and MSPs that are subject to regulation by a prudential regulator would comply with the 

applicable financial reporting obligations imposed by such prudential regulator. SDs and MSPs that are designated 

as SIFIs would comply with any financial reporting obligations imposed by the Federal Reserve. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

230 INTERNATIONAL MONETARY FUND 

operational information on a daily basis or at such other times as the CFTC may specify.

CFTC Regulation 1.10(d) requires each FCM to prepare and to file unaudited financial 

condition reports, Form 1-FR-FCM, within 17 business days of the close of business each 

month with the CFTC and the FCM’s DSRO. An FCM also is required to file a Form 1–FR–

FCM audited by an independent public accountant as of the end of the FCM’s fiscal year. 

The audited financial Form 1–FR–FCM is required to be filed with the CFTC and with the

FCM’s DSRO within 60 calendar days of the date of the FCM’s fiscal year end. CFTC 

Regulation 1.10(d) prescribes the contents of both monthly and annual financial reports, 

which must include net capital computations as well as separate reports of customer 

funds held for futures customers, foreign futures and options customers, and cleared 

swaps customers. 

CFTC Regulation 1.12(b) requires an FCM who knows or should know that its adjusted net 

capital at any time is less than the minimum required by CFTC Regulation 1.17, or by the 

capital rule of any SRO to which such person is subject, to give immediate notice to the 

CFTC and the FCM’s DSRO. CFTC Regulation 1.12(c) requires a registrant to provide 

same-day reporting if it fails to make or keep current books and records required by CFTC 

regulations. 

In addition, CFTC Regulation 1.12(g)(1) requires that, if for any reason the net capital of an 

FCM declines by 20 percent or more from the amount last reported, the FCM must 

provide notice within 2 business days of the event or series of events causing the 

reduction in net capital. CFTC Regulation 1/12(f) also provides for immediate notice 

when an FCM has accounts that are undermargined or subject to a margin call that 

exceeds it excess net capital.

7. Is the financial position of the intermediary subject to audit by independent auditors to 

provide additional assurance that the financial position reflects the risk that the 

intermediary undertakes? 

CFTC proposed Regulation 23.106 requires certain SDs and MSPs to file annual audited 

financial statements with the CFTC and with any registered futures association of which 

they are members. This proposed rule applies to SDs and MSPs that are not subject to 

the capital requirements of a prudential regulator, or designed by the FSOC as a SIFI. SDs 

and MSPs described by the previous sentence would comply with the auditing obligations 

imposed by the prudential regulator or Federal Reserve Board, as applicable. As 

proposed, the audited reports must include the following:

 A statement of financial condition;

 Statements of income (loss), cash flows, and changes in ownership equity;

 Appropriate footnote disclosures; and

 Schedules which, depending on the SD or MSPs capital requirements, could list 

net equity, intangible assets, minimum tangible net equity requirement, excess or 

deficiency in its regulatory capital, and/or minimum risk-based capital ratio 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 231

requirements.

With respect to FCMs, RFEDs, and IBs, CFTC Regulation 1.10 establishes requires the filing 

of certified financial reports with the CFTC. CFTC Regulation 1.16 provides that the term 

“certified” means that a financial report has been audited and reported upon with an 

opinion expressed by an independent certified public accountant. For certification of 

FCM reports, an auditor must be registered with and subject to examinations by the 

PCAOB. See further discussion in answers with respect to Principle 19.

In order to satisfy the requirements of CFTC Regulation 1.16(d), the audit performed by 

the independent accountant must be conducted in accordance with the auditing 

standards of the PCAOB. The procedures must include a review and appropriate tests of 

the accounting system, internal accounting controls, and the procedures for safeguarding 

customer and firm assets. These procedures must be adequate to provide reasonable 

assurance that they will discover any material deficiencies in the accounting system, in the 

internal accounting controls, and the procedures for safeguarding customer and firm 

assets. The accountant must also review the FCM's computations of minimum financial 

requirements and its daily computations of the segregation requirements under Section

4d(a)(2) of the CEA. 

CFTC Regulation 1.16(d)(2) provides that deficiencies in the FCM's or IB's procedures are 

considered to be material inadequacies if, in the absence of corrective steps, they could 

reasonably be expected to inhibit the FCM's or IB's ability to complete transactions 

promptly or to discharge responsibilities to customers or creditors; to result in material 

financial loss; to cause material misstatements in the FCM's or IB's financial statements 

and schedules; or to produce violations of the CFTC's segregation, secured amount, 

recordkeeping, or financial reporting requirements, which could reasonably be expected 

to result in impediments to meeting its obligations, material financial loss, or inaccurate 

financial reports. 

An accountant who discovers any such material inadequacy in the course of an audit is 

required under CFTC Regulation 1.16 to notify the FCM or IB, who, in turn, must notify the 

CFTC, NFA and the appropriate DSRO. A copy of the notice must also be given to the 

accountant within three business days after it is filed. The accountant is to advise the NFA, 

in the case of an applicant, or the CFTC and the DSRO, in the case of a registrant, within 

three business days if he or she does not receive a copy of the notice and must notify 

those regulatory units of any disagreement with the FCM's submission within three 

business days after receiving the copy of the FCM's notice.

8. Does the regulator:

(a) Regularly review market intermediaries’ capital levels? 

Yes. The CFTC itself does not conduct routine on-site direct inspections of intermediaries, 

but may include an on-site visit to a firm as part of the responsive action taken when a 

firm files any early warning or other notification required under CFTC regulations. Under 

the CEA, SROs are required to develop programs to assess whether FCMs and IBs are in 

compliance with exchange and CFTC minimum financial and related reporting 

requirements. CFTC Regulation 1.52 establishes the minimum components for a DSRO’s 

examination program. Both the CFTC and the SROs also receive and review monthly 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

232 INTERNATIONAL MONETARY FUND 

financial reports that include the statement of the computation of minimum capital 

requirements, as described in response to Principle 30, Question 6.

(b) Take appropriate action when these reviews indicate material deficiencies? 

Yes. If a review performed by either the SRO or the CFTC indicates a material deficiency in 

capital, the CFTC may impose the restrictions described in the response to Principle 32, 

Question 1.

9. Does the regulator:

(a) Have specific authority to impose restrictions on an intermediary’s regulated 

business activities and more stringent capital monitoring and/or reporting 

requirements if an intermediary’s capital deteriorates so as to endanger its 

capacity to fulfil its obligations or when it falls below minimum requirements?

Yes. Several CFTC regulations enable the Commission to require more frequent reporting 

and/or to impose restrictions on the intermediary’s business. 

CFTC Proposed Regulation 23.105 would require SDs and MSPs to provide the CFTC, and 

the registered futures association of which the SDs or MSPs are members, with written 

notice in the event of certain enumerated financial or operational issues. The proposed 

notice provisions would require an SD or MSP to give telephonic notice to the CFTC, 

followed by a written notice, whenever it knows or should know that the firm does not 

maintain tangible net equity in excess of its minimum requirement under CFTC Proposed 

Regulation 23.101. The SD or MSP also would be required to file documentation 

containing a calculation of its current tangible net equity with its notice of 

undercapitalization.

CFTC Proposed Regulation 23.105 also would require an SD or MSP to file a written notice 

with the CFTC whenever its tangible net equity fails to exceed 110 percent of its minimum 

tangible net equity requirement as computed under CFTC proposed regulation 23.101. 

The SD or MSP would be required to file the notice within 24 hours of failing to maintain 

tangible net equity at a level that is 110 percent or more above its minimum tangible net 

equity requirement. CFTC Proposed Regulation 23.105 also would require a registered SD 

or MSP to provide written notice of its failure to maintain current books and records, or of 

a substantial reduction in capital as previously reported to the CFTC.

Pursuant to CFTC Regulation 1.17(a)(4), if an FCM holds less capital than the amount 

specified in its minimum capital requirement, then it generally must transfer all customer 

accounts and immediately cease conducting business as an FCM, until such time as the 

FCM is able to demonstrate compliance with its minimum capital requirement. 

Pursuant to CFTC Regulation 190.04(d)(2), the trustee appointed to administer the 

bankruptcy proceedings of an FCM is not permitted to purchase or sell new commodity 

contracts for the customers of such FCM, with the exceptions noted below. In general, 

CFTC Regulation 190.04(d)(2) presumes that an FCM subject to bankruptcy proceedings is 

insolvent and, therefore, that such FCM does not have sufficient capital to operate its 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 233

business, which business may include supporting the credit of its customers or performing 

on other obligations. Thus, in restricting the conduct of the trustee, CFTC Regulation 

190.04(d)(2) aims to minimize the risk of loss to customers of the FCM.

However, CFTC Regulation 190.04(d)(2) recognizes that, even where an FCM is insolvent, 

certain purchases or sales of new commodity contracts may be risk-reducing, and thus 

may prevent material erosion in value of open commodity contracts constituting 

customer assets. Therefore, CFTC Regulation 190.04(d)(2) permits the trustee to engage 

in such purchases or sales to achieve any of the following purposes: (i) to offset an open 

commodity contract; (ii) to transfer any transferable notice applicable to an open 

commodity contract; or (iii) to cover or partially cover, with the approval of the CFTC, 

inventory or commodity contracts of the FCM that cannot be immediately liquidated due 

to market conditions (including price limits).

CFTC Regulation 1.12(a) requires immediate notice and updated capital computations if 

the FCM’s capital falls below the actual required minimum (as opposed to the capital 

levels that would merely trigger an early warning report under Regulation 1.12(b) 

described above). 

CFTC Regulation 1.17(a)(4) provides that an FCM that fails to demonstrate that it holds 

sufficient capital to meet the required minimum must transfer all customer accounts and 

immediately cease doing business as a FCM until such time as the FCM is able to 

demonstrate compliance with the capital requirements. However, the FCM may trade for 

liquidation purposes only during this period unless prohibited from doing so by its DSRO 

or the CFTC. Moreover, the CFTC or DSRO, at its discretion, may provide the FCM with an 

additional 10 business days to achieve compliance without transferring accounts and 

ceasing business, if the FCM can demonstrate its ability to achieve compliance within this 

period. 

CFTC Regulation 1.17(e) provides that the CFTC may, by written order, temporarily prohibit 

equity withdrawals by an FCM that would reduce excess adjusted net capital by 30 

percent or more. Such orders would be based on the CFTC’s determination that the 

withdrawal transactions could be detrimental to the financial integrity of FCMs or could 

adversely affect their ability to meet customer obligations.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

234 INTERNATIONAL MONETARY FUND 

(b) Is there evidence that the regulator exercises this authority? 

Yes. CFTC Regulation 1.10(b)(4) provides that upon notice of any representative of the 

CFTC, an FCM or IB must provide more frequent Form 1-FR information, or such other 

financial information as may be requested by such representative The CFTC and DSROs 

have in the past required FCMs to do daily instead of monthly capital reporting.

10. Does the prudential framework address risks from outside the regulated entity, for 

example from unlicensed affiliates and off-balance sheet affiliates?

Yes.. CFTC proposed Regulation 23.102 would require an SD or MSP in computing its 

tangible net equity to consolidate the assets and liabilities of any subsidiary or affiliate for 

which the SD or MSP guarantees the obligations or liabilities. The proposal further 

provides that the SD or MSP may consolidate the assets and liabilities of a subsidiary or 

affiliate of which the SD or MSP has not guaranteed the obligations or liabilities, provided 

that the SD or MSP has obtained an opinion of counsel stating that the net asset value of 

the subsidiary or affiliate, or the portion of the net asset value attributable to the SD or 

MSP, may be distributed to the SD or MSP within 30 calendar days. Lastly, the proposal 

would further require that each SD or MSP included within the consolidation must at all 

times be in compliance with its respective minimum regulatory capital requirements. 

CFTC Proposed Regulation 23.103 provides that for purposes of computing specific and 

general market risk charges to capital, off-balance sheet positions are included. 

Affiliate risk generally is addressed through reporting and filing requirements under CFTC 

Regulations 1.14 and 1.15. Also, as discussed in the response to Principle 30, Question 2, 

certain off-balance sheet items must be reported as non-current assets in the capital 

computations of FCMs and IBs.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 235

Principle 31 Market intermediaries should be required to establish an internal function 

that delivers compliance with standards for internal organization and 

operational conduct, with the aim of protecting the interests of clients and 

their assets and ensuring proper management of risk, through which 

management of the intermediary accepts primary responsibility for these 

matters.

Key Questions

Management and Supervision

1. With regards to an intermediary’s internal organization, does the regulatory framework 

require the following to be considered:

(a) An appropriate management and organization structure, including in relation to 

activities that have been outsourced?

(b) Adequate internal controls?

(c) Management that is required to bear primary responsibility for ensuring the 

maintenance of appropriate standards of conduct and adherence to proper 

procedures by the whole firm?

Yes, to all of the above. CFTC Regulation 23.602 requires SDs and MSPs to establish and 

maintain a system to diligently supervise, all activities relating to its business performed 

by its partners, members, officers, employees, and agents (or persons occupying a similar 

status or performing a similar function). Such system shall be reasonably designed to 

achieve compliance with the requirements of the CEA and CFTC Regulations. The 

supervisory system shall provide for the designation of at least one person with the 

authority to carry out the supervisory responsibilities of the SD or MSP, and the use of 

reasonable efforts to determine that all supervisors are qualified and meet such standards 

of training, experience, competence, and other qualifications that the CFTC finds 

necessary or appropriate.

To help ensure compliance by registrants with these operational conduct requirements, 

CFTC Regulation 166.3 requires each registrant (except APs with no supervisory duties), to 

“diligently supervise” the handling by its partners, officers, employees and agents of all 

activities relating to its business as a CFTC registrant. Also, the review of FCM internal 

procedures falls within the scope of SRO audit and surveillance obligations under CFTC 

Regulation 1.52. SRO obligations under this CFTC regulation include monitoring and 

auditing compliance by FCMs with their minimum financial and related reporting 

requirements, and also receiving the financial reports that all FCMs are required to file. In 

addition, CFTC Regulation 1.11 imposes requirements for FCMS to have risk management 

policies and procedures in place.

2. Does the regulatory framework require market intermediaries to provide all relevant 

information about the business in a timely, readily accessible way and to regularly report 

to management? Is such information subject to procedures intended to maintain its 

security, availability, reliability and integrity?

Yes. CFTC Regulation 23.600(c)(1) provides that the risk management program take into 

account market, credit, liquidity, foreign currency, legal, operational, settlement, and other 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

236 INTERNATIONAL MONETARY FUND 

risks, together with a description of the risk tolerance limits set by the SD or MSP and the 

underlying methodology in written policies and procedures. The risk tolerance limits shall 

be reviewed and approved quarterly by senior management and annually by the 

governing body.

CFTC Regulation 23.600(c)(2) requires the risk management unit of each SD and MSP to 

provide to senior management and to its governing body quarterly written reports setting 

forth the market, credit, liquidity, foreign currency, legal, operational, settlement, and any 

other applicable risk exposures of the SD or MSP; any recommended or completed 

changes to the risk management program; the recommended time frame for 

implementing recommended changes; and the status of any incomplete implementation 

of previously recommended changes to the risk management program. The reports also 

shall be provided to the senior management and the governing body immediately upon 

detection of any material change in the risk exposure of the SD or MSP. 

CFTC Regulation 23.600(d)(7) requires all trade discrepancies to be documented and 

brought to the immediate attention of management of the business trading unit. CFTC 

Regulation 23.600(e)(2) requires SDs’ and MSPs’ risk management programs to be 

reviewed and tested annually, or upon any material change in the business of the SD or 

MSP that is reasonably likely to alter the risk profile of the SD or MSP. The results of these 

reviews shall be promptly reported to and reviewed by the chief compliance officer, senior 

management, and governing body of the SD or MSP.

CFTC Regulation 23.601 requires SDs and MSPs to establish and enforce written policies 

and procedures reasonably designed to monitor for and prevent violations of applicable 

CFTC, DCM or SEF position limits and to monitor for and prevent improper reliance upon 

any exemptions or exclusions from such position limits. SDs and MSPs shall implement an 

early warning system to detect and alert senior management when position limits are in 

danger of being breached. Any detected violation of position limits shall be reported 

promptly to the firm’s governing body. SDs and MSPs shall document compliance with 

position limits on a quarterly basis. The report shall be promptly reported and reviewed 

by the CCO, senior management and governing body of the SD and MSP. 

CFTC Regulation 23.603 requires SDs and MSPs to establish and maintain a written 

business continuity and disaster recovery plan that outlines the procedures to be followed 

in the event of an emergency or other disruption of its normal functions. A member of 

the senior management of the SD or MSP shall review the business continuity and disaster 

recovery plan annually or upon any material change to the business. Any deficiencies 

found or corrective action taken shall be documented.

CFTC Regulation 1.11 contains the risk management program requirements for FCMs, 

which includes a supervisory system to ensure the program is followed, as well as review 

and testing by internal audit independent of the business unit, or a third party audit 

service reporting to staff independent of the business unit. The annual review of the risk 

management program must be reported to the chief compliance officer, senior 

management and the governing body of the FCM. All records and reports including 

written policies and procedures and copies of all written approvals are subject to the 

CFTC’s recordkeeping requirements under CFTC Regulation 1.31, which covers availability, 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 237

accessibility and integrity.

3. Does the regulatory framework require a market intermediary to be subject to an 

objective, periodic evaluation of its internal controls and risk management processes? 

Yes. CFTC Regulation 23.600 requires each SD and MSP to establish, document, maintain, 

and enforce a system of risk management policies and procedures designed to monitor 

and manage the risks associated with the swaps activities of the SD or MSP. The risk 

management program must identify risks and risk tolerance limits, provide senior 

management with periodic risk exposure reports, and identify and take into account the 

risks of new products prior to engaging in transactions on those products. CFTC 

Regulation 23.600(e) requires risk management programs to be tested annually or upon 

any material change in the SD’s or MSP’s business that is reasonably likely to alter the risk 

profile of the SD or MSP. The annual reviews must include an analysis of adherence to, 

and the effectiveness of the risk management policies and procedures and any 

recommendations for modifications thereto. The annual testing must be performed by 

qualified internal audit staff that are independent of the business trading unit being 

audited or by a qualified third party audit service reporting to staff that are independent 

of the business trading unit. The results of the quarterly reviews must be promptly 

reported to and reviewed by the CCO, senior management and the governing body of the 

SD or MSP. Each SD and MSP must document all internal and external reviews and testing 

of its risk management program and written risk management policies and procedures 

including the date of the review or test; the results; any deficiencies identified; the

corrective action taken; and the date that corrective action was taken. Such 

documentation must be provided to CFTC staff upon request.

CFTC Regulation 1.10 establishes a requirement for review of certain FCM operations by 

outside auditors, as a result of the requirement that FCMs file certified annual financial 

reports with the CFTC. CFTC Regulation 1.16 provides that the term “certified” means that 

a financial report has been audited and reported upon with an opinion expressed by an 

independent certified public accountant. 

In order to satisfy the requirements of CFTC Regulation 1.16, the audit performed by the 

independent accountant must be conducted in accordance with the audit standards of the 

PCAOB. The procedures must include a review and appropriate tests of the accounting 

system of the FCM or IB, the FCM's or IB's internal accounting controls, and the 

procedures of the FCM or IB for safeguarding customer and firm assets. These procedures 

must be adequate to provide reasonable assurance that they will discover any material 

deficiencies in the accounting system, in the internal accounting controls, and in the 

FCM's or IB's system for safeguarding customer and firm assets. Deficiencies in the FCM's 

or IB's procedures are considered to be material inadequacies if, in the absence of 

corrective steps, they could reasonably be expected to inhibit the FCM's or IB's ability to 

complete transactions promptly or to discharge responsibilities to customers or creditors; 

to result in material financial loss; to cause material misstatements in the FCM's or IB's 

financial statements and schedules; or to produce violations of the CFTC's segregation, 

secured amount, recordkeeping, or financial reporting requirements, which could 

reasonably be expected to result in impediments to meeting its obligations, material 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

238 INTERNATIONAL MONETARY FUND 

financial loss, or inaccurate financial reports. 

An accountant who discovers any such material inadequacy in the course of an audit is 

required under CFTC Regulation 1.16 to notify the FCM or IB, who, in turn, must notify the 

CFTC, NFA and the appropriate DSRO. A copy of the notice must also be given to the 

accountant within three business days after it is filed. The accountant is to advise the 

NFA, in the case of an applicant, or the CFTC and the DSRO, in the case of a registrant, 

within three business days if he or she does not receive a copy of the notice and must 

notify these regulatory bodies of any disagreement with the FCM's submission within 

three business days after receiving the copy of the FCM's notice.

CFTC Regulation 1.11 prescribes the requirements for an FCM’s risk management 

program, including the supervision, annual independent testing and review and reporting 

to the FCM’s governing body, and recordkeeping of compliance with the requirements.

Organizational requirements

4. Does the regulatory framework include the assessment of an intermediary’s compliance 

function, taking into account the intermediary’s size and business? When the regulator 

becomes aware of deficiencies are steps taken to require market intermediaries to 

improve their compliance function?

Yes. CFTC Regulation 1.52 governs the CFTC’s DSRO examination program for FCMs, and 

it includes consideration of high risk firms in scope setting, as discussed in Principles 19-

21. NFA will begin conducting on-site examinations of SDs and MSPs during summer 

2014, and DSIO is in the process of initiating examination activities for SDs and MSPs.

5. Does the regulatory framework require a market intermediary to establish and maintain 

appropriate systems of client protection, risk management and internal and operational 

controls, including policies, procedures, and controls relating to all aspects of its day-today business intended reasonably to ensure: 

(a) The integrity of the firm’s dealing practices, including the treatment of all clients in 

a fair, honest and professional manner?

(b) Appropriate segregation of key duties and functions, particularly those duties and 

functions which, when performed by the same individual, may result in undetected 

errors or may be susceptible to abuses which expose the firm or its clients to 

inappropriate risks?

Yes, to all of the above. CFTC Regulations require intermediaries to establish and maintain 

appropriate systems of client protection. CFTC Regulation 23.402(b) requires SDs to 

implement policies and procedures reasonably designed to obtain and retain a record of 

the essential facts concerning each counterparty whose identify is known to the SD prior 

to the execution of the transaction that are necessary for conducting business. CFTC 

Regulation 23.402(c) requires the SD or MSP to obtain a record showing the true name 

and address of each counterparty whose identity is known to the SD or MSP prior to the 

execution of the transaction, the principal occupation or business of such counterparty, 

and the name and address of any other person guaranteeing the performance of such 

counterparty and any person exercising any control with respect to the positions of the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 239

counterparty. CFTC Regulation 23.430 requires an SD or MSP to verify that a counterparty 

meets the eligibility standards for an eligible contract participant, as that term is defined 

by the CEA, before offering to enter into a swap with that counterparty. 

CFTC Regulation 23.431(a)(1) requires an SD or MSP to disclose to non-dealer 

counterparties, material information concerning the swap in a manner reasonably 

designed to allow the counterparty to assess the material risks and characteristics of the 

swap and the incentives and conflicts of interest that the SD or MSP may have in 

connection with the swap. CFTC Regulation 23.433 requires any communication between 

an SD or MSP and any counterparty to be conducted in a fair and balanced manner based 

on principles of fair dealing and good faith. 

CFTC Regulation 166.2 prohibits FCMs, RFEDs, and IBs from effecting a transaction in a 

commodity interest for the account of any customer unless the person designated by the 

customer to control the account specifies the precise commodity interest to be purchased 

and sold and the exact amount to be purchased or sold. 

CFTC regulations require SDs and MSPs to establish, document, maintain, and enforce a 

system of risk management policies and procedures designed to monitor and manage the 

risks associated with the swaps activities of the SD or MSP. The program must include 

policies and procedures necessary to monitor and manage market risk, credit risk, liquidity 

risk, foreign currency risk, legal risk, operational risk, and settlement risk. The risk 

management program must include, at a minimum, the identification of risks and risk 

tolerance limits; provide to senior management and to its governing body quarterly 

written reports setting forth the market, credit, liquidity, foreign currency, legal, 

operational, settlement and any other applicable risk exposures of the SD or MSP; and a 

new product policy designed to identify and take into account the risks of any new 

product prior to engaging in transactions involving the new product. 

CEA Section 4s(j)(5)(A) requires the SD and MSP to implement conflict of interest systems 

and procedures that establish structural and institutional safeguards to ensure that the 

activities of any person within the firm relating to research or analysis of the price or 

market for any commodity or swap acting in a role of providing clearing activities or 

making determinations as to accepting clearing customers are separated by appropriate 

information partitions within the firm from the review, pressure or oversight of persons 

whose involvement in pricing, trading or clearing activities might potentially bias their 

judgment or supervision and contravene the Core Principles of open access and the 

business conduct standards described in the CEA. 

CFTC Regulation 23.605(c) restricts SD and MSP non-research personnel from directing a 

research analyst’s decision to publish a research report of the SD or MSP and nonresearch personnel must not direct the views and opinions expressed in a research report 

of the SD or MSP. Research analysts cannot be subject to the supervision or control of 

any employee of the SD’s or MSP’s business trading unit or clearing unit. 

Communications relating to derivatives to a current or prospective counterparty by a 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

240 INTERNATIONAL MONETARY FUND 

research analyst must not omit any material fact or qualification that would cause the 

communication to be misleading. 

CFTC Regulation 23.605(d) prohibits SDs or MSPs from interfering with or attempting to 

influence the decision of the clearing unit of any affiliate clearing member of a derivatives 

clearing organization (DCO) to provide clearing services and activities to a particular 

customer. SDs and MSPs must create and maintain informational partitions between 

business trading units and clearing units of any affiliated clearing member of a DCO. At a 

minimum, such informational partitions must require that no employee of a business 

trading unit shall supervise, control or influence any employee of the clearing unit of any 

affiliated clearing member of a DCO. 

CFTC Regulation 23.605(e) requires the SD or MSP to adopt and implement written 

policies and procedures that mandate the disclosure to its counterparties of any material 

incentives and any material conflicts of interest regarding the decision of a counterparty 

of whether to execute a derivative on a SEF or a DCM or whether to clear on a DCO. 

To help ensure compliance by registrants with specific operational conduct requirements 

CFTC Regulation 166.3 requires each registrant (except APs with no supervisory duties), to 

“diligently supervise” the handling by its partners, officers, employees and agents of all 

activities relating to its business as a CFTC registrant. CFTC Regulation 1.71(c) prohibits 

non-research personnel from directing a research analyst’s decision to publish a research 

report of the FCM or IB, and non-research personnel must not direct the views and 

opinions expressed in a research report of the FCM or IB and must not review or approve 

a research report of the FCM or IB before its publication. Research analysts must not be 

subject to the supervision or control of any employee of the FCM’s or IB’s trading unit or 

clearing unit and no employee of the business trading unit or clearing unit may have any 

influence or control over the evaluation or compensation of a research analyst. 

CFTC Regulation 1.11 requires FCMs to have a comprehensive risk management program, 

subject to supervision, independent testing and review, and reporting to the FCM’s 

governing body, and CFTC Regulation 1.55 requires FCMs to make firm-specific 

disclosures publicly available.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 241

6. Taking into account Principle 8, does the regulatory framework require a market 

intermediary:

(a) To endeavour to address a conflict of interests arising between its interests and 

those of its clients or between its clients? 

(b) Where the potential for conflicts arises, to have mechanisms in place to manage 

conflicts of interests that seek to ensure an unbiased decision making process, fair 

treatment of all its clients and consider further steps if these prove inadequate, 

which may include disclosure of the conflict, internal rules of confidentiality, 

declining to act where a conflict cannot be resolved?

Yes, to all of the above. CFTC Regulation 23.431(a)(3) requires SDs and MSPs to disclose 

to any counterparty to the swap, the material incentives and conflicts of interest that the 

SD or MSP may have in connection with a particular swap including any compensation or

other incentive from any source that the SD or MSP may receive in connection with the 

swap. 

Part 155 of the CFTC’s regulations requires FCMs and IBs to establish and enforce internal 

rules, procedures and controls to insure, to the extent possible, that orders received from 

customers are transmitted before any order in the same commodity for the benefit of a 

proprietary account. These CFTC regulations prevent FCMs and IBs and their affiliated 

persons from using their knowledge of customer orders to the customer’s disadvantage 

and have helped the CFTC to deter such practices as “front-running” and “trading ahead.” 

CFTC Regulation 1.55 requires the FCM to make firm-specific disclosures, and also requires 

that policies and procedures be adopted to ensure that advertising and solicitation are 

not misleading.

7. If DEA is allowed, does the regulatory framework require market intermediaries to use 

controls, including automated pre-trade controls, which can limit or prevent a DEA client 

from placing an order that exceeds the intermediary’s existing position or credit limits?

Yes. CFTC Regulation 38.607 requires a DCM that permits direct electronic access by 

customers to have in place effective systems and controls reasonably designed to facilitate 

the FCM's management of financial risk, such as automated pre-trade controls that enable 

member FCMs to implement appropriate financial risk limits. A DCM must implement and 

enforce rules requiring the member FCMs to use the provided systems and controls.

Commission Regulation 37.202 requires a SEF to provide impartial access to markets and 

market services. This has been interpreted by DMO to mean that a SEF should allow 

participants to access its platform via intermediation or direct access. The controls 

surrounding this access include the SEF requiring the eligible contract participant (ECP) to 

provide the SEF with written or electronic confirmation of its status as an ECP, as defined 

by the Act and Commission regulations, prior to obtaining access to the SEF. In addition, 

prior to granting access to the ECP, the SEF must require that the ECP consent to it 

jurisdiction. 

