COMMODITY FUTURES TRADING COMMISSION

Performance and

Accountability Rep

Fiscal Ye
COMMODITY FUTURES TRADING COMMISSION

Reuben Jeffery III

Chairman

Madge Bolinger Gazzola

Executive Director

Mark Carney

Chief Financial Officer

November 2006

This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While permission to 

reprint this publication is not necessary, the citation should be: Commodity Futures Trading Commission, FY 2006 Performance and Accountability Report, Washington D.C., 20581.

All photographs in this document are proprietary and prior permission from the photographer 

is required for any use or reproduction of the photographs. 
Message from the Chairman .

FY 2006 Commissioners .

How This Report is Organized  

M A N AG E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Commission at a Glance .

Performance Highlights. 

Financial Highlights. 

Management Challenges  .

Inspector General’s FY 2006 Assessment. 

P E R F O R M A N C E S E C T I O N

Introduction to the Performance Section  .

Strategic Goal One: Economic Utility . 

Strategic Goal Two: Market User and Public. 

Strategic Goal Three: Industry.  

F I N A N C I A L S E C T I O N

Message from the Chief Financial Officer. 

Limitations of Financial Statements  

Principal Financial Statements. 

Report of the Independent Auditors  .

A P P E N D I C E S

FY 2006 Commissioners  . 

Enforcement Litigation by Strategic Goals.  .

CFTC Information Technology Systems .  

Glossary of Abbreviations and Acronyms.  .

Table of Conten
In the Tradition of Quality Reporting, 

the Commodity Futures Trading Commission 

Proudly Presents the FY 2006 

Performance and Accountability Report 
CF

A Message from the Chair

It is a pleasure to present to you the Commission’s third 

annual Performance and Accountability Report. This report presents our accomplishments and audited financial 

statements for Fiscal Year (FY) 2006. 

The Commodity Futures Trading Commission (CFTC 

or Commission) oversees the commodity futures and option markets in the United States (U.S.). These markets are 

the key source of commodity price discovery and are used 

as a tool by participants in the global economy to offset 

price risk. In recent years these trillion dollar markets, with 

massive economic force, have grown faster than almost 

any other asset class. The markets are expanding steadily 

in both volume and new users and their complexity is 

rapidly evolving with new technologies, globalization, 

product innovation, and greater competition. 

The Commission accomplishes its mission through 

three strategic goals, each focusing on a vital area of 

regulatory responsibility. They are: to ensure the economic 

vitality of the commodity futures and option markets; to 

protect market users and the public; and to ensure market 

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

In the audit report issued today, the public accounting firm, KPMG LLP, on behalf of our Inspector General, 

reports that our financial statements were presented fairly, 

in all material respects, and in conformity with U.S. generally accepted accounting principles for Federal agencies. 

However, to achieve this result, the FY 2005 financial 

statements, which reflected no material weaknesses, were 

restated. This was necessary to conform with the Financial Accounting Standards Board’s Statement of Financial 

Accounting Standards No. 13, Accounting for Leases. As a 

consequence, the auditors reported a material weakness in 

the controls over financial reporting. Included in this finding was another significant deficiency related to how the 

custodial fines and interest receivable balance was determined. A full discussion of the material weakness can be 

found in the Financial Section of this report, which also 

highlights actions the Commission is taking to resolve it. 

Over the last year, the Commission focused its 

resources: to help ensure that customers were protected 

when a futures brokerage firm collapsed amid an accounting fraud; to take action against an energy company in 

response to allegations of manipulation; and to actively 

address governance conflicts at publicly listed exchanges. 

We also addressed how best to disclose the impact of 

hedge funds and other speculators on our markets. Internationally, we engaged our regulatory counterparts and 

stakeholders on whether it is appropriate for an exchange 

based outside of the U.S. to be designated as a U.S. exchange. 

Although these accomplishments are very significant 

in themselves, they are only part of the important contributions made daily by the dedicated staff of the Commission. We hope you will join us in applauding their efforts, 

which are highlighted in the pages to follow using data, 

both financial and performance, that is reliable and complete.

Reuben Jeffery III

Chairman

November 15, 2006
From left; Sharon Brown-Hruska1

, Commissioner; Walter L. Lukken, Commissioner; Reuben Jeffery III, Chairman; Frederick 

W. Hatfield, Commissioner; Michael V. Dunn, Commissioner

Fiscal Year 2006 Commission

1 Sharon Brown-Hruska resigned from the Commission on July 28, 

2006.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Commission at a Glance .......................................5

Performance Highlights.......................................14

Financial Highlights...........................................26

Management Challenges.....................................30

Inspector General’s FY 2006 Assessment ...............33

P E R F O R M A N C E S E C T I O N

Introduction to the Performance Section................ 41

Strategic Goal One: Economic Utility ...................42

Strategic Goal Two: Market Users and Public ........54

Strategic Goal Three: Industry.............................. 71

F I N A N C I A L S E C T I O N

Message from the Chief Financial Officer..............95

Limitations of Financial Statements .....................96

Principal Financial Statements ............................97

Report of the Independent Auditors......................117

How This Report is Orga

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Management’s Discussion and Analysis

The Management’s Discussion and Analysis (MDA) section is an overview of the entire report, as supported and 

detailed in the Performance Section and the Financial Section. The MDA presents performance and financial highlights for FY 2006, in addition to compliance with legal 

and regulatory requirements and the Inspector General’s 

assessment of management challenges facing the Commission. For more information on this section, please contact 

Mark Carney, Chief Financial Officer, at 202-418-5477.

Performance Section

The Performance Section compares the Commission’s 

performance to the annual goals as set forth in the 

2004–2009 CFTC Strategic Plan, Keeping Pace with Change. 

For more information on this section, please contact 

Emory Bevill, Deputy Director for Budget and Planning, at 

202-418-5187.

Financial Section

The Financial Section is comprised of the Commission’s 

financial statements and related Independent Auditors’ 

report. For more information, please contact Jeanne Ring, 

Deputy Director for Accounting and Financial Systems, at 

202-418-5184.

The CFTC’s FY 2006 Performance and Accountability Report is the third such report published by the Commission. This 

document is comprised of three primary sections: 

Questions and comments about this report can be directed to Mark Carney, Chief Financial 

Officer, at 202-418-5477 or, via e-mail at mcarney@cftc.gov

An electronic version of the Commodity Futures Trading Commission FY 2006 Performance and 

Accountability Report is available on the Internet at www.cftc.gov/cftc/cftcreports.htm. The 2004–

2009 CFTC Strategic Plan, Keeping Pace with Change, is also available at this Web site.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Commission at a Glance .......................................5

Performance Highlights.......................................14

Financial Highlights...........................................26

Management Challenges.....................................30

Inspector General’s FY 2006 Assessment ...............33
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Commission at a Glan

Organization and Locations

The CFTC consists of five Commissioners who are appointed by the President to serve staggered five-year terms. 

All Commissioners are confirmed by the Senate. No more 

than three Commissioners at any one time may be from 

the same political party. The President designates one of 

the Commissioners to serve as Chairman, with the advice 

and consent of the Senate.

The Commission’s organization chart is aligned with 

its 2004–2009 Strategic Plan, and its functions are divided 

between program policy and internal management. The 

Office of the Chairman oversees the Commission’s principal divisions and offices that administer the policies, regulations, and guidance regarding the CEA. The Office of the 

Executive Director, by delegation of the Chairman, directs 

the internal management of the Commission, ensuring 

that funds are responsibly accounted for and that program 

performance is measured and improved effectively.

Attorneys at the Commission work on complex and 

novel legal issues in litigation, regulation, and policy 

development. They participate in administrative and civil 

proceedings, assist U.S. Attorneys in criminal proceedings 

involving futures law violations, develop regulations and 

provide a wide range of analysis and guidance on regulatory issues, and provide legal advice to the Commission 

on policy and adjudicatory matters. 

Auditors examine records and operations of futures 

exchanges, clearinghouses and firms for compliance with 

the CFTC regulations on financial requirements and trade 

practices. 

Economists evaluate filings for new futures and option contracts and amendments to existing contracts to 

ensure they meet the Commission’s regulatory standards. 

Economists also analyze the economic effect of various 

Commission and industry actions and events and advise 

the Commission accordingly. In addition, economists 

monitor trading activity and price relationships in futures 

markets to detect and deter price manipulation and other 

potential market disruptions. 

Futures Trading Specialists perform regulatory and 

compliance oversight of alleged fraud, market manipulations, and trade practice violations.

The CFTC is headquartered in Washington, D.C. 

Regional offices are located in Chicago, New York, Kansas 

City and Minneapolis.

Additional information about the Commission’s history and its divisions can be obtained from the Commission’s Office of External Affairs or through its Web site, 

www.cftc.gov.
Commodity Futures Trading Commission Organization Structure

Commissioner Commissioner Chairman Commissioner Commissioner

Office of General Counsel

Division of Clearing &

Intermediary Oversight

Eastern Region

(New York)

Central Region

(Chicago)

Kansas City Office

Office of Inspector General

Office of the Secretariat

Eastern Region

(New York)

Central Region

(Chicago)

Kansas City Office

Minneapolis Office

Division of Market

Oversight

Equal Employment Opportunity

Office of External Affairs

Office of International Affairs

Eastern Region

(New York)

Central Region

(Chicago)

Kansas City Office

Division of Enforcement

Office of Executive Director

Office of Chief Economist
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

CFTC History and Transformation

Futures contracts for agricultural commodities have been 

traded in the U.S. for more than 150 years and have been 

under Federal regulation since the 1920s. Con­gress created the CFTC in 1974 as an independent agen­cy with 

mandate to regulate commodity futures and option markets in the U.S. At the time of the Com­mission’s founding, the vast majority of futures trading took place in th

agricultural sector. These con­tracts gave farmers, ranchers

distributors, and end-users of everything from corn to 

cattle an efficient and effective set of tools to hedge against 

price movements.

Over the years, however, the futures industry has 

become increasingly complex. While farmers and ranchers continue to use the futures markets as actively as ever 

to effectively lock in prices for their crops and live­stoc

months before they come to market, highly complex 

financial contracts based on interest rates, foreign currencies, Treasury bonds, stock market indices, and other 

products have far outgrown agricultural contracts in trading volume. The latest statistics show that approximately 

five percent of on-exchange derivatives activity occurs in 

the agri­cultural sector, while financial derivatives mak

up approx­imately 86 percent, and other contracts, such a

those on metals and energy products, make up about nine 

percent. 

In recognition of this changing environment, Congress and the President reauthorized the Commission 

through FY 2005 with the passage of the Commodity 

Futures Modernization Act (CFMA) in December 2000. 

The CFMA repealed the ban on single stock futures and 

instituted a regulatory framework for such products to be 

administered jointly by the CFTC and the Securities and 

Exchange Commission (SEC). It codified the principal 

provi­sions of a new regulatory framework adopted earlie

by the Commission. It also brought legal certainty to the 

trading done in bilateral, over-the-counter derivatives 

transactions and clarified the CFTC’s jurisdiction over the 

retail, off-exchange foreign currency market. It gave the 

CFTC authority to regulate clearing organizations in a 

way that enables the CFTC more effectively to foster open, 

competitive, and financially sound markets.

Keeping Pace with Change

In February 2004, the Commis­sion issued Keeping Pac

with Change, a strategic plan for FY 2004-FY 2009.2 This 

plan reflects the new direction of the agency, driven by 

the CFMA, including three key objectives: 1) modernizing 

regulations affecting trading platforms and mar­ket intermediaries; 2) permitting futures based on single stock

or narrow-based stock indices; and 3) providing legal 

certainty for over-the-counter derivatives. 

The plan also reflects the enormous and continuing 

changes in the markets, including rapid growth in volume, 

globalization, and the movement from open outcry on-exchange trading floors to all-electronic trading from widely 

dispersed geo­graphic locations

The charts that follow reflect many of the changes 

affecting the CFTC: 1) industry growth versus staff growth; 

2) growth in actively traded futures and option contracts; 

3) enforcement actions in energy and foreign currency 

(forex) markets; 4) growth in foreign commodity trading; 5) registrants; 6) contract markets designated by the 

CFTC; 7) CFTC-registered derivatives clearing organizations (DCOs); 8) exempt commercial markets (ECMs); 9) 

exempt boards of trade (XBOTs); and 10) customer funds 

held at futures commission merchants (FCMs). 

2 In November 2006, the Commission will begin its three-year update 

of the five-year Strategic Plan for the period 2007-2012
 

Growth in Volume of Futures & Option 

Contracts Traded & Full-time Equivalents 

(FTEs), 1996 – 2006

Trading volume has quintupled in the last decade while 

staffing levels have decreased in recent years.

0

500

1000

1500

2000

2500

CONTRACT TRADING VOLUME (MILLIONS)

FTE (STAFF YEARS)

96 97 98 99 00 01 02 03 04 05 06

541 553 560 567 546

514 521 497 517 491 490

FTEs

Contract Trading Volume

Actively Traded Futures & Option 

Contracts, 1996 – 2006

The number of actively traded contracts on U.S. exchanges 

has more than quintupled in the last decade. The number 

is projected to grow to over 1,400 contracts by FY 2008.

0

200

400

600

800

1000

1200

CONTRACTS

FISCAL YEAR

96 97 98 99 00 01 02 03 04 05 06

199

258 286 251 266 250 278

538

662

906

1135

Spotlight on Energy and Foreign Currency Markets

Actions Taken Since Enron Bankruptcy in December 2001 Energy Markets

Number of Cases Filed or Enforcement Actions 35

Number of Entities/Persons Charged 55

Number of Dollars in Penalties Assessed

• Civil Monetary Penalties $ 302,863,500

Actions Taken Since the Passage of the CFMA in December 2000 Foreign Currency Markets

Number of Cases Filed or Enforcement Actions 93

Number of Entities/Persons Charged 354

Number of Dollars in Penalties Assessed

• Civil Monetary Penalties $ 292,042,098

• Restitution $ 182,471,571

 u Number of Customers 25,070
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

Growth of Foreign Commodity Trading

Since 2000, the number of foreign customers trading on 

U.S. exchanges has more than tripled and the number of 

U.S. customers trading on foreign exchanges has more 

than quintupled.

0

50

100

150

200

AMOUNT IN THOUSANDS

FISCAL YEAR

Foreign Customers Trading on U.S. Commodity Exchanges

2000 2005

54.0

27.0

184.3

145.0

U.S. Customers Trading on Foreign Commodity Exchanges

Number of Registrants

Companies and individuals who handle customer funds, solicit or accept orders, or give trading advice must apply for 

CFTC registration through the National Futures Association (NFA), a self-regulatory organization (SRO) with delegated 

oversight authority from the Commission.

The Commission regulates the activities of over 70,000 registrants: 

Type of Registered Professional Number as of September 30, 2006

Associated Persons (APs) (Salespersons) 54,258

Commodity Pool Operators (CPOs) 1,570

Commodity Trading Advisors (CTAs) 2,589

Floor Brokers (FBs) 8,203

Floor Traders (FTs) 1,512

Futures Commission Merchants (FCMs) 2103

Introducing Brokers (IBs) 1,7414

TOTAL 70,083

3 Includes 16 notice-registered FCMs. 4 Includes 45 notice-registered IBs.

Customer Funds Held at Futures 

Commission Merchants, 1996 – 2006

The amount of customer funds held at FCMs has more 

than quadrupled in the last decade.

$ 0

$ 50

$ 100

$ 150

AMOUNT IN BILLIONS

FISCAL YEAR

96 97 98 99 00 01 02 03 04 05 06

$33.0

$38.7

$47.5

$54.1 $56.7 $59.7 $64.3

$75.6

$94.5

$116.7

$139.4
10

Contract Markets Designated by the CFTC, 2001 – 2006

Designated contract markets (DCMs) are boards of trade or exchanges that meet CFTC criteria and core principles for 

trading futures or options by both institutional and retail participants.

Commodity 

Exchanges5 2001 2002 2003 2004 2005 2006

BTEX ✓ ✓ ✓

CBOT ✓ ✓ ✓ ✓ ✓ ✓

CCFE ✓ ✓ ✓

CFFE ✓ ✓

CFE ✓ ✓ ✓ ✓

CME ✓ ✓ ✓ ✓ ✓ ✓

CSCE ✓ ✓ ✓ ✓

EPFE ✓

Eurex US ✓ ✓ ✓

HedgeStreet ✓ ✓ ✓

INET ✓

KCBT ✓ ✓ ✓ ✓ ✓ ✓

MACE ✓ ✓ ✓

ME ✓ ✓ ✓ ✓

MGE ✓ ✓ ✓ ✓ ✓ ✓

NQLX ✓ ✓ ✓ ✓ ✓

NYBOT ✓ ✓ ✓

NYCE ✓ ✓ ✓ ✓

NYFE ✓ ✓ ✓ ✓

NYMEX

(incl. COMEX) ✓ ✓ ✓ ✓ ✓ ✓

OCX ✓ ✓ ✓ ✓ ✓

PBOT ✓ ✓ ✓ ✓ ✓ ✓

TOTAL 14 16 15 18 13 12

5 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

Number of CFTC-Registered Derivatives Clearing Organizations, 2001 - 2006

Clearinghouses that provide clearing services for CFTC-regulated exchanges must register as DCOs. Currently, 11 DCOs 

are registered with the Commission. 

DCOs6 2001 2002 2003 2004 2005 2006

AE 

Clearinghouse ✓ ✓

BTEX ✓ ✓ ✓

CCorp ✓ ✓ ✓ ✓ ✓ ✓

CBOT ✓ ✓ ✓

CME ✓ ✓ ✓ ✓ ✓ ✓

EnergyClear ✓ ✓ ✓

FCOM ✓ ✓ ✓

GCC ✓ ✓

HedgeStreet ✓ ✓ ✓

ICC ✓ ✓ ✓

KCBT ✓ ✓ ✓ ✓ ✓ ✓

LCH ✓ ✓ ✓ ✓ ✓

MGE ✓ ✓ ✓ ✓ ✓ ✓

NYCC ✓ ✓ ✓ ✓ ✓ ✓

NYMEX ✓ ✓ ✓ ✓ ✓ ✓

OCC ✓ ✓ ✓ ✓ ✓

ONXCC ✓ ✓ ✓

TOTAL 11 14 14 10 11 11

6 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
12

Exempt Commercial Markets, 2001 – 2006

Electronic trading facilities providing for the execution of principal-to-principal transactions between eligible commercial entities in exempt commodities may operate as ECMs as set forth under the CEA and the Commission’s regulations. 

An ECM is subject to antifraud and anti-manipulation provisions and a requirement that, if performing a significant 

price discovery function, the ECM must provide pricing information to the public. A facility that elects to operate as an 

ECM must give notice to the Commission and comply with certain informational, record-keeping and other requirements. An ECM is prohibited from claiming that the facility is registered with, or recognized, designated, licensed or 

approved by, the Commission. To date, 17 ECMs have filed notices with the Commission.

Exempt Commercial 

Markets7 2001 2002 2003 2004 2005 2006

CCX ✓ ✓ ✓ ✓

CDXchange ✓ ✓ ✓ ✓ ✓

HSE ✓ ✓ ✓ ✓ ✓

ICE ✓ ✓ ✓ ✓ ✓ ✓

IMAREX ✓ ✓ ✓ ✓ ✓ ✓

NGX ✓ ✓ ✓ ✓ ✓

OPEX ✓ ✓ ✓ ✓ ✓ ✓

SL ✓ ✓ ✓ ✓

TFSE ✓ ✓ ✓ ✓

TFS ✓ ✓ ✓ ✓

TS ✓ ✓ ✓ ✓ ✓

ChemConnect ✓

ICAP ETC ✓

ICAP ✓

ICAP HYDE ✓

TCX ✓ ✓

NTP ✓

TOTAL 3 7 11 11 12 17

7 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
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Exempt Boards of Trade, 2001 – 2006

Transactions by eligible contract participants in selected commodities may be conducted on an XBOT as set forth under 

the CEA and the Commission’s regulations. XBOTs are subject only to the CEA’s anti-fraud and anti-manipulation provisions. An XBOT is prohibited from claiming that the facility is registered with, or recognized, designated, licensed, or approved, by the Commission. Also, if it is performing a price discovery function, the market must provide certain pricing 

information to the public. To date, six XBOTs have filed notices with the Commission.