CFTC Regulation 48.7 requires an FBOT’s trading system to comply with the IOSCO 

Principles for the Oversight of Screen-Based Trading Systems for Derivative Products, 

which, among other things, provides that the relevant regulatory authorities and the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

242 INTERNATIONAL MONETARY FUND 

exchange should consider risk management exposures pertinent to the system, including 

taking measures to reduce risk by permitting credit controls or position limits to be 

programmed into the system. Additionally, as part of the CFTC’s FBOT registration 

process, an applicant for registration is required to provide information about: risk 

management mechanisms for members allowing customers to place orders; any pre- and 

post-trade risk management controls made available to system users; the laws, rules, 

regulations, and policies that govern the supervision and oversight of market 

intermediaries who may deal with members and other participants located in the United 

States, including recordkeeping requirements, the protection of customer funds, and 

procedures for dealing with the failure of an intermediary; and rules determining access 

requirements with respect to the persons that may trade on the FBOT, and the means by 

which they connect to it. The CFTC evaluates this information as part of its determination 

of whether the FBOT is eligible to be registered, and whether the FBOT’s home regulator 

supports and enforces regulatory objectives that are substantially equivalent to those 

supported and enforced by the CFTC in its oversight of DCMs, such as the regulatory 

objectives of CFTC Regulation 38.607, described above.

Protection of clients

8. If a market intermediary has control of, or is otherwise responsible for, assets belonging to 

a client which it is required to safeguard, are there regulations that require proper 

protection for them (for example, segregation and identification of those assets) by the 

intermediary? Do these measures facilitate the transfer of positions and assist in the 

orderly winding up in the event of financial insolvency and the return of client assets?

Yes. With respect to customer funds held by FCMs, CEA Section 4d(a)(2) and CFTC 

Regulation 1.20 both state that FCMs must separately account for customer funds on their 

books and records, and segregate such customer funds from their own funds and funds of

other persons. The FCM is permitted to pool all customer funds in a single account, which 

must be clearly identified as belonging to customers. Customer funds must be deposited 

by the FCM with a bank, trust company, DCO, or another FCM. The FCM is further 

obligated to obtain a letter from the depository acknowledging that the funds deposited 

represent customer assets under the CEA and that the depository may not offset any 

obligation that the depositing FCM may have with the depository by the funds 

maintained in a segregated account. 

To be in compliance with the CFTC’s segregation requirements, an FCM must always 

maintain in accounts segregated in accordance with CEA Section 4d(a)(2), sufficient funds 

in order to satisfy the net liquidating value of every futures and options customer. Each 

FCM is required to compute a calculation demonstrating its compliance with the 

segregation obligations on a daily basis, and is required to provide the CFTC and its DSRO 

with immediate notification if it is not in compliance with its segregation obligation. 

Should an FCM be under its minimum capital requirements under CFTC Regulation 1.17, it 

must cease doing business as an FCM and transfer customer accounts. In this instance, the 

segregation requirements make the quick transfer of customer funds and positions 

between FCMs possible, and, in that circumstance, the process is directed and monitored 

by the DSRO and the CFTC.

CEA Section 4d(f) requires the segregation of cleared swaps pertaining to customers, as 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 243

well as associated collateral. Part 22 of the CFTC Regulations require cleared swaps 

customer collateral to be segregated from the FCM’s own property, but permits the 

cleared swaps collateral of all FCM cleared swaps customers to be kept together prebankruptcy in one account. The value of the collateral attributable to each customer is 

tracked on a daily basis. This model is known as the Legally Segregated Operationally 

Commingled Model, or LSOC. Following an FCM’s bankruptcy, where there is a shortfall in 

the cleared swaps customer account due to a cleared swaps customer loss that exceeds 

both the cleared swaps customer’s collateral and the FCM’s ability to pay, the DCO could 

only use the collateral value attributable to the cleared swaps customers whose portfolios 

of positions at the DCO suffered losses to meet each such customer’s loss. Thus, all 

collateral attributable to cleared swaps customers whose portfolios of positions gained or 

were “flat” (neither gained nor lost), and the remaining collateral attributable to cleared 

swaps customers whose portfolios of positions lost, would be immediately available for 

transfer.

9. Does the regulatory framework require market intermediaries to provide for an efficient 

and effective mechanism to address investor complaints?

Yes. CFTC Regulation 166.5 sets forth the requirements that must be included in a 

customer account agreement with respect to dispute resolution procedures, including the 

use of arbitration procedures. Three fora exist for the resolution of disputes: civil court 

litigation, CFTC reparations proceedings, and arbitration conducted by an SRO or other 

private organization. An agreement to submit to arbitration must be voluntary and the 

intermediary must not require the customer to waive its right to seek reparations under 

Section 14 of the CEA and Part 12 of the CFTC’s regulations.

CFTC Regulation 23.504 requires SDs and MSPs to execute written trading relationship 

documentation with their counterparties, which must cover all terms governing the 

trading relationship, including dispute resolution. Additionally, CFTC Regulation 

23.201(b)(3) requires that SDs and MSPs retain records of any complaint received, 

including the disposition of the complaint and the date the complaint was resolved.

10. Does the regulatory framework require market intermediaries to identify and verify the 

client’s identity using reliable, independent data, including persons who beneficially own 

or control securities?

Yes. CFTC Regulation 23.402(b) requires each SD to implement policies and procedures to 

obtain and retain a record of the essential facts concerning each counterparty whose 

identity is known to the SD prior to the execution of a transaction that are necessary for 

conducting business with that counterparty, including facts required to comply with 

applicable laws and regulations; facts required to implement the SD’s credit and 

operational risk management policies in connection with transactions entered into with 

such counterparty; and information regarding the authority of any person acting for such 

counterparty. CFTC Regulation 23.402(c) requires the SD or MSP to obtain a record 

showing the true name and address of each counterparty whose identify is known to the 

SD or MSP prior to the execution of the transaction, the principal occupation or business 

of such counterparty, and the name and address of any other person guaranteeing the 

performance of such counterparty and any person exercising any control with respect to 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

244 INTERNATIONAL MONETARY FUND 

the positions of the counterparty. 

CFTC Regulation 1.37 requires each FCM, RFED, IB and member of a contract market to 

keep a record in permanent form which shall show for each commodity interest account 

carried or introduced by it the true name and address of the person for whom such 

account is carried or introduced, the principal occupation or business of such person, and

the name of any other person guaranteeing such account or exercising any trading 

control with respect to such account. For each commodity option account, the records 

kept by the intermediary must also show the name of the person who has solicited and is 

responsible for each customer's account or assign account numbers in such a manner to 

identify that person.

11. Does the regulatory framework require market intermediaries to obtain and retain 

information from a client about their circumstances and investment objectives relevant to 

the services to be provided?

Yes. CFTC Regulation 23.402(b) requires SDs to implement policies and procedures 

reasonably designed to obtain and retain a record of the essential facts concerning each 

counterparty whose identify is known to the SD prior to the execution of the transaction 

that are necessary for conducting business. CFTC Regulation 23.402(c) requires the SD or 

MSP to obtain a record showing the true name and address of each counterparty whose 

identify is known to the SD or MSP prior to the execution of the transaction, the principal 

occupation or business of such counterparty, and the name and address of any other 

person guaranteeing the performance of such counterparty and any person exercising any 

control with respect to the positions of the counterparty. CFTC Regulation 23.430 requires 

an SD or MSP to verify that a counterparty meets the eligibility standards for an eligible 

contract participant, as that term is defined by the CEA, before offering to enter into a 

swap with that counterparty. 

NFA Compliance Rule 2-30 requires the intermediary to know the customer's current 

estimated annual income and net worth and previous investment and futures trading 

experience.

12. Does the regulatory framework require a market intermediary to “know its customer” 

before providing specific advice to a client? 

See response to questions 10 and 11, above.

13. Does the regulatory framework require market intermediaries to keep records containing 

the information above for a reasonable number of years? Is the market intermediary 

required to maintain those books and records in such a way that allows the supervisor to 

be able to find all the relevant facts relating to a particular transaction?

Yes. CEA Section 4s(g)(1) requires SDs and MSPs to maintain daily trading records and all 

related records (including records of related cash and forward transactions) and recorded 

communications, including electronic mail, instant messages, and recordings of telephone 

calls. CEA Section 4s(g)(3) requires that daily trading records for swaps be identifiable by 

counterparty, and CEA Section 4s(g)(4) specifies that SDs and MSPs maintain a “complete 

audit trail for conducting comprehensive and accurate trade reconstructions.” CFTC 

Regulations in Part 23 require records to be maintained which include full and complete 

transaction and position information for all swap activities, including all documents on 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 245

which trade information is originally recorded. Transaction records are required to be 

maintained in a manner that is identifiable and searchable by transaction and by 

counterparty. The CFTC regulations also require SDs and MSPs to keep basic business 

records, including, among other things, minutes from meetings of the entity’s governing 

body, organizational charts, and audit documentation. Additionally, certain financial 

records, records of complaints against personnel, and marketing materials are required to 

be kept. Finally, SDs and MSPs are required to maintain records of information required to 

be submitted to a swap data repository (SDR) and reported on a real-time public basis. 

All records are required to be maintained for a period of five years following the 

termination, expiration or maturity of a swap, with the exception of voice records which 

must be retained for one year. 

CFTC Regulation 1.31 requires all books and records required by the CEA and CFTC 

regulations to be kept for a period of five years and to be readily accessible during the 

first 2 years of the 5-year period. All books and records must be open to inspection by 

any representative of the CFTC or DOJ. The relevant recordkeeping provisions of several 

CFTC regulations, which cover records pertaining to segregated funds, account activity, 

financial condition, customer protection, and other matters, are summarized below. 

CFTC Regulation 1.18 requires FCMs and IBs to prepare and keep current ledgers which 

show each transaction affecting asset, liability, income, expense and capital accounts 

consistent with the classifications specified on the Form 1-FR (or the FOCUS Report if a 

securities broker-dealer).

CFTC Regulation 1.27 requires each FCM that invests customer funds to keep a record 

showing the details of the investment, including the size and type of investment, the date 

of the investment, and any disposition made of the investment.

CFTC Regulation 1.32 requires an FCM to compute each day the customer funds in 

segregated accounts and the FCM's residual interest in those funds, and to keep a record 

of each such computation. 

CFTC Regulation 1.33(a) requires that FCMs prepare a statement for each futures or 

options on futures customer which shows the open contracts acquired or pertinent 

options transactions and their prices, the net unrealized prices in all open contracts 

marked to the market, any customer funds carried with the FCM and a detailed 

accounting of all credits and charges to the customer's account for the month. If there is 

no activity in an account, an account statement need only be prepared every three 

months. Regulation 1.33 (b) requires that each FCM must furnish no later than the next 

business day: (1) a written confirmation of each futures transaction; or (2) a written 

confirmation of an options transaction containing the account identification number, a 

statement of the CFTC, premium or other applicable option charges, the strike price, the 

underlying futures contract or underlying physical, the final exercise date of the option 

and the date the transaction was executed.

CFTC Regulation 1.34 requires each FCM to prepare a monthly balance of all open 

positions which brings to the closing or settlement price all open futures and option 

positions.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

246 INTERNATIONAL MONETARY FUND 

CFTC Regulation 1.35(a) contains general recordkeeping requirements for FCMs and IBs 

with respect to futures, commodity options, and cash commodity transactions. FCMs and 

IBs must keep full, complete, and systematic records, together with all pertinent data and 

memoranda. Records to be kept include all orders (filled, unfilled, or cancelled), trading 

cards, signature cards, street books, journals, ledgers, cancelled checks, copies of 

confirmations, copies of statements of purchase and sale, and all other records, data and 

memoranda which have been prepared in the course of the firm’s business.

CFTC Regulation 1.35(b) requires that the FCM maintain a financial ledger record for each 

customer account showing credits, debits, deposits, withdrawals or transfers, and charges 

or credits resulting from losses or gains on closed positions, along with a central activity

record or journal showing all transactions made each day by the FCM, with trade details 

and the identity of the trader. 

CFTC Regulation 1.36(a) requires FCMs to maintain records of all securities and property 

received from customers to margin, purchase, guarantee, or secure a futures or exchangetraded option transaction. The records must show where the property is deposited and 

any other disposition of the property.

CFTC Regulation 1.37(a) requires FCMs and IBs to keep a record of each account carried or 

introduced, the name and address of the person for whom such account is carried or 

introduced, and such person’s principal occupation or business. The record must also 

show the name of any person guaranteeing the account or exercising any control over it.

CFTC Regulation 1.37(b) requires each FCM carrying a futures or options omnibus account 

for another FCM, foreign broker, or other person to maintain a daily record of the 

positions in each such account. 

CFTC Regulation 1.40 imposes certain recordkeeping requirements relating to crop or 

market information or conditions that affect or tend to affect the price of any commodity.

14. Does the regulatory framework require market intermediaries to provide to the client a 

written contract of engagement or account agreement or a written form of the general 

and specific conditions of doing business through the market intermediary?

Yes. CFTC Regulation 23.402(e) requires an SD or MSP to provide its counterparty with 

information regarding its policies and procedures to prevent evasion of CFTC regulations, 

facts regarding the identity of the counterparty, and the SD’s or MSP’s ability to 

reasonably rely on its counterparty’s representations. 

Further, transactions must be specifically authorized; customer information as discussed 

above must be obtained; risk disclosure must be provided, signed and retained; and 

monthly account statements and confirmations must be provided. 

CFTC Regulation 1.55 requires customer risk disclosures as well as FCM-specific public 

disclosures of firm-specific information as well.

15. Does the regulatory framework require a market intermediary to disclose or make 

available information to its client so that the client can make an informed investment 

decision?
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 247

Yes. CFTC Regulation 23.431 requires an SD or MSP to disclose to non-dealer 

counterparties, material information concerning the swap in a manner reasonably 

designed to allow the counterparty to assess the material risks and characteristics of the 

swap and the incentives and conflicts of interest that the SD or MSP may have in 

connection with the swap. This CFTC regulation also requires SDs to notify its 

counterparty, prior to entering into a swap with a non-SD or MSP counterparty that is not 

made available for trading on a DCM or SEF, that the counterparty can request and 

consult on the design of a scenario analysis to allow the counterparty to assess its 

potential exposure in connection with the swap. Upon such request, the SD must provide 

a scenario analysis, which is designed in consultation with the counterparty and done over 

a range of assumptions, including severe downside stress scenarios that would result in a 

significant loss. The SD must also disclose all material assumptions and explain the 

calculation methodologies used to perform any requested scenario analysis. In designing 

any requested scenario analysis, the SD must consider any relevant analyses that the SD 

undertakes for its own risk management purposes. 

CFTC Regulation 33.7 requires FCMs and IBs, prior to opening a commodity option 

account, to furnish the customer with a written risk disclosure statement and to receive 

from the customer a signed acknowledgement that the risk disclosure statement has been 

received and understood. 

CFTC Regulation 1.55 requires FCMs to provide customers with a written statement 

disclosing the risks of trading, as well as disclosures of firm specific information and the 

protection of customer funds. The topics covered in the risk disclosure statement include 

the potential loss of the total amount of funds deposited and losses beyond those 

amounts, the possibility of margin calls and the liquidation of positions if such calls are 

not met, the possibility that a position cannot be liquidated when desired, the possibility 

that “stop-loss” orders may not be executable, the acknowledgement that spread 

transactions may not be less risky than long or short trades, and the notice that the 

leverage in futures trading can result in large losses as well as large gains. The statement 

also urges the customer to consider his or her own suitability for trading and to study 

futures trading carefully before committing funds.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

248 INTERNATIONAL MONETARY FUND 

16. Does the regulatory framework require market intermediaries to provide a client with 

statements of account, at least annually? 

Yes. With respect to cleared swaps, CFTC Regulation 23.431(d) requires SDs and MSPs to 

notify non-SD or MSP counterparties of the counterparty’s right to receive the daily mark 

from the appropriate DCO. For uncleared swaps, the SD or MSP must provide the non-SD 

or MSP counterparty with a daily mark which shall be the mid-market mark of the swap. 

The mid-market mark of the swap must not include amounts for profit, credit reserve, 

hedging, funding, liquidity, or any other costs or adjustments. The daily mark must be 

provided to the counterparty during the term of the swap as of the close of business or 

such other time as the parties agree in writing.

CFTC Regulation 1.32 requires FCMs to compute as of the close of each business day, on a 

currency-by-currency basis, the total amount of customer funds on deposit in segregated 

accounts; the amount of customer funds required by the CEA and CFTC regulations to be 

on deposit in segregated accounts on behalf of the customer; and the amount of the 

FCM’s residual interest in such customer funds. CFTC Regulation 1.33 requires FCMs to 

provide each customer with a monthly account statement regarding the details of 

transactions in its account, as well as charges and credits to the account. The FCM also 

must provide confirmation statements of each transaction by the next business day 

following the transaction.

17. Does the regulatory framework require market intermediaries to provide a client with 

information about any fees and commissions associated with the client’s transactions?

CFTC Regulation 23.431(a) requires an SD or MSP to make disclosures of material 

information concerning a swap to its counterparty in every swap transaction, including the 

pre-trade mid-market mark of the swap.138 Such disclosures provide important pricing 

information about the spread between the quote and mid-market mark that facilitates 

negotiations and balances historical information asymmetry regarding swap pricing. 

Additionally, where an SD or MSP transacts with a Special Entity139 the SD or MSP must 

disclose all fees and compensation structures in a manner clearly understandable to the 

Special Entity.140 

NFA Compliance Rule 2-4 provides that "Members and Associates shall observe high 

standards of commercial honor and just and equitable principles of trade in the conduct 

 

138 The requirements of Regulation 23.431(a) do not apply to swaps that are transacted anonymously on a DCM or 

SEF.

139 “Special Entity” is defined by CFTC Regulation 23.401(c) as a federal, state, city, county, municipality or other 

political subdivision of a state; an employee plan subject to Title I of the Employee Retirement Income Security Act of 

1974 (29 U.S.C. 1002); any governmental plan, as defined in Section 3 of the Employee Retirement Income Security 

Act of 1974 (29 U.S.C. 1002); any endowment, including an endowment that is an organization described in Section 

501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)); or any employee benefit plan defined in Section 

3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002), not otherwise defined as a Special Entity, 

that elects to be a Special Entity by notifying a swap dealer or major swap participant of its election prior to entering 

into a swap with the particular swap dealer or major swap participant.

140 See Business Conduct Standards for Swap Dealers and Major Swap Participants with Counterparties, 77 FR 9734, 

9797 (Feb. 17, 2012). 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 249

of their commodity futures business." NFA Compliance Rule 2-4 requires that each FCM 

Member, or in the case of introduced accounts, the IB, to make available to its customers, 

prior to the commencement of trading, information concerning the costs associated with 

futures transactions.141 If fees and charges associated with futures transactions are not 

determined on a per trade or round-turn trade basis, the Member must provide the 

customer with a complete written explanation of such fees and charges. The NFA 

recognizes that FCM and IB Members may employ various arrangements in assessing fees 

and charges associated with futures transactions to customers. Any such arrangement 

which is intended to or is likely to deceive customers is a violation of NFA Requirements 

and will subject the Member to disciplinary action.

18. Does the regulatory framework require market intermediaries to act with due care and 

diligence in the best interests of its clients and their assets and in a way that helps 

preserve the integrity of the market?

Yes. Part 23 of the CFTC’s Regulations requires, among other things that SDs and MSPs 

communicate in a fair and balanced manner based on principles of fair dealing and good 

faith with respect to any communication between the SD or MSP and any counterparty,142

and prohibit fraud, manipulation, and other abusive practices.143 An SD acting as an 

advisor to a Special Entity has a duty to make a reasonable determination that any swap 

or trading strategy involving a swap recommended by the SD is in the best interests of the 

Special Entity.144 The SD must also make reasonable efforts to obtain such information as 

is necessary to make a reasonable determination that any swap or trading strategy 

involving a swap recommended by the SD is in the best interest of the Special Entity.145 

NFA Compliance Rule 2-4 provides that Members and Associates shall observe high 

standards of commercial honor and just and equitable principles of trade in the conduct 

of their commodity futures business. NFA Compliance Rule 2-36(c) similarly provides that 

Forex Dealer Members and their Associates shall observe high standards of commercial 

honor and just and equitable principles of trade in the conduct of their forex business. 

See also response to Principle 12, Question 3(c).

19. Can the regulator demonstrate that it has in place a supervision program, including 

internal processes that seek to monitor compliance by market intermediaries with these 

requirements?

To help ensure compliance by registrants with operational conduct requirements, CFTC

Regulation 166.3 requires each registrant, to “diligently supervise” the handling by its 

partners, officers, employees and agents of all activities relating to its business as a CFTC 

registrant. CFTC Regulation 1.52 prescribes the requirements of the DSRO examination

program for compliance. The CFTC’s Division of Swap Dealer and Intermediary Oversight 

examinations staff works with the DSROs to monitor how they carry out Regulation 1.52 

 

141 NFA Bylaws define "futures" to include exchange-traded options. See NFA Compliance Rule 1-1(l).

142 CFTC Regulation 23.433.

143 CFTC Regulation 23.410.

144 See CFTC Regulation 23.440(c)(1).

145 See CFTC Regulation 23.440(c)(2).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

250 INTERNATIONAL MONETARY FUND 

examination functions, including performing desk reviews of FCM examination 

workpapers, as well as performing their own on-site FCM examinations for cause. DSRO 

examination cycles of FCMs must take place between nine and 15-month frequency.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 251

Principle 32 There should be a procedure for dealing with the failure of a market 

intermediary in order to minimize damage and loss to investors and to 

contain systemic risk.

Key Questions

1. Does the regulator have clear plans for dealing with the eventuality of a firm’s failure, 

including a combination of activities to restrain conduct, to ensure assets are properly 

managed and to provide information to the market as necessary?

Yes. The CEA and CFTC regulations, in conjunction with the Bankruptcy Code, provide a 

clear framework for the CFTC and the insolvency officer (“trustee”) to follow in managing the 

failure of an FCM.

Early Warning Mechanisms. As described above, all FCMs are monitored by a DSRO146 for 

compliance with the CEA and CFTC regulations, including CFTC Regulation 1.17 (e.g., 

minimum capital requirement), as well as CEA Section 4d(a)(2) and CFTC Regulations 1.20-

1.30 (e.g., treatment of customer property). 

Additionally, if an FCM is executing transactions on a DCM, then such FCM is required to 

clear such transactions through a DCO.147 In order to clear such transactions, the FCM 

 

146 As mentioned above, an SRO (i.e., a DCM or RFA) has the responsibility for ensuring that an FCM complies with 

the CEA and the CFTC Regulations. The term “DSRO” refers to the SRO that is primarily responsible for a specific 

FCM. If an FCM is a member of more than one SRO, all relevant SROs may decide among themselves which of them 

will be primarily responsible for that FCM, and that SRO will be appointed the DSRO for that FCM.

147 See Section 5(b)(5) of the CEA (stating that, in order to become designated as a DCM, an entity must “establish 

and enforce rules and procedures for ensuring the financial integrity of transactions entered into by or through the 

facilities of the contract market, including the clearance and settlement of the transactions with a derivatives clearing 

organization”). 

A DCO is a central counterparty that “interposes itself between counterparties” to commodity contracts, thereby 

“becoming the buyer to every seller and the seller to every buyer.” See Section 1.1 of CPSS-IOSCO Recommendations 

for Central Counterparties, dated as of November 2004. A DCO guarantees that a member with net gains on its 

positions will receive related amounts, even if the DCO cannot collect such amounts from a member with net losses 

on its positions. Thus, a DCO is essential to managing systemic and counterparty risks in the event that a member 

fails.

To obtain and maintain its registration, a DCO must comply with 18 Core Principles established in Section 5b of the 

CEA and Part 39 of the CFTC Regulations. 

The CFTC evaluates compliance with the Core Principles when reviewing DCO applications, and for DCOs that are 

already registered, the CFTC performs periodic reviews to assess their compliance with the Core Principles on an 

ongoing basis. Such reviews may focus on one or two Core Principles and assess the compliance of multiple DCOs 

with those particular Core Principles (horizontal review), or it may focus on a particular DCO and the compliance of 

that DCO with multiple Core Principles (vertical review). In evaluating DCO applications and performing Core 

Principle reviews, CFTC staff members consider not only documentary information, but also conduct on-site visits and 

independent analysis and testing, if appropriate. CFTC staff members draft confidential memoranda summarizing 

their conclusions with respect to DCO applications and Core Principle reviews, and the CFTC bases its actions on such 

memoranda. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

252 INTERNATIONAL MONETARY FUND 

generally must be a member of the DCO,148 and must therefore comply with the rules of the 

DCO, especially those pertaining to payments and settlements. The FCM is monitored by 

the DCO for compliance with such rules. 

Given the regulatory structure described above, the CFTC has a number of methods for 

ascertaining when an FCM may be experiencing financial distress. First, an FCM has 

affirmative responsibilities under CFTC regulations to notify the CFTC upon the occurrence 

of one of a number of events, any of which may indicate financial distress. For example, 

pursuant to CFTC Regulation 1.12:

 an FCM must provide the CFTC with notice within 24 hours, if such FCM knows or 

should know that its capital exceeds its minimum capital requirement, but only by an 

amount that is less than a certain percentage specified in CFTC Regulation 1.12;149

 an FCM must provide the CFTC with immediate notice, if such FCM knows or should 

know that its capital is less than the amount specified in its minimum capital 

requirement;150

 as mentioned above, an FCM must provide the CFTC with immediate notice, if such 

FCM determines that it has insufficient segregated property; and

 an FCM must provide the CFTC with immediate notice, if such FCM determines that a 

customer account is under margined by an amount that exceeds the adjusted net capital 

of such FCM.151

Second, the CFTC may receive information from a DSRO or a DCO that an FCM is either 

currently not fulfilling its financial obligations, or has a risk profile indicating that it may 

 

148 Most large FCMs are members of a DCO. If an FCM is not a member of a DCO (“Non-Clearing FCM”), it may 

become a customer of, and thereby clear transactions through, an FCM that is a member of a DCO (“Clearing FCM”). 

The Clearing FCM monitors the compliance of the Non-Clearing FCM with payment obligations. Pursuant to CFTC 

Regulation 1.12(f)(2), the Clearing FCM has an affirmative responsibility to notify the CFTC whenever it determines 

that it must immediately liquidate or transfer the positions of a Non-Clearing FCM, or limit the Non-Clearing FCM to 

trading for liquidation only, because the Non-Clearing FCM has failed to meet its payment obligations to the 

Clearing FCM. 

149 Pursuant to CFTC Regulation 1.10(b)(1)(i), the FCM must continue to provide, on a monthly basis, certain financial 

information to the CFTC, in a Form 1-FR (or an equivalent SEC report, if the FCM is also a broker-dealer). However, 

the CFTC may require, pursuant to CFTC Regulation 1.12, the FCM to provide interim financial information, to 

facilitate CFTC monitoring of such FCM.

150 Pursuant to CFTC Regulation 1.12, the FCM must provide, within twenty-four (24) hours of such notice, certain 

financial information to the CFTC, in a Form 1-FR (or an equivalent SEC report, if the FCM is also a broker-dealer).

151 Id.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 253

shortly become unable to fulfill such obligations. Third, the Risk Surveillance Group (“RSG”) 

in DCR may identify such an FCM.152

Management of Potential FCM Failure Pre-Bankruptcy. If the CFTC ascertains, from the 

mechanisms described above, that an FCM may be experiencing financial distress, the CFTC 

will attempt to determine whether there is a significant likelihood that the FCM will fail.153 

The CFTC first gathers information from the DSRO, any other relevant SRO, and the DCO on 

the financial resources available to the FCM (including the liquidity of such resources). The 

CFTC then gathers information, from the same sources, on the potential causes of financial 

distress at the FCM (e.g., extreme market volatility, or concentration of proprietary or 

customer positions opposite to the direction of the market), and on losses that the FCM has 

already sustained, or will likely sustain, from such causes. The CFTC finally considers the 

extent to which the FCM will be able to cover its current or future losses using its available 

financial resources.

If the CFTC determines that an FCM is likely to fail, then it will attempt:

 to cause the transfer of customer accounts. For example, pursuant to CFTC 

Regulation 1.17(a)(4), if an FCM holds less capital than the amount specified in its 

minimum capital requirement, then it generally must transfer all customer accounts 

and immediately cease conducting business as an FCM, until such time as the FCM is 

able to demonstrate compliance with its minimum capital requirement. The FCM 

itself or its DSRO would actually arrange the transfer of customer accounts. The role 

of the CFTC would be to facilitate such transfer as necessary (e.g., grant relief from 

certain notice requirements applicable to such transfer under CFTC Regulation 1.65);

 to determine the effects that such failure would have on the counterparties of the 

FCM, as well as on the futures markets. In most instances, if the FCM is clearing 

transactions through a DCO, the failure would cause minimal disruption to 

counterparties and the futures markets. See the section below entitled “Proper 

Management of Systemic and Counterparty Risks (Whether Pre-Bankruptcy or After 

Bankruptcy).”

If the CFTC determines that an FCM is not likely to fail, then it may permit the FCM to 

continue operations without transferring customer accounts, despite the financial distress 

experienced by the FCM. For example, even if the FCM violates its minimum capital 

 

152 The RSG, as described further below, endeavors on a daily basis: (i) to identify any significant financial risks posed 

by positions in products that (A) an FCM clears through a DCO, and (B) fall within the jurisdiction of the CFTC; and (ii) 

to confirm that such financial risks are being appropriately managed. 