Exempt Boards 

of Trade8 2001 2002 2003 2004 2005 2006

CME AM ✓ ✓

AE ✓ ✓ ✓

MATCHBOXX

ATS ✓

WBOT ✓ ✓ ✓ ✓

WXL ✓ ✓ ✓ ✓ ✓

Intrade ✓ ✓

TOTAL 0 1 2 3 5 6

8 Refer to the CFTC Glossary in Appendix 4 for full names of organizations.
14

Performance Highlight

Introduction

The mission of the CFTC is accomplished through three 

strategic goals, each focusing on a vital area of regulatory 

responsibility: 1) to ensure the economic vitality of the 

commodity futures and option markets; 2) to protect market users and the public; and 3) to ensure market integrity 

in order to foster open, competitive, and financially sound 

markets. Accomplishing the three long-term strategic goals 

is evidenced by the progress of nine key outcome objectives. In most cases, due to the broad economic functions 

that the Commission oversees, it is not a simple task to 

identify specific detailed objectives that will be accomplished each year; however, it is possible to identify conditions that, if present, are indicators that the Commission’s 

activities are contributing successfully to the health of the 

industry it regulates.

Annually, the performance metrics are analyzed to 

determine the measure of success the program’s activities 

have achieved in accomplishing the Commission’s overall 

strategic mission.

Resource Investment by Strategic Goal

In FY 2006, the Commission invested 39 percent of its resources protecting market users and the public, and nearly 

equal amounts of 30 percent each in economic vitality 

and market integrity. 

Full-time Equivalents by Strategic Goal

160 FTEs

Goal One; Ensure the

economic vitality of

the commodity futures

and option markets.

32%

139 FTEs

Goal Three: Ensure market

integrity in order to foster

open, competitive, and

financially sound markets.

28%

196 FTEs

Goal Two: Protect market

users and the public.

40%

Net Cost by Strategic Goal

$33.4 Million

Goal One; Ensure the

economic vitality of

the commodity futures

and option markets.

32%

$30.2 Million

Goal Three: Ensure market

integrity in order to foster

open, competitive, and

financially sound markets.

29%

$40.6 Million

Goal Two: Protect market

users and the public.

39%
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Goal One Summary

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

free of, abusive practices and influences, they will fulfill their vital role in the nation’s market economy and the global 

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

Strate

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

Outcome 1.1 Markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of 

disruptive activity.

Annual Performance Goal 1.1 No price manipulation or other disruptive activities that would cause loss of confidence or negatively affect price discovery or risk shifting.

Per

1.1.1. Percentage growth in market volume.

1.1.2. Percentage of novel or innovative market proposals or requests for CFTC action addressed within six months to 

accommodate new approaches to, or the expansion in, derivatives trading, enhance the price discovery process, or 

increase available risk management tools.

1.1.3. Percentage increase in number of products traded.

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

1.1.5. Percentage of new contract certification reviews completed within three months to identify and correct deficiencies in 

contract terms that make contracts susceptible to manipulation.

1.1.6. Percentage of rule certification reviews completed within three months, to identify and correct deficiencies in exchange rules that make contracts susceptible to manipulation or trading abuses or result in violations of law.

Outcome 1.2 Markets are effectively and efficiently monitored so that the Commission receives early warning of potential problems or issues that could adversely affect their economic vitality.

Annual Performance Goal 1.2 To have an effective and efficient market surveillance program.

Per

1.2.1 Percentage of derivative clearing organization applications demonstrating compliance with core principles.

1.2.2 Ratio of markets surveilled per economist.

1.2.3 Percentage of contract expirations without manipulation.

Strategic Goal 
16

Performance Trends for Goal One

Monitoring market activity represents one of the ways the Commission seeks to protect the economic functions of the 

markets. Market surveillance is conducted to detect attempted manipulation and other abusive practices that could undermine the capacity of these markets to perform their economic function. The Commission takes preventive measures 

to ensure that market prices accurately reflect fundamental supply and demand conditions, including the routine daily 

monitoring of large trader positions, futures and cash prices, price relationships, and supply and demand factors in 

order to detect threats of price manipulation.

Market Volume

Contract trading volume peaked to over 2.4 billion in FY 2006, as shown in Figure two, Growth in Volume of Futures & 

Option Contracts Traded & FTEs, on page eight, with increased demand realized for products traded on exchanges. The 

actual FY 2006 number is driven by changes in economic fundamentals, success of newly launched products, new participants using these markets, and other changes in the marketplace. As such, these factors may impact the precision of any 

prediction of future trading volume.

Performance Measure 1.1.1

FY 2004

Actual

FY 2005

Actual 

FY 2006

Plan

FY 2006

Actual

Percentage growth in market volume 24% 26% 20% 26%

New Products

Similar to the growth in volume, the actual percentage of new products offered on the exchanges in FY 2006 increased 

above projections. These results are driven by customer demand for new products, exchange innovation, opportunities 

made available by the increasing use of electronic trading, and other changes in the marketplace. As such, these factors 

may impact the number of products introduced.

Performance Measure 1.1.3

FY 2004

Actual

FY 2005

Actual 

FY 2006

Plan

FY 2006

Actual

Percentage increase in number of products traded 12% 43% 15% 25%
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

Performance Highlights for Goal One

The following are the highlights of Commission performance for Goal One:

Market Surveillance

In FY 2006, the Commission’s market surveillance activities included collecting and analyzing approximately 44 

million line items of data regarding large trader activity and approximately 16,000 reports identifying large 

traders. In the course of the year, economists prepared 

approximately 1,500 weekly surveillance reports and compiled 23 special market reports. 

Energy Markets 

In FY 2006, Commission staff conducted daily surveillance of 1,135 active futures and option contracts. In 

particular, close monitoring was conducted on the energy 

futures markets, which experienced periods of high prices 

and high price volatility due to, among other things, low 

stocks, tight production capacity, geopolitical tension in 

the Middle East, strong world economic demand, and 

natural disasters. In addition, prices and price volatility in 

both the petroleum markets and the natural gas market were substantially increased by damage inflicted by 

Hurricanes Katrina and Rita to the Gulf Coast oil and gas 

production, processing, and transportation infrastructure. 

Surveillance staff closely monitored large trader positions 

on a daily basis to detect large positions that could pose 

a threat of price manipulation, and staff also conducted 

several special analyses of intraday trading to determine 

whether there was evidence of improper trading to affect 

settlement prices of energy futures contracts.

New Contracts 

During FY 2006, Commission staff completed reviews 

of several innovative contracts filed under its certification procedures. Those contracts include the Volatility 

Index (VIX) and Dow Jones Industrial Average (DJIA) 

VIX futures contracts on the CBOE Futures Exchange, the 

South American Soybean Meal futures contract on the 

CBOT, Snowfall Index contracts on the CME, the physically delivered Euro Index on the NYBOT, the Reformulated Gasoline Blendstock for Oxygen Blending (RBOB) 

Unleaded Gasoline futures contract on the NYMEX, and 

many geographically specific energy futures contracts on 

NYMEX.

Intergovernmental Cooperation

The Commission worked to limit the impact of the liquidation of Refco LLC – one of the largest retail commodity 

brokers in the world. Commission staff worked cooperatively and successfully with SROs, industry participants, 

government officials, and the U.S. Bankruptcy Court to 

ensure that futures market positions of Refco customers 

and more than $7 billion in customer funds were safely 

and securely protected.

The Commission, jointly with the SEC, promulgated 

final regulations to permit trading of futures contracts on 

debt indexes and debt securities. The joint rulemaking was 

necessitated by statutory obstacles making it difficult to 

trade these products. The regulations provide a definition 

for broad-based debt security indexes; as a result, futures 

transactions on these indexes will be able to trade subject 

to the sole jurisdiction of the CFTC. And, for the first time, 

the regulations permit trading of security futures products 

based on debt securities, subject to joint regulation by the 

CFTC and SEC.

Electronic Markets 

The Commission has worked cooperatively with the 

United Kingdom’s (U.K.) Financial Services Authority 

(FSA) to obtain and share, on a bilateral basis, information needed to address common surveillance issues arising 

from the trading of economically linked futures contracts 

in the U.K. and U.S. The Commission recognizes that, as 

global markets continue to become linked electronically, 

no one regulator will have all of the information needed 

to carry out its customer and market protection mandate 

and therefore each regulator must cooperate with its foreign regulatory counterparts. 
1

Goal Two Summary

While our country is the beneficiary of explosive growth in the futures industry, the risk of fraud and manipulation is 

always present. The trend toward electronic trading platforms and the expanding complexity of trading instruments have 

challenged the Commission to reconfigure its ability to identify, investigate, and take action against parties involved in 

violating applicable laws and regulations. If evidence of criminal activity is found, matters are referred to state or Federal 

authorities for prosecution under criminal statutes. 

Over the years, the Commission has taken action in a num­ber of cases involving manipulation or attempte

manipu­lation of commodity prices. A variety of administrative sanctions, such as bans on futures trading, civil monetar

penalties, and restitution orders, is available to the Commission. The Commission may also seek Federal court injunctions, asset freezes, and orders to disgorge ill-gotten gains.

Strateg

Protect market users and the public.

Outcome 2.1 Violations of Federal commodities laws are detected and prevented.

Annual Performance Goal 2.1 Violators have a strong probability of being detected and sanctioned.

Per

2.1.1. Number of enforcement investigations opened during the fiscal year.

2.1.2. Number of enforcement cases filed during the fiscal year.

2.1.3. Percentage of enforcement cases closed during the fiscal year in which the Commission obtained sanctions, e.g., 

civil monetary penalties, restitution and disgorgement, cease and desist orders, permanent injunctions, trading bans, 

and registration restrictions.

2.1.4. Cases filed by other criminal and civil law enforcement authorities during the fiscal year that included cooperative assistance from the Commission.

Outcome 2.2 Commodity professionals meet high standards.

Annual Performance Goal 2.2 No unregistered, untested, or unlicensed commodity professionals.

Per

2.2.1. Percentage of self-regulatory organizations that comply with core principles.

2.2.2. Percentage of derivative clearing organizations that comply with core principles.

2.2.3. Percentage of professionals compliant with standards regarding testing, licensing, and ethics training.

2.2.4. Percentage of self-regulatory organizations that comply with requirement to enforce their rules.

2.2.5. Percentage of total requests receiving CFTC responses for guidance and advice.

Outcome 2.3 Customer complaints against persons or firms registered under the Act are handled effectively and expeditiously.

Annual Performance Goal 2.3 Customer complaints are resolved within one year from the date filed and appeals are resolved 

within six months.

Per

2.3.1. Percentage of filed complaints resolved within one year of the filing date.

2.3.2. Percentage of appeals resolved within six months.

Strategic Goal 
C

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

Performance Trends for Goal Two 

An ever larger segment of the population has money at 

risk in the futures markets, either directly or indirectly 

through pension funds or ownership of shares in publicly 

held companies that participate in the markets. 

The Enforcement program works to protect market 

users and the public by promoting compliance with, and 

deterring violations of, the CEA and Commission regulations. The majority of the work in this area involves investigating and prosecuting enforcement actions in matters 

involving fraud and imposing sanctions against wrongdoers. These actions send a message to industry professionals 

about the kinds of conduct that will not be tolerated. 

Enforcement Investigation and Litigation

During FY 2006, the Commission filed 38 enforcement 

actions and its Enforcement program opened 123 investigations of potential violations of the Act and Commission regulations. The Commission obtained record 

relief against enforcement action defendants – monetary 

penalties imposed in FY 2006, including restitution, in the 

amount of $256,724,698 and civil monetary penalties, in 

the amount of $189,232,437, exceeded any other year in 

Commission history.

While the Commission’s Enforcement program 

continued to perform at a high level, current resource constraints had an adverse impact. For example, the 38 cases 

filed fell short of the Commission’s performance target of 

60 cases for FY 2006. Due to a hiring freeze over the last 

two fiscal years, the Division of Enforcement (Enforcement) lost 11 percent of its staff and was forced to operate 

with fewer staff members. Coming at a time when the 

Enforcement program’s litigation docket and the complexity of matters investigated, such as investigation of alleged 

market manipulation, are at historical highs, the Commission believes that the hiring freeze contributed to this performance result. Moreover, the Commission believes that 

these resource constraints have the possibility of adversely 

affecting future performance as well.

Enforcement staff are operating at full capacity and 

shifting resources from important investigations to ongoing and future litigation demands limits the ability to 

pursue new investigations as shown in the metrics below. 

If the Enforcement program is unable to bring actions 

because of insufficient resources, other authorities will not 

be available to step in and fill the void. SROs can take action only against their own members, and their sanctions 

cannot affect conduct outside their jurisdiction or markets. 

In addition, other Federal regulators and state regulators 

have limited jurisdiction and expertise in handling futures-related misconduct. Finally, while criminal prosecutions by the Department of Justice (DOJ) are an important 

adjunct to effective enforcement of the CEA, cooperative 

enforcement still requires the active use of Commission 

FTEs to assist DOJ in their criminal prosecutions.

Performance Measure 2.1.1

FY 2004

Actual

FY 2005

Actual 

FY 2006

Plan

FY 2006

Actual

Number of enforcement investigations opened during the 

fiscal year

215 131 100 123

Performance Measure 2.1.2

FY 2004

Actual

FY 2005

Actual

FY 2006

Plan

FY 2006

Actual

Number of enforcement cases filed during the fiscal year 83 69 60 38

Performance Measure 2.1.3

FY 2004

Actual

FY 2005

Actual

FY 2006

Plan

FY 2006

Actual

Percentage of enforcement cases closed during the fiscal 

year in which the Commission obtained sanctions, e.g., civil 

monetary penalties, restitution and disgorgement, cease and 

desist orders, permanent injunctions, trading bans, and registration restrictions

99% 100% 100% 100%
20 

Performance Highlights for Goal Two

The following are the highlights of Commission performance for Goal Two:

Foreign Currency Fraud Enforcement 

During FY 2006, the Commission filed six enforcement 

actions against firms and individuals selling illegal forex 

futures and option contracts, bringing the total of such 

actions to 93 since enactment of the CFMA in December 

2000. To date, the Commission has obtained in these 

enforcement actions approximate monetary sanctions of 

$292 million in civil monetary penalties and $182 million 

in restitution.

In March 2006, Commissioner Michael V. Dunn was 

appointed to head the Commission’s forex task force. 

This task force seeks to alert and educate members of the 

general public about the growing epidemic of fraudulent 

solicitations and sales of forex to retail customers. The task 

force has two goals: 1) to raise consumer awareness regarding forex fraud through direct educational efforts; and 

2) to encourage state, local and Federal authorities, as well 

as consumer advocacy groups and industry organizations, 

to assist the Commission’s efforts in fighting forex fraud. 

Manipulation, Attempted Manipulation, and False 

Reporting Enforcement 

On June 28, 2006, the Commission filed a civil injunctive 

enforcement action against BP Products North America, 

Inc. (BP), a wholly-owned subsidiary of BP plc, alleging 

that BP manipulated the price of February 2004 TET physical propane by, among other things, cornering the market 

for February 2004 TET physical propane. (The term “TET 

propane” refers to propane that is deliverable at the TEPPCO storage facility in Mont Belvieu, Texas, or anywhere 

within the TEPPCO system. “TEPPCO” is an acronym for 

Texas Eastern Products Pipeline Co, LLC.) 

The Commission also charged BP with attempting to 

manipulate the price of April 2003 TET physical propane 

by attempting to corner the April 2003 TET physical 

propane market. According to the lawsuit, TET propane 

is the primary propane used for residential and commercial heating in the Northeast U.S., particularly in rural 

areas that are not served by natural gas pipelines, and the 

price of TET propane at Mont Belvieu affects the price of 

propane paid by consumers. Furthermore, prices of TET 

propane affect the price of the NYMEX futures contract 

for propane, in part because the NYMEX propane contract 

provides for delivery of propane at TEPPCO. CFTC v. BP 

Products North America, Inc., No. 06C 3503 (N.D.Ill. filed 

June 28, 2006).

With the filing of the BP enforcement action, the 

Commission has, since December 2002, filed a total of 35 

enforcement actions charging a total of 55 respondents/

defendants (31 companies and 24 individuals) with alleged wrongdoing in the energy markets. The Commission 

has settled 27 of these enforcement actions and obtained 

$302,863,500 in civil monetary penalties. Eight Commission energy market-related enforcement actions remain 

pending. The Commission’s Division of Enforcement is 

currently investigating approximately 70 individuals and 

companies for alleged violations in the energy sector.

Enforcement Actions Against Commodity Pool 

Operators and Commodity Trading Advisors 

Customers may be harmed by unscrupulous CPOs and 

CTAs, including those operating hedge funds. These 

enforcement actions typically involve investments in commodity pools, including self-styled hedge funds, in which 

the customers’ funds were misappropriated or misused, 

or where customers were victimized by solicitation fraud 

involving misrepresentations of assets under management 

and/or profitability. The majority of the Commission’s 

pool fraud cases are brought against unregistered CPOs 

and/or CTAs. These cases tend to involve Ponzi schemes or 

outright misappropriation, as opposed to legitimate hedge 

fund operations. During FY 2006, the Commission filed 

11 enforcement actions against commodity pools, hedge 

funds and CPOs, bringing the total number of actions 

filed in this program area to 53 over the past six fiscal 

years. The Commission’s Division of Enforcement currently has 55 pending investigations of commodity pools, 

hedge funds, CPOs, and CTAs.

Quick-Strike Enforcement Actions 

The Commission is committed to responding quickly to 

enforcement investigations that uncover ongoing fraud. 

Quick-strike cases are civil injunctive actions that generally 

are filed in Federal district courts within days or weeks of 

the discovery of the illegal activity, enabling the Commission to stop fraud at an early stage and to attempt to 

preserve customer funds. During FY 2006, the Commission prosecuted five quick-strike cases, which were all filed 

within four months of opening the related investigation.
CF

Consumer Advisory

In FY 2006, the Commission issued a Consumer Advisory, 

Beware Of Promises of Easy Profits from Commodity Trading 

Based on Seasonal Demand and Other Well-Known Public 

Information. The Advisory warns consumers to watch out 

for possibly fraudulent claims that profits on commodity futures or option trading can be made as a result of 

changes in the prices of physical commodities based on 

seasonal weather patterns or other well-known events. All 

of the Commission’s Consumer Advisories are available 

on its Web site at http://www.cftc.gov/cftc/cftccustomer.htm

Overall FY 2006 Enforcement Results

During FY 2006, the Commission’s Division of Enforcement filed a total of 38 enforcement actions in the following program areas: Manipulation, Attempted Manipulation and False Reporting; Commodity Pools, Hedge 

Funds, CPOs, CTAs, Managed Accounts, and Trading 

Systems; FCMs, IBs and their APs; Foreign Currency Cases; 

Other Illegal Off-Exchange Cases; Trade Practices; Financial, Supervision, Compliance and Recordkeeping; and 

Statutory Disqualification. During FY 2006, Enforcement 

also obtained sanctions in Commission enforcement actions that included orders to pay a total of $257 million 

in restitution and approximately $189 million in civil 

monetary penalties.
22 

Goal Three Summary

The Commission focuses on issues of market integrity, seeking to protect: 1) the economic integrity of the markets so 

that they may operate free from manipulation; 2) the financial integrity of the markets so that the insolvency of a single 

participant does not become a systemic problem affecting other market participants; and 3) the operational integrity 

of the markets so that transactions are executed fairly and proper disclosures to existing and prospective customers are 

made. 

Strateg

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

Outcome 3.1 Clearing organizations and firms holding customer funds have sound financial practices.

Annual Performance Goal 3.1 No loss of customer funds as a result of firms’ failure to adhere to regulations. No customers 

prevented from transferring funds from failing firms to sound firms.

Per

3.1.1. Lost funds:

 a) Percentage decrease in number of customers who lose funds.

 b) Amount of funds lost.

3.1.2. Number of rulemakings to ensure market integrity and financially sound markets.

3.1.3. Percentage of clearing organizations that comply with requirement to enforce their rules.

Outcome 3.2 Commodity futures and option markets are effectively self-regulated.

Annual Performance Goal 3.2 No loss of funds resulting from failure of self-regulated organizations to ensure compliance 

with their rules.

Per

3.2.1. Percentage of intermediaries who meet risk-based capital requirements.

3.2.2. Percentage of self-regulatory organizations that comply with requirement to enforce their rules.

Outcome 3.3 Markets are free of trade practice abuses.

Annual Performance Goal 3.3 Minimize trade practice abuses.

Per

3.3.1. Percentage of exchanges deemed to have adequate systems for detecting trade practice abuses.

3.3.2. Percentage of exchanges that comply with requirement to enforce their rules.

Outcome 3.4 Regulatory environment is flexible and responsive to evolving market conditions. 