153 In many cases, CFTC staff will receive notice from an FCM for less serious reasons, such as when a clerical error 

causes the capital of an FCM to temporarily fall below the percentage specified in CFTC Regulation 1.12. Such notice 

will generally reveal that the error has been corrected. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

254 INTERNATIONAL MONETARY FUND 

requirement, the CFTC or the relevant DSRO has the discretion, pursuant to CFTC Regulation 

1.17(a)(4), to allow the FCM a maximum of ten days to achieve compliance with such 

requirement, without transferring customer accounts and ceasing business, provided that 

the FCM immediately demonstrates to the CFTC or the DSRO its ability to achieve 

compliance within that time period. In determining whether the FCM has met its 

demonstration burden, the DSRO and the CFTC are in routine contact and work 

cooperatively. 

Management of FCM Bankruptcy. If an FCM becomes the subject of bankruptcy 

proceedings, then Subchapter IV of Chapter 7 of the Bankruptcy Code (“Subchapter IV”), in 

conjunction with CFTC Regulation Part 190 (“Part 190”), would govern such proceedings. As 

described below, Subchapter IV and Part 190 set forth a clear structure for the liquidation of 

a commodity broker, including an FCM.

This structure promotes the prompt and effective transfer of customer positions and 

associated collateral to a financially solvent transferee FCM, or the prompt return of 

customer property.

Restraints on Conduct. Pursuant to CFTC Regulation 190.04(d)(2), the trustee appointed to 

administer the bankruptcy proceedings of an FCM is not permitted to purchase or sell new 

commodity contracts for the customers of such FCM, with the exceptions noted below. In 

general, CFTC Regulation 190.04(d)(2) presumes that an FCM subject to bankruptcy 

proceedings is insolvent and, therefore, that such FCM does not have sufficient capital to 

operate its business, which business may include supporting the credit of its customers or 

performing on other obligations. Thus, in restricting the conduct of the trustee, CFTC 

Regulation 190.04(d)(2) aims to minimize the risk of loss to customers of the FCM.

However, CFTC Regulation 190.04(d)(2) recognizes that, even where an FCM is insolvent, 

certain purchases or sales of new commodity contracts may be risk-reducing, and thus may 

prevent material erosion in value of open commodity contracts constituting customer assets. 

Therefore, CFTC Regulation 190.04(d)(2) permits the trustee to engage in such purchases or 

sales to achieve any of the following purposes: (i) to offset an open commodity contract; (ii) 

to transfer any transferable notice applicable to an open commodity contract; or (iii) to cover 

or partially cover, with the approval of the CFTC, inventory or commodity contracts of the 

FCM that cannot be immediately liquidated due to market conditions (including price limits).

Moreover, CFTC Regulation 190.04(d)(3) provides an exception, permitting the trustee, with 

the written permission of the Commission, to operate the business of the debtor in the 

ordinary course, including the purchase or sale of new commodity contracts on behalf of the 

customers of the debtor under appropriate circumstances, such as where a transfer has been 

arranged but has not yet been approved or completed.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 255

Proper Management of Assets. 

Pre-Petition Transfers. If, pursuant to Regulation 1.17(a)(4), the FCM had transferred 

customer accounts before becoming subject to bankruptcy proceedings, then Section 

764(b) of the Bankruptcy Code, in conjunction with CFTC Regulation 190.06(g)(1)(i), 

would protect such transfer from avoidance by the trustee. Specifically, Section 764(b) 

of the Bankruptcy Code prohibits a trustee from avoiding a transfer of customer 

positions in a commodity contract (and the collateral securing such positions), if the FCM 

made such transfer prior to seven calendar days after becoming subject to bankruptcy 

proceedings, and if the CFTC had approved such transfer by rule or order. In general, 

the CFTC has approved such transfer by promulgating CFTC Regulation 190.06(g)(1)(i), 

which prohibits a trustee from avoiding a transfer of customer accounts pursuant to 

CFTC Regulation 1.17(a)(4), unless the CFTC has specifically disapproved such transfer.

Post-Petition Transfer. An FCM may become subject to bankruptcy proceedings 

before it transfers customer accounts pursuant to CFTC Regulation 1.17(a)(4). In that 

case, CFTC Regulation 190.02(e) requires the trustee to immediately use its best efforts 

to transfer eligible customer accounts, as determined in accordance with CFTC 

Regulation 190.06(e) and (f). If the trustee makes such transfer prior to seven calendar 

days after the FCM becomes subject to bankruptcy proceedings, then Section 764(b) of 

the Bankruptcy Code, in conjunction with CFTC Regulation 190.06(g)(2), would protect 

such transfer from later attempts at avoidance.

Distribution of Assets in Customer Accounts. If the trustee determines, in accordance 

with CFTC Regulation 190.06(e) and (f), that certain customer accounts are not eligible 

for transfer, then the trustee must liquidate, in accordance with CFTC Regulation 

190.02(f), the positions and accompanying collateral held in such accounts. As a 

practical matter, transfers of such accounts may be (and, in most cases have been) 

permitted, with the consent of the Commission.

With respect to customer collateral that is not transferred, the trustee must distribute the 

proceeds. Section 761(10) of the Bankruptcy Code characterizes such proceeds as 

“customer property.” Section 766(h) of the Bankruptcy Code requires the trustee to 

distribute “customer property” to customers of the FCM, “in priority to all other claims,” 

except claims attributed to the administration of such property. Therefore, under 

Section 766(h) of the Bankruptcy Code, “customer property” will be used to satisfy the 

claims held by customers of an FCM, until and unless this is fully accomplished. 

Accordingly, customer property is not available to satisfy the claims held by other 

creditors of such FCM, with the exception of claims attributed to the cost of 

administration of “customer property.”

Section 766(h) of the Bankruptcy Code further requires the trustee to allocate “customer 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

256 INTERNATIONAL MONETARY FUND 

property” among customers of an FCM pro rata, on the basis of “allowed net equity 

claims.” CFTC Regulation 190.08 specifies the manner in which the trustee must 

calculate such claims for each customer. Pro rata allocation provides a method for 

mutualizing any shortfalls in “customer property” in a fair and efficient manner that 

fosters prompt transfer of customer positions and associated collateral.

As described above, Section 4d(a)(2) of the CEA ensures the integrity of “customer 

property” by requiring that an FCM: (i) treat all collateral securing the positions of a 

customer, as well as all amounts accruing to such positions, as belonging to such 

customer; (ii) separately account for such collateral and amounts; and (iii) refrain from (A) 

commingling such collateral and amounts with proprietary funds, and (B) using the 

collateral and amounts belonging to one customer to margin or guarantee the 

transactions of, or to secure or extend credit to, another customer. As described above, 

the CFTC implemented Section 4d(a)(2) of the CEA by promulgating CFTC Regulations 

1.20 to 1.30, which address the treatment of customer property, including investments of 

such property by an FCM.

Provision of Information to the Market. CFTC Regulation 190.02(a) requires: (i) an FCM 

filing a voluntary bankruptcy petition to notify the CFTC, as well as its DSRO, upon or before 

making such filing; and (ii) an FCM subject to an involuntary bankruptcy petition to notify 

the CFTC, as well as its DSRO, no later than one business day after the FCM receives 

information of such petition. Upon receiving such notification, both the CFTC and the DSRO 

will have the ability to provide information regarding such bankruptcy petition to the public, 

as necessary.

As a practical matter, FCM insolvencies receive prompt and widespread media coverage.

Proper Management of Systemic and Counterparty Risks (Whether Pre-Bankruptcy or 

After Bankruptcy). In general, if a DCO currently cannot collect payments from a member, 

or if a DCO believes that it will shortly be unable to collect such payments,154 the DCO will 

declare the member to be in default. The rules of the DCO would govern the management 

of such default. Usually, such rules would permit: (i) the DCO to liquidate or transfer 

positions carried by the defaulting member; (ii) the DCO to access all property held in the 

proprietary accounts of the defaulting member; (iii) the DCO to access all property held in 

the customer account of the defaulting member, if the default of the member to the DCO 

resulted from the default of a customer to the member; and (iv) the DCO to access any 

amounts that the defaulting member had contributed to the guarantee fund. If the 

proceeds from (i) through (iv) do not cover all DCO losses, then the rules of the DCO may 

permit: (A) the DCO to access the amounts that non-defaulting members had contributed 

 

154 In general, if a DCO suspects that a member will shortly be unable to make scheduled payments, a DCO would 

request that such member deposit additional performance bond. If the member is unable to make such deposit, 

then the DCO would declare such member to be in default. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 257

to the guarantee fund; (B) the DCO to look to its own capital; and (C) the DCO to levy an 

assessment on all members.

The U.S. Bankruptcy code provides a variety of "safe harbor" provisions by preventing the 

avoidance of margin payments and protecting transfers of customer positions and 

associated collateral from reversal.155 

2. Are there early warning systems or other mechanisms in place to give the regulator notice of 

a potential default by a market intermediary and time to address the problem and to take 

corrective actions?

Yes. See response to Principle 32, Question 1.

3. Does the regulator have the power to take appropriate actions: In particular, can it:

(a) Restrict activities by the intermediary with a view to minimizing damage and loss to 

investors?

Yes. See response to Principle 32, Question 1.

(b) Require the intermediary to take specific actions, for example, moving client accounts 

to another intermediary?

Yes. See response to Principle 32, Question 1.

(c) Request appointment of a monitor, receiver, curator, or other administrator or, in the 

absence of such power, can the regulator apply to the relevant authorities to take 

possession or control of the assets held by the intermediary or by a third party on 

behalf of the intermediary?

Yes. Pursuant to Section 6(c) of the CEA, the CFTC has the authority to request the 

appointment of a monitor, receiver, curator or other administrator, with respect to an FCM 

that the CFTC has reason to believe is violating or has violated any provision in the CEA and 

the CFTC Regulations.

(d) Apply other available measures intended to minimize client, counterparty and 

systemic risk in the event of intermediary failure, such as client and settlement 

insurance schemes or guarantee funds?

Yes. See response to Principle 32, Question 1. There is no insurance scheme or guarantee 

fund for customer recompense in the event of intermediary failure in the case of a shortfall 

in customer property, although there are significant regulatory requirements to keep 

customer property fully segregated to identify a shortfall quickly and transfer business, and 

provide priority claims to customer property under bankruptcy.

 

155 See, e.g., 11 U.S.C. 362(b)(6), (7); 11 U.S.C. 556; 11 U.S.C. 764.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

258 INTERNATIONAL MONETARY FUND 

4. Can the regulator demonstrate that it has the power and practical ability to take these 

actions against an intermediary?

To date, FCMs with customers trading exchange-traded futures and options on futures have 

been able to absorb some losses without causing any loss to their customers, and to wind 

down their business without disrupting the orderly functioning of markets. Even in a 

situation in which there appeared to be improper transfers of customer property resulting in 

a very significant deficiency in customer property developing over the course of a few days 

(MF Global), the FCM was immediately placed in Securities Investor Protection Corporation 

(SIPC) resolution when the deficiency in customer property was identified, which was the 

next business day. Customer accounts were transferred within hours and days, and market 

disruption was avoided. Although there was a shortfall in customer accounts, the 

bankruptcy process has enabled the satisfaction in full of all allowed net equity claims. 

Following the failure of MF Global, significant new enhancements have been made to the 

CFTC’s customer protection regime, including new requirements for FCM policies and 

procedures, reporting, independent CFTC and DSRO verification of balances with 

depositories, daily segregation reporting, additional firm specific disclosure, and risk 

management program requirements.

5. Do the regulator’s processes and procedures for addressing financial disruption include 

communication and cooperation with other regulators, both domestic and foreign, where 

appropriate, and is there evidence that contact arrangements are in place and that such 

cooperation occurs?

Yes. As a routine matter, the CFTC communicates and cooperates with other regulators, 

both domestic and foreign, on areas of mutual interest. With respect to potential financial 

disruption, the CFTC communicates and cooperates with the appropriate domestic and/or 

foreign regulator. The CFTC also formally interacts with other financial regulatory agencies 

through its participation in FSOC and staff working groups thereunder. If the CFTC wishes to 

share non-public information with another regulator, it does so pursuant to an MOU or a 

less formal arrangement in order to ensure that the requirements of Section 8(e) of the CEA 

are satisfied. See also responses to Principle 1, Question 2(d), and Principles 13-15.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 259

PRINCIPLES RELATING TO SECONDARY MARKETS (33-37)

Principle 33 The establishment of trading systems including securities exchanges should 

be subject to regulatory authorization and oversight.

Key Questions

Exchanges or Trading Systems, Subject to Regulation

1. Does the establishment of an exchange or trading system require authorization?

Yes. Any market that seeks to provide a trading facility to trade futures, options on futures 

or options on commodities must apply to the CFTC to become a DCM, unless some 

exemption or exclusion would apply. Section 4(a) of the CEA establishes the basis for 

requiring DCMs to register. 

Section 5h(a)(1) of the CEA requires that any multilateral trading facility that offers swaps 

must register with the CFTC as either a DCM or SEF. (SEF registration is only available for 

swaps trading facilities that limit participation to a sophisticated investor category known as 

ECPs.) CEA Section 5h, added to the CEA by the Dodd-Frank Act, and Part 37 of the CFTC’s 

regulations establish a comprehensive regulatory framework, including registration, 

operation and compliance requirements for SEFs. To be registered and maintain 

registration, a SEF must comply with fifteen enumerated Core Principles and the 

requirements of the Part 37 rules. 

Section 4(b)(1) of the CEA authorizes the CFTC to adopt rules and regulations requiring 

FBOTs that provide the members of the FBOT or other participants located in the U.S. with 

direct access to the electronic trading and order matching system of the FBOT to register 

with the Commission. CFTC Regulation 48.3 makes it unlawful for an FBOT to permit direct 

access to its electronic trading and order matching system unless and until the CFTC has 

issued a valid and current Order of Registration to the FBOT. In order to become registered 

with the CFTC, an FBOT must demonstrate, among other things, that it and its clearing 

arrangements156 satisfy the requirements set forth in CFTC Regulation 48.7.157 

2. Are there criteria for the authorization of exchange and trading system operators that:

(a) Require analysis and authorization of the market by a competent authority? 

Yes. The authorization of DCMs, SEFs and FBOTs requires analysis of their compliance with 

statutory and administrative requirements.

DCMs. Statutory and administrative standards for DCM status. The procedures and 

 

156 Transactions executed on an exchange may be cleared by a clearing organization that is part of the same corporate entity as the 

exchange (e.g., CME Group); an affiliated entity of the exchange (e.g., transactions executed on ICE Futures U.S. are cleared by ICE 

Clear U.S.); or an entity that is unaffiliated with the exchange (e.g., Options Clearing Corporation).

157 The FBOT must demonstrate, for example, that it satisfies certain requirements with respect to, among other things, its 

membership, its automated trading system, the terms and conditions of the contracts to be made available in the United States, 

clearing and settlement, its rules and enforcement thereof, and information sharing arrangements. CFTC Regulation 48.7. The 

requirements applicable to the FBOT’s clearing organization may alternatively be met by demonstrating that the clearing 

organization is registered and in good standing with the CFTC as a DCO. CFTC Regulation 48.7. All contracts offered are required 

to be cleared and are subject to certain restrictions. See e.g., CFTC Regulation 48.7(c)(1)(ii).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

260 INTERNATIONAL MONETARY FUND 

requirements for designation as a DCM are set forth in Section 5 of the CEA and Part 38 of 

the CFTC's regulations. Appendix B to Part 38 provides guidance to applicants seeking to 

become designated as DCMs.

Criteria for DCM Status and Ongoing DCM Requirements. To be designated and 

maintain designation as a contract market, a board of trade must comply with 23 Core 

Principles as set forth in Section 5(d) of the CEA and Part 38 of the CFTC's regulations. 

Those Core Principles are:

1. Designation as contract market 

2. Compliance with rules

3. Contracts not readily subject to manipulation

4. Prevention of market disruption

5. Position limits or accountability

6. Emergency authority

7. Availability of general information

8. Daily publication of trading information

9. Execution of transactions

10. Trade information

11. Financial integrity of contracts

12. Protection of markets and market participants

13. Disciplinary procedures

14. Dispute resolution

15. Governance fitness standards

16. Conflicts of interest

17. Composition of governing boards of contract markets

18. Recordkeeping

19. Antitrust considerations

20. System safeguards

21. Financial resources

22. Diversity of board of directors

23. Securities and Exchange Commission

Application Process. Applicants for designation must submit Form DCM and follow the 

application procedures set forth in CFTC Regulation 38.3. Form DCM is available in 

Appendix A to Part 38 of the CFTC’s regulations. The application must include information 

sufficient to demonstrate compliance with the Core Principles specified in section 5(d) of the 

CEA. An application will not be considered to be materially complete unless the application 

has submitted, at a minimum, the exhibits required in Form DCM. The CFTC reviews new 

applications for designation as a contract market pursuant to the 180-day time frame and 

procedures specified in Section 6(a) of the CEA. The CFTC may approve or deny the 

application or, if deemed appropriate, designate the applicant as a contract market subject 

to conditions.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 261

See How to Become a Contract Market at: 

http://www.cftc.gov/IndustryOversight/TradingOrganizations/DCMs/dcmhowto

SEFs. Statutory and administrative standards for SEF status. Criteria, procedures and 

requirements for registration as a SEF are set forth in Section 5(h) of the CEA and Part 37 of 

the CFTC's regulations. Appendices A and B to Part 37 provide specific information on these 

requirements and guidance. Additional Staff Guidance on SEFs can be found at 

http://www.cftc.gov/LawRegulation/DoddFrankAct/GuidanceQandA/index.htm. 

Registration requirements and ongoing compliance with Core Principles. To be 

registered, and maintain registration as a SEF, a SEF must comply, on a continuing basis, with 

the following 15 Core Principles as set forth in Section 5h(f) of the CEA and Part 37 of the 

CFTC’s regulations. Those Core Principles are: 

1. Compliance with core principles

2. Compliance with rules

3. Swaps not readily subject to manipulation

4. Monitoring of trading and trade processing

5. Ability to obtain information

6. Position limits or accountability

7. Financial integrity of transactions

8. Emergency authority

9. Timely publication of trading information

10. Recordkeeping and reporting

11. Antitrust considerations

12. Conflicts of interest

13. Financial resources

14. System safeguards

15. Designation of chief compliance officer

Application Process. CFTC Regulation 37.3 sets forth the requirements and procedures for 

registration as a SEF. Form SEF is available in Appendix A to Part 37 of the CFTC’s 

regulations. The application must include information sufficient to demonstrate compliance 

with the Core Principles specified in Section 5h of the CEA. An application will not be 

considered to be materially complete unless the application has submitted, at a minimum, 

the exhibits required in Form SEF. The CFTC will issue an order granting registration upon its 

determination that the applicant has demonstrated compliance with the CEA and 

regulations applicable to SEFs. If appropriate, the CFTC may issue an order granting 

registration subject to conditions. 

FBOTs. Criteria, procedures and requirements for registration as an FBOT are set forth in 

Section 4(b) of the CEA, and Part 48 of the CFTC’s regulations. In determining whether to 

register an FBOT, the CFTC evaluates whether the FBOT’s home regulatory authority 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

262 INTERNATIONAL MONETARY FUND 

oversees the FBOT in a manner that is comparable to the CFTC’s oversight of DCMs; 

specifically, whether the FBOT’s regulator supports and enforces regulatory objectives that 

are substantially equivalent to those supported and enforced by the CFTC, such as 

prevention of market manipulation and customer and market abuse. Upon registration, the 

FBOT is not subject to Commission oversight.

(b) Seek evidence of operational or other competence of the operator of an exchange or 

trading system as a secondary market?

Yes for both DCMs and SEFs.

DCMs

The competency of system or market operators who apply for designation as a DCM are

evaluated through the process whereby the system or operator demonstrates its capacity to 

operate in compliance with the Core Principles under CEA Section 5(d) and CFTC regulations 

in Part 38. Once a market receives designation, DCM Core Principle 15, Governance Fitness 

Standards, requires the DCM to establish and enforce appropriate fitness standards for 

directors, members of any disciplinary committee, members of the contract market, and any 

other persons with direct access to the facility. 

The guidance in Appendix B to Part 38 of the CFTC Regulations provides, in part, that the 

minimum standards of fitness for persons who have member voting privileges, governing 

obligations or responsibilities, or who exercise disciplinary authority are the bases for refusal 

to register a person under Section 8a(2) of the CEA. In addition, persons with governing 

obligations or responsibilities, or who exercise disciplinary authority, should not have a 

significant history of serious disciplinary offenses such as those that would be disqualifying 

under CFTC Regulation 1.63. 

SEFs

The competency of facilities that apply for registration as a SEF is demonstrated through a 

facility’s capacity to operate in compliance with the Core Principles under CEA Section 5(f) 

and CFTC Regulations in Part 37. In particular, Core Principle 13 requires SEFs to have 

adequate “managerial resources” to discharge the SEF’s responsibilities. 

The CFTC collects relevant information about the operational or other competence as part of 

the SEF application process. Form SEF requires, among other information, a “[b]rief account 

of the business experience of each officer and director over the last five (5) years,” “a 

description of the personnel qualifications for each category of professional employees 

employed by the Applicant or the division, subdivision, or other separate entity within the 

Applicant,” and “an analysis of staffing requirements necessary to carry out the operations of 

the Applicant as a swap execution facility and the name and qualifications of each key staff 

person.”

158

 Further, Form SEF requires an exhibit setting forth the “fitness standards for the 

Board of Directors and its composition.”

 

158 Form SEF : http://www.cftc.gov/ucm/groups/public/@industryoversight/documents/file/formsef.pdf
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 263

(c) Require the operator of an exchange or trading system that assumes principal, 

settlement, guarantee or performance risk to comply with prudential and other 

requirements designed to reduce the risk of non-completion of transactions (e.g., 

mandatory margin assessment and collection, capital or financial resources, member 

contributions, guaranty fund, credit or position limits)? 

Yes. DCMs and SEFs are required to adopt and enforce rules for ensuring the financial 

integrity of transactions, which includes the clearance and settlement of transactions with a 

DCO that is registered with the Commission. 

DCMs

DCM Core Principle 11 states that the DCM shall establish and enforce rules and procedures 

for ensuring the financial integrity of transactions entered into on or through the facilities of 

the contract market (including the clearance and settlement of the transactions with a DCO 

that is registered with the Commission). The DCM is also required to establish and enforce 

rules to ensure the financial integrity of any FCM or IB, and the protection of customer 

funds. Specific requirements implementing DCM Core Principle 11 are contained in subpart 

L of Part 38 of the CFTC regulations.

Each DCM must adopt rules prescribing minimum financial and related reporting 

requirements for members who are registered FCMs or registered RFEDs. Each SRO must 

also establish and operate a supervisory program that includes written policies and 

procedures concerning the application of the supervisory program in the examination of 

its member registrants for the purpose of assessing whether each member registrant is in 

compliance with the applicable DCM and CFTC regulations governing minimum net 

capital and related financial requirements, the obligation to segregate customer funds, 

risk management requirements, financial reporting requirements, recordkeeping 

requirements, and sales practice and other compliance requirements. The supervisory 

program must address each of the elements contained in CFTC Regulation 1.52(c)(1). The 

DCM must also arrange for an examinations expert to evaluate the supervisory program 

at least every three years and report the results of the evaluation to the CFTC within 30 

days of receiving the report. 

DCMs are required to adopt rules that “provide for the exercise of emergency authority,” 

which includes, among other powers, the ability to suspend or curtail all trading in a 

contract under Core Principle 6. This emergency authority is intended to allow DCMs to 

“intervene as necessary to maintain markets with fair and orderly trading and to prevent 

or address manipulation or disruptive trading practices.” 

DCMs must notify the CFTC promptly after exercising emergency authority to explain the 

reasons for the actions taken and submit a rule certification under Part 40 of the 

Commission’s regulations to explain actions taken to address the emergency. A DCM

must also have rules that allow it to take such market action as may be directed by the 

CFTC.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

264 INTERNATIONAL MONETARY FUND 

SEFs

SEF Core Principle 7 states that the SEF shall establish and enforce rules and procedures for 

ensuring the financial integrity of swaps entered on or through the facilities of the SEF, 

including the clearances and settlement of the swaps subject to the mandatory clearing 

requirement of section 2(h)(1) of the CEA.

CFTC Regulation 37.701 requires transactions executed on or through the SEF that are 

required to be cleared under CEA Section 2(h)(1)(A) or that are voluntarily cleared by the 

counterparties to be cleared through a DCO. CFTC Regulation 37.702 requires a SEF to 

establish minimum financial standards for its members, which shall at a minimum require 

that members qualify as an ECP as defined by CEA Section 1a(18). CFTC Regulation 37.703 

requires a SEF to monitor its members to ensure the members continue to qualify as ECPs. 

SEF Core Principle 8 requires a SEF to adopt rules to provide for the exercise of emergency 

authority, in consultation or cooperation with the CFTC, as is necessary and appropriate, 

including the authority to liquidate or transfer open positions in any swap or to suspend or 

curtail trading in a swap. See CFTC Regulation 37.800. 

(d) Permit the regulator to impose ongoing conditions (as appropriate) on the operator 

of an authorized exchange or regulated trading system, such as the obligation to 

establish rules, policies and procedures to prevent fraudulent behaviour, treat all 

members or participants fairly, and have the capacity to carry out the market’s and 

the competent authority’s obligations? 

Yes. A DCM applicant must demonstrate its capacity to operate in compliance with the Core 

Principles and CFTC regulations on an ongoing basis under CEA Section 5(d). The CFTC may 

approve a DCM application with conditions under CFTC Regulation 38.3. 

A facility applying for registration as a SEF must satisfactorily demonstrate its capacity to 

operate in compliance with the Core Principles and CFTC Regulations pursuant to CEA 

Section 5h. The CFTC may approve a SEF application with conditions under CFTC Regulation 

37.3(b)(6).

Supervision

3. Does regulation require an assessment of:

(a) The reliability of all arrangements made by the operator for the monitoring, 

surveillance and supervision of an exchange or trading system and its members or 

participants to ensure fairness, efficiency, transparency and investor protection, as 

well as compliance with securities legislation? The market’s dispute resolution and 

appeal procedures or arrangements as appropriate, its technical systems standards 

and procedures related to operational failure, information on its record keeping 

system, reports of suspected breaches of law, arrangements for holding client funds 

and securities, if applicable, and information on how trades are cleared and settled?

Yes.

DCMs

The CFTC’s review of the capacity of the applicant to continuously meet the obligations of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 265

CEA Section 5(d) requires a DCM to demonstrate that it can implement a trade practice 

monitoring system to monitor trading and supervise rule compliance by members; a market 

surveillance system to deter, detect and address manipulation; and a disciplinary process to 

address violations of exchange rules. 

CFTC Regulation 38.3 requires an applicant to demonstrate that it complies with all Core 

Principles, which include providing the CFTC with a copy of all rules, technical manuals, other 

guides or instructions for users of, or participants in, the market; a description of the trading 

system, algorithms, security and access limitation procedures; and copies of any agreements 

that enable or empower the applicant to comply with the Core Principles. 

Note: The CEA imposes statutory continuing obligations on DCMs, and the CFTC supervises 

the implementation of the exchange’s mechanisms and programs to meet those obligations. 

DCM Core Principle 2 requires a DCM to establish, monitor and enforce compliance with 

rules prohibiting abusive trading practices and to have the capacity to, among other things, 

detect, investigate and apply sanctions to any person that violates the rule of the DCM. 

Under CFTC Regulations 38.250 and 38.251, the applicant must demonstrate the means to 

monitor trading conduct, to supervise the system, and to address disorderly trading 

conditions. 

DCM Core Principle 12 requires a DCM to establish and enforce rules to protect markets and 

market participants from abusive practices and to promote fair and equitable trading on the 

DCM. The CFTC’s regulations require trade practice monitoring systems to monitor trading 

and supervise rule compliance by members; a market surveillance system to deter, detect 

and address manipulation; and a disciplinary process to address violations of exchange rules. 

CFTC Regulation 38.155(a) requires that a DCM establish and maintain sufficient compliance 

staff and resources to conduct audit trail reviews, trade practice surveillance, market 

surveillance, real-time market monitoring, and the ability to address unusual market or 

trading events and to complete any investigations in a timely manner. 

DCM Core Principle 4 requires a DCM to have the capacity and responsibility to prevent 

manipulation, price distortion, and disruptions of the delivery or cash-settlement process 

through market surveillance, compliance, and enforcement practices and procedures, 

including methods for conducting real-time monitoring of trading; and comprehensive 

and accurate trade reconstructions.

DCM Core Principle 10 requires the DCM to maintain rules and procedures to provide for 

the recording and safe storage of all identifying trade information in a manner that enables 

the contract market to use the information to assist in the prevention of customer and 

market abuses and to provide evidence of any violations of the rules of the contract market. 

In addition, CFTC Regulations 38.604-38.606 impose certain financial surveillance 

requirements on DCMs. CFTC Regulation 38.604 requires a DCM to monitor its members’ 

compliance with the DCM’s minimum financial standards, routinely receive and promptly 

review financial and related information from its members and continuously monitor the 

positions of its members and their customers. It also requires a DCM to have rules that 

prescribe minimum capital requirements for member FCMs and IBs. Moreover, a DCM is 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

266 INTERNATIONAL MONETARY FUND 

required to continually survey the obligations of each FCM created by the positions of its 

customers; compare those obligations to the financial resources of the FCM, as appropriate; 

and take appropriate steps to use this information to protect customer funds. Under CFTC 

Regulation 38.605, a DCM’s financial surveillance program for FCMs, RFEDs, and IBs must 

comply with the requirements of CFTC Regulation 1.52 to assess the compliance of such 

entities with applicable contract market rules and Commission regulations. Pursuant to 

CFTC Regulation 38.606, a DCM may comply with the requirements of CFTC Regulations 

38.604 and 38.605 through the regulatory services of a RFA or a registered entity 

(“Regulatory Service Provider”), but must make sure that its Regulatory Service Provider has 

the capacity and resources necessary to provide timely and effective regulatory services, 

including adequate staff and appropriate surveillance systems. Regulatory services must be 

provided under a written agreement with the Regulatory Services Provider that specifically 

documents the services to be performed and the capacity and resources of the Regulatory 

Service Provider with respect to the services to be performed. However, at all times, the 

DCM remains responsible for compliance with its obligations under the CEA and CFTC 

regulations, and for the Regulatory Service Provider’s performance on its behalf. 

DCM Core Principle 18 requires the DCM to maintain records of all activities related to 

the business of the contract market in a form and manner acceptable to the CFTC for a 

period of 5 years. 

DMO’s Examinations Branch conducts regular reviews of each DCM’s ongoing compliance 

with the Core Principles and related regulations through the self-regulatory programs 

operated by the exchange or its third-party self-regulatory service provider. Such reviews, 

known as RERs, include review of an exchange’s ability to enforce its rules, prevent market 

manipulation and customer and market abuses, and ensure the recording and safe storage 

of trade information. 

Periodic RERs normally examine a DCM’s audit trail, trade practice surveillance, disciplinary, 

and dispute resolution programs for compliance with the relevant Core Principles, which 

include Core Principle 10, Trade Information, and Core Principle 18, Recordkeeping, with 

respect to audit trail programs; Core Principle 2, Compliance With Rules, and Core Principle 

12, Protection of Markets and Market Participants, with respect to trade practice surveillance 

and disciplinary programs; and Core Principle 13, Disciplinary Procedures, with respect to 

dispute resolution programs.

Other periodic RERs normally examine a DCM’s market surveillance program for compliance 

with Core Principle 4, Prevention of Market Disruption, and Core Principle 5, Position 

Limitations or Accountability. On some occasions, these two types of RERs may be 

combined in a single RER. The Compliance Section of the Examinations Branch can also 

conduct horizontal RERs of the compliance of multiple exchanges in regard to particular 

core principles.

In conducting an RER, DMO staff examine trading and compliance activities at the exchange 

in question over an extended time period selected by DMO, typically the twelve months 

immediately preceding the start of the review. Staff conducts extensive review of 

documents and systems used by the exchange in carrying out its self-regulatory 

responsibilities; interviews compliance officials and staff of the exchange; and prepares a 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 267

detailed written report of its findings. The RER report is typically made available to the 

public and posted on the Commission’s website.159

With respect to clearing and settlement information, CFTC Regulation 38.601 requires 

transactions executed on or through a DCM to be cleared through a DCO that is registered 

with the Commission in accordance with Part 39 of the Commission’s regulations.

SEFs

SEF Core Principle 1 states that, to be registered and maintain registration as a SEF, the SEF 

must comply with the Core Principles and any other requirements the CFTC may impose. 

CFTC Regulation 37.5(b) provides that, upon the CFTC's request, a SEF shall file with the 

CFTC a written demonstration, containing supporting data, information, and documents that 

it is in compliance with one or more Core Principles or with its other obligations under the 

CEA or the CFTC’s regulations as the CFTC specifies in its request. 

SEF Core Principle 2 requires SEFs to establish and enforce trading, trade processing, and 

participation rules that will deter abuses and have the capacity to detect, investigate, and 

enforce those rules, including means to provide market participants with impartial access to 

the market and to capture information that may be used in establishing whether rule 

violations have occurred. CFTC Regulation 37.203 requires a SEF to establish a rule 

enforcement program for the monitoring, surveillance and supervision of the SEF and its

market participants. CFTC Regulation 37.206 requires a SEF to have disciplinary procedures 

and sanctions in place to enforce trading, trade processing, and participation rules that will 

deter abuses. 

SEF Core Principle 4 requires the SEF to monitor trading in swaps to prevent manipulation, 

price distortion, and disruptions of the delivery or cash settlement process through 

surveillance, compliance, and disciplinary practices and procedures, including methods for 

conducting real-time monitoring of trading and comprehensive trade reconstructions. A SEF 

must also establish and enforce rules governing trading procedures and trade processing. 

CFTC Regulation 37.404(a) requires SEFs to have access to sufficient information to assess 

whether trading in swaps listed on its market, in the index or instrument used as a reference 

price, or in the underlying commodity for its listed swaps is being used to affect prices on its 

market. 

With respect to clearing and settlement information, CFTC Regulation 37.701 requires 

transactions executed on or through a SEF that are required to be cleared under Section 

2(h)(1)(A) of the CEA or that are voluntarily cleared by the counterparties to be cleared 

through a DCO.

See also response to Principle 33, Questions 2(a-b).

 

159 See http://www.cftc.gov/IndustryOversight/TradingOrganizations/DCMs/dcmruleenf
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

268 INTERNATIONAL MONETARY FUND 

(b) The mechanisms that must be in place to identify and address disorderly trading 

conditions and to deal with any contravening conduct that is detected, including 

details of procedures for trading halts, other trading limitations and assistance 

available to the regulator in circumstances of potential trading disruption on the 

system?

Yes.

DCMs

DCM Core Principle 2 requires, among other things, a DCM to have rules prohibiting abusive 

trade practices on the contract market and to have the capacity to detect, investigate and 

apply sanctions to any person that violates the rules of the contract market. CFTC 

Regulation 38.152 requires the DCM to prohibit abusive trading practices on its markets by 

members and market participants. DCMs that permit intermediation must prohibit 

customer-related abuses including, but not limited to, trading ahead of customer orders, 

trading against customer orders, accommodation trading, and improper cross trading. 

Specific trading practices that must be prohibited by all DCMs include front-running, wash 

trading, prearranged trading, fraudulent trading, money passes, and any other trading 

practices that a designated contract market deems to be abusive. In addition, a DCM must 

prohibit any other manipulative or disruptive trading practices prohibited by the CEA or by 

CFTC regulations. 

DCM Core Principle 4 requires the DCM to have the capacity and responsibility to prevent 

manipulation, price distortion, and disruptions of the delivery or cash-settlement process 

through market surveillance, compliance and enforcement practices and procedures. 

CFTC regulations implementing Core Principle 4 require a DCM to monitor and evaluate 

general market data in order to detect and prevent manipulative activity that would result in 

the failure of the market price to reflect the normal forces of supply and demand; 

demonstrate an effective program for conducting real-time monitoring of market 

conditions, price movements and volumes, in order to detect abnormalities and, when 

necessary, make a good-faith effort to resolve conditions that are, or threaten to be, 

disruptive to the market; and demonstrate the ability to comprehensively and accurately 

reconstruct daily trading activity for the purposes of detecting trading abuses and violations 

of exchange-set position limits, including those that may have occurred intraday. CFTC 

Regulation 38.255 requires a DCM to establish and maintain risk control mechanisms to 

prevent and reduce the potential risk of price distortions and market disruptions, including, 

but not limited to, market restrictions that pause or halt trading in market conditions 

prescribed by the DCM. 

DCM Core Principle 6 requires the DCM, in consultation or cooperation with the CFTC to 

adopt rules to provide for the exercise of emergency authority, as is necessary and 

appropriate, including the authority to liquidate or transfer open positions in any 

contract; to suspend or curtail trading in any contract; and to require market participants 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 269

in any contract to meet special margin requirements. CFTC guidance on DCM Core 

Principle 6 states that a DCM has the authority to intervene as necessary to maintain 

markets with fair and orderly trading and to prevent or address manipulation or 

disruptive trading practices, whether the need for intervention arises exclusively from the 

DCM’s market or as a coordinated, cross-market intervention. To address perceived 

market threats, the DCM should have rules that allow it to take certain actions in the 

event of an emergency, including: imposing or modifying position limits, price limits, and 

intraday market restrictions; imposing special margin requirements; ordering the 

liquidation or transfer of open positions in any contract; ordering the fixing of a 

settlement price; extending or shortening the expiration date or the trading hours; 

suspending or curtailing trading in any contract; transferring customer contracts and the 

margin or altering any contract’s settlement terms or conditions; and, where applicable, 

providing for the carrying out of such actions through its agreements with its third-party 

provider of clearing or regulatory services. In situations where a contract is fungible with 

a contract on another platform, emergency action to liquidate or transfer open interest 

must be as directed, or agreed to, by the CFTC or the CFTC’s staff. The DCM has the 

authority to independently respond to emergencies in an effective and timely manner 

consistent with the nature of the emergency, as long as all such actions taken by the 

DCM are made in good faith to protect the integrity of the markets. The CFTC should be

notified promptly of the DCM’s exercise of emergency action, explaining how conflicts of 

interest were minimized, including the extent to which the DCM considered the effect of 

its emergency action on the underlying markets and on markets that are linked or 

referenced to the contract market and similar markets on other trading venues. 

SEFs

SEF Core Principles 2 and 4 require a SEF to, among other things, establish and enforce 

trading, trade processing, and participation rules that will deter abuses and have the 

capacity to detect, investigate and enforce those rules, and to monitor trading in swaps to 

prevent manipulation, price distortion, and disruptions of the delivery or cash settlement

process through surveillance, compliance, and disciplinary practices and procedures, 

including methods for conducting real-time monitoring of trading and comprehensive and

accurate trade reconstructions. 

CFTC Regulation 37.203 requires SEFs to prohibit abusive trading practices on its markets by 

member and market participants. SEFs must maintain an automated trade surveillance 

system capable of detecting potential trade practice violations. The automated trade 

surveillance system must load and process daily orders and trades no later than 24 hours 

after the completion of the trading day. The automated trade surveillance system must have 

the capability to detect and flag specific trade execution patterns and trade anomalies; 

compute, retain, and compare trading statistics; compute trade gains, losses, and swapequivalent positions; reconstruct the sequence of market activity; perform market analyses; 

and support system users to perform in-depth analyses and ad hoc queries of trade-related 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

270 INTERNATIONAL MONETARY FUND 

data. A SEF must conduct real-time market monitoring of all trading activity on its system(s) 

or platform(s) to identify disorderly trading and any market or system anomalies. A SEF shall 

have the authority to adjust trade prices or cancel trades when necessary to mitigate market 

disrupting events caused by malfunctions in its system(s) or platform(s) or errors in orders 

submitted by members and market participants. 

CFTC Regulation 37.401 requires a SEF to collect and evaluate data on its market 

participants’ market activity on an ongoing basis in order to detect and prevent 

manipulation, price distortions, and, where possible, disruptions of the physical-delivery or 

cash-settlement process. A SEF must also monitor and evaluate general market data in 

order to detect and prevent manipulative activity that would result in the failure of the 

market price to reflect the normal forces of supply and demand. A SEF must demonstrate an 

effective program for conducting real-time monitoring of trading for the purpose of 

detecting and resolving abnormalities, and demonstrate the ability to comprehensively and 

accurately reconstruct daily trading activity for the purpose of detecting instances or threats

of manipulation, price distortion, and disruptions. 

CFTC Regulation 37.405 requires a SEF to establish and maintain risk control mechanisms to 

prevent and reduce the potential risk of market disruptions, including, but not limited to, 

market restrictions that pause or halt trading under market conditions prescribed by the SEF. 

Staff guidance in Appendix B provides that a SEF with a swap that is linked to, or a substitute 

for, other products, either on its market or on other trading venues, must, to the extent 

practicable, coordinate its risk controls with any similar controls placed on those other 

products. If a SEF’s swap is based on the level of an equity index, such risk controls must, to 

the extent practicable, be coordinated with any similar controls placed on national securities

exchanges.

SEF Core Principle 8 also provides for the exercise of emergency authority, in consultation 

or cooperation with the CFTC, as is necessary and appropriate, including the authority to 

liquidate or transfer open positions in any swap or to suspend or curtail trading in a 

swap. CFTC guidance to SEF Core Principle 8 provides that a SEF should have rules that 

authorize it to take certain actions in the event of an emergency. A SEF should have the 

authority to intervene as necessary to maintain markets with fair and orderly trading and 

to prevent or address manipulation or disruptive trading practices, whether the need for 

intervention arises exclusively from the SEF’s market or as part of a coordinated, crossmarket intervention. A SEF should have the flexibility and independence to address 

market emergencies in an effective and timely manner consistent with the nature of the 

emergency, as long as all such actions taken by the SEF are made in good faith to protect 

the integrity of the markets. However, the SEF should also have rules that allow it to take 

market actions as may be directed by the CFTC. Additionally, in situations where a swap is 

traded on more than one platform, emergency action to liquidate or transfer open 

interest shall be as directed, or agreed to, by the CFTC or the CFTC’s staff. SEF rules 

should include procedures and guidelines for decision-making and implementation of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 271

emergency intervention that avoid conflicts of interest and include alternate lines of 

communication and approval procedures to address emergencies associated with real 

time events.

(c) Does the relevant market authority (i.e., the regulator or relevant SRO), the 

outsourcing market, and its auditors, have access to the books and records of service 

providers relating to an exchange’s outsourced activities and the ability to obtain 

promptly, upon request, other information concerning activities that are relevant to 

regulatory oversight?

Yes. If a registered entity delegates a function to another registered entity, the CFTC would 

have regulatory authority to access the books and records of the registered entity to which 

the function “was delegated.” If a registered entity outsources a function, the CFTC would 

maintain the authority to obtain relevant books and records from the registered entity. A

DCM or SEF is also required to provide the CFTC with copies of any service provider 

agreements as an application exhibit.

Certain third-party service arrangements are subject to additional Commission 

regulations. For example, although a DCM may comply with certain financial surveillance 

requirements through the regulatory services of a RFA or a registered entity, CFTC 

Regulation 38.606 requires the DCM to ensure that the regulatory service provider has 

the capacity and resources necessary to provide timely and effective regulatory services, 

including adequate staff and appropriate surveillance systems. The regulatory services 

must be provided under a written agreement with a regulatory services provider that 

specifically documents the services to be performed and the capacity and resources of 

the regulatory service provider with respect to the services to be performed. In any 

event, the DCM remains, at all times, responsible for compliance with its obligations 

under the CEA and Commission regulations, and for the regulatory service provider’s 

performance on its behalf.

Securities and Market Participants?

4. With respect to securities and market participants:

(a) Is the regulator informed of the types of securities to be traded and does it approve 

the rules governing the admission of the securities to trading or listing? 

Yes. Under Section 5c of the CEA and Part 40 of the Commission’s regulations, DCMs and 

SEFs must inform the CFTC of the types of products to be traded on the DCM or SEF 

through either of two methods: (1) self-certification (CFTC Regulation 40.2); or (2) voluntary 

submission of new products for Commission review and approval (CFTC Regulation 40.3). 

CFTC prior approval is required for certain enumerated agricultural commodities. 

To meet its statutory mission of ensuring market integrity and customer protection with 

respect to products listed under self-certification procedures, the CFTC places greater 

reliance on its oversight authority, including market surveillance, RERs, reviews of contract 

terms, dialogue with the regulated entities, and enforcement actions. For contracts filed 

under self-certification procedures, the regulated entities are required to assume primary 

responsibility for ensuring that the contracts meet, on a continuing basis, the applicable 

statutory and regulatory requirements. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

272 INTERNATIONAL MONETARY FUND 

Listing of Products for Trading by Self-Certification

DCMs and SEFs must comply with the submission requirements of CFTC Regulation 40.2 

prior to listing a product for trading that has not been approved for trading under CFTC 

Regulation 40.3 (the procedures for voluntary submission of new products for Commission 

review and approval).160

The Commission must receive the submission no later than the opening of business on the 

business day preceding the business day of the initial listing (or re-listing in the case of 

dormant contracts) of the product.161

The submission must include: 

 A copy of the submission cover sheet, prepared in accordance with Appendix D of 

Part 40 of the Commission’s regulations;

 A statement that the filing is made pursuant to CFTC Regulation 40.2; 

 The text of the product’s rules, including those relating to terms and conditions;

 The product’s intended listing date;

 A certification by the DCM or SEF that the product to be listed complies with the CEA 

and CFTC regulations;

 A concise explanation and analysis of the product and its compliance with applicable 

provisions of the CEA, including Core Principles, and the CFTC’s regulations. The

explanation and analysis must either be accompanied by the documentation relied 

upon to establish the basis for compliance with applicable law, or incorporate 

information contained in such documentation, with appropriate citations to data 

sources. 

 A certification by the DCM or SEF posted on its website that a notice of pending 

product certification is with the Commission. 

If requested by CFTC Staff, the DCM or SEF must provide additional information or data that 

demonstrates that the contract meets, initially or on a continuing basis, the requirements of 

the CEA or CFTC regulations.

The CFTC may stay the listing of a contract during the pendency of CFTC proceedings for 

 

160 CFTC Regulation 40.2(d) includes specific procedures pursuant to which a DCM or SEF may list or facilitate trading in a swap or a 

number of swaps based upon an “excluded commodity,” as defined in CEA Section 1a(19)(i), subject to certain exceptions, or an 

excluded commodity, as defined in CEA Section 1a(19)(ii)-(iv), if the DCM or SEF makes the certifications set forth in CFTC 

Regulation 40.2. However, the Commission may, in its discretion, require the DCM or SEF to withdraw such certification and submit 

each individual swap or certain individual swaps within the submission for Commission review pursuant to CFTC Regulations 40.2 or 

40.3. The listing of securities futures products is subject to additional requirements and procedures.

161 CFTC Regulation 40.1(a) defines “business day” as the period of time between 8:15 a.m. and 4:45 p.m. Eastern Standard Time or 

Eastern Daylight Savings Time, excluding Saturdays, Sundays, and Federal holidays in Washington, DC. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 273

filing a false certification or during the pendency of a petition to alter or amend the contract 

terms and conditions.

Voluntary Submission of New Products for CFTC Review and Approval 

DCMs and SEFs may request that the CFTC approve a new or dormant product prior to 

listing the product for trading or, if a product was initially submitted under CFTC Regulation 

40.3, subsequent to listing the new product for trading. Approval requests for contracts filed 

under self-certification procedures may be submitted concurrently with a self-certification 

filing or at any time thereafter, including after initial listing of the product. 

A product request for approval must include:

 A copy of the submission cover sheet prepared in accordance with the instructions in 

Appendix D to Part 40 of the CFTC regulations; 

 A copy of the rules that set forth the contract’s terms and conditions;

 An explanation and analysis of the product and its compliance with applicable 

provisions of the CEA, including Core Principles, and the CFTC’s regulations. This 

explanation and analysis must be either accompanied by the documentation relied 

upon to establish the basis for compliance with applicable law, or incorporate 

information contained in such documentation, with appropriate citations to data 

sources; 

 A description of any agreements or contracts entered into with other parties that 

enable the DCM or SEF to carry out its responsibilities; and

 A certification that the DCM or SEF posted a notice of its request for CFTC approval 

of the new product and a copy of the submission on its website.

If requested by Commission staff, the DCM or SEF must provide additional evidence, 

information or data demonstrating that the contract meets, initially or on a continuing basis, 

the requirements of the CEA or other requirements for designation or registration under the 

CEA, Commission regulations or Commission policies. Such additional information must be 

submitted within the time frame set forth in the regulation.

All products submitted for CFTC approval are deemed approved by the CFTC 45 days after 

receipt by the CFTC or at the conclusion of an extended period,

162 unless the DCM or SEF is 

notified otherwise, if: 

 The submission complies with the requirements of CFTC Regulation 40.3(a); 

 The DCM or SEF, during the review period, does not amend the terms or conditions 

 

162 The CFTC may extend the 45-day review period for an additional 45 days if the product raises novel or complex issues that 

require additional time for review or is of major economic significance, if the DCM or SEF agrees in writing.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

274 INTERNATIONAL MONETARY FUND 

of the product or supplement the request for approval, except as requested by the 

CFTC or for non-substantive revisions. However, the CFTC, at any time during its 

review, may notify the DCM or SEF that it will not, or is unable to, approve the 

product because the submission lacks sufficient information for a determination as 

to whether the product violates, appears to violate, or potentially violates the CEA or 

Commission regulations.

See Procedures for Listing Products at:

http://www.cftc.gov/industryoversight/contractsandproducts/listingprocedures.html.

CFTC Review of DCM and SEF Rules

Subject to certain exceptions, DCMs and SEFs, prior to implementing any new rule, must 

comply with the procedures for self-certification of rules set forth in Commission Regulation 

40.6163 or the procedures for voluntary submission of new rules for CFTC review and 

approval set forth in Commission Regulation 40.5.164

Self-Certification of Rules 

Commission Regulation 40.6 requires that the DCM or SEF submit the following to the 

Commission no later than the open of business on the business day that is ten business days 

prior to the implementation of the rule:

 A copy of the submission cover sheet prepared in accordance with the instructions in 

Appendix D to part 40 of CFTC regulations;

 The text of the rule;

 A certification by the registered entity that the rule complies with the CEA and 

Commission regulations; 

 The date of the intended implementation; 

 A concise explanation and analysis of the operation, purpose, and effect of the 

proposed rule and its compliance with applicable provisions of the CEA, including 

Core Principles, and Commission regulations;

 A certification that the registered entity posted notice of pending certification and a 

copy of its submission on its website; 

 A brief explanation of any substantive opposing views expressed to the registered 

entity by governing board or committee members, members of the entity or market 

participants that were not incorporated into the rule or a statement that no 

 

163 The self-certification process is not available in certain instances.

164 A DCO that has been designated by FSOC as systemically important is subject to the special certification procedures set forth in 

CFTC Regulation 40.10 for the submission of any proposed change to its rules, procedures, or operations that could materially affect 

the nature or level of risks presented by such DCO.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 275

opposing views were expressed; and

 If requested by CFTC staff, any additional evidence, information or data that may be 

beneficial to the CFTC in conducting a due diligence assessment of the filing and the 

registered entity’s compliance with the CEA or Commission regulations.

The CFTC has ten business days to review the new rule before the new rule is deemed 

certified and can be effective, unless the CFTC notifies the DCM and SEF during the ten

business day review period that it intends to stay the certification on the grounds that the 

rule presents novel or complex issues that require additional time to analyze, is 

accompanied by an inadequate explanation, or is potentially inconsistent with the CEA or 

CFTC regulations. The CFTC has an additional 90 days to conduct its extended review during 

which period it provides a 30-day public comment period. A stayed rule becomes effective 

after an additional 90 days, unless the CFTC withdraws the stay prior to that time or the 

CFTC notifies the registered entity that it objects to the proposed certification on the 

grounds that the rule is inconsistent with the CEA or Commission regulations. 

Voluntary Submission of Rules for CFTC Review and Approval

A DCM or SEF may request that the CFTC approve a new rule prior to implementation 

thereof or, if the rule was initially submitted under CFTC Regulations 40.2 or 40.6, 

subsequent to the implementation of the rule. A request for approval must include all of the 

materials required for self-certification of rules, as well as:

 A description of any action taken or anticipated to be taken by the DCM or SEF or its 

respective governing board or by any committee thereof and citations to the rules of 

the registered entity that authorize the adoption of the proposed rule;

 A description of the anticipated benefits to market participants or others, any 

potential anti-competitive effects on market participants or others, and how the rule 

fits into the registered entity’s framework of self-regulation;

 Any additional information that may be beneficial to the CFTC in analyzing the new 

rule and, if the proposed rule affects the application of any other rule of the DCM or 

SEF the text of any such rule and a description of the anticipated effect; and

 Identification of any CFTC regulation that the Commission may need to amend or 

sections of the CEA or Commission regulations that the CFTC may need to interpret, 

in order to approve the new rule and a reasoned analysis supporting the 

amendment or interpretation.

At any time during the Commission’s review of the proposed rule, the Commission may 

notify the DCM or SEF that it will not, or is unable to, approve the new rule. Otherwise, all 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

276 INTERNATIONAL MONETARY FUND 

rules submitted for CFTC approval are deemed approved by the Commission 45 days after 

receipt or at the conclusion of any extended period,165 if the rule complies with the 

submission requirements, and the DCM or SEF does not amend the proposed rule or 

supplement its submission (except as requested by the Commission and other than for nonsubstantive revisions) during the pendency of the review period.

Made Available to Trade Determinations

Section 2(h)(8) of the CEA requires swaps subject to the clearing requirement to be traded 

on a DCM or SEF, unless no DCM or SEF “makes the swap available to trade.” CFTC 

Regulations 37.10 and 38.12 specify the process for a SEF and DCM, respectively, to make a 

swap available to trade. The SEF or DCM must demonstrate that it lists or offers that swap 

for trading on its trading system or platform. In considering whether to make a swap 

available to trade, the SEF or DCM must consider one or more of the following factors: 

whether there are ready and willing buyers and sellers; the frequency or size of transactions; 

trading volume; number and types of market participants; the bid/ask spread; or the usual 

number of resting form or indicative bids and offers. Upon a determination that a swap is 

available to trade on any SEF or DCM, that swap is subject to the Section 2(h)(8) trade 

execution requirement, which means that the swap may only be traded on a DCM or SEF in 

accordance with certain execution methods. 

Rules of Enumerated Agricultural Commodities166 required to be submitted for prior 

CFTC Approval

Registered entities must submit to the CFTC, and receive CFTC approval prior to 

implementation, all new rules and rule amendments that materially change the terms and 

conditions of contracts on commodities enumerated in CEA Section 1a(9) and that will apply 

to contracts with open interest. 

Such new rules and rule amendments cannot be implemented pursuant to the certification 

procedures of CFTC Regulation 40.6, but must be submitted to the CFTC for approval under 

CFTC Regulations 40.4 and 40.5, or for a determination as to whether such rules or rule 

amendments materially change the terms and conditions of the affected contracts pursuant 

 

165 The CFTC may extend the review period for an additional 45 days, if the proposed rule raises novel or complex issues that 

requires additional time for review or is of major economic significance, the submission is incomplete, or the requestor does not 

respond completely to Commission questions in a timely manner.

166 The agricultural commodities listed here are commonly referred to as the enumerated commodities of the CEA: wheat, cotton, 

rice, corn, oats, barley, rye, flaxseed, grain, sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, 

fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed, cottonseed meal, 

peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 277

to CFTC Regulation 40.4(a). 

If the CFTC determines that a new rule or rule amendment is consistent with the 

requirements of the CEA and CFTC regulations, the new rule or rule amendment is deemed 

approved 45 days after CFTC receipt of the approval request, or at the conclusion of any 

extended review period, as provided under CFTC Regulations 40.5(b) and (c). If the CFTC 

determines that it will not, or is unable to, approve the new rule or rule amendment, it will 

provide a Notice of Non-Approval to the registered entity, as provided under CFTC 

Regulation 40.5(d). In this Notice of Non-Approval, the CFTC will briefly specify the nature of 

the issues identified and the specific provision of the CEA or CFTC regulations that the new 

rules or rule amendments violate. 

A registered entity receiving a Notice of Non-Approval may not certify the same, or 

substantially the same, new rules or rule amendments under the certification procedures of 

CFTC Regulation 40.6. However, the registered entity may submit revised new rules or rule 

amendments for approval under these same 40.4 and 40.5 procedures. 

(b) Where applicable, does the regulator or the market take product design and trading 

conditions into account in order to admit a product for trading?

Yes. Express authorization prior to trading is required only for contracts based on 

enumerated agricultural commodities. See also Principle 33, Question 4(a).

(c) Does the regulatory framework provide for fair access to the exchange or trading 

system through oversight of the related rules for participation?

Yes for both a DCM and a SEF.

DCMs

DCM Core Principle 2 requires DCMs to establish, monitor, and enforce compliance with the 

rules of the DCM including access requirements. CFTC Regulation 38.151(b) requires DCMs 

to provide its members, persons with trading privileges, and independent software vendors 

(‘‘ISVs’’) with impartial access to its markets and services, including access criteria that are 

impartial, transparent, and applied in a non-discriminatory manner. CFTC Regulation 

38.151(b)(2) requires that the DCM provide comparable fee structures for members, persons 

with trading privileges, and ISVs receiving equal access to, or services from, the DCM. CFTC 

Regulation 38.151(c) requires a DCM to establish and impartially enforce rules governing any 

decision by the DCM to deny, suspend, or permanently bar a member’s or a person with 

trading privileges access to the contract market. Accordingly, any decision by a DCM to 

deny, suspend, or permanently bar a member’s or person with trading privileges access to 

the DCM must be impartial and applied in a non-discriminatory manner. 

SEFs

SEF Core Principle 2 requires SEFs to provide market participants with impartial access to the 

SEF. CFTC Regulation 37.202 requires SEFs to provide any eligible contract participant and 

any independent software vendor with impartial access to its market(s) and market services, 

including any indicative quote screens or any similar pricing data displays. The SEF has to 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

278 INTERNATIONAL MONETARY FUND 

have impartial criteria governing access, comparable fee structures and impartial 

enforcement of rules for limiting access.

Fairness of Order Execution Procedures

5. With respect to order execution procedures:

(a) Are order routing procedures clearly disclosed to regulators and to market 

participants, applied fairly and not inconsistent with relevant securities regulation 

(e.g., requirements with respect to precedence of client orders and prohibition of 

front-running or trading ahead of customers)? 

Yes for both a DCM and a SEF.