Annual Performance Goal 3.4 Rulemakings issued and requests responded to reflect the evolution of the markets and protect 

the interests of the public.

Per

3.4.1. Percentage of CFMA Section 126(b) objectives addressed.

3.4.2. Number of rulemakings, studies, interpretations, and guidances to ensure market integrity and exchanges’ compliance with regulatory requirements.

3.4.3. Percentage of requests for no-action or other relief completed within six months related to novel market or trading 

practices and issues to facilitate innovation.

3.4.4. Percentage of total requests receiving CFTC responses for guidance and advice.

Strategic Goal Th
CF

Performance Trends for Goal Three

In fostering open, competitive, and financially sound markets, the Commission’s two main priorities are to avoid 

disruptions to the system for clearing and settling contract obligations and to protect the funds that customers entrust 

to FCMs. Clearing organizations and FCMs are the backbone of the exchange system; together, they protect against the 

possibility that the financial difficulties of one trader may become a systemic problem for other traders. 

The Commission also works with the exchanges and NFA to monitor closely the financial condition of the FCMs 

themselves, who must provide the Commission, exchanges, and NFA with various monthly, quarterly, and annual 

financial reports. The exchanges and NFA also conduct audits and daily financial surveillance of their respective member 

FCMs. Part of this financial surveillance involves looking at each FCM’s exposure to losses from large customer positions that it carries. As an oversight regulator, the Commission reviews the audit and financial surveillance work of the 

exchanges and NFA but also monitors the health of FCMs directly, as appropriate. The Commission also periodically 

reviews clearing organization procedures for monitoring risks and protecting customer funds. 

Protecting Customer Funds

Commission staff closely monitor the operations of registrants in possession of customer funds. There were no losses 

of regulated customer funds as a result of firm failures or the inability of customers to transfer their funds from a failing 

firm to a sound firm in 2005 or 2006.

Performance Measure 3.1.1

FY 2004

Actual

FY 2005

Actual

FY 2006

Plan

FY 2006

Actual

Lost funds: 

a) Percentage decrease in number of

customers who lose funds 

0% 0% 0% 0%

b) Amount of funds lost $0 $0 $0 $0

Self-Regulatory Organization Compliance

During FY 2006, the Division of Clearing and Intermediary Oversight (DCIO) completed a review of the NFA’s program 

for the oversight of CPOs and CTAs, and initiated a review of the financial and sales practice program of the CBOT. 

These reviews included assessments of the disciplinary programs of the NFA and CBOT, respectively. DCIO presented a 

report to the Commission stating that NFA was complying with the CEA and its delegated responsibilities. The review of 

the CBOT is still in progress at this time, but no material deviations from CEA core principles have been observed.

Performance Measure 3.1.3

FY 2004

Actual

FY 2005

Actual 

FY 2006

Plan

FY 2006

Actual

Percentage of clearing organizations that comply with requirement to enforce rules100% 100% 100% 100%

Performance Measure 3.2.2

FY 2004

Actual

FY 2005

Actual 

FY 2006

Plan

FY 2006

Actual

Percentage of self-regulatory organizations that comply with 

requirement to enforce their rules

100% 100% 100% 100%

Performance Measure 3.3.2

FY 2004

Actual

FY 2005

Actual

FY 2006

Plan

FY 2006

Actual

Percentage of exchanges that comply with requirement to 

enforce their rules

100% 100% 100% 100%
24 

Performance Highlights for Goal Three

The following are the highlights of Commission performance for Goal Three:

Capital Computation and Risk Models

The Commission adopted amendments to its regulations 

that recognize the growing use by FCMs of internally 

developed mathematical models for value-at-risk (VaR), 

especially in light of SEC regulations that permit well-capitalized broker-dealers to incorporate VaR measurements 

in the market risk and credit risk capital deductions that 

are required for their proprietary trading assets. FCM/broker-dealers who are registered with both the Commission 

and the SEC, and who have received SEC approval for 

their VaR-based market risk and credit risk deductions, 

are permitted to use the same deductions when calculating their capital under amended Commission Regulation 1.17. When compared to the capital deductions that 

Commission Regulation 1.17 (or similar SEC regulations) 

otherwise would require, capital deductions based on VaR 

measurements are aligned more specifically to the risk 

characteristics of the firm’s trading portfolio. FCMs using 

such market risk and credit risk capital deductions are required to provide to the Commission, on a periodic basis, 

information related to their VaR models.

SRO Acceptable Practices

Recognizing that increased competition and changing 

ownership models are dramatically transforming the 

futures markets, the Commission proposed acceptable 

practices for complying with Core Principle 15 relating 

to exchange governance and conflicts of interest. The 

acceptable practices call: 1) for each exchange’s board to 

be composed of at least 50 percent non-member public 

directors; 2) for each exchange to establish a board-level 

Regulatory Oversight Committee composed of only nonmember public directors; and 3) for exchange disciplinary 

panels to include at least one public participant and not to 

be dominated by any group or class of exchange members. 

The proposal also offers guidance on the definition of 

“public director.”

Foreign Currency 

In FY 2006, the Commission approved numerous rules 

submitted by NFA that were intended to address ongoing problems in the off-exchange retail forex market 

by, among other things: requiring higher net capital for 

certain FCMs and forex option dealers; clarifying that enhanced supervisory requirements applicable to other NFA 

members also apply to forex dealer members, including 

requiring the recording of conversations with customers if specified percentages of APs had been previously 

employed by disciplined firms, i.e., firms permanently 

barred from the industry as a result of deceptive telemarketing practices or promotional material; requiring NFA 

Forex Dealer Members to file weekly reports; and requiring 

additional disclosure on the bankruptcy consequences of 

forex trading. 

Foreign Board of Trade Access to U.S. Traders

The Commission continued its policy of issuing no-action 

letters in response to requests by foreign boards of trade to 

permit placement of electronic terminals in the U.S. without requiring contract market designation for those boards 

of trade. In FY 2006, the Commission issued no-action letters to two additional foreign exchanges to permit them to 

make their electronic trading and order matching systems 

available to their respective members in the U.S. without 

obtaining contract market designation or registration as a 

derivatives transaction execution facility. 

Foreign Board Of Trade Hearing 

On June 27, 2006, the Commission held an open hearing 

to obtain the views of interested parties on the issue of 

what constitutes “a board of trade, exchange, or market 

located outside the U.S., its territories, or possessions” as 

that phrase is used in Section 4(a) of the CEA. The hearing 

was undertaken in connection with the Commission’s 

ongoing review of its policy, initiated in 1999, of having staff issue no-action letters in response to requests by 

foreign boards of trade to permit placement of electronic 

terminals in the U.S. without requiring contract market 

designation for those boards of trade. Participants at the 

June 27th hearing included representatives of DCMs, foreign boards of trade, foreign regulators, market professionals and commercial users of futures products. In addition 

to views expressed at the hearing, the Commission also 

solicited views on the same topic through a concurrent 

public comment period.
Forward Looki

CF

Future Effects and Performance 

Challenges

The above performance metrics and the industry indicators shown on pages eight through 13 reflect a dynamic 

industry full of growth and potential. However, where 

there is growth, change is ever present. 

Possible future effects and challenges include:

Technology

• Technology continues to make it possible for market 

participants to trade globally 24 hours a day. This 

presents a challenge to the Commission to maintain a 

robust, yet flexible, regulatory framework as market participants have an increasing number of choices available 

to them as to how and where to trade.

• The expansion of electronic trading will require an increase in Commission staff trained to carry out oversight 

of more technologically driven markets and self-regulatory systems.

• As electronic trading of futures and options on Commision-regulated exchanges becomes the norm the 

Commission must upgrade its own technology and 

infrastructure so that it may effectively discharge its 

statutory mandate of deterring and preventing price 

manipulation and any other disruptions to the integrity 

of the markets the Commission regulates.

Globalization

• The increasing globalization of the futures and option 

markets requires new staff competencies, including 

knowledge of how individual overseas markets operate 

and are regulated, how cross-border trading and clearing systems operate, and what law, especially bankruptcy law, applies in cross-border transactions. 

• The possibility of market disruptions caused by economic changes, terrorism, epidemics, natural disasters 

or political developments could trigger global market 

concerns. In such an integrated global environment, no 

one regulator will have all of the information or jurisdiction over markets, firms and persons, that is needed 

to ensure customer and market protections. Thus, our 

challenge will be to work with and coordinate regulation globally. 

Marketplace

• Development and growth of renewable energy sources 

(i.e., biofuels) could impact existing energy markets.

• Disruption of oil exports to the U.S. may disrupt energy 

markets.

• A significant portion of the power grids may be disabled 

for an extended period of time, crippling markets.

• Changes in the structure of the futures and options 

industry, such as the conversion of exchanges from 

member-owned entities to publicly-listed corporations, 

exchange mergers, and the introduction of new and 

novel contracts will mean that the Commission will require more staff to review novel or increasingly complex 

legal and regulatory issues. 

Government

• Congress could pass new legislation that may impact 

the futures markets. 

• Congress may require an investigation of certain markets.

• Congress may not appropriate adequate funds for the 

Commission to effectively discharge its mission-critical 

functions

Management

• Competition to hire and retain staff is intense in a job 

market where scarce mission-critical skills command 

premium compensation levels. Even at “pay parity” 

salaries, cost of living increases make recruitment and 

retention of a talented and qualified workforce difficult.
26 

Financial Summary

2006 2005

(As Restated)

Condensed

Fund Balance with Treasury $ 20,055,508 $ 23,464,887 

Property, Equipment, and Software, Net 3,674,493 1,919,650

Accounts Receivable 63,855 185,927

Prepayments 461,038 0

Other (Custodial) 5,756,605 28,663,845

Total Assets $ 30,011,499 $ 54

FECA Liabilities $ 311,285 $ 629,800 

Payroll, Benefits and Annual Leave 9,182,837 8,082,514

Contingent & Deposit Fund Liabilities 59,088 20,094

Other Deferred Lease Liabilities 2,837,403 2,166,518

Accounts Payable 2,574,535 1,692,411

Custodial Liabilities 5,756,605 28,663,845

Total Liabilities $ 20,721,753 $ 41,255,182 

Cumulative Results of Operations $ (4,568,800) $ (6,106,083)

Unexpended Appropriations 13,858,546 19,085,210 

Total Net Position 9,289,746 12,979,127 

Tota Liabilities and Net Position 

Condnse

Total Cost $ 104,256,065 $ $100,132,194 

Net Revenue (23,150) (114,705)

Total et Cost of Operations $ 104,2

Net ost 

Goal One - Economic Utility $ 33,354,533 $ 34,005,946

Goal Two - Market User and Public 40,650,837 40,006,996

Goal Three - Industry 30,227,545 26,004,547 

$ 104,232,915 $ 100,017,489 

Financial Highligh
CFTC 2

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S

Financial Discussion and Analysis

The CFTC prepares annual financial statements in accordance with GAAP for Federal government entities and 

subjects the statements to an independent audit to ensure 

their integrity and reliability in assessing performance. 