DCMs

The statutory duties and CFTC regulations regarding the requirement to offer fair and 

impartial access are discussed in the response to Principle 33, Question 5(c), below, and the 

requirement to apply execution rules fairly to all participants is discussed in response to 

Principle 33, Question 5(b), below. These requirements operate to ensure that a system’s 

order routing procedures are clearly disclosed to the regulator and to market participants, 

are applied fairly and are not inconsistent with relevant securities regulations. DCM Core 

Principle 2 also specifically prohibits front-running, wash trading, some forms of prearranged trading, fraudulent trading, money passes, and any other trading practices that a 

DCM deems to be abusive. See also DCM Core Principle 12 which requires DCMs to 

promote fair and equitable trading on the contract market. CFTC Regulation 38.650(b) 

requires DCMs to establish and enforce rules to promote fair and equitable trading on the 

contract market. DCM applicants must attach as Exhibit L to Form DCM a description of the 

manner in which the applicant is able to comply with each Core Principle. 

SEFs

The statutory duties and CFTC regulations regarding the requirement to offer impartial

access are discussed in the response to Principle 33, Question 5(c) below, and the 

requirement to apply execution rules fairly to all participants is discussed in response to 

Principle 33, Question 5(b) below. These requirements operate to ensure that a system’s 

order routing procedures are clearly disclosed to the regulator and to market participants, 

are applied fairly and are not inconsistent with relevant securities regulations. SEF Core 

Principle 2 requires a SEF to establish rules governing the operation of the SEF including 

rules specifying trading procedures to be followed by members and market participants 

when entering and executing orders traded or posted on the SEF. SEFs must also establish 

and impartially enforce compliance with the rules of the SEF, including, the terms and 

conditions of any swaps traded or processed on or through the SEF; access to the SEF; trade 

practice rules; audit trail requirements; disciplinary rules; and mandatory trading 

requirements. SEF applicants must attach as Exhibit L to Form SEF a description of the 

manner in which the applicant is able to comply with each Core Principle.

(b) Are execution rules disclosed to the regulator and to market participants, and 

consistently applied to all participants?

Yes for DCMs and SEFs. 

DCMs
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 279

Boards of trade applying for contract market designation must meet statutory requirements 

that execution rules are disclosed to the regulator and to market participants, and are fairly

applied to all participants. DCM Core Principle 7 requires a DCM to make available to 

market authorities, market participants, and the public information on the rules, regulations, 

and mechanisms for executing transactions on or through the DCM. DCM Core Principle 9 

requires DCMs to provide a competitive, open, and efficient market and mechanism for 

executing transactions that protects the price discovery process of trading in the centralized 

market of the DCM. CFTC Regulation 1.38, which applies to commodity futures and options 

requires competitive execution. Note: CFTC Regulation 1.38 permits certain noncompetitive 

trades that are executed pursuant to rules that have been approved by the CFTC. Exhibit L 

to Form DCM requires DCM applicants to describe the manner in which the applicant is able 

to comply with each Core Principle. DCM rulebooks are also required to be publicly 

available.

SEFs

Applicants for registration as a SEF must meet statutory requirements that execution rules 

are disclosed to the regulator and to market participants, and are fairly applied to all 

participants. SEF rulebooks are required to be publicly available. A SEF applicant must also 

explain the operation of its trading system or platform and the manner by which the trade 

functionality requirement of CFTC Regulation 37.3(a)(2) is satisfied.

(c) Where applicable, does the regulator review the trade matching or execution 

algorithm of automated trading systems for fairness?

Yes for DCMs and SEFs.

DCMs

Applicants for designation as a DCM must meet statutory requirements that trade matching 

or execution algorithms are disclosed to the regulator and to market participants, and are 

fairly applied to all participants. The DCM applicant must attach Exhibit Q to its application 

on Form DCM, which requires a description of the applicant’s trading system and trade 

matching algorithm and examples of how that algorithm works in various trading scenarios 

involving various types of orders. 

SEFs

Applicants for registration as a SEF must meet statutory requirements that trade matching or 

execution algorithms are disclosed to the regulator and to market participants, and are fairly 

applied to all participants. For trading systems or platforms that enable market participants 

to engage in transactions through an order book, the SEF applicant must attach as Exhibit Q 

to its Form SEF an explanation of the trading matching algorithm, if applicable, and 

examples of how that algorithm works in various trading scenarios involving various types of 

orders. For trading systems or platforms that enable market participants to engage in 

transactions through a request for quote system, the SEF applicant must attach as Exhibit Q 

to Form SEF an explanation of how a requester may transact on resting bids or offers along 

with the responsive orders.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

280 INTERNATIONAL MONETARY FUND 

(d) Do all system users have equal opportunity to connect and maintain the connection 

to the electronic trading system and are differences in order execution response 

times disclosed by the system operator?

Yes. See Principle 33, Question 4(c). 

(e) Are there in place effective systems and controls reasonably designed to enable the 

management of risk with regard to fair and orderly trading including, in particular, 

automated pre-trade controls that enable intermediaries to implement appropriate 

risk limits? 

Yes for DCMs and SEFs.

DCMs

CFTC Regulation 38.255 requires DCMs to establish and maintain risk control mechanisms to 

prevent and reduce the potential risk of price distortions and market disruptions, including, 

but not limited to, market restrictions that pause or halt trading in market conditions 

prescribed by the DCM. CFTC Regulation 38.607 requires DCMs that permit direct electronic 

access by customers167 to have in place effective systems and controls reasonably designed 

to facilitate the FCM’s management of financial risk, such as automated pre-trade controls 

that enable member FCMs to implement appropriate financial risk limits. A DCM must 

implement and enforce rules requiring the member FCMs to use the provided systems and 

controls. 

SEFs

SEF Core Principle 4 and CFTC Regulation 37.405 require SEFs to establish and maintain risk 

control mechanisms to prevent and reduce the potential risk of market disruptions, 

including, but not limited to, market restrictions that pause or halt trading under market 

conditions prescribed by the SEF.

Operational Information

6. With respect to trading information:

(a) Do similarly situated market participants have equitable access to market rules and 

operating procedures? 

Yes for DCMs and SEFs.

DCMs

Section 5(d) of the CEA ensures that that all market rules and operating procedures are 

available to market participants. DCM Core Principle 7 requires DCMs to make available to 

market authorities, market participants, and the public information concerning the terms 

and conditions of the contracts of the contract market; and the mechanisms for executing 

transactions on or through the facilities of the contract market. CFTC Regulation 38.400 

requires DCMs to make available to market authorities, market participants and the public 

 

167 CFTC Regulation 38.607 describes “direct electronic access by customers” as being situations where customers of 

FCMs are permitted to enter orders directly into a DCM’s trade matching system for execution. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 281

accurate information concerning the terms and conditions of the DCM’s contracts and the 

rules, regulations and mechanisms for executing transactions on or through the facilities of 

the DCM. The DCM must also make available to market authorities, market participants, and 

the public accurate information concerning the rules and specifications describing the 

operation of the DCM’s electronic matching platform or trade execution facility. 

SEFs

Under Commission Regulation 37.202, a SEF is required to provide any ECP and any 

independent software vendor with impartial access to its markets and market services, 

including any indicative quote screens or any similar pricing data displays, and the facility 

must have criteria governing such access that are impartial, transparent and applied in a 

non-discriminatory manner. The SEF must have comparable fee structures for ECPs and 

independent software vendors receiving comparable access to, or services from, the SEF.

(b) Are adequate records (i.e., audit trails) available to reconstruct trading activity within 

a reasonable time?

Yes.

DCMs

DCM Core Principle 10 requires DCMs to maintain rules and procedures to provide for the 

recording and safe storage of all identifying trade information in a manner that enables the 

contract market to use the information: (a) to assist in the prevention of customer and 

market abuses; and (b) to provide evidence of any violations of the rules of the contract 

market.

CFTC Regulation 38.551 requires DCMs to capture and retain all audit trail data necessary to 

detect, investigate, and prevent customer and market abuses. Such data must be sufficient 

to reconstruct all transactions within a reasonable period of time and to provide evidence of 

any violations of the rules of the DCM. An acceptable audit trail must also permit the DCM

to track a customer order from the time of receipt through fill, allocation, or other 

disposition, and must include both order and trade data. CFTC Regulation 38.256 requires 

DCMs to have the ability to comprehensively and accurately reconstruct all trading on its 

trading facility. 

SEFs

SEF Core Principle 10 requires SEFs to maintain records of all activities relating to the 

business of the facility, including a complete audit trail in a form and manner acceptable to 

the CFTC for a period of 5 years. CFTC Regulation 37.406 requires SEFs to have the ability to 

comprehensively and accurately reconstruct all trading on its facility.

(c) Is the system capable of disclosing the types of information that it is designed to 

make available, and, conversely, of providing safeguards to preserve the 

confidentiality of other information, the disclosure of which is not intended?

Yes. CFTC Regulation 16.01 requires SEFs and DCMs to publish market data on futures,

swaps, and options regarding trading volume, open contracts prices, and critical dates to the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

282 INTERNATIONAL MONETARY FUND 

public either through the news media or through the SEF or DCM’s rulebook. CFTC 

Regulation 16.02 requires SEFs and DCMs to report to the CFTC on a daily basis transactionlevel trade data and related order information for each futures or options contract. Upon 

request, such information shall be accompanied by data that identifies or facilitates the 

identification of each trader for each transaction or order included in a submitted trade and 

supporting data report if the reporting market maintains such data.

DCMs and SEFs must report swap transaction data to a SDR as soon as technologically 

practicable after execution of a transaction under CFTC regulations in Parts 43 and 45. The 

SDR must publicly disseminate certain swap pricing data reported pursuant to CFTC 

regulation in Part 43 as soon as technologically practicable after it is received from the DCM 

or SEF. The CFTC has direct access to the full scope of swap data reported to SDRs pursuant 

to Parts 43 and 45 of the CFTC Regulations. Besides Part 43 pricing data, however, this swap 

data is not made publicly available.

DCMs

Fair and equitable trading on a DCM, among other things, includes providing to market

participants, on a fair, equitable and timely basis, information regarding prices, bids and 

offers, as applicable to the market. A DCM applicant must satisfactorily demonstrate its 

capacity to operate in compliance with CFTC Regulation 38.401 and DCM Core Principles 7, 

8, and 10. CFTC Regulation 38.401 requires the DCM to provide the public with access to 

the rule, regulations, and contract specifications of the DCM. DCM Core Principle 7 ensures 

disclosure of general information to market authorities, market participants, and the public.

DCM Core Principle 8 requires the daily publication of trade information. DCM Core 

Principle 10 requires the creation of an audit trail. An acceptable audit trail will include a 

safe storage capability providing for the storing of data included in the transaction history in 

a manner that protects the data from unauthorized alteration, as well as from accidental 

erasure or other loss.

CFTC Regulation 38.401(c)(2) states that to the extent that a DCM requests confidential 

treatment of any information filed with the Secretary of the CFTC, the DCM must post on its 

website the public version of such filing or submission.

In addition, CFTC Regulation 38.7 prohibits a DCM from using for business or marketing 

purposes proprietary or personal information that it collects from market participants unless 

the market participant clearly consents to the use of its information in such a manner. The 

CFTC notes that the requirements of CFTC Regulation 38.7 are in line with similar rules 

intended to provide privacy protections to certain consumer information under the Fair 

Credit Reporting Act. See CFTC Regulations in Part 162.

DCM Core Principle 10 requires a DCM to maintain rules and procedures to provide for 

the recording and safe storage of all identifying trade information in a manner that 

enables the contract market to use the information: (a) to assist in the prevention of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 283

customer and market abuses; and (b) to provide evidence of any violations of the rules of 

the contract market. CFTC Regulation 38.552(d) requires safe storage capability: A 

DCM’s audit trail program must include the capability to safely store all audit trail data 

retained in its transaction history database. Such safe storage capability must include the 

capability to store all data in the database in a manner that protects it from unauthorized 

alteration, as well as from accidental erasure or other loss. Data must be retained in 

accordance with the recordkeeping requirements of Core Principle 18.

SEFs

Fair and equitable trading on a SEF, among other things, includes providing to market 

participants, on a fair, equitable and timely basis, information regarding prices, bids and 

offers, as applicable to the market. A SEF applicant must satisfactorily demonstrate its 

capacity to operate in compliance with SEF Core Principle 9 and CFTC Regulation 37.901. 

SEF Core Principle 9 requires the SEF to make public timely information on the price, trading 

volume and other trading data on swaps. The SEF must have the capacity to electronically 

capture and transmit trade information with respect to transactions executed on the SEF. 

As noted above, CFTC Regulation 37.901 requires SEFs to report the data required under 

CFTC Regulations in Part 43 (real-time public reporting) and Part 45 (swap data 

recordkeeping and reporting requirements). 

CFTC Regulation 37.7 prohibits a SEF from using for business or marketing purposes any 

proprietary data or personal information the SEF collects or receives, from or on behalf of 

any person, for the purpose of fulfilling its regulatory obligations; provided, however, that a 

SEF may use such data or information for business or marketing purposes if the person from 

whom it collects or receives such data or information clearly consents to the SEF’s use of 

such data or information in such manner. A SEF may not condition access to its market(s) or 

market services on a person's consent to the SEF’s use of proprietary data or personal 

information for business or marketing purposes. A SEF, where necessary for regulatory 

purposes, may share such data or information with one or more swap execution facilities or 

designated contract markets registered with the CFTC.

(d) Does the market provide member intermediaries with access to relevant pre-and 

post-trade information (on a real time basis) to enable these intermediaries to 

implement appropriate monitoring and risk management controls? 

See response to Principle 35, Questions (1) (a) and (b).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

284 INTERNATIONAL MONETARY FUND 

Principle 34 There should be ongoing regulatory supervision of exchanges and trading 

systems, which should aim to ensure that the integrity of trading is 

maintained through fair and equitable rules that strike an appropriate 

balance between the demands of different market participants.

Key Questions

1. Does the regulatory system: 

(a) Include a program whereby the regulator or an SRO, subject to oversight by the 

regulator, monitors day-to-day trading activity on the exchange or trading system 

(through a market surveillance program), monitors conduct of market intermediaries 

(through examinations of business operations) and collects and analyzes the 

information gathered through these activities? 

Yes. The CFTC, DCMs, DCOs and SEFs conduct market surveillance.168 

The CFTC conducts a comprehensive market integrity program that includes a system of 

collecting information on market participants as part of its market surveillance and financial 

risk surveillance programs. The CFTC’s oversight programs are supported by the CFTC’s 

enforcement program as necessary. The market surveillance program is intended to 

preserve the economic functions of the U.S. derivatives markets under its jurisdiction by 

monitoring trading activity, to detect and prevent manipulation or abusive practices, to keep 

the CFTC informed of significant market developments, to enforce CFTC and exchange 

speculative position limits, and to ensure compliance with CFTC reporting requirements. In 

conducting market surveillance, CFTC staff has a close working relationship with the 

exchanges’ market surveillance staff. 

The Commission monitors trading and positions of market participants on an on-going 

basis. Commission staff screen for potential market manipulations and disruptive trading

practices, as well as trade practice violations. The staff also monitors exchange transactional 

data routinely to detect violations such as wash trading, prearranged trading, 

accommodation trading, customer fraud, fictitious sales, price distortion and manipulation, 

and trading ahead. Such market surveillance is dependent on the ability to acquire large 

volumes of data and the development of sophisticated analytics to identify trends and/or 

outlying events that warrant further investigation. The combination of analysis of available 

data sets and Special Call authority leads to an understanding of benign market activities 

and possible violations of the CEA. In addition, the Commission conducts risk and financial 

surveillance of DCOs, FCMs, and other market participants such as SDs, MSPs, and large 

traders that may pose a risk to the markets. The Commission and U.S. futures exchanges 

employ a comprehensive large-trader reporting system (LTRS), where clearing members, 

FCMs, and foreign brokers (collectively called Reporting Firms) file daily reports with the 

Commission. 

 

168 The discussion in this section does not discuss the market surveillance conducted by DCOs.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 285

As discussed in more detail below in response to Question 1(b) of this Principle (see

Commission Oversight Procedures), RERs are formal, structured assessments of regulated 

entities’ operations or oversight programs to assess ongoing compliance with statutory and 

regulatory mandates. Regular RERs are an effective method of ensuring that the entities’ are 

complying with the Core Principles established in the CEA and Commission’s regulations. 

The CFTC Staff conducts RERs of the larger exchanges approximately every year and about 

every two to three years for the smaller exchanges.

For a complete discussion of the CFTC’s market surveillance and examinations activities, 

please see response to Principle 12.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

286 INTERNATIONAL MONETARY FUND 

(b) Includes regulatory oversight mechanisms to verify compliance by the exchange or 

trading system with its statutory or administrative responsibilities, particularly as they 

relate to the integrity of the markets, market surveillance, the monitoring of risks, 

and the ability to respond to such risks? 

Yes.

DCMs. As discussed elsewhere, Section 5(d) of the CEA sets out the 23 Core Principles with 

which a DCM must comply on an ongoing basis in order to maintain designation as a 

contract market. As related to integrity of the markets, market surveillance, monitoring of 

risks and ability to respond to such risks, the following Core Principles apply:

 Core Principle 2 – Compliance with rules. A DCM must enforce compliance with 

rules related to access requirements, the terms and conditions of any contracts 

traded on the contract market and rules prohibiting abusive trade practices on 

the contract market. Additionally, the DCM must have the capacity to detect, 

investigate and apply appropriate sanctions to any person that violates the rules 

of the DCM.

 Core Principle 3 – Contracts not readily subject to manipulation. The DCM may 

only list contracts that are not readily susceptible to manipulation. 

 Core Principle 4 – Prevention of Market Disruption. The DCM must have the 

capacity and responsibility to prevent manipulation, price distortion, and 

disruptions of the delivery or cash-settlement process through market 

surveillance, compliance and enforcement practices and procedures, including 

methods for conducting real-time monitoring of trading and comprehensive and 

accurate trade reconstructions. 

 Core Principle 5 - Position Limitations or Accountability. To reduce the potential 

threat of market manipulation or congestion, the DCM must adopt for each 

contract, as is necessary and appropriate, position limitations or position 

accountability for speculators.

 Core Principle 6 - Emergency Authority. The DCM must have rules to provide for 

the exercise of emergency authority including the authority to liquidate or 

transfer open positions in any contract, to suspend or curtail trading in any 

contract and to require market participants in any contract to meet special 

margin requirements. 

 Core Principle 9 - Execution of Transactions. The DCM must provide a 

competitive, open and efficient market and mechanism for executing 

transactions that protects the price discovery process of trading in the 

centralized market.

 Core Principle 10 - Trade Information. The DCM must maintain rules and 

procedures to provide for the recording and safe storage of all identifying trade 

information for the purpose of preventing customer and market abuses and 

providing evidence of rule violations. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 287

 Core Principle 11 - Financial Integrity of Contracts. The DCM must establish and 

enforce rules providing for the financial integrity of any contracts traded on the 

exchange (including the clearing and settlement with a DCO), and rules to ensure 

the financial integrity of any FCMs and IBs and protection of customer funds. 

 Core Principle 12 - Protection of Market Participants. The DCM must establish

and enforce rules to protect market participants from abusive practices by any 

party, including abusive practices committed by a party acting as an agent for 

participant and to promote fair and equitable trading on the contract market.

 Core Principle 19 - Antitrust Considerations. The DCM shall not adopt any rule 

that results in an unreasonable restraint of trade or imposes any material 

anticompetitive burden on trading on the contract market. 

 Core Principle 20 – System Safeguards. The DCM shall establish and maintain a 

program of risk analysis and oversight to identify and minimize sources of 

operational risk, through the development of appropriate controls and 

procedures, and the development of automated systems, that are reliable, 

secure, and have adequate scalable capacity; establish and maintain emergency 

procedures, backup facilities, and a plan for disaster recovery that allow for the 

timely recovery and resumption of operations and the fulfilment of the 

responsibilities and obligations of the board of trade; and periodically conduct 

tests to verify that backup resources are sufficient to ensure continued order 

processing and trade matching, price reporting, market surveillance, and 

maintenance of a comprehensive and accurate audit trail.

Rules implementing the Core Principles, as well as illustrative guidance and acceptable 

practices for satisfaction of the Core Principle, are set forth in Part 38 of the Commission’s 

regulations.

SEFs. Section 5h of the CEA sets out the 15 Core Principles with which a SEF must comply 

on an ongoing basis in order to maintain registration as a SEF. As related to integrity of the 

markets, market surveillance, monitoring of risks and ability to respond to such risks, the 

following Core Principles apply:

 Core Principle 2 – Compliance with rules. A SEF must enforce compliance with rules 

related to limitations on access to the SEF, the terms and conditions of the swaps 

traded on the SEF, and rules establishing and enforcing trading, trade processing and 

participation rules that will deter abuses and have the capacity to detect, investigate, 

and enforce those rules. The SEF must also establish rules governing the operation 

of the facility, including rules specifying trading procedures to be used in entering 

and executing orders.

 Core Principle 3 - Contracts not readily subject to manipulation. The SEF may only 

permit the trading in swaps that are not readily susceptible to manipulation. 

 Core Principle 4 – Monitoring of trading and trade processing. The SEF must 

establish and enforce rules detailing trading procedures to be used in entering and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

288 INTERNATIONAL MONETARY FUND 

executing orders and procedures for trade processing of swaps. The SEF must 

monitor trading in swaps to prevent manipulation, price distortion and disruptions of 

the delivery or cash settlement process through surveillance, compliance and 

disciplinary practices and procedures, including methods for conducting real-time 

monitoring of trading and comprehensive and accurate trade reconstructions.

 Core Principle 6 - Position Limitations or Accountability. For any contract subject to a 

position limitation established by the Commission, the SEF shall set the position 

limitation at a level no higher than the Commission limit and monitor positions 

established on or through the SEF for compliance with the limit.

 Core Principle 7 - Financial Integrity of Transactions. The SEF must establish and 

enforce rules providing for the financial integrity of swaps entered on or through the 

facility (including the clearing and settlement pursuant to CEA Section 2(h)(1)(A) 

which requires swaps that are required to be cleared to be submitted for clearing to 

a registered DCO or DCO that is exempt from registration under the CEA.

169

 

 Core Principle 8 - Emergency Authority. The SEF must have rules to provide for the 

exercise of emergency authority including the authority to liquidate or transfer open 

positions in any swap, and to suspend or curtail trading in any swap. 

 Core Principle 11 - Antitrust Considerations. The SEF shall not adopt any rule that 

results in an unreasonable restraint of trade or imposes any material anticompetitive 

burden on trading or clearing. 

 Core Principle 14 – System Safeguards. The SEF shall establish and maintain a 

program of risk analysis and oversight to identify and minimize sources of 

operational risk, through the development of appropriate controls and procedures, 

and automated systems that are reliable and secure; have adequate scalable 

capacity; establish and maintain emergency procedures, backup facilities, and a plan 

for disaster recovery that allow for the timely recovery and resumption of operations 

and the fulfilment of the responsibilities of the SEF; and periodically conduct tests to 

verify that backup resources are sufficient to ensure continued order processing and 

trade matching, price reporting, market surveillance, and maintenance of a 

comprehensive and accurate audit trail.

Commission Oversight Procedures. The Commission’s regulatory scheme is aided by the 

assumption of self-regulatory responsibilities of DCMs and SEFs, and continuing oversight of 

these entities by the Commission of compliance with the Core Principles and Commission 

regulations.

In addition to monitoring DCM operations on an ongoing basis through compliance 

reporting and “for cause” inquiries, the Commission’s staff periodically reviews the programs 

and procedures adopted by each DCM to ensure compliance with the relevant Core 

Principles and related regulations and to assess the effectiveness of DCM self-regulatory 

 

169 To date, the CFTC has not adopted regulations which provide for an exemption from DCO registration.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 289

programs. (Note that CFTC Staff intends to conduct similar reviews and inspections of SEFs 

who obtain permanent registration status.

The operational integrity of DCMs is addressed through the CFTC’s periodic RERs that 

broadly address market surveillance, trade practice surveillance and disciplinary programs. 

DMO’s Examination Branch conducts regular reviews of each DCM’s ongoing compliance 

with Core Principles through the self-regulatory programs operated by the exchange in 

order to enforce its rules, prevent market manipulation and customer and market abuses, 

and ensure the recording and safe storage of trade information. 

Periodic RERs normally examine a DCM’s audit trail, trade practice surveillance, disciplinary, 

and dispute resolution programs for compliance with the relevant Core Principles, which 

include Core Principle 10, Trade Information, and Core Principle 17, Recordkeeping with 

respect to audit trail programs; Core Principle 2, Compliance With Rules, and Core Principle 

12, Protection of Market Participants with respect to trade practice surveillance and 

disciplinary programs; and Core Principle 13, Dispute Resolution, with respect to dispute 

resolution programs.

Other periodic RERs normally examine a DCM’s market surveillance program for compliance 

with Core Principle 4, Monitoring of Trading, and Core Principle 5, Position Limitations or 

Accountability. On some occasions, these two types of RERs may be combined in a single 

RER. Market Compliance can also conduct horizontal RERs of the compliance of multiple 

exchanges in regard to particular Core Principles.

In conducting an RER, Commission Staff examines trading and compliance activities at the 

exchange in question over an extended time period selected by DMO, typically the twelve 

months immediately preceding the start of the review. Staff conducts extensive review and 

analysis of documents and systems used by the DCM in carrying out its self-regulatory 

responsibilities; interviews compliance officials and staff of the exchange; and prepares a 

detailed written report of its findings. In nearly all cases, the RER report is made available to 

the public and posted on www.cftc.gov.

(c) Provide the regulator with adequate access to all pre-trade and post-trade 

information available to market participants?

Yes. 

DCMs

DCM Core Principle 7 requires each DCM to make available to market authorities, market 

participants, and the public accurate information concerning the terms and conditions of the 

contract market; the rules, regulations and mechanisms for executing transactions on or 

through the facilities of the contract market; and the rules and specifications describing the 

operation of the contract market’s electronic matching platform or trade execution facility.

DCM Core Principle 8 requires each DCM to make public daily information on settlement 

prices, volume, open interest, and opening and closing ranges for actively traded contracts on 

the contract market. A DCM must also report swap transaction data to the public and to the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

290 INTERNATIONAL MONETARY FUND 

CFTC as prescribed in Parts 16, 43, and 45 of the CFTC’s regulations.

SEFs

SEF Core Principle 5 requires each SEF to establish and enforce rules that will allow the facility 

to obtain any necessary information to perform any of the functions under the Core 

Principles and to provide the information to the Commission on request. 

SEF Core Principle 9 requires each SEF to make public timely information on price, trading 

volume, and other trading data on swaps as prescribed by the Commission. Specifically, each 

SEF must report swap data as required in Parts 16, 43, and 45 of the Commission’s 

regulations.

2. Does the regulatory framework require that amendments to the rules or requirements of the 

exchange or trading system must be provided to, or approved by, the regulator?

Yes. As discussed above, DCMs and SEFs generally may implement new rules or rule 

amendments by voluntarily submitting a rule change to the CFTC for review and approval 

under CFTC regulation 40.5 or by filing with the Commission a certification that the new rule 

or rule amendment complies with the CEA and CFTC Regulation 40.6.

3. When the regulator determines that the exchange or trading system is unable to comply 

with the conditions of its approval, or with securities law or regulation, is there a mechanism 

that permits the regulator to: 

(a) Re-examine the exchange or trading system and impose a range of actions, such as 

restrictions or conditions on the market operator?

(b) Withdraw the exchange or trading system’s authorization? 

Yes, to all of the above. The CFTC has the power to direct DCMs and SEFs to alter or 

supplement their rules and to take such action as it deems to be necessary to maintain or 

restore orderly trading. See Sections 8a(7) and (9) of the CEA, respectively. 

CEA Sections 5(d)(1), 5b(c)(2), 5h(a)(1) and 6(b) authorize the CFTC to suspend or revoke a 

registrant’s registration based on a failure or refusal to comply with any of the provisions of 

the CEA, CFTC regulations, or CFTC orders.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 291

Principle 35 Regulation should promote transparency of trading.

Key Questions

1. Does the regulatory framework include: 

(a) requirements or arrangements for providing pre-trade (e.g., posting of orders) 

information to market participants?

Yes. 

DCMs. DCM Core Principle 9 requires a DCM to “provide a competitive, open, and efficient 

market and mechanism for executing transactions that protects the price discovery process 

of trading in the centralized market of the board of trade.” See also CFTC Regulation 38.500. 

The CFTC has regulations in place for the competitive execution of transactions, such that 

the purchase and sale of commodity futures and options that are traded on or subject to 

DCM rules “shall be executed openly and competitively by open outcry or posting of bids 

and offers or by other equally open and competitive methods, in the trading pit or ring or 

similar place provided by the contract market, during the regular hours prescribed by the 

contract market for trading in such commodity or commodity option.” CFTC Regulation 1.38.

Consistent with the open and competitive execution requirements discussed above, all 

DCMs utilize central limit order books in which bids and offers are shown, and post price 

quote information on their public websites. DCMs are required to provide impartial access 

to their markets to independent software vendors, who are free to collect, aggregate and 

disseminate pre- and post- trade information to the public. DCMs must also make public 

the information regarding “rules, regulations, and mechanisms for executing transactions on 

or through the facilities of the contract” as well as rules and specifications describing the 

operation of the DCM’s electronic matching platform and/or trade execution facility under 

Core Principle 7. See CFTC Regulations 38.400 and 38.401. 

SEFs. Section 5h(e) of the CEA provides a rule of construction that states that the goal of 

SEF registration is to promote the trading of swaps on swap execution facilities and to 

promote pre-trade price transparency in the swaps market. The Commission interprets this 

mandate as follows: 

Pre-trade transparency with respect to the swaps market refers to making 

information about a swap available to the market, including bid (offers to buy) and 

offer (offers to sell) prices, quantity available at those prices, and other relevant 

information before the execution of a transaction. Such transparency lowers costs 

for investors, consumers, and businesses; lowers the risks of the swaps market to the 

economy; and enhances market integrity to protect market participants and the 

public. . . . By requiring the trading of swaps on SEFs and designated contract 

markets (DCMs), all market participants will benefit from viewing the prices of 

available bids and offers and from having access to transparent and competitive 

trading systems or platforms.170

(b) requirements or arrangements for providing post-trade information (e.g., last sale 

 

170 Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33477 (June 4, 2013).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

292 INTERNATIONAL MONETARY FUND 

price and volume of transaction) to market participants on a timely basis? 

DCMs facilitate post-trade transparency by reporting the details of swap transactions on the 

DCM to a Commission-registered SDR. The DCM must transmit all swap transaction and 

pricing data for transactions executed on or pursuant to the rule of the DCM to the SDR as 

soon as technologically practicable after execution, unless the transaction qualifies for a 

reporting delay. The SDR must then, as soon as technologically practicable, disseminate the 

swap transaction information to the public in real-time. SDRs make the transaction 

information freely available to the public in a non-discriminatory manner through their 

websites.

Trade details made public through DCMs and SDRs include, but are not limited to: the 

trading date and time (execution timestamp), the unique product identifier and unique swap 

identifier, the unit price, price notation, quantity, venue identification, and amendments to 

previously disseminated information (by amendment or correction). See CFTC regulations 

included in Parts 43, 45, and 49.

With respect to futures and options trading, as discussed above regarding pre-trade 

transparency, DCM Core Principle 9 and CFTC Regulation 1.38 require DCMs to provide open 

and competitive trading on the markets that they operate. Consistent with these open and 

competitive execution requirements, all DCMs post price quote information on their public 

websites. In addition, DCMs are required to provide impartial access to their markets to 

independent software vendors, who collect, aggregate and disseminate pre- and post- trade 

information to the public.

DCMs have further daily obligations to make futures and swap transaction information 

available to the public under Commission Regulations 16.01 and 38.450. These include daily 

information on settlement prices, volume, open interest, and opening and closing ranges for 

actively traded contacts.

For SEFs, post-trade transparency includes “the public and timely transmission of 

information on past trades, including execution time, volume and price:” 

The Dodd-Frank Act also ensures that a broader universe of market 

participants receive pricing and volume information by providing 

such information upon the completion of every swap transaction (i.e., 

post-trade transparency). By requiring the trading of swaps on SEFs 

and designated contract markets (‘‘DCMs’’), all market participants 

will benefit from viewing the prices of available bids and offers and 

from having access to transparent and competitive trading systems 

or platforms.

171

The Commission’s rules for SEFs also require real-time reporting of all swap transaction 

terms “as soon as technologically practicable” in order to meet the statutory mandate of 

 

171 Core Principles and Other Requirements for Swap Execution Facilities, 78 FR 33477, 33554.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 293

post-trade price transparency. See CFTC Regulations 43.3(b) and 45.3(a)(1).

CFTC Regulation 16.01, applicable for both DCMs and SEFS, requires the reporting of 

transactions as follows:

(a) Trading volume and open contracts. (1) Each reporting market, as defined in part 

15 of this chapter, must separately record for each business day the information 

prescribed in paragraphs (a)(2)(i) through (vi) of this section for each of the following 

contract categories:

(i) For futures, by commodity and by futures expiration date;

(ii) For options, by underlying futures contracts for options on futures contracts or by 

underlying commodity for options on commodities, and by put, by call, by expiration 

date and by strike price;

(iii) For swaps or class of swaps, by product type and by term life of the swap; and

(iv) For options on swaps or classes of options on swaps, by underlying swap 

contracts for options on swap contracts or by underlying commodity for options on 

swaps on commodities, and by put, by call, by expiration date and by strike price.

(2) Each reporting market must record for each trading session the following trading 

volume and open interest summary data:

(i) The option delta, where a delta system is used;

(ii) The total gross open contracts for futures, excluding those contracts against 

which delivery notices have been stopped;

(iii) For futures products that specify delivery, open contracts against which delivery 

notices have been issued on that business day;

(iv) The total volume of trading, excluding transfer trades or office trades:

(A) For swaps and options on swaps, trading volume shall be reported in terms of 

the number of contracts traded for standard-sized contracts (i.e., contracts with a set 

contract size for all transactions) or in terms of notional value for non-standard-sized 

contracts (i.e., contracts whose contract size is not set and can vary for each 

transaction).

(B) [Reserved]

(v) The total volume of futures/options/swaps/swaptions exchanged for 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

294 INTERNATIONAL MONETARY FUND 

commodities or for derivatives positions that are included in the total volume of 

trading; and

(vi) The total volume of block trades included in the total volume of trading.

(b) Prices. (1) Each reporting market must record the following contract types 

separately

(i) For futures, by commodity and by futures expiration;

(ii) For options, by underlying futures contracts for options on futures contracts or by 

underlying commodity for options on commodities, and by put, by call, by expiration 

date and by strike price;

(iii) For swaps, by product type and contract month or term life of the swap; and

(iv) For options on swaps or classes of options on swaps, by underlying swap 

contracts for options on swap contracts or by underlying commodity for options on 

swaps on commodities, and by put, by call, by expiration date and by strike price.

(2) Each reporting market must record for the trading session and for the opening 

and closing periods of trading as determined by each reporting market:

(i) The opening and closing prices of each futures, option, swap or swaption;

(ii) The price that is used for settlement purposes, if different from the closing price; 

and

(iii) The lowest price of a sale or offer, whichever is lower, and the highest price of a 

sale or bid, whichever is higher, that the reporting market reasonably determines 

accurately reflects market conditions. Bids and offers vacated or withdrawn shall not 

be used in making this determination. A bid is vacated if followed by a higher bid or 

price and an offer is vacated if followed by a lower offer or price.

(3) If there are no transactions, bids, or offers during the opening or closing periods, 

the reporting market may record as appropriate:

(i) The first price (in lieu of opening price data) or the last price (in lieu of closing 

price data) occurring during the trading session, clearly indicating that such prices 

are the first and last prices; or

(ii) Nominal opening or nominal closing prices that the reporting market reasonably 

determines to accurately reflect market conditions, clearly indicating that such prices 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 295

are nominal.

(4) Additional information. Each reporting market must record the following 

information with respect to transactions in commodity futures, commodity options, 

swaps or options on swaps on that reporting market:

(i) The method used by the reporting market in determining nominal prices and 

settlement prices; and

(ii) If discretion is used by the reporting market in determining the opening and/or 

closing ranges or the settlement prices, an explanation that certain discretion may be 

employed by the reporting market and a description of the manner in which that 

discretion may be employed. Discretionary authority must be noted explicitly in 

each case in which it is applied (for example, by use of an asterisk or footnote).

(c) Critical dates. Each reporting market must report to the Commission, for each 

futures contract, the first notice date and the last trading date, and for each option 

contract, the expiration date in accordance with paragraph (d) of this section.

(d) Form, manner and time of filing reports. Unless otherwise approved by the 

Commission or its designee, reporting markets must submit to the Commission the 

information specified in paragraphs (a), (b), and (c) of this section as follows:

(1) Using the format, coding structure and electronic data transmission procedures 

approved in writing by the Commission or its designee; provided however, that the 

information must be made available to the Commission or its designee in hard copy 

upon request;

(2) When each such form of the data is first available, but not later than 7:00 a.m. on 

the business day following the day to which the information pertains for the delta 

factor and settlement price and not later than 12:00 p.m. for the remainder of the 

information. Unless otherwise specified by the Commission or its designee, the 

stated time is U.S. eastern standard time for information concerning markets located 

in that time zone, and U.S. central time for information concerning all other markets; 

and

(3) For information on reports to the Commission for swap or options on swap 

contracts, refer to part 20 of this chapter.

(e) Publication of recorded information. (1) Reporting markets must make the 

information in paragraph (a) of this section readily available to the news media and 

the general public without charge, in a format that readily enables the consideration 

of such data, no later than the business day following the day to which the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

296 INTERNATIONAL MONETARY FUND 

information pertains. The information in paragraphs (a)(2)(iv) through (vi) of this 

section shall be made readily available in a format that presents the information 

together.

(2) Reporting markets must make the information in paragraphs (b)(2) and (3) of this 

section readily available to the news media and the general public, and the 

information in paragraph (b)(4)(ii) of this section readily available to the general 

public, in a format that readily enables the consideration of such data, no later than 

the business day following the day to which the information pertains. Information in 

paragraph (b)(4)(i) of this section must be made available in the registered entity's 

rulebook, which is publicly accessible on its website.

Commitments of Traders Reports. The CFTC also publishes a variety of market 

transaction data, such as the Commitments of Traders (“COT”) reports and “This Month in 

Futures Markets.” The COT report is published weekly on the third business day after the 

“as of” date. The report includes data on the numbers of traders in each category, a 

crop-year breakout, concentration ratios and data on option positions. The report also 

available on the Commission’s website free of charge. 

The COT reports provide a breakdown of each Tuesday's open interest for markets in 

which 20 or more traders hold positions equal to or above the reporting levels 

established by the CFTC. The weekly reports for Futures-Only Commitments of Traders

and for Futures-and-Options-Combined Commitments of Traders are released every Friday 

at 3:30 p.m. U.S. EST. 

Reports are available in both a short and long format. The short report shows open 

interest separately by reportable and non-reportable positions. For reportable positions, 

additional data are provided for commercial and non-commercial holdings, spreading, 

changes from the previous report, percent of open interest by category, and numbers of 

traders. The long report, in addition to the information in the short report, also groups 

the data by crop year, where appropriate, and shows the concentration of positions held 

by the largest four and eight traders. 

Weekly Swaps Report. The CFTC publishes a weekly report aggregating over-the-counter 

swap transactions reported to the various swap data repositories (SDRs). The report is 

published every Wednesday at 3:30 p.m., unless otherwise noted. Data for the week ending 

on a given Friday will appear in the report on the second following Wednesday (i.e. 12 days 

later).

The report provides three views of the swaps market: the gross notional outstanding value, 

the weekly transactions measured by dollar volume, and the weekly transactions measured 

by ticket volume. For each asset class, the report provides detailed breakdowns of the 

swaps market by product type, currency (six major currencies), tenor, participant type, and 

whether swaps are cleared or uncleared. The report presents data only on market-facing 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 297

swaps transactions, i.e. those transactions executed at arms-length between non-affiliated 

entities, which allows the public a view of the competitive marketplace. The Weekly Swaps 

Report is available free of charge at http://www.cftc.gov/MarketReports/SwapsReports.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

298 INTERNATIONAL MONETARY FUND 

(c) requirements or arrangements that information on completed transactions be 

provided on an equitable basis to all market participants?

Yes. DCM Core Principle 8, Daily Publication of Trading Information, requires that a DCM 

make available to the public accurate information on settlement prices, volume, open 

interest, and opening and closing ranges for actively traded contracts on the contract market 

See CFTC Regulation 38.450. Additionally, DCM Core Principle 7, Availability Of General 

Information, requires a DCM to make publicly available accurate information regarding the 

contract market’s terms and conditions of the contracts; the rules, regulations and 

mechanisms for executing transactions on or through the contract market; and the rules and 

specifications describing the operation of the contract market’s electronic matching platform 

or trade execution facility. See CFTC Regulation 38.400 and 38.401. DCM Core Principle 7 

requires making public the rules and specifications describing the operation of the DCM’s 

electronic matching platform or trade execution facility. DCMs are required to “ensure that 

authorities, market participants, and the public have available all material information 

pertaining to new product listings, new or amended governance, trading and product rules, 

or other changes to information previously disclosed by the DCM.” See CFTC Regulation 

38.401. 

Similarly, CFTC Regulation 37.500 requires that SEFs make certain swap data, including end 

of day pricing data and trading volume, publicly available each day.

CFTC Regulation 16.01 provides that reporting markets, both DCMs and SEFs, shall make 

readily available data pertaining to trading volume, open contracts, and price to the news 

media and general public without charge, in a format that readily enables the consideration 

of such data, for each business day following for each of the following contract categories:

(i) For futures, by commodity and by futures expiration date;

(ii) For options, by underlying futures contracts for options on futures contracts or by 

underlying commodity for options on commodities, and by put, by call, by expiration date 

and by strike price;

(iii) For swaps or class of swaps, by product type and by term life of the swap; and

(iv) For options on swaps or classes of options on swaps, by underlying swap contracts for 

options on swap contracts or by underlying commodity for options on swaps on 

commodities, and by put, by call, by expiration date and by strike price. 

Section 21 of the CEA covers reporting by SDRs and addresses the provision of direct 

electronic access to the Commission as well as the establishment of “systems for monitoring, 

screening, and analyzing swap data, including compliance and frequency of end user 

clearing exemption claims by individual and affiliated entities.” This section also refers to 

Section 2(a)(13) of the CEA on the “Public Availability of Swap Transaction Data.” Section 

2(a)(13) states: “[t]he purpose of this section is to authorize the Commission to make swap 

transaction and pricing data available to the public in such form and at such times as the 

Commission determines appropriate to enhance price discovery.” Such real-time reporting is 

done “as soon as technologically practicable after the time at which the swap transaction has 

been executed.” 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 299

2. Where derogation from the objective of real-time transparency is permitted:

(a) Are the conditions clearly defined?

Yes. Pre-trade public dissemination of transaction data is waived for swap transactions that 

are large in scale and qualify as a “block trade” or “large notional off-facility swap 

transaction” under Part 43 of the Commission’s regulations. A block trade in a swap occurs 

away from a DCM or SEF, but pursuant to the DCM’s or SEF’s rules, and has a notional or 

principle amount at or above the minimum block threshold. A large notional off-facility 

swap is an off-facility swap that does not meet the definition of a “block trade,” but is for a 

notional or principle amount in excess of the minimum block threshold. Post-trade public 

dissemination of transaction data is deferred for large transactions that qualify as a “block 

trade” or “large notional off-facility swap transaction” under Part 43 of the Commission’s 

regulations. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

300 INTERNATIONAL MONETARY FUND 

(b) Does the market authority (being either, or both, the exchange operator and the 

regulator) have access to the complete information to be able to assess the need for 

derogation and if necessary, to prescribe alternatives?

Yes. As discussed in detail in above, DCMs must comply with: DCM Core Principle 7 

(Availability of General Information), DCM Core Principle 8 (Daily Publication of Trading 

Information), CFTC Regulation 16.01 (Publication of Market Data on Futures, Swaps and 

Options Thereon: Trading Volume, Open Contracts, Prices, and Critical Dates), CFTC 

Regulation 16.02 (Daily Trade and Supporting Data Reports), Part 43 (Real-Time Public 

Reporting), and Part 45 (Swap Data Recordkeeping and Reporting Requirements). 

DCM Core Principle 7 specifically states that market authorities must have access to trade 

information and, furthermore, DCMs “must have procedures, arrangements and resources 

for disclosing to the Commission, market participants and the public accurate information 

pertaining to:

(i) Contract terms and conditions;

(ii) Rules and regulations pertaining to the trading mechanisms; and

(iii) Rules and specifications pertaining to operation of the electronic matching 

platform or trade execution facility” (CFTC Regulations 38.400 and 38.401).

DCM Core Principle 8 states that daily information “on settlement prices, volume, open 

interest, and opening and closing ranges for actively traded contracts on the contract 

market” must be made publicly available as contemplated in Commission regulations (CFTC 

Regulation 38.450; see also CFTC Regulation 16.01).

The CFTC’s SEF regulations establish a similar set of requirements for SEFs, including CFTC 

Regulation 37.500 (Ability to obtain information), CFTC Regulation 37.502 (Collection of 

information), CFTC Regulation 37.503 (Provide information to the Commission), and CFTC 

Regulation 37.900 (Timely publication of trading information).

(c) Does the regulator have access to adequate information to monitor the development 

of dark trading and dark orders?

Futures must be traded on exchanges and so there is no dark trading in this area that the 

Commission could monitor or have access to.

With respect to swaps, there exist both Required and Permitted Transactions. The former 

refers to transactions subject to the trade execution mandate under Section 2(h)(8) of the 

CEA and the latter refers to transactions that are not subject to the clearing and trade 

execution mandates, illiquid or bespoke swaps, or block trades Permitted Transactions are 

not subject to the trade execution mandate and could, therefore, be traded off-market. If 

they are traded on a SEF, however, they are required to be reported.

(d) Do transparent orders have priority over dark orders? 

See response to Question 2(c), above.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 301

(e) Do dark pools and transparent markets that offer dark orders provide market 

participants with sufficient information so that they are able to understand the 

manner in which their orders are handled and executed?

A DCM’s trade-matching algorithm, including any dark pool features, must be reflected as a 

rule in the DCM’s transparent rulebook.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

302 INTERNATIONAL MONETARY FUND 

Principle 36 Regulation should be designed to detect and deter manipulation and other 

unfair trading practices

Key Questions

1. Does the regulatory system prohibit the following with respect to securities admitted to 

trading on authorized exchanges and regulated trading systems:

(a) Market or price manipulation?

(b) Misleading information? 

(c) Insider trading?

(d) Front running?

(e) Other fraudulent or deceptive conduct and market abuses? 

Yes, to all of the above. 

As stated in the IOSCO Methodology for Assessing Implementation of the IOSCO Objectives 

and Principles of Securities Regulation (August 2013) (“Principles”):

Investors should be protected from misleading, manipulative or 

fraudulent practices, including insider trading, front running or 

trading ahead of customers and the misuse of client assets. Investors 

in the securities markets are particularly vulnerable to misconduct by 

intermediaries and others, but the capacity of individual investors to 

take action may be limited. . . . Full disclosure of information 

material to investors’ decisions is the most important means for 

ensuring investor protection. Investors are, thereby, better able to 

assess the potential risks and rewards of their investments and, thus, 

to protect their own interests.

It is also important to note that the Principles are intended to apply to the securities markets 

which, used in context, refers to “various market sectors, including markets for derivatives 

that are securities. The same interpretative convention applies to the use of the words 

‘securities regulation.’ The Principles are not, however, specifically tailored to address all 

issues that are particular to derivatives markets. Accordingly, in determining whether the 

context permits the application of a Principle to derivatives, assessors should take into 

account the functional differences between, and the relevant jurisdiction’s statutory 

treatment of, securities and derivatives. See Principles (emphasis added).

The CEA has multiple enforcement provisions related to items 1(a) through (e) above. See

responses to Principle 12, Questions 3(a) through (c).

CFTC Regulation 33.10 (which applies to DCMs pursuant to CFTC Regulation 38.2) makes it 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 303

unlawful for any person to cheat, defraud or attempt to cheat or defraud any other person; 

to make or cause to be made to any other person any false report or statement or record; or 

to deceive or attempt to deceive any other person by any means whatsoever in connection 

with commodity option transactions.

DCM Core Principles 3 and 4 require that contracts listed on a board of trade not be subject 

to manipulation, and that the DCM prevent market disruption DCM Core Principle 3

addresses contracts not readily subject to manipulation, stating that the board of trade shall 

list on the contract market only contracts that are not readily susceptible to manipulation. 

See DCM Core Principle 3 and CFTC Regulation 38.200. In order to demonstrate compliance 

with the requirement that contracts not be readily susceptible to manipulation, DCMs listing 

new futures contracts should provide the Commission with certain information, including, 

among other things, data and information to support the contract’s terms and conditions 

and a detailed cash market description for physical and cash-settled contracts. When 

designing futures contracts, DCMs should conduct market research so that the product 

meets the risk management needs of users and promotes price discovery. For futures 

contracts settled by physical delivery, the terms and conditions should be designed to avoid 

impediments to delivery so as to promote convergence between the price of the futures 

contract and the cash-market value of the commodity. The specified terms and conditions 

should result in a deliverable supply that is sufficient to ensure that the contract is not 

susceptible to price manipulation or distortion. CFTC Regulation 38.252. For cash-settled 

futures contracts, contract specifications should fully describe the essential economic 

characteristics of the underlying commodity, as well as how the final settlement price is 

calculated. In evaluating susceptibility to manipulation, DCMs should consider the size and 

liquidity of the underlying cash market. CFTC Regulation 38.253. Each DCM must also 

demonstrate that it: monitors the pricing of the index to which the cash-settled contract will 

be settled; monitors the continued appropriateness of the methodology deriving the index; 

and makes a good faith effort to resolve conditions where there is a threat of market 

manipulation, disruptions, or distortions. CFTC Regulation 38.8. A DCM should determine 

that the reference price indices used for swap contracts are not readily susceptible to 

manipulation, giving careful consideration to the potential for manipulation or distortion of 

the cash settlement price, as well as the reliability of that price as an indicator of cash market 

value.

To reduce the potential threat of market manipulation or congestion (especially during 

trading in the delivery month), DCMs must for each contract, as is necessary and 

appropriate, adopt position limitations or position accountability for speculators. For any 

contract that is subject to a position limitation established by the Commission, the DCM 

must set the position limitation at a level not higher than the position limitation established 

by the Commission. See DCM Core Principle 5; CFTC Regulation 38.300.

DCM Core Principle 4 addresses prevention of market disruption, stating that the board of 

trade shall have the capacity and responsibility to prevent manipulation, price distortion, and 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

304 INTERNATIONAL MONETARY FUND 

disruptions of the delivery or cash-settlement process through market surveillance, 

compliance, and enforcement practices and procedures, including (a) methods for 

conducting real-time monitoring of trading; and (b) comprehensive and accurate trade 

reconstructions. See CFTC Regulations 38.250-258.

CFTC Regulation 28.255 requires that DCMs “establish and maintain risk control mechanisms 

to prevent and reduce the potential risk of price distortions and market disruptions, 

including, but not limited to, market restrictions that pause or halt trading in market 

conditions prescribed by the designated contract market.” 

2. Does the regulatory approach to detect and deter such conduct include an effective and 

appropriate combination of mechanisms drawn from the following:

(a) Direct surveillance, inspection, reporting, such as, for example, securities listing or 

product design requirements (where applicable), position limits, audit trail 

requirements, quotation display rules, order handling rules, settlement price rules or 

market halts complemented by enforcement of the law and trading rules?

(b) Effective, proportionate and dissuasive sanctions for violations? 

Yes, to all of the above. DCMs have the primary obligation to detect and deter unlawful 

conduct and use a combination of direct surveillance, inspection, reporting, product design 

requirements, position limits, settlement price rules or market halts complemented by 

vigorous enforcement of the law and trading rules. 

In addition to the exchange surveillance program, the CFTC independently conducts an 

extensive market surveillance program, utilizing large trader reports. See responses to 

Principle 9, Question 4 and Principles 12, 33, and 34 regarding the CFTC’s market 

surveillance program.

The CFTC has robust sanctioning powers in cases of manipulation and other unfair 

trading practices which serve the twin purposes of punishing the wrongdoer and 

deterring misconduct by others, all in an effort to protect the integrity of the markets 

regulated by the CFTC. The sanctions apply across all markets within the CFTC’s 

jurisdiction and to registrants and non-registrants alike. These sanctions include:

1. Trading ban - An order prohibiting a violator from trading on or subject to the 

rules of any (or all) contract market(s) and requiring contract markets to refuse 

such person all trading privileges thereon for such period as may be specified in 

the order, including a lifetime prohibition. This trading ban could be imposed on 

customers who trade, as well as registered intermediaries. Registration sanctions -

an order suspending (for a period not more than six months), revoking or 

restricting a respondent's registration with the Commission. 

2. Restitution - An order directing that a wrongdoer make restitution to customers 

of damages or losses caused by the respondent's violations. It is a remedy 

designed to make victims whole. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 305

3. Disgorgement – An order directing that a respondent disgorge ill-gotten gains. It 

is a remedy that is designed to deprive a wrongdoer of the amount by which he 

profited from his wrongdoing, which in some cases differs from the amount of 

victim loss.

4. Civil penalties - An order assessing civil monetary penalties against a wrongdoer 

in an amount up to $1,000,000 per manipulation violation or triple the monetary 

gain to the respondent for each such violation. Thus, a penalty is not limited to 

the amount of the gain to the wrongdoer.

5. Preliminary and permanent injunctions or cease and desist - Orders barring 

future violations of the Commodity Exchange Act and CFTC regulations and 

enforcing compliance with the Act and regulations. 

In addition to the civil remedies and penalties available to the CFTC, manipulation, 

conversion, false statements to a registered entity or to the Commission and other willful 

violations of the Act are also felonies that may be prosecuted by the U.S. Department of 

Justice and are punishable by a fine of up to $1 million or imprisonment for up to 10 

years or both.

It is important to note that the Commission and the courts can mix and match the 

appropriate sanctions to the facts of the case in order to establish the appropriate 

relationship and proportion to the wrongdoing. 

A recent case, DiPlacido v. CFTC, is illustrative. The Commission charged DiPlacido with 

manipulation, attempted manipulation, and aiding and abetting a manipulation involving 

trades for an energy trading company and non-competitive trading. DiPlacido was also 

charged with a recordkeeping violation for failing to promptly produce documents during 

the DOE’s investigation. The manipulative scheme involved buying or selling electricity 

futures contracts on the NYMEX trading floor at prices higher or lower, respectively, than the 

prevailing price and placing large orders in these illiquid markets without legitimate 

economic reasons. These strategies were employed to increase the value of the trading 

company’s OTC positions. DiPlacido was a registered floor broker who executed trades for 

the energy trading company.

After a contested hearing, the Commission found the Respondent liable for manipulating 

and attempting to manipulate the settlement price in the contracts at issue. In determining 

the appropriate sanctions, the Commission first explored the relationship of the underlying 

conduct to the regulatory purposes of the CEA and the facts and circumstances of the 

particular case. Upon finding that market manipulation is a core provision of the CEA and 

has been described as the “gravest offense under the Act,” that the respondent was a 

knowing participant in unlawful conduct, intentionally and willingly engaged in trading 

strategies that he designed to drive up or down the settlement price in furtherance of the 

energy company’s goals, that he directed his floor clerk to use code words to conceal the 

conduct, altered trading cards, refused to comply with Commission subpoena and 

attempted to obstruct the NYMEX investigation into his trading for the energy company, the
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

306 INTERNATIONAL MONETARY FUND 

Commission imposed a cease and desist order, revoked the DiPlacido’s registration as a 

floor broker, imposed a 20 year trading prohibition and a civil penalty for each violation, as 

follows:

 $110,000 for each of 4 manipulations (totaling $440,000);

 $65,000 for reporting a non-competitive trade as bona fide;

 $65,000 for altering a trading card; and

 $40,000 for failure to promptly produce documents to the Commission.

The Commission explicitly stated that violations are not mitigated because there was no 

evidence of the DiPlacido’s monetary gain or other financial consequences. Instead, the 

Commission recognized the need to protect market integrity and imposed a sanction 

based upon the relative level of gravity of the violations.

Under its emergency powers, when it has reason to believe an emergency exists, the 

Commission is authorized to direct a registered entity such as a DCM to take such action as 

in the Commission’s judgment is necessary to maintain or restore orderly trading in or 

liquidation of any futures contract. The term “emergency” includes threatened or actual 

market manipulation or corners, any act of the United States or a foreign government 

affecting a commodity, or any other major market disturbance which prevents the market 

from accurately reflecting the forces of supply and demand. See CEA Section 8a(9). DCMs 

are required to adopt rules that “provide for the exercise of emergency authority,” which 

includes, among other powers, the ability to suspend or curtail all trading in a contract under 

Core Principle 6. This emergency authority is intended to allow DCMs to “intervene as 

necessary to maintain markets with fair and orderly trading and to prevent or address 

manipulation or disruptive trading practices. See Appendix B to Part 38 (Core Principle 6).

Section 6 of the CEA authorizes criminal penalties and sanctions for manipulation, attempted 

manipulation and all other willful violations of the CEA and CFTC regulations. Section 6(e) of 

the CEA provides an explicit prohibition against insider trading for certain persons, making it 

a felony: 

(1) for any person who is an employee, member of the governing board, or member 

of any committee of a board of trade, registered entity, swap data repository, or 

registered futures association, in violation of a regulation issued by the Commission, 

willfully and knowingly to trade for such person’s own account, or for or on behalf of 

any other account, in contracts for future delivery or options thereon, or swaps, on 

the basis of, or willfully and knowingly to disclose for any purpose inconsistent with 

the performance of such person’s official duties as an employee or member, any 

material nonpublic information obtained through special access related to the 

performance of such duties, or

(2) willfully and knowingly to trade for such person’s own account, or for or on 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 307

behalf of any other account, in contracts for future delivery or options thereon on 

the basis of material, nonpublic information that such person knows was obtained in 

violation of paragraph (1) from an employee, member of the governing board, or 

member of any committee of a board of trade, registered entity, or registered 

futures association.

3. Are there arrangements in place for:

(a) The continuous collection and analysis of information concerning trading activities?

(b) Providing the results of such analysis to market and regulatory officials in a position 

to take remedial action if necessary? 

(c) Monitoring the conduct of market intermediaries participating in the market(s)?

(d) Triggering further inquiry as to suspicious transactions or patterns of trading?

Yes, to all of the above. Both the CFTC and DCMs conduct market surveillance. See response 

to Principle 34, Question 1(a), regarding the CFTC’s market surveillance program.

4. If there is potential for domestic cross-market trading, are there: inspection, assistance, and 

information-sharing requirements or arrangements in place to monitor and/or address 

domestic cross-market trading abuses? 