Management recognizes the need for performance and 

accountability reporting, and fully supports assessments of 

risk factors that can have an impact on its ability to do so. 

Improved reporting enables managers to be accountable 

and supports the concepts of the Government Performance 

and Results Act (GPRA), which require the Commission to: 

1) establish a strategic plan with programmatic goals and 

objectives; 2) develop appropriate measurement indicators; 

and 3) measure performance in achieving those goals.

The financial summary as shown on page 26 highlights 

changes in financial position between September 30, 2005 

and September 30, 2006. This overview is supplemented 

with brief descriptions of the nature of each required 

financial statement and its relevance. Certain significant balances or conditions featured in the graphic presentation are 

explained in these sections to help clarify their relationship 

to Commission operations. Readers are encouraged to gain 

a deeper understanding by reviewing Commission financial 

statements and notes, and the accompanying audit report 

presented in the Financial Section of this report.

Understanding the Financial Statements

The CFTC presents financial statements and notes in the 

format required for the current year by OMB Circular 

A-136, Financial Reporting Requirements, which is revised 

annually by the OMB in coordination with the U.S. Chief 

Financial Officers Council. CFTC current year and prior 

year financial statements and notes are presented in a 

comparative format. 

Balance Sheet 

The balance sheet presents, as of a specific point in time, 

the economic value of assets and liabilities retained or 

managed by the Commission. The difference between 

assets and liabilities represents the net position of the 

Commission.

The balance sheet reflects total assets of $30 million, 

an almost 45 percent decrease from FY 2005. This decrease 

is attributable to custodial fines and interest receivables 

from the Civil Monetary Sanctions Program. The CFTC 

litigates against defendants for alleged violations of the 

CEA, as amended. Violators may be subject to a variety 

of sanctions including fines, injunctive orders, bars or 

suspensions, rescissions of illegal contracts, disgorgement, 

and restitution to customers. When collectable custodial 

receivables (non-entity assets) are high, these fines and 

penalties that have been assessed and levied against businesses for violation of law dominate the balance sheet. 

In FY 2005, the majority of approximately $28.7 

million in net custodial receivables can be attributed 

to two debts totaling approximately $24 million. The 

energy company El Paso owed $10.3 million as the second 

installment of a $20 million dollar judgment, paid March 

2006, and DBS Capital, Inc. and Douglas Stevens owed 

$14.1 million pursuant to a June 2005 order. The latter 

receivable was maintained after allowances on the FY 

2005 financials because almost one million dollars in 

frozen funds had been collected, and staff were pursuing 

other funds in a foreign bank. With the passage of time, 

the Commission determined the chances of collecting 

the remaining funds had diminished and a full allowance 

for the DBS Capital, Inc. and Douglas Stevens receivable 

was taken. Of the remaining 15 receivables for FY 2005, 

seven were paid in full; one was partially paid; two others remain as net receivables because payment is not yet 

due; one was written off; and allowances were taken on 

the remaining four. For FY 2006, the majority of the $5.7 

million net receivables can be attributed to a $4.2 million 

debt imposed on Dominion Resources in the last days of 

the fiscal year, and collected in early October 2006. 

As should be expected from a small regulatory agency, 

payroll, benefits, and annual leave make up the majority 

of CFTC liabilities. Several factors influenced the change 

in the Commission’s net position during FY 2006. This, as 

noted above, includes the timing of prior year write-offs of 

old debt, and the overall case management and analysis of 

debt by the Division of Enforcement. 

Statement of Net Cost 

The statement of net cost is designed to present the components of the net cost of the Commission. Net cost is the gross 

cost incurred less any revenues earned from Commission 

activities. The statement of net cost is categorized by the 

Commission’s strategic goals. The Commission experienced 

a four percent increase in the total net cost of operations 

during FY 2006. This is consistent with the increase in our 

appropriation.
28

of operations during FY 2006. This is consistent with the 

increase in our appropriation.

Goal One, which tracks activities related to market 

oversight continues to require a significant share of Commission resources, experienced a one percent decrease in 

net cost in operations, in FY 2006, decreasing to $33.4 

million. 

Goal Two is representative of efforts to protect market 

users and the public. In FY 2006, the Goal Two net cost of 

operations rose to $40.7 million, a two percent increase. 

These added funding permitted to Commission to pursue 

a number of highly complex cases, many which are ongoing. The impact of this work has yet to be reflected on the 

balance sheet. 

The net cost of operations for Goal Three, ensuring 

market integrity, was $30.2 million, in FY 2006. The decision to allocate an increase of 16 percent to this goal was 

made by the Commission, in FY 2006, in response to market concerns when futures brokerage Refco LLC collapsed 

amid an accounting fraud. Moreover, as futures markets 

generally become more global in nature, the Commission 

is increasingly called upon to register overseas clearinghouses and futures firms, to approve complex cross-border 

trading and clearing linkages, and to perform effective 

ongoing supervision. This requires the Commission to 

invest resources in developing and maintaining effective 

relationships with foreign regulatory authorities. 

Statement of Budgetary Resources 

This statement provides information about the provision 

of budgetary resources and their status as of the end of the 

reporting period. Information in this statement is consistent with budget execution information and the information reported in the Budget of the U.S. Government.

The variances in this statement are mainly due to the 

increase in the appropriations received in FY 2006. The 

increase was used to maintain a “steady state” and funded 

benefits and compensation, lease expenses, printing, and 

services to support systems users, telecommunications, 

operations, and maintenance of technology equipment. 

Gross outlays increases are mainly due to the increase in 

the disbursements for payroll and benefits, netted by a 

decrease in the disbursements in a no-year appropriation 

and expired-year appropriations. 

Statement of Financing

This statement demonstrates the relationship between an 

entity’s proprietary and budgetary accounting information. It links the net cost of operations (proprietary) with 

net obligations (budgetary) by identifying key differences 

between the two statements. This statement is structured 

to identify total resources used during the fiscal year, and 

makes adjustments based on whether the resources were 

used to finance the net obligations or net cost. 

For FY 2006, this statement identifies the major 

components of the net cost of operations as $99.6 million 

of resources used to finance activities, and $3.8 million of 

resources used to finance items not part of the net cost of 

operations. As noted earlier, the total net cost of operations for FY 2006 is a little over $104 million. 

Statement of Custodial Activity 

This statement provides information about the sources 

and disposition of non-exchange revenues. Non-exchange 

revenue at the CFTC is primarily represented by fines, 

penalties, and forfeitures assessed and levied against businesses and individuals for violations of the CEA. Other 

non-exchange revenue includes registration, and filing and 

appeal fees, as well as general receipts. The statement of 

custodial activity reflects total non-exchange revenue collected (cash collections) of $13.6 million and a transfer of 

the collections to the Treasury in the same amount.

Historical experience has indicated that a high percentage of custodial receivables proves uncollectible. The 

methodology used to estimate the allowance for uncollectible amounts related to custodial accounts is that custodial 

receivables are considered 100 percent uncollectible unless 

otherwise noted in the judgment. An allowance for uncollectible accounts has been established and included in 

“accounts receivable” on the balance sheet. The allowance 

is based on past experience in the collection of accounts 

receivable and analysis of outstanding balances. Accounts 

are re-estimated quarterly based on account reviews and 

determination that changes to the net realizable value 

are needed. The re-estimate can cause wide swings in the 

statement line that reports Changes in Accounts Receivable. 
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

Future Business Trends and Events

Almost everything in the futures industry has fundamentally changed over the last 20 years – from the products 

that are trading to the platforms on which they are traded. 

As the Commission looks ahead, we expect technology, 

globalization, and innovation will continue to drive 

growth in the markets we regulate. 

During this time of rapid change, the Commission 

expects to lose most of its experienced career staff, primarily through retirement. During FY 2006, the Commission 

experienced its first large wave of these retirements. 

From a performance perspective, the Commission has 

struggled to operate at the level needed to ensure that it 

has the tools and resources necessary to do the job expected of it by the Congress, the Administration, and the 

American people. The Commission must make difficult 

choices about how it will use its limited resources.

It is anticipated that Commission efforts will be 

scaled back to the extent increased productivity cannot 

offset anticipated resource reductions. As noted in the 

discussion of the net cost of operations, the Commission 

attempts to balance its investment in three strategic goals, 

each focusing on a vital area of regulatory responsibility. 

To continue to be an effective regulator, the Commission will need to place greater reliance on risk management approaches to supervision. It will also continue to 

leverage needed systems and data maintained by other 

Federal agencies and, wherever possible, data repositories maintained by self-regulatory organizations. Moving 

forward the Commission will be required to confront the 

jurisdictional challenges created by innovation and the 

worldwide creation and expansion of futures and option 

markets. This, coupled with a wide array of new surveillance issues, is expected to significantly change the way the 

Commission consumes and allocates resources across its 

performance goals. From an operational perspective, the 

Commission will continue to allocate and deploy its resources in less traditional ways as described below. As this 

process accelerates, the Commission seeks to transform 

itself along the following dimensions.

Institutional Transformation 

The Commission will concentrate on the costs of identifying and controlling institutional risks, specifically, the risk 

of impairment to the Commission’s operations model, 

reputation, and financial condition from failure to fully 

comply with laws and regulations, internal controls, and 

taxpayer expectations. This could lead to dramatic changes 

in its workforce composition and geographical distribution.

Technology Transformation 

Technology improvements will continue to empower the 

Commission in the future by increasing the availability of 

our most critical resource – time. Through these improvements, executive management may spend additional time 

on policy analysis and decision-making rather than on the 

processing and compiling of key data. The Commission 

will increasingly leverage business processes, services, and 

systems of larger agencies for internal operations, while 

externally relying more on exchange databases when conducting reviews and investigations. 