Yes. The CFTC’s market surveillance program, previously described in the response to 

Principle 34, Question 1(a), enables the CFTC to monitor and address domestic cross-market 

trading abuses. In addition, the CFTC has entered into Cooperative Arrangements that, 

among other things, provide for enforcement and investigative assistance to address 

domestic cross-market trading abuses. In addition, individual markets have entered into 

arrangements of their own. 

MOUs. See Principles 13-15. The CFTC cooperates with foreign regulatory and enforcement 

authorities through formal MOUs and informal arrangements to combat cross-border fraud 

and other illegal practices that could harm customers or threaten market integrity.

Cross-border information sharing among market authorities plays an integral role in the 

effective surveillance of global markets that are linked by products, participants, and 

technology. Information sharing arrangements can be critical in combating cross-border 

fraud and manipulation, addressing the financial risks of market participants, and sharing 

regulatory expertise on market oversight and supervision. The CFTC makes and receives a 

significant number of requests for assistance and information to and from foreign 

authorities in connection with various surveillance and enforcement issues.

The CFTC has entered into Cooperative Arrangements with regulators in many jurisdictions, 

including cooperative enforcement arrangements, arrangements relating to sharing financial 

and other types of fitness information, and arrangements for sharing information on matters 

related to the implementation of the CFTC's Part 30 Regulations, which grant foreign firms 

an exemption from certain CFTC requirements.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

308 INTERNATIONAL MONETARY FUND 

Intermarket Surveillance Group. The purpose of the Intermarket Surveillance Group (ISG) 

is to provide a framework for the sharing of information and the coordination of regulatory 

efforts among exchanges trading securities and related products to address potential 

intermarket manipulations and trading abuses. The ISG plays a crucial role in information 

sharing among markets that trade securities, options on securities, security futures products, 

and futures and options on broad-based security indexes. The ISG also provides a forum for 

discussing common regulatory concerns, thus enhancing members’ ability to fulfill efficiently 

their regulatory responsibilities. In effect, the ISG is an information-sharing cooperative 

governed by a written agreement. The ISG is not subject to regulatory oversight, nor does it 

file rule changes with the CFTC or the SEC or seek approval when it considers requests from 

securities or futures exchanges to become a member. 

Membership in the ISG carries with it a commitment to share information required for 

regulatory purposes with other members. ISG agreements provide that information that is 

shared must be kept strictly confidential and used only for regulatory purposes. Such 

information is shared on an as-needed basis and only upon request. In addition, U.S. 

securities participants, via the facilities of the Securities Industry Automation Corporation 

(SIAC), routinely share trading information electronically. 

In connection with the routine sharing of information, the ISG has defined certain types of 

violations which can occur across markets, and has allocated responsibility for surveillance 

for such activity to the appropriate member. This enables participants to avoid duplicative 

efforts while continuing to ensure effective intermarket surveillance. 

Generally, the full ISG meets two times per year. Meetings are open only to representatives 

of members, prospective members, SIAC representatives, and appropriate governmental 

authorities such as the CFTC, SEC, the UK Financial Conduct Authority, and, on occasion, 

international organizations such as IOSCO. Senior market surveillance or market regulation 

personnel represent member organizations. 

From time to time, and at the discretion of the Chairman of the ISG, subgroups may be 

formed to address specific issues of importance to the group. Such subgroups may be 

permanent or have a limited time depending on the subject. Subgroups are headed by a 

representative of a member or affiliate and are appointed by the Chairman. Meetings of 

subgroup members are generally independent of regular ISG meetings and may take place 

either at a location directed by the subgroup chairperson or telephonically during the 

interval between ISG meetings. Ordinarily, standing subgroups meet on the day preceding a 

full ISG meeting. Affiliate membership in the ISG is open to all recognized market centers 

that trade products that have rules and regulations designed to detect and deter possible 

abuses in their marketplaces. Participants in the ISG must have the ability to share 

regulatory information and otherwise cooperate with other ISG participants in connection 

with regulatory matters affecting their markets. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 309

Intermarket Financial Surveillance Group. The Intermarket Financial Surveillance Group 

was formed in 1988 to provide a coordinating body to address financial surveillance issues 

relevant to both futures and securities markets. The IFSG includes most of the principal 

commodity and securities exchanges as well as the NFA and FINRA. The members of the 

IFSG have agreed to share financial information with respect to “high risk” member firms as 

commonly defined by the group. The agreement also provides for the exchange of 

information upon request regarding capital, segregation of customer funds, margins, 

liquidity problems, omnibus accounts carried and/or carrying brokers, and pay/collect data 

with respect to such high risk firms.

Joint Audit Committee. The JAC, which consists of representatives of the financial 

compliance departments of each of the futures industry SROs, was established in 1979 to 

coordinate the SROs’ audit and financial surveillance programs, including informationsharing, disciplinary actions, audit procedures, and assignment of audit responsibility for 

dual-membership firms, and to review current financial reporting issues and interpretations. 

CFTC staff frequently attends JAC meetings to discuss financial compliance issues.

Joint Compliance Committee. To foster improvements and uniformity in their systems and 

procedures used for trade practice compliance, the futures exchanges, at the CFTC’s urging, 

formed the Joint Compliance Committee (“JCC”). The JCC has developed uniform definitions 

of trade practice offenses and routinely meets to share information on automated 

compliance systems and other surveillance matters with a view to improving exchange 

compliance programs. 

International Exchange MOU. In 1995, numerous derivatives exchanges developed an 

Exchange MOU that was created to address the problem of accessing information about 

large exposures where exchange member firms and market participants typically trade on 

multiple exchanges and no one regulator or market authority will have all of the information 

necessary to evaluate the risks in its markets. Under the Exchange MOU the occurrence of 

agreed triggering events affecting an exchange member’s financial resources, positions, 

price movements or price relationships will prompt the sharing of information.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

310 INTERNATIONAL MONETARY FUND 

5. If there are foreign linkages, substantial foreign participation, or cross listings, are there 

cooperation arrangements with relevant foreign regulators and/or markets that address 

manipulation or other abusive trading practices?

Yes. Pursuant to CFTC Regulation 48.7(c)(3), FBOTs that wish to register with the Commission 

in order to provide to members and other participants located in the United States with 

direct access to their respective trade matching systems are required to specifically identify 

any contract that the FBOT will make available in the United States that is linked to a contract 

listed for trading on a registered entity or has any other relationship with a contract listed for 

trading on a registered entity. Once registered, the FBOT must comply with specific 

conditions for registration, including the ongoing obligations regarding linked contracts set 

forth in CFTC Regulation 48.8(c)(2).172 Specifically, the FBOT must: (1) report to the 

Commission on a quarterly basis, any member that had positions in a linked contract above 

the applicable FBOT trade position limit, whether a hedge exemption was granted and, if 

not, whether disciplinary action was taken; (2) for all linked contracts, provide to the 

Commission trade execution and audit trail data for the Commission’s Trade Surveillance 

System on a trade-date plus one basis; (3) provide to the Commission, at least one day prior 

to the effective date thereof (except in the event of an emergency market situation) copies of 

or hyperlinks to all rules, rule amendments, circulars and other notices published by the 

FBOT with respect to all linked contracts; (4) provide to the Commission copies of all reports 

of disciplinary action involving the FBOT’s linked contracts upon closure of the action; and 

(5) in the event that the Commission, pursuant to its emergency powers and authority, 

directs the registered entity that lists the contract to which the FBOT’s contract is linked to 

take emergency action with respect to the contract, the FBOT, subject to information sharing 

arrangements between the Commission and its regulatory authority, must promptly take 

similar action.

6. Regarding authorities responsible for the supervision of commodity futures markets (e.g., 

either the market, a governmental regulator or an SRO) (“futures market regulators”) only: 

Does the authority have access to information that permits it to identify concentrations of 

positions and the overall composition of the market, including the power to access a trader’s 

related financial and underlying market positions?

See response detailing the COT Report in Principle 35, Question 1(b).

 

172 A linked contract is defined in Commission Regulation 48.2(d) as a futures, option or swap contract that is made available for 

trading by direct access by a registered FBOT that settles against any price (including the daily or final settlement price) of one or 

more contracts listed for trading on a registered entity, as defined in CEA Section 1a(40).
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 311

Principle 37 Regulation should aim to ensure the proper management of large exposures, 

default risk and market disruption

Key Questions 

Monitoring of Large Exposures

1. Does the market authority have a mechanism in place that is intended to monitor and 

evaluate continuously the risk of open positions or credit exposures that are sufficiently large 

to expose a risk to the market or to a clearing firm that includes:

(a) Qualitative or quantitative trigger levels appropriate to the market for the purpose of 

identifying large exposures (as defined by the market authority), continuous 

monitoring and an evaluative process?

Yes. Section 3(b) of the CEA states that one of the purposes of the CEA is “to ensure the 

financial integrity of all transactions subject to this Act and the avoidance of systemic risk.” 

The CFTC’s examination group examines DCOs that are registered with the Commission for 

compliance with the 18 DCO Core Principles as well as all relevant CFTC regulations. These 

Core Principles encompass all aspects of clearing and involve a sophisticated analysis of a 

broad range of topics including, but not limited to, the adequacy of a DCO’s financial, 

operational, and managerial resources; the DCO’s ability to manage all risks associated with 

clearing and settlement, including whether the DCO uses appropriate tools and procedures 

to monitor such risks, whether the DCO’s risk analysis and oversight program is able to 

accurately identify and minimize sources of operational risk; and a DCO’s ability to resist, and 

to minimize any potential damage from cyber security threats. The exams group examines 

DCOs as frequently as practicable. 

The examinations group examines each SIDCO at least once annually to determine: (1) the 

nature of the operations of, and the risks borne by, the SIDCO; (2) the financial and 

operational risks presented by the SIDCO to financial institutions, critical markets, or the 

broader financial system; (3) the resources and capabilities of the SIDCO to monitor and 

control such risks; (4) the safety and soundness of the SIDCO; and (5) the SIDCO’s 

compliance with (A) Title VIII of the Dodd-Frank Act, and (B) the rules and orders prescribed 

under Title VIII of the Dodd-Frank Act. SIDCOs also are examined for compliance with the 

CEA and CFTC regulations including, inter alia, regulations that are consistent with the 

PFMIs. The exams group also frequently coordinates with other domestic and foreign 

regulators during an examination.

Finally, the DCO exams group also performs the following tasks: (i) reviews all quarterly 

submissions from DCOs to evaluate compliance with the CFTC’s financial resource 

requirements; (ii) reviews the certified financial statements of each DCO; (iii) reviews the 

notice filings from all DCOs; (iv) assists with DCO applications by reviewing information 

supporting the DCO applicant’s compliance with certain Core Principles; and (v) assists in the 

review of SIDCO material rule change filings.

In addition, DCR’s RSG was established to aid the Commission in fulfilling the objective of 

the CEA to ensure the financial integrity of all transactions subject to the CEA and to avoid 

systemic risk. RSG is currently enhancing its program to ensure that it meets the 

significantly increased responsibilities created by the Dodd-Frank Act.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

312 INTERNATIONAL MONETARY FUND 

RSG defines risk as the potential that a market participant might not fulfill its financial 

obligations on a contract subject to the Commission’s jurisdiction under the CEA. All futures 

and options must be cleared through a DCO. Many swaps are also now subject to a clearing 

mandate. Some traders are members of a DCO and clear for themselves while others use 

FCMs to clear for them. If a trader is unable to meet its obligations on a cleared contract, 

the obligations become those of the trader’s clearing member. If the clearing member is 

unable to cover its obligations, the obligations become those of the DCO. 

RSG attempts: (1) to identify positions in cleared products subject to the Commission’s 

jurisdiction that pose significant financial risk; and (2) to confirm that these risks are being 

appropriately managed. The RSG undertakes these tasks at the trader level, the clearing 

member level, and the DCO level. That is, it identifies both traders that pose risks to clearing 

members and clearing members that pose risks to the DCO. It then evaluates the financial 

resources and risk management practices of traders, clearing members, and DCOs in relation 

to those risks.

The program for futures and options is well-established. Dodd-Frank, however, added 

responsibility for complex, high-volume products such as interest rate swaps (IRS) and credit 

default swaps (CDS). RSG is in the process of developing tools and techniques to address 

these products and to integrate the swaps program with the futures and options program.

RISK ASSESSMENT TECHNIQUES

A. Overview

The risk surveillance program contains four primary components: 1) identifying traders, 

clearing members, and DCOs at risk; 2) estimating the magnitude of the risk; 3) 

comparing the risk to the available financial resources; and 4) assessing the risk 

management practices of the traders, clearing members, and DCOs.

B. Identifying Traders, Clearing Members, and DCOs at Risk

1. Analysis Based on Account Characteristics

RSG attempts to be proactive rather than reactive. Accordingly, staff attempts to identify 

traders and clearing members who might pose extraordinary risk before a market 

becomes volatile not just after the volatility appears. A number of different 

characteristics may trigger further scrutiny.

a. Absolute size

Simple size (as measured by IM requirements), of course, can be an indicator of 

risk. The composition of the position is also relevant. Assigning responsibility to 

the staff on a market-by-market basis permits analysts to develop familiarity 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 313

over time with the identity and trading patterns of the largest participants in 

their respective markets. 

b. Short option size

Unlike futures, the risk of options is non-linear. That is, a price change that 

would cause a $1,000 change in the value of a futures position might cause a 

$20,000 change in the value of an option on that futures position. Accordingly, 

RSG pays particular attention to large net short option positions, particularly 

those that are deeply out-of-the-money. Recent volatility in certain markets has 

caused RSG to be very active in this area of risk monitoring. Furthermore, the 

risk of these traders often is increased because they tend to clear through 

smaller, less well-capitalized firms.

c. Size relative to the market

A position that is not large in absolute terms but is large relative to the market 

may pose additional risk. Such a concentrated position may be difficult to 

liquidate quickly without moving the market. 

d. Size relative to the initial margin on deposit

Initial margin (IM) is the first layer of financial protection at both the FCM and 

DCO level. A trader or clearing firm that is currently subject to a margin call 

poses greater risk than a trader or clearing firm with an identical position that 

has excess IM on deposit.

e. Size relative to the trader’s assets

A large position held by a trader that is well-capitalized would be of less concern 

than the same position held by a trader who did not have such “deep pockets.” 

As discussed below, this is an area where follow-up may be more difficult 

because RSG does not have the same ready access to financial information about 

traders or self- clearing firms that it has for FCMs and DCOs. 

f. Size relative to the clearing members capital 

A position that is not large in absolute terms but is large relative to the clearing 

firm may pose significant risk. As discussed further below, the resources of the 

clearing firm are always a factor in assessing financial risk.

g. Size relative to the DCO’s resources

In evaluating a DCO’s financial resources, RSG measures a DCO’s ability to cover 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

314 INTERNATIONAL MONETARY FUND 

a default by the clearing member carrying the riskiest position. Greater concern 

would arise if positions on one side of a market were concentrated among a few 

firms than if they were dispersed over many firms. 

h. Cumulative size across multiple DCOs

RSG has developed procedures to monitor changes in variation margin (VM) 

payments and IM deposits across DCOs. RSG identifies clearing firms that have, 

(1) increasing IM requirements, (2) VM payments that are a high percentage of 

the IM requirement, (3) VM payments that are larger than usual, and/or (4) a 

streak of losses on consecutive days. RSG analyzes which asset classes or 

products are driving the IM or VM movements and whether the movements are 

correlated across DCOs. In addition, RSG is developing procedures to monitor 

the aggregate risk of large traders across futures and swaps at different DCOs. 

i. News about a particular trader or FCM

RSG may decide to perform additional analysis of a particular trader or FCM 

based on information staff learns from public sources, industry participants, or 

other Commission staff. For example, a large trader might be experiencing 

financial difficulties because of losses in a cash market or the securities markets.

2. Analysis Based on Current Market Conditions

RSG risk analysts routinely monitor conditions in their assigned markets throughout the 

day. Because of the work done in identifying accounts of interest, analysts are able to 

focus their efforts on those traders whose positions warrant heightened scrutiny under 

current conditions.

C. Estimating the Magnitude of the Risk

1. Stress Testing

After identifying traders or clearing members at risk, RSG estimates the magnitude of 

the risk. An essential technique in evaluating risk is the use of stress testing. Stress 

testing is the practice of determining the potential loss (gain) to a position or portfolio 

based on a hypothetical price change or a hypothetical change in a price input such as 

option volatility. For instance, a stress test will calculate the change in value of a 

portfolio of crude oil futures and option positions if the price of crude oil increases $10 a 

barrel.

RSG conducts a wide array of stress tests. Some stress tests are based on the greatest 

price move over a specified period of time such as the last five years or the greatest 

historical price change. Another stress testing technique is the use of “event based” 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 315

stress testing that replicates the price changes on a particular date in history such as 

September 11, 2001 or the day of Hurricane Katrina. Price changes can be measured as 

a dollar amount or a percentage change. This flexibility can be helpful when price levels 

have changed by a large amount over time. For example, the actual price changes in 

equity indices in October 1987 are not particularly large at today’s market levels but the 

percentage changes are meaningful. 

The standard used in developing stress tests is “extreme but plausible” market moves.

2. Other Risk Estimation Techniques

For futures and options, RSG is able to estimate losses for both clearing members and 

traders by performing a revaluation of every position in the portfolio under the 

hypothetical scenario. RSG is working to obtain the data and to develop the tools to do 

this for swaps. Currently, however, testing for swaps is more limited.

For CDS, RSG is currently able to stress test CDS clearing member positions on a limited 

basis. RSG also uses “DV01” and “DV1%” to evaluate the risk of CDS portfolios. DV01 is 

the sensitivity of a CDS portfolio to a 1 basis point move in the spread rates. DV1% is 

the sensitivity of a CDS portfolio to a 1 percent move in the spread rate. DV01 and 

DV1% give the analyst a quick idea of the level of risk in a CDS portfolio.

For IRS, stress test capabilities are under development. IRS stress testing initially will also 

be at the clearing member level. RSG uses delta ladders to evaluate the risk in an IRS 

portfolio. A delta ladder measures the sensitivity to a 1 basis point move in interest 

rates at various points on the interest rate curve. Delta ladders are used to give the 

analyst a quick look at the overall risk of an IRS portfolio. Delta ladders can also be used 

to identify concentrations of risk at various points on the interest rate curve.

D. Comparing Risks to Available Assets

1. Initial Margin (“IM”)

After identifying accounts at risk and estimating the size of the risk, the third step is to 

compare that risk to the assets available to cover it. The first layer of protection is IM. 

Traders post IM to clearing members and clearing members post IM to DCOs. Pursuant 

to Commission Regulation 39.13(g), in setting IM requirements, a DCO must use models 

that generate IM requirements sufficient to cover the DCO’s potential future exposures 

to clearing members based upon price movements in the interval between the last 

collection of VM and the liquidation times set forth in the regulation. The actual 

coverage of the IM must meet an established confidence level, of at least 99 percent, 

based on data from an appropriate historic time period and be commensurate with the 

specific characteristics and risks of each product and portfolio.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

316 INTERNATIONAL MONETARY FUND 

Because stress testing, by definition, involves extreme moves, hypothetical results will 

exceed IM requirements on a product basis, i.e., the price moves will be in the 1 percent

tail. Many large traders, however, carry portfolios of positions with offsetting 

characteristics. In addition, many traders and clearing members deposit excess IM in 

their accounts. Therefore, even under stressed conditions, in many instances the total 

IM available may exceed potential losses or the shortfall may be relatively small.

2. Trader Assets

If the potential losses significantly exceed IM, RSG looks at other resources of the trader. 

RSG can contact a trader or self-clearing firm directly or obtain additional information 

about their resources from the FCM and/or DCO.

3. Clearing Member Capital

If a trader defaults on its obligations, the second layer of protection after IM is the 

clearing firm’s capital. RSG monitors the financial statements of clearing members. 

Many clearing members are registered as FCMs and are required to file financial reports 

with the Commission. For those clearing members that are not FCMs, RSG routinely 

relies on the DCO to provide financial reports. The financial statements allow RSG staff to 

review assets, liabilities, and capital of the clearing member. These financial data are 

compared to the potential losses obtained through stress testing. 

4. DCO Resources

If a clearing member defaults on its obligations, the third layer of protection is the DCO. 

RSG compares the risk posed by clearing members to a DCO’s financial resource 

package. This package typically includes IM, a guaranty fund, the DCO’s capital, and a 

clearing member loss mutualization procedure. 

Pursuant to Commission Regulation 39.11(a), a DCO must have sufficient financial 

resources to meet its obligations to its clearing members notwithstanding a default by 

the clearing member creating the largest financial exposure for the DCO in extreme but 

plausible market conditions. Pursuant to Commission Regulation 39.33(a), a SIDCO that 

is systemically important in multiple jurisdictions or is involved in activities with a more 

complex risk profile must maintain sufficient financial resources to enable it to meet its 

obligations to clearing members notwithstanding a default by the two clearing members 

creating the largest combined loss to the DCO. RSG periodically compares stress test 

results with DCOs to assess their financial capacity.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 317

E. Assessing Risk Management Practices

1. Traders

a. Follow-up on particular accounts or positions

RSG staff routinely detects traders with risk that appears to be potentially excessive. 

In these instances, RSG staff seeks additional information from the trader or the FCM 

such as account statements or other financial documentation. This information often 

allays the concerns. If concerns remain, RSG staff often interviews clearing member 

or trader staff. These interviews focus on the trader’s financial resources, trading 

strategy, trading techniques, and trading experience. For example, if the trader 

demonstrated that it was following a hedging strategy or had established a line of 

credit to fulfill margin calls, the concerns might dissipate. 

b. On-site reviews

RSG has conducted on-site risk reviews with traders ranging from the largest hedge 

fund operators to individuals who write options and clear through small FCMs. 

Traders generally appreciate the opportunity to discuss RSG’s analysis of the trader’s 

risk. Traders usually have been forthcoming about the nature of their strategies, the 

financial resources available to cover the risk, and any risk-reducing positions they 

carry in markets not subject to the Commission’s jurisdiction. 

As discussed below, RSG comments or inquiries about traders often lead to followup by the clearing member or by the DCO. Similarly, from time to time, FCMs or 

DCOs provide information about traders generating follow-up by RSG.

c. Special studies

RSG periodically conducts special studies of traders targeting particular issues. For 

example, RSG has met with large asset managers to discuss the use of particular 

products in their hedging strategies.

2. Clearing Members

a. Follow-up on particular accounts or positions

As part of daily surveillance, RSG identifies clearing members that carry large 

risks. The positions may be in the house account, the customer account in the 

aggregate, or individual customer accounts. RSG staff routinely discusses risk 

practices with clearing members in these contexts. For example, as a follow-up 

to a trader review, RSG might compare its stress test results with those of the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

318 INTERNATIONAL MONETARY FUND 

FCM clearing that account or gather information about the financial resources of 

a particular trader. There have been instances where, as a result of RSG

comments or inquiries, FCMs have collected additional IM from traders or 

instructed traders to reduce their position.

b. Monitoring of trends

RSG produces a number of internal reports to track industry trends affecting 

clearing members. For example, certain daily reports track which clearing 

members had large variation margin (“VM”) payments relative to IM on deposit, 

large VM payments across DCOs, or strings of consecutive days with VM losses. 

Monthly reports summarize IM adequacy by product, profile the industry as 

measured by IM, and show which clearing members’ risks are increasing at 

particular DCOs or across DCOs and which clearing members’ risks are 

decreasing.

c. On site reviews 

In October 2012, Regulation 1.73 “Clearing Futures Commission Merchant Risk 

Management” became effective. In general, CFTC Regulation 1.73 requires 

clearing members that are registered as FCMs to conduct screening of orders, to 

stress test customer and proprietary positions, to evaluate their ability to meet 

IM requirements, to evaluate their ability to meet VM payments, and to evaluate 

their ability to liquidate positions quickly.

RSG has a program to ensure compliance with CFTC Regulation 1.73. Each 

review is initiated with the issuance of an engagement letter and document 

request to the FCM. RSG staff analyzes the provided documents and 

subsequently conducts an on-site review at the clearing member. After 

completion of the review, RSG staff conducts an exit interview and issues a 

compliance letter detailing any changes necessary to come into compliance with 

the regulation. 

d. Special studies

RSG periodically conducts special studies of clearing members targeting 

particular issues. Recently, RSG has been meeting with large FCMs regarding the 

sources of funding used and the procedures followed when the firm must make 

large VM payments at multiple DCOs on the same day. RSG also performed an 

analysis of cash movement between pension fund money managers, account 

trustees, and the account’s clearing firm. Currently, RSG is conducting an 

analysis of the risks of “Give-Up” trade procedures. A give-up trade is a 

transaction in which one exchange member executes a trade on behalf of a 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 319

customer and the customer instructs that the trade be immediately transferred 

to another member for clearing. 

3. DCOs

a. Follow-up on particular accounts or positions

RSG frequently discusses the risks of particular accounts or positions with DCO staff. 

For example, as a follow-up to a trader review, RSG might compare its stress test 

results with those of the DCO. As also noted above in the case of FCMs, there have 

been instances where, as a result of RSG comments or inquiries, DCOs have taken 

action.

b. Monitoring of trends

RSG produces a number of internal reports to track industry trends affecting DCOs. 

For example, certain daily reports summarize DCO IM and VM data and show 

products with large market moves relative to their IM requirement.

c. Back testing of margin coverage 

As stated above, DCOs must set IM to cover 99 percent of one-day price changes. 

RSG evaluates each DCO’s margin adequacy at both the product and portfolio level. 

RSG works with DCOs to obtain the data necessary to conduct the back testing 

program. RSG also discusses with DCOs their back testing methodology. 

d. Evaluation of margin models 

RSG is responsible for reviewing proposed DCO margin models. As discussed in 

more detail below, margin models can be extremely complex. In order to ensure 

consistency in the manner in which the models of different DCOs are evaluated, RSG

has developed a standard questionnaire that has been provided to DCOs submitting 

models. RSG also documented its analysis both in more detailed, technical reports

and in more policy-oriented, non-technical reports.

e. Special studies

As with clearing members, RSG periodically conducts special studies targeting 

particular issues involving DCOs. For example, RSG has conducted hypothetical 

auction exercises to identify potential weaknesses in DCO procedures. When a large 

clearing member, such as Lehman Brothers, defaults, a DCO may conduct an auction 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

320 INTERNATIONAL MONETARY FUND 

of the entire portfolio rather than liquidating the positions piecemeal. The RSG

exercises solicited bids from market participants on hypothetical portfolios. RSG

reviews the results with the participating firms and DCOs.

TOOLS AND RESOURCES

A. Overview

RSG uses a number of tools to perform the tasks described above. Some were 

developed before Dodd-Frank and some after. Improving these tools and integrating 

them with one another is an ongoing process.

B. Pre-Dodd Frank

1. SPARK (Stressing Positions at Risk)

SPARK is a proprietary system developed by Commission staff. SPARK uses large-trader 

data to identify and track positions of the riskiest traders and clearing members. SPARK 

contains current and historical position information and can produce a wide variety of 

standardized reports to aid risk analysts in reviewing positions. SPARK also features 

charting capabilities for analysis and presentations. 

2. SRM® (SPAN Risk Manager)

SRM is a software program developed by the Chicago Mercantile Exchange (“CME”) that 

calculates margin requirements on futures positions and has stress testing capability. 

RSG staff uses SRM in conjunction with SPARK to determine the margin requirements of 

large traders and to conduct stress tests on futures and options traders. 

3. ISS (Integrated Surveillance System)

ISS is the large trader reporting system used in the Commission’s market surveillance 

program. RSG uses ISS to identify traders in the futures and options markets whose 

positions warrant further analysis.

4. RSR (Regulatory System Review) Express

RSR is the system used by Commission staff to review the monthly financial statements 

filed by FCMs. It is updated monthly. RSG uses RSR in evaluating the capital resources 

of FCMs relative to the risks posed to them by their proprietary and customer positions.

5. News/Price Sources

RSG staff members monitor various news and price sources throughout the day.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 321

C. Tools Developed Post-Dodd Frank

1. DCO Reports

Commission Regulation 39.19 requires DCOs to report certain position and margin 

information. RSG also receives certain ad-hoc reports from DCOs. These reports have 

greatly aided RSG risk surveillance efforts.

2. IRS Application 

RSG has developed an application, with the help of the Office of Data and Technology 

(ODT), to identify risk in cleared IRS products. The IRS application is able to aggregate 

and to report margins, notional values, and open interest. The application is also able 

to report sensitivities to moves in the interest rate markets for each clearing member 

and to calculate projected profits and losses under a variety of scenarios based on the 

sensitivities. As discussed further below, RSG is working to advance the maturity of this 

program. 

3. MATLAB®

MATLAB® is a commercial high-level language and interactive environment for 

numerical computation, visualization, and programming. RSG uses this software to 

conduct firm level CDS stress tests across all DCOs. RSG is also using this software to 

develop IRS stress testing capabilities. 

4. Global Risk 

Global Risk is a commercial real-time, risk management solution used by trading groups, 

hedge funds, brokerages, FCMs, introducing brokers, clearing firms, and exchanges. 

Global Risk provides portfolio analysis and risk surveillance tools including the following:

- volatility surface modeling;

- portfolio analysis with price, market volatility, and time variables;

- real-time risk alerts based on dollar value of portfolio risk, and Greeks;

- P&L, trade, and position quantities;

- customized and standard DCO, firm, and trader level reporting by account and 

market; 

- risk based filtering;

- detailed account analysis with what-if capability; and

- parametric VaR.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

322 INTERNATIONAL MONETARY FUND 

The Commission recently obtained a Global Risk license. Eventually, RSG intends to use 

Global Risk as its primary risk analysis tool for futures and options. Global Risk will not 

replace SPARK and SPAN. It will enhance RSG’s current risk analysis.