Human Capital Transformation 

Human capital management planning will emphasize 

dedicating staff resources to core business lines, while 

meeting support requirements through the use of leveraged resources and competitive sources of service. 
30

Management Overview

The CFTC is committed to management excellence and 

recognizes the importance of strong financial systems and 

internal controls to ensure accountability, integrity, and 

reliability. This operating philosophy has permitted the 

Commission to make significant progress documenting 

and testing its internal controls over financial reporting 

next year, as prescribed in OMB Circular A-123, Management’s Responsibility for Internal Control. The graph below 

depicts all five components of the internal control process 

that must be present in an organization to ensure an effective internal control process.

• Control Environment fosters the highest level of 

integrity and personal and professional standards and 

promotes internal control through leadership philosophy and operating style. 

• Risk Assessment is the identification and analysis 

of risks associated with business processes, financial 

reporting, technology systems, and controls and legal 

compliance in the pursuit of agency goals and objectives.

Monitoring

Control Activities

Risk Assessment

Control Environment

Information & Communication

Information & Communication

Internal Control Process

• Control Activities are the actions supported by management policies and procedures to address risk, e.g., 

performance reviews, status of funds reporting, and 

asset management reviews.

• Monitoring is the assessment of internal control performance to ensure the internal control processes are 

properly executed and effective. 

• Information and Communication ensures the agency’s 

control environment, risks, control activities, and performance are communicated throughout the agency.

Management Challeng
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

The Commission relies on its performance management 

and internal control framework to:

• ensure that its divisions and mission support offices 

achieve their intended results efficiently and effectively; 

and

• ensure the maintenance and use of reliable, complete, 

and timely data for decision-making at all levels.

The Commission strongly believes that the rapid 

implementation of audit recommendations is essential to 

improving its operations. Integration of Commission strategic, budget, and performance data permits management 

to make individual assurance statements with confidence. 

Moreover, data-driven reporting provides the foundation 

for Commission staff to monitor and improve its control 

environment.

Management Assurances

The Statement of Assurance is required by the Federal 

Managers’ Financial Integrity Act (FMFIA) and OMB Circular A-123, Management’s Responsibility for Internal Control. 

The assurance is for internal controls over operational 

effectiveness (we do the right things to accomplish our 

mission) and operational efficiency (we do things right).

Statement of Assurance

“CFTC management is responsible for establishing and 

maintaining effective internal control and financial management systems that meet the objectives of the Federal Managers’ 

Financial Integrity Act (FMFIA). During the past fiscal year, 

CFTC conducted its assessment of the effectiveness of internal 

control over financial reporting, which includes safeguarding 

of assets, and compliance with applicable laws and regulations, 

in accordance with the requirements of OMB Circular A-123. 

The Commission assessment is in agreement with the detailed 

exceptions provided in the independent auditors’ report as of 

September 30, 2006. Therefore, other than the exceptions 

noted in Exhibit I of their audit report, Commission internal 

controls were operating effectively, and no other material weaknesses were found in the design or operation of the internal 

control over financial reporting. In addition, the CFTC is able 

to provide a qualified statement of assurance that the internal 

controls and financial management systems meet the objectives 

of FMFIA.”

Reuben Jeffery III

Chairman

During FY 2006, in accordance with the FMFIA, 

and using the guidelines of the OMB, the Commission 

reviewed key components of its management and internal 

control system. 

The objectives of the Commission’s internal controls 

are to provide reasonable assurance that:

• Obligations and costs are in compliance with applicable 

laws;

• Assets are safeguarded against waste, loss, unauthorized 

use, or misappropriation;

• Revenues and expenditures applicable to Commission 

operations are properly recorded and accounted for to 

permit the preparation of accounts and reliable financial and statistical reports and to maintain accountability over the assets; and 

• All programs are efficiently and effectively carried out 

in accordance with applicable laws and management 

policy.

The efficiency of the Commission’s operations is 

continually evaluated using information obtained from 

reviews conducted by the Government Accountability 

Office (GAO) and the Office of Inspector General (OIG), 

specifically requested studies, or observations of daily 

operations. 

These reviews ensure that the Commission’s systems 

and controls comply with the standards established by 

FMFIA. Moreover, managers throughout the Commission 

are responsible for ensuring that effective controls are 

implemented in their areas of responsibility. Individual 

assurance statements from division and office heads serve 

as a primary basis for the Chairman’s assurance that management controls are adequate. The assurance statements 

are based upon each office’s evaluation of progress made 

in correcting any previously reported problems, as well 

as new problems identified by the OIG, the GAO, other 

management reports, and the management environment 

within each office. 

Commission organizations that have material weaknesses are required to submit plans for correcting those 

weaknesses. The plans, combined with the individual assurance statements, provide the framework for continually 

monitoring and improving the Commission’s management and internal controls. The items presented below 

are illustrative of the work performed during FY 2005 and 

2006:
32

• Implemented analyses and initiatives that address challenges identified by the OIG in FY 2005 concerning 

strategic management of human capital;

• Assessed gaps in compliance with the pay and benefits 

provisions called for in Section 10702 of Public Law 

107-171, Farm Security and Rural Investment Act of 

2002;

• Improved financial performance and expanded participation in electronic government initiatives sponsored 

by the OMB;

• Took steps to become fully compliant with the Federal 

Information Security Reform Act; and

• Took action to correct reportable conditions and disclosed noncompliance with laws and regulations identified in the FY 2005 and FY 2006 independent auditors’ 

report of the agency’s financial statements and related 

internal controls. 

FMFIA Section 2, Management Control

The Commission has one declared material weakness 

under FMFIA for FY 2006 in the area of financial reporting 

that hinders preparation of timely and accurate financial 

statements. The major impediments facing the Commission and the actions its taking to resolve them fall across 

the following areas:

• Establishing the custodial fines and interest receivable 

balance as well as estimating the allowance for loss on 

each receivable. Over the next year the Commission will 

rely on its new accounting system, and enhancements 

to its case tracking processes and systems to correct this 

impediment.

• Accounting for leases and knowledge of accounting 

principles. CFTC now recognizes lease expense, for rental of its various office spaces, on a straight-line basis, as 

required under U.S. generally accepted accounting principles. CFTC restated its FY 2005 financial statements.

• Improvements are needed in recording accruals and 

preparing financial statements.CFTC did not properly 

record the accounts payable, operating leases, subsequent cash disbursements, and undelivered orders. 

Over all these areas, 16 out of 95 transactions tested 

were either inappropriately included or excluded from 

accounts payable as of September 30, 2006. CFTC needs 

to validate and improve its process to properly record its 

accruals. It will evaluate the adequacy of the prior year 

accrual by comparing subsequent payments received 

after year-end against the accrual. It will consider making changes to the accrual methodology based on the 

results of the analysis.

The Commission did not declare any material weaknesses 

in FY 2005.

FMFIA Section 4, Financial Management Systems

The Commission declared no systems nonconformance 

under FMFIA during FY 2005. The independent auditors’ 

report for FY 2005 disclosed one instance of noncompliance that was required to be reported under Government 

Audit Standards and OMB Bulletin 06-03, Audit Standards 

for Federal Financial Statements. The auditors disclosed 

noncompliance with the Federal Information Security 

Management Act (FISMA), noting continued improvements were required with entity-wide security and contingency planning programs, access controls, segregation of 

duties, and service continuity to fully meet guidelines of 

the E-Government Act of 2002 and OMB Circular A-130, 

Management of Federal Information Resources. The Commission took corrective actions between June 30, 2005 and 

June 30, 2006 that addressed the majority of the concerns 

leading to the audit disclosure – in particular with continuity of operations. However, the independent auditors’ 

report for FY 2006 continued to disclose noncompliance 

with these two regulations. The agency will continue corrective actions in FY 2007 to address these matters.
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Inspector Gene’s Y 2006 Assessm
34
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M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 
36
C

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N ALY S I 

Management Addresses Inspector 

General’s FY 2005 Assessment

In the FY 2005 Performance and Accountability Report, 

the Inspector General identified two “serious management 

challenges” facing the Commission: 1) Human Resource 

Planning, and 2) Challenges in the Marketplace. 

The following is the Inspector General’s FY 2005 assessment for each challenge and the Commission’s actions 

taken in FY 2006 to address these challenges. 

Challenge #1, Human Resource Planning

FY 2005 IG Assessment:

“Last year, we highlighted the forthcoming human resource 

challenge likely to be faced by the agency in FY 2006. This year 

that challenge is ever more apparent. By March 2006, current 

estimates are that over 20 percent of CFTC staff including 

28 percent of the agency’s leadership positions will be eligible 

for retirement. Consequently, based on these factors, this is a 

significant challenge faced by a relatively small Federal agency 

which will necessitate careful planning by management. The 

OIG is heartened by the agency’s decision to establish a Human 

Capital Team to catalogue current skills of existing employees 

and propose possible pathways for meeting this potential deficit 

that is likely to occur in the next six months. We look forward 

to the agency successfully accommodating the approaching 

wave of employee retirements without materially disrupting the 

performance of the agency.”

FY 2006 Actions Taken or Actions in Progress:

• To assure high-level attention to human capital planning issues on an ongoing basis, agency leadership 

directed the formation of the Pay Parity Governance 

Committee (PPGC), in March 2006. The PPGC is a 

permanent body with rotating membership from all offices, divisions, and regions and is charged with identifying, studying, and recommending solutions to agency 

human resources challenges, particularly those that may 

be positively affected by pay parity. It focuses on effective use of the agency’s authority to seek total compensation parity with the other Federal financial regulators, 

as provided by the 2002 amendments to the CEA, in 

support of attracting, retaining, and developing agency 

talent. The Office of Human Resources (OHR) provides 

two technical representatives to support committee 

research and communications. By meeting weekly since 

March of 2006, the PPGC has made significant progress 

by completing its initial project to prepare a compensation philosophy that will guide future pay parity 

program choices and to update the agency performance 

management system so it can support the move to a 

modern pay-for-performance system. These initiatives 

will provide the requisite foundation of an improved 

ability to account for and reward results, which will in 

turn support effective implementation of programs to 

strategically manage agency human capital assets.

• Based on the successful launch of the Strategic Workforce Planning Survey system in 2005, OHR has worked 

with managers to help them act on that objective and 

provided quantitative data that details the areas and 

timeframes in which they stand to lose specific types 

and levels of mission critical employee job competencies through retirements or other attrition. By providing 

assistance in the use of the online Talent Management 

Action Plan template, OHR has encouraged planning 

and responsive action by managers to close the potential talent gaps in their units, since the tool facilitates 

creation of targeted, prioritized human capital plans 

down to the level of individual work units. At the same 

time, OHR and the Office of Information and Technology Services (OITS) have met regularly during the year 

to enhance the reporting capability of the Strategic 

Workforce Planning Survey system, so that managers 

will continue to receive data on competencies at risk of 

loss. Finally, OHR and OITS supported the first annual 

update by employees of their online self-assessment 

surveys, so that the inventory of employee job competencies available to meet the agency mission remains up 

to date.

• In addition to aiding individual offices and divisions 

and their subunits to create specific action plans, OHR 

has acted to address human resource challenges that apply across the agency. Armed with data on trends such 

as the potential of 40 percent of CFTC supervisory and 

managerial personnel to retire by 2009, OHR has rolled 

out a customized suite of online managerial courses 

from Harvard Business School Publishing and prepared, 

during FY 2006, to provide all employees with the Skillsoft online training facility. By funding these initiatives, 

agency management has acted to train employees in the 

managerial skills required to close the gap in this crucial 

agency competency that would otherwise develop due 

to inevitable retirements.
3

• OHR staff have continued to represent the agency on 

the Financial Regulatory Agency Group, comprised of 

Human Resources staff from the financial regulatory 

agencies that, like the CFTC, must seek comparability 

with one another under their legislative authority to offer pay and benefits outside of the normal limitations of 

Title 5 of the U.S. Code that apply to General Schedule 

and Senior Executive Service positions. These contacts 

assure that OHR maintains current awareness of pay 

parity issues, knowledge that is vital to supporting use 

of the CFTC pay parity authority as a mainstay of strategic planning to compete for mission-critical skills over 

time.

• OHR staff continue to implement administrative improvements that will speed the recruitment of replacements for retiring employees, when directed. These 

include online systems that speed security and suitability checks on candidates for employment and support 

more efficient administrative processes. Examples 

include the project now underway to convert to the 

government-wide system of electronic Official Personnel Folders under the Office of Personnel Management’s 

Enterprise Human Resources Integration program.

Challenge #2, Challenges in the Marketplace

FY 2005 IG Assessment:

“The Commodity Futures Modernization Act of 2000 (CFMA) 

transformed the agency from a prescriptive regulator into an 

oversight regulatory agency. The agency’s regulatory mission 

over the futures industry is guided by core principles stated in 

the CFMA. Recent innovations in the industry such as the initial public offerings of major Chicago based futures exchanges 

and futures commission merchants (FCM) have broadened the 

impact of any malfeasance within the futures industry. How the 

agency handles unanticipated events such as market disruptions 

and FCM bankruptcies will be closely watched by a worldwide 

audience. To date, management has handled major turbulences 

that have occurred during the fiscal year.”

FY 2006 Actions Taken or Actions in Progress: 

• Commission staff reviewed for compliance with the 

CEA and the Commission’s regulations, filings of 

exchanges submitted to the SEC prior to demutualization and initial public offering, including the review of 

the CBOT initial public offering and ongoing review of 

preparations for the NYMEX initial public offering. Staff 

also have been in contact with SEC staff when requests 

arise.

• Commission staff reviewed for compliance with the 

CEA and the Commission’s regulations, exchange 

notifications to the Commission, including merger 

agreements and purchase and sale agreements, under 

Commission Regulation 38.5(d) when equity in an 

exchange is acquired by a new owner, including review 

of the acquisitions of equity in HedgeStreet, NYMEX 

and OneChicago. Such review includes evaluation, for 

compliance with the CEA and the Commission’s regulations, of both new exchange governance documents and 

changes to those documents, including bylaws, articles 

of incorporation, and limited liability agreements or 

operating agreements. 

• As part of its rule enforcement reviews, Commission 

staff considered the impact of such changes on the 

ability of the exchanges to continue to carry out their 

self-regulatory responsibilities.

• As a result of financial difficulties experienced by Refco, 

Inc the parent of Refco LLC, a Commission-registered 

FCM, the Commission mobilized its staff to ensure 

that all customer segregated funds at Refco LLC, were 

protected until such time as they were transferred in an 

orderly manner to other FCMs – including the eventual 

sale of the remaining customer accounts and certain 

other assets of Refco LLC, to Man Financial, Inc. (Man) 

on November 25, 2005. CFTC staff took the following 

steps to ensure that customers were fully protected: 1) 

examining the FCM’s books and records; 2) undertaking daily calls with Refco staff on issues ranging from 

transfers of accounts, to satisfaction of clearing obligations, to requests to withdraw capital from the FCM; 

and 3) coordinating with Commission-registered DCOs 

to ensure that transactions were processed in a timely 

manner. The Commission also took an active role in 

the eventual sale of certain Refco LLC, assets during the 

bankruptcy proceeding, including consultations with 

the exchanges, Refco, and potential bidders concerning 

the means by which the assets could lawfully be sold.
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P E R F O R M A N C E S E C T I O N

Introduction to the Performance Section................ 41

Strategic Goal One: Economic Utility ...................42

Strategic Goal Two: Market Users and Public ........54

Strategic Goal Three: Industry.............................. 71
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Detail of Commission efforts to meet its strategies and performance goals are provided in this section. The Commission 

scrutinizes performance measures to ensure that the metrics adequately challenge the programs to reach the desired 

results, ensure accountability, and provide information that can be used to make financial decisions and develop future 

budgets.

Introduction to the Performance Secti
42 

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

Impact

Properly functioning futures markets collect information from around the world, digest it, and respond with judgments 

about the likely price of commodities at some future time. Such judgments could, in turn, trigger decisions to: 1) sell 

a commodity at a certain price; 2) raise capital through an equity rather than a debt offering; 3) increase inventories of 

various commodities, e.g., copper, soybeans, etc.; 4) use corn syrup rather than sugar as a sweetener; or 5) hold receivables in Japanese Yen rather than British Pounds. Thus, futures markets help market users to plan and to make decisions, 

so that they avoid uncontrolled risk.

Strategic Goal 
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P E R F O R M A N C E S E C T I O N

Performance Results for Performance Goal One

Performance Measure 1.1.1 Percentage growth in market volume

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

20% 24% 26%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 26%

Measurement: Percentage

Data Source: Exchanges’ Trading Volume data.

Verification: Exchange data is compared to FIA report.

Lead Program Office

Division of Market Oversight (DMO)

Performance Analysis and Review

Growth in the futures markets continued in FY 2006 with 

increased demand realized for products traded on the exchanges. The actual FY 2006 number is driven by changes 

in economic fundamentals, success of newly launched 

products, the number of new participants using these 

markets, and other changes in the marketplace.

Data Source and Validation

Exchanges are required to submit trading volume data to 

the Commission on a daily basis. This data is then stored 

in a Commission database for use in market surveillance 

analyses.

Exchange volume data is submitted to the Commission electronically for each business day, subjected to 

a series of edit and quality checks, and maintained in a 

central database. The data is also compared to monthly 

data published by the Futures Industry Association (FIA).
44 

Performance Measure 1.1.2 Percentage of novel or innovative proposals or requests for CFTC action

addressed within six months to accommodate new approaches to, or the expansion in, derivatives trading, enhance the 

price discovery process, or increase available risk management tools.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Formal filings and signed letter responses by 

the Commission.

Verification: Formal filing and disposition dates 

maintained in internal tracking system.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

DMO handled a number of proposals or requests for 

Commission action during the fiscal year that included 

newer approaches to derivatives trading or enhancements 

to the price-discovery process. The items, which included 

innovative products and exchange processes, were all addressed within six months of formal receipt.

Data Source and Validation

Supporting documentation is in the form of formal filings 

with the Commission and signed letter responses by DMO 

or the Commission (upon DMO recommendation).

DMO is able to calculate review time by consulting 

an internal tracking system which reflects all formal filings that are made with the Division, including filing and 

disposition dates.
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P E R F O R M A N C E S E C T I O N

Performance Measure 1.1.3 Percentage increase in number of products traded

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

25% 12% 36%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 25%

Measurement: Percentage

Data Source: Exchanges submit data on trading volume, 

open interest, delivery notices, exchange of 

futures and prices for all products traded.

Verification: Data is validated by internal program edits 

and quality checks in central database.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

The growth in the number of new products offered on 

the exchanges continued in FY 2006. The actual FY 2006 

number is driven by customer demand for new products, 

exchange innovation, opportunities made available by the 

increasing use of electronic trading, and other changes in 

the marketplace. As such, these factors may not be foreseeable with high precision.

Data Source and Validation

Exchanges are required to submit trading volume, open 

interest, delivery notices, exchange of futures, and prices to 

the Commission each business day for all products traded. 

This data is then stored in a Commission database for use 

in market surveillance analyses.

The exchange data is submitted to the Commission 

electronically for each business day, subjected to a series 

of edit and quality checks, and maintained in a central 

database.
46 

Performance Measure 1.1.4 Percentage of new exchange or clearinghouse organization applications

completed within expedited review period.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: New Exchange(s) and DCO application(s).

Verification: FILAC automated database tracks and 

calculates processing time from receipt 

date through to date of designation or 

registration.

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

Performance Analysis and Review

One exchange designation application was filed in FY 

2006. The review of that contract market currently is 

stayed.

Data Source and Validation

Supporting documentation consists of the application for 

designation as a contract market, including all attachments and supporting materials submitted by the applicant, related materials produced by DCIO and DMO 

staff in reviewing the application, a memorandum to the 

Commission, and the proposed order.

DCIO and DMO staff maintain files containing supporting documentation related to the review of an application. The DCIO methodology for determining the statistic 

would be to tabulate the number of applications received 

and reviewed, determine the number that are completed 

within the fast track review period, and calculate the performance statistic. DMO staff use a database, Filings and 

Actions (FILAC), that includes the date of receipt of the 

request for designation as a contract market, stays in the 

review process, and the date of designation. The database 

automatically calculates processing time.
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P E R F O R M A N C E S E C T I O N

Performance Measure 1.1.5 Percentage of new contract certification reviews completed within three months

to identify and correct deficiencies in contract terms that make contracts susceptible to manipulation.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

21% 53% 54%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 81%

Measurement: Percentage

Data Source: Exchange certification filings, certified rule 

amendments, and agency memoranda.

Verification: FILAC