(b) Access to information, if needed, on the size and beneficial ownership of positions 

held by direct customers of market intermediaries? 

Yes. The CFTC operates a comprehensive system of collecting information on market 

participants as part of its market surveillance program. Under the CFTC’s regulations, 

the Commission collects market data and position information from exchanges, clearing 

members, FCMs, foreign brokers, and traders. Market surveillance staff assesses 

individual trader’s activities and potential market power and enforces speculative 

position limits by using a large trader reporting system. 

Under Part 16 of the CFTC’s regulations, DCMs must provide the Commission with 

confidential information on the aggregate positions and trading activity for each of their 

clearing members. Each day, exchanges report each clearing member’s open long and 

short positions, purchases and sales, exchanges of futures for cash, and futures delivery 

notices for the previous trading day. This data is reported separately by proprietary and 

customer accounts by futures month, and for options by puts and calls, expiration date 

and strike price.

Under Part 17 of the CFTC’s regulations, clearing members, FCMs, and foreign brokers 

(collectively called reporting firms) file daily reports with the Commission. The reports 

show futures and options positions of traders with positions at or above specific 

reporting levels as set by the Commission. Since traders frequently carry futures 

positions through more than one broker and control or have a financial interest in more 

than one account, the Commission routinely collects information that enables its 

surveillance staff to aggregate related accounts. Reporting firms must file a form which 

identifies each new account with reportable positions for each futures contract. In 

addition, if a trader’s position reaches a reportable level, the trader may be required to 

file a more detailed identification report to identify accounts and reveal any relationships 

that may exist with other accounts or traders.

Under Parts 18 and 21 of the CFTC’s regulations, market surveillance staff may 

investigate further the positions of large traders by instituting a “special call.” The 

special call is designed to gain additional information about a firm’s traders and/or 

about a participant’s trading and delivery activity, including information on persons who 

control or have a financial interest in the account. The special call may also request 

information about positions and transactions in the underlying commodity. This 

mechanism may be used when a trader is using too many firms to be easily monitored 

through required reports.

Under Part 20 of the CFTC’s regulations, routine reports are required from DCOs, as well 

as clearing members and swap dealers with reportable positions in certain covered 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 323

physical commodity swaps. Such large trader reporting provides the Commission with 

data regarding large positions in swaps that are linked, directly or indirectly, to a discrete 

list of U.S.-listed physical commodity futures contracts, in order to enable the 

Commission to implement and conduct effective surveillance of these economically 

equivalent swaps and futures. To facilitate surveillance efforts and the monitoring of 

trading across the swaps and futures markets, swaps positions are converted to 

equivalent positions of the related U.S. futures contract for reporting purposes. This 

system is intended to enable the Commission, in a prompt and efficient manner, to 

identify significant traders in the covered physical commodity swaps and to collect data 

on their trading activity in order to reconstruct market events.

The Commission thus has the authority and techniques to investigate and discover the 

identities of the true account owners and controllers of large positions, whether 

domestic or foreign. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

324 INTERNATIONAL MONETARY FUND 

(c) The power to take appropriate action against a market participant that does not 

provide relevant information needed to evaluate an exposure (e.g., require 

liquidation of positions, increase margin requirements and/or revoke trading 

privileges)?

Yes. The CFTC, as well as DCMs and SEFs, have the power to intervene in the market, 

including for: the liquidation of positions, the establishment of special margin requirements, 

and the suspension or curtailment of trading.

CFTC Authority

Section 8a(7) of the CEA authorizes the CFTC to alter or supplement the rules of a registered 

entity, and Section 8a(9) of the CEA authorizes the CFTC to direct a registered entity to take 

such action as in the CFTC’s judgment is necessary to maintain or restore orderly trading in 

or liquidation of any contract. CFTC enforcement powers are comprehensive and authorize 

civil injunctive actions for failing to comply with requests for required information and 

subpoena enforcement actions for failure to comply with subpoena demand for documents 

or testimony. Failure to comply with a court order is punishable by contempt of court.

DCMs

DCM Core Principle 6 provides that:

The board of trade (i.e., DCM), in consultation or cooperation with the Commission, 

shall adopt rules to provide for the exercise of emergency authority, as is necessary 

and appropriate, including the authority to – 

(A) to liquidate or transfer open positions in any contract; 

(B) to suspend or curtail trading in any contract; and 

(C) to require market participants in any contract to meet special margin 

requirements. 

Under Part 38 of the CFTC’s regulations, the CFTC set out the following guidance and 

acceptable practices in connection with DCM Core Principle 6:

(a) Guidance. In consultation and cooperation with the Commission, a DCM should 

have the authority to intervene as necessary to maintain markets with fair and 

orderly trading and to prevent or address manipulation or disruptive trading 

practices, whether the need for intervention arises exclusively from the DCM's 

market or as part of a coordinated, cross-market intervention. DCM rules should 

include procedures and guidelines to avoid conflicts of interest in accordance with 

the provisions of part 40.9 of this chapter, and include alternate lines of 

communication and approval procedures to address emergencies associated with 

real-time events. To address perceived market threats, the designated contract 

market should have rules that allow it to take certain actions in the event of an 

emergency, as defined in part 40.1(h) of this chapter, including: imposing or 

modifying position limits, price limits, and intraday market restrictions; imposing 

special margin requirements; ordering the liquidation or transfer of open positions in 

any contract; ordering the fixing of a settlement price; extending or shortening the 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 325

expiration date or the trading hours; suspending or curtailing trading in any contract; 

transferring customer contracts and the margin or altering any contract's settlement 

terms or conditions; and, where applicable, providing for the carrying out of such 

actions through its agreements with its third-party provider of clearing or regulatory 

services. In situations where a contract is fungible with a contract on another 

platform, emergency action to liquidate or transfer open interest must be as 

directed, or agreed to, by the Commission or the Commission's staff. The DCM has 

the authority to independently respond to emergencies in an effective and timely 

manner consistent with the nature of the emergency, as long as all such actions 

taken by the DCM are made in good faith to protect the integrity of the markets. 

The Commission should be notified promptly of the DCM's exercise of emergency 

action, explaining how conflicts of interest were minimized, including the extent to 

which the DCM considered the effect of its emergency action on the underlying 

markets and on markets that are linked or referenced to the contract market and 

similar markets on other trading venues. Information on all regulatory actions 

carried out pursuant to a DCM's emergency authority should be included in a timely 

submission of a certified rule pursuant to part 40 of this chapter. 

(b) Acceptable Practices. A DCM must have procedures and guidelines for 

decision-making and implementation of emergency intervention in the market. At a 

minimum, the DCM must have the authority to liquidate or transfer open positions in 

the market, suspend or curtail trading in any contract, and require market 

participants in any contract to meet special margin requirements. In situations 

where a contract is fungible with a contract on another platform, emergency action 

to liquidate or transfer open interest must be directed, or agreed to, by the 

Commission or the Commission's staff. The DCM must promptly notify the 

Commission of the exercise of its emergency authority, documenting its decisionmaking process, including how conflicts of interest were minimized, and the reasons 

for using its emergency authority. The DCM must also have rules that allow it to take 

such market actions as may be directed by the Commission. 

SEFs

SEF Core Principle 8 provides that:

The swap execution facility shall adopt rules to provide for the exercise of emergency 

authority, in consultation or cooperation with the Commission, as is necessary and 

appropriate, including the authority to liquidate or transfer open positions in any 

swap or to suspend or curtail trading in any swap. 

Under Part 37 of the CFTC’s regulations, the CFTC set out the following guidance in 

connection with SEF Core Principle 8:

(a) A SEF should have rules that authorize it to take certain actions in the event of an 

emergency, as defined in part 40.1(h) of this chapter. A swap execution facility 

should have the authority to intervene as necessary to maintain markets with fair 

and orderly trading and to prevent or address manipulation or disruptive trading 

practices, whether the need for intervention arises exclusively from the swap 

execution facility's market or as part of a coordinated, cross-market intervention. A 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

326 INTERNATIONAL MONETARY FUND 

swap execution facility should have the flexibility and independence to address 

market emergencies in an effective and timely manner consistent with the nature of 

the emergency, as long as all such actions taken by the swap execution facility are 

made in good faith to protect the integrity of the markets. However, the swap 

execution facility should also have rules that allow it to take market actions as may 

be directed by the Commission. Additionally, in situations where a swap is traded on 

more than one platform, emergency action to liquidate or transfer open interest shall 

be as directed, or agreed to, by the Commission or the Commission's staff. Swap 

execution facility rules should include procedures and guidelines for decisionmaking and implementation of emergency intervention that avoid conflicts of 

interest in accordance with the provisions of section 40.9 of this chapter, and include 

alternate lines of communication and approval procedures to address emergencies 

associated with real time events. To address perceived market threats, the swap 

execution facility should have rules that allow it to take emergency actions, including 

imposing or modifying position limits, imposing or modifying price limits, imposing 

or modifying intraday market restrictions, imposing special margin requirements, 

ordering the liquidation or transfer of open positions in any contract, ordering the 

fixing of a settlement price, extending or shortening the expiration date or the 

trading hours, suspending or curtailing trading in any contract, transferring customer 

contracts and the margin, or altering any contract's settlement terms or conditions, 

or, if applicable, providing for the carrying out of such actions through its 

agreements with its third-party provider of clearing or regulatory services. 

(b) A swap execution facility should promptly notify the Commission of its exercise of 

emergency action, explaining its decision-making process, the reasons for using its 

emergency authority, and how conflicts of interest were minimized, including the extent 

to which the swap execution facility considered the effect of its emergency action on the 

underlying markets and on markets that are linked or referenced to the contracts traded 

on its facility, including similar markets on other trading venues. Information on all 

regulatory actions carried out pursuant to a swap execution facility's emergency 

authority should be included in a timely submission of a certified rule pursuant to part 

40 of this chapter.

(d) The general power to take appropriate action, such as to compel market participants 

carrying or controlling large positions to reduce their exposures or to post increased 

margin?

Yes. See response to Principle 34, Question 1.

2. Do arrangements, whether formal or informal, exist to enable markets and regulators to 

share information on large exposures of common market participants or on related products 

with regulators and markets:

(a) In the domestic jurisdiction? 

Yes.

DCMs. The CFTC and futures exchanges have executed arrangements to share information 

that is prompted by, among other things, large exposures. The Commission essentially has 

the same information that DCMs have with respect to large exposure information. Wherever 

the exchanges manage position limits, they inform the Commission of any exemptions 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 327

granted. The exchanges are able to monitor the exposure size within each contract on an 

intraday basis. Frequent conversations occur between exchange and Commission staff when 

liquidation or acquisitions of large exposures create a heightened concern. This has become 

more relevant with the increased open interest held by large passive long-only traders (index 

traders).

In some specific contracts, when traders hold positions above a certain threshold they are 

required to disclose their full portfolio of related products. This rule was implemented in the 

wake of the disruptive activity by Amaranth Advisors in the Natural Gas futures contract 

traded on the NYMEX. These “exposure forms” are filed before the last day of trading of a 

specific contract month and are forwarded to CFTC surveillance staff. The need for this 

special disclosure derives from the existence of a large OTC market that is directly linked to 

the futures contract, and for positions which are not observable by the exchange. This 

model could be replicated in other contracts as the need arises.

Surveillance staff briefs Commissioners in closed meetings on Fridays when appropriate. See 

also response to Principle 36, Question 4.

(b) In other relevant jurisdictions?

The Declaration on Cooperation and Supervision of International Futures Markets and 

Clearing Organizations ("Declaration"), and its companion Exchange Memorandum of 

Understanding (Exchange MOU),173 was at the core of improvements in international 

cooperation contemplated at the 1995 Windsor meeting (which was convened following the 

collapse of Barings Plc.) That meeting, and the resulting Windsor Declaration, set in motion 

a series of international initiatives at both the regulatory and market level intended to 

enhance the resilience of the financial marketplace against the shocks or stress caused by 

such defaults. The Declaration (and companion Exchange MOU) were created to address the 

problem of accessing information about large exposures where exchange member firms and 

market participants typically trade on multiple exchanges and no one regulator or market 

authority will have all of the information necessary to evaluate the risks in its markets.

Under the Declaration, the occurrence of agreed triggering events affecting an exchange 

member’s financial resources, positions, price movements or price relationships, or events 

suggesting manipulation or other abusive conduct, will prompt the sharing of information. 

See Declaration paragraphs 2.2 and 2.3. Although the Declaration is a multilateral 

arrangement containing appropriate confidentiality and use restrictions (and can serve as an 

independent arrangement for structuring the sharing of information), the specific

implementation of any request pursuant to the Declaration will be on a bilateral basis and 

remain subject to any existing bilateral arrangements. 

A special situation has arisen in WTI Crude Oil with the trading of a financially settled futures 

 

173 Report on Cooperation Between Market Authorities and Default Procedures, supra, at page 4 ¶ 8 regarding the 

promotion of formal/informal mechanisms. See also Report on Trading Halts and Market Closures. (October 2002). 

pp. 23-24.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

328 INTERNATIONAL MONETARY FUND 

contract on ICE Europe which settlement price is directly linked to a contract trading on the 

NYMEX. Given that these two contracts are in effect a single market, on November 17, 2006 

the CFTC and the United Kingdom Financial Services Authority (effective April 1, 2013, the 

Financial Conduct Authority) entered into Memorandum of Understanding concerning 

consultation, cooperation and the exchange of information related to market oversight. 

Under this arrangement, the Financial Conduct Authority and CFTC share information on a 

daily basis regarding large exposures.

Default Procedures – Transparency and Effectiveness 

3. Does a market authority make its default procedures available to market participants, 

including specifically information concerning:

(a) The general circumstances in which action may be taken?

(b) Who may take it?

(c) The scope of actions which may be taken.

As mentioned above, if an FCM is executing transactions on a DCM, then such FCM must 

clear such transactions through a DCO. A DCO is essential to managing systemic and 

counterparty risks in the event that a member FCM fails. Because of the importance of the 

DCO in the management of such risks, Section 5b(c)(2)(L) of the CEA requires that a DCO 

provide “information concerning the rules and operating procedures governing the clearing 

and settlement systems (including default procedures) available to market participants.” In 

general, most DCOs make their default procedures, including the information referenced in 

Questions 3(a), (b), and (c) above, accessible to the public via their website.

Also as mentioned above, if an FCM becomes the subject of bankruptcy proceedings, then 

Subchapter IV and Part 190 set forth a clear structure for the liquidation of such FCM. Both 

Subchapter IV and Part 190 are publicly available.

4. Do default procedures and/or national law permit markets and/or the clearing and 

settlement system(s) promptly to isolate the problem of a failing firm by addressing its open 

proprietary positions and positions it holds on behalf of customers or otherwise protect 

customer funds and assets from an intermediary’s default under national law?

Yes. See response to Principle 32, Question 1.

5. Is there a mechanism by which market authorities for related products can consult with each 

other in order to minimize the adverse effects of market disruptions? 

Yes. See response to Principle 32, Question 1.

Short Selling on Equity Market

6. Does the relevant market authority provide for:

(a) Controls which are appropriate to the equity market in question and that have as 

their goal to reduce or minimize the potential risks that could affect the orderly and 

efficient functioning and stability of equity markets including, at a minimum, a strict 

settlement of failed trades? 

Not applicable. Questions relating to securities in the equity market are outside the scope 

of the CFTC’s jurisdiction. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 329

(b) A reporting regime that provides timely short selling information to the market or, as 

a minimum requirement, to market authorities?

Not applicable. Questions relating to securities in the equity market are outside the scope 

of the CFTC’s jurisdiction. 

(c) As part of an effective compliance and enforcement system (assessed under Principle 

11), (i) measures that promote settlement discipline, including regular monitoring by 

the market authority of settlement failures and (ii) surveillance of short selling 

activities. Any deficiency here should also be taken into account in the assessment 

of principle 11. 

Not applicable. Questions relating to securities in the equity market are outside the scope 

of the CFTC’s jurisdiction. 

(d) Appropriate exceptions for certain types of transactions for efficient market 

functioning and development (such as, but not limited to, bona fide hedging, market 

making and arbitrage activities)? 

Not applicable. Questions relating to securities in the equity market are outside the scope 

of the CFTC’s jurisdiction. 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

330 INTERNATIONAL MONETARY FUND 

Not assessed.

Principle 38 Securities settlement systems and central counterparties should be subject 

to regulatory and supervisory requirements that are designed to ensure 

that they are fair, effective and efficient and that they reduce systemic 

risk.

The authorities do not need to provide information for this Principle, as there is a separate 

standard to assess securities clearing and settlement systems.
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 331

Annex: Cooperative Arrangements with Foreign Regulators and Authorities

Supervision / Information Sharing

 Multilateral:

Declaration on Cooperation and Supervision of International Futures Markets and Clearing 

Organizations (as amended March 1998)

 Australia:

Reserve Bank of Australia and Australian Securities and Investments Commission – MOU 

Concerning Cooperation and the Exchange of Information Related to the Supervision of 

Cross-Border Clearing Organizations (June 5, 2014)

 Austria:

Finanzmarktaufsicht – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Belgium:

Financial Services and Markets Authority – MOU Concerning Consultation, Cooperation and 

the Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Bulgaria:

Financial Supervision Commission – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Canada:

Alberta Securities Commission, British Columbia Securities Commission, Ontario Securities 

Commission, and Québec Autorité des Marchés Financiers – MOU Concerning Cooperation 

and the Exchange of Information Related to the Supervision of Cross-Border Covered 

Entities (March 25, 2014)

Ontario Securities Commission, Commission des Valeurs Mobilières du Québec (now 

Québec Autorité des Marchés Financiers), and Canadian SROs – Financial InformationSharing MOU (September 23, 1991)
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

332 INTERNATIONAL MONETARY FUND 

 Cyprus:

Cyprus Securities and Exchange Commission – MOU Concerning Consultation, Cooperation 

and the Exchange of Information Related to the Supervision of Covered Entities in the 

Alternative Investment Fund Industry (July 22, 2013)

 Czech Republic:

Czech National Bank – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Denmark:

Finanstilsynet – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Estonia:

Estonian Financial Supervision Authority – MOU Concerning Consultation, Cooperation and 

the Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Finland:

Finanssivalvonta – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 France:

Autorité des Marchés Financiers – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

Autorité des Marchés Financiers and Autorité de Contrôle Prudentiel (now Autorité de 

Contrôle Prudentiel et de Résolution) – Understanding Concerning Supervision of 

LCH.Clearnet SA (January 4, 2011)

Conseil des Marchés Financiers (now Autorité des Marchés Financiers) – MOU Regarding 

Information Sharing on Remote Members of Regulated Markets (March 21, 2002)

Commission des Opérations de Bourse (now Autorité des Marchés Financiers) – Mutual 

Recognition MOU (June 13, 1990)
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 333

 Germany:

Bundesanstalt für Finanzdienstleistungsaufsicht – MOU Concerning Consultation, 

Cooperation and the Exchange of Information Related to the Supervision of Covered Entities 

in the Alternative Investment Fund Industry (July 22, 2013)

 Greece:

Hellenic Capital Market Commission – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Hong Kong:

Securities and Futures Commission – Declaration on Cooperation and Supervision of CrossBorder Managed Futures Activity (October 5, 1995)

 Hungary:

Pénzügyi Szervezetek Állami Felügyelete – MOU Concerning Consultation, Cooperation and 

the Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Iceland:

Fjármálaeftirlitið – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Ireland:

Central Bank of Ireland – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Italy:

Commissione Nazionale per le Società e la Borsa – MOU Concerning Consultation, 

Cooperation and the Exchange of Information Related to the Supervision of Covered Entities 

in the Alternative Investment Fund Industry (July 22, 2013)

Commissione Nazionale per le Società e la Borsa – Supplemental MOU to Facilitate the 

Recognition of Regulated Markets (September 11, 2000)

Commissione Nazionale per le Società e la Borsa – Exchange of Letters Relating to the 

Listing of Equity-Based Futures Contracts (April 5, 2000)
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

334 INTERNATIONAL MONETARY FUND 

 Japan:

Financial Services Agency of Japan – Memorandum of Cooperation Related to the 

Supervision of Cross-Border Covered Entities (March 10, 2014)

 Latvia:

Finanšu un Kapitāla Tirgus Komisija – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Liechtenstein:

Finanzmarktaufsicht – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Lithuania:

Lithuanian Securities Commission – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Luxembourg:

Commission de Surveillance du Secteur Financier – MOU Concerning Consultation, 

Cooperation and the Exchange of Information Related to the Supervision of Covered Entities 

in the Alternative Investment Fund Industry (July 22, 2013)

 Malta:

Malta Financial Services Authority – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Netherlands:

Autoriteit Financiële Markten – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Norway:

Finanstilsynet – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 335

 Poland:

Polish Financial Supervision Authority – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 

Investment Fund Industry (July 22, 2013)

 Portugal:

Comissão do Mercado de Valores Mobiliários – MOU Concerning Consultation, Cooperation 

and the Exchange of Information Related to the Supervision of Covered Entities in the 

Alternative Investment Fund Industry (July 22, 2013)

 Romania:

Romanian National Securities Commission – MOU Concerning Consultation, Cooperation 

and the Exchange of Information Related to the Supervision of Covered Entities in the 

Alternative Investment Fund Industry (July 22, 2013)

 Singapore:

Monetary Authority of Singapore – MOU Concerning Cooperation and the Exchange of 

Information Related to the Supervision of Cross-Border Covered Entities (December 27, 

2013)

 Slovak Republic:

Národná Banka Slovenska – MOU Concerning Consultation, Cooperation and the Exchange 

of Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 Spain:

Comisión Nacional del Mercado de Valores – MOU Concerning Consultation, Cooperation 

and the Exchange of Information Related to the Supervision of Covered Entities in the 

Alternative Investment Fund Industry (July 22, 2013)

 Sweden:

Finansinspektionen – MOU Concerning Consultation, Cooperation and the Exchange of 

Information Related to the Supervision of Covered Entities in the Alternative Investment 

Fund Industry (July 22, 2013)

 United Kingdom:

Financial Conduct Authority – MOU Concerning Consultation, Cooperation and the 

Exchange of Information Related to the Supervision of Covered Entities in the Alternative 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

336 INTERNATIONAL MONETARY FUND 

Investment Fund Industry (July 22, 2013)

Financial Services Authority (now Bank of England) – MOU Concerning Cooperation and the 

Exchange of Information Related to the Supervision of Cross-Border Clearing Organizations 

(September 14, 2009)

Financial Services Authority (now Financial Conduct Authority and Bank of England) – MOU 

Concerning Consultation, Cooperation and the Exchange of Information Related to Market 

Oversight (November 17, 2006)

Financial Services Authority (now Financial Conduct Authority and Bank of England) –

Arrangement on Warehouse Information to Facilitate Exchanges of Information for 

Surveillance and Enforcement Purposes Regarding Deliverable Commodities (May 17, 2000)

Bank of England (now also Financial Conduct Authority and Prudential Regulation Authority) 

– MOU Concluded Jointly with U.S. SEC for Sharing Supervisory Information on Certain Firms 

(October 27, 1997)

Securities and Investments Board (now Financial Conduct Authority) and United Kingdom 

SROs – Financial Information-Sharing MOU (September 1, 1988); Addendum (May 15, 1989)

Technical Assistance

 Chile:

Superintendencia de Valores y Seguros de Chile – MOU Regarding Futures Regulatory 

Cooperation and Technical Assistance (September 13, 2002)

 China:

China Securities Regulatory Commission – MOU Regarding Futures Regulatory Cooperation 

(and Technical Assistance) (January 18, 2002)

 India:

Forward Markets Commission of India – Arrangement Regarding Regulatory Cooperation 

and Technical Assistance (October 18, 2006)

Securities and Exchange Board of India – MOU Regarding Regulatory Cooperation, 

Consultation and the Provision of Technical Assistance (April 28, 2004)

 Russia:

Commodities’ Exchanges Commission of the Ministry of the Russian Federation for Anti-
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 337

Monopoly Policy and Support of Entrepreneurship – Joint Statement Regarding 

Cooperation, Consultation and the Provision of Technical Assistance (December 11, 2000)

 Thailand:

Office of the Agricultural Futures Trading Commission of Thailand – Arrangement Regarding 

Regulatory Cooperation and Technical Assistance (March 26, 2006)

Enforcement

 Multilateral:

IOSCO MMOU Concerning Consultation and Cooperation and the Exchange of Information 

(revised May 2012)

 Argentina:

Comisión Nacional de Valores – MOU on Consultation, Technical Assistance, and Mutual 

Assistance for the Exchange of Information (May 30, 1995)

 Australia:

Australian Securities Commission (now Australian Securities and Investments Commission) –

MOU Concerning Consultation and Cooperation in the Administration and Enforcement of 

Futures Laws (October 19, 1994)

 Brazil:

Comissão de Valores Mobiliários – MOU on Mutual Assistance and Exchange of Information 

(April 12, 1991)

 Canada:

Ontario Securities Commission – MOU (July 7, 1992)

Commission des Valeurs Mobilières du Québec (now Québec Autorité des Marchés 

Financiers) – MOU (July 7, 1992)

 Dubai:

Dubai Financial Services Authority – Protocol Concerning Mutual Assistance, Information 

Sharing and Cooperation Agreements (December 1, 2005)

 France:

Commission des Opérations de Bourse (now Autorité des Marchés Financiers) –
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

338 INTERNATIONAL MONETARY FUND 

Administrative Agreement (June 6, 1990)

 Germany:

Bundesaufsichtsamt für den Wertpapierhandel (now Bundesanstalt für 

Finanzdienstleistungsaufsicht) – MOU Concerning Consultation and Cooperation in the 

Administration and Enforcement of Futures Laws (October 17, 1997)

 Hong Kong:

Securities and Futures Commission – MOU Concerning Consultation and Cooperation in the 

Administration and Enforcement of Futures Laws (October 5, 1995)

 Ireland:

Irish Financial Services Regulatory Authority (now Central Bank of Ireland) – Statement of 

Intent Concerning Consultation and Cooperation in the Administration and Enforcement of 

Futures Laws (March 17, 2004)

 Isle of Man:

Financial Supervision Commission – Statement of Intent Concerning Mutual Assistance and 

Cooperation Arrangements (April 12, 2005)

 Italy:

Commissione Nazionale per le Società e la Borsa – MOU on Consultation and Mutual 

Assistance for the Exchange of Information (June 22, 1995)

 Japan:

Financial Services Agency of Japan – Statement of Intent Concluded Jointly with U.S. SEC 

Concerning Cooperation, Consultation and the Exchange of Information (May 17, 2002); 

Amendment (January 16, 2006)

 Jersey:

Jersey Financial Services Commission – MOU Concluded Jointly with U.S. SEC Concerning 

Cooperation, Consultation and the Exchange of Information (May 22, 2002)

 Mexico:

Comisión Nacional Bancaria y de Valores – MOU on Consultation, Technical Assistance, and 

Mutual Assistance for the Exchange of Information (May 11, 1995)

 Netherlands:

Government of the Kingdom of the Netherlands – Agreement (through the Government of 
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

INTERNATIONAL MONETARY FUND 339

the United States of America) on Mutual Administrative Assistance in the Exchange of 

Information in Futures Matters (April 29, 1993) – Ministry of Finance designated the 

Securities Board of the Netherlands and Dutch Central Bank to implement the Agreement, 

which entered into force on February 1, 1994

 New Zealand:

New Zealand Securities Commission – MOU on Consultation and Mutual Assistance for the 

Exchange of Information (September 16, 1996)

 Portugal:

Commissão do Mercado de Valores Mobiliários – MOU Concerning Consultation and 

Cooperation in the Administration and Enforcement of Futures Laws (February 4, 1999)

 Singapore:

Monetary Authority of Singapore – MOU Concluded Jointly with U.S. SEC Concerning 

Consultation and Cooperation and the Exchange of Information (May 16, 2000)

 South Africa:

Financial Services Board of the Republic of South Africa – Joint Communiqué on Exchange of 

Information for Cooperation and Consultation (May 27, 1997)

 Spain:

Comisión Nacional del Mercado de Valores – MOU on Mutual Assistance and Exchange of 

Information (October 26, 1992)

 Switzerland:

Swiss Confederation – Diplomatic Notes (through the Government of the United States of 

America) amending Article 1, Paragraph 3 of the Treaty on Mutual Assistance in Criminal 

Matters (November 3, 1993)

 Taiwan:

Taiwan Securities and Exchange Commission (now Securities and Futures Commission) –

MOU on the Exchange of Information Concerning Commodity Futures and Options Matters 

through, respectively, the American Institute in Taiwan and the Coordination Council for 

North American Affairs (now the Taipei Economic and Cultural Representative Office in the 

United States) (January 11, 1993)

 Turkey:
UNITED STATES

U.S. COMMODITY FUTURES TRADING COMMISSION

340 INTERNATIONAL MONETARY FUND 

Capital Markets Board of Turkey – MOU Concerning Consultation, Cooperation and the 

Exchange of Information (June 25, 2001)

 United Kingdom:

Department of Trade and Industry (now Financial Conduct Authority) – MOU Concluded 

Jointly with U.S. SEC on Exchange of Information in Matters Relating to Securities and 

Futures (September 23, 1986)

Department of Trade and Industry and Securities and Investments Board (now Financial 

Conduct Authority, Prudential Regulation Authority, and Bank of England) – MOU Concluded 

Jointly with U.S. SEC on Mutual Assistance and the Exchange of Information (September 25, 

1991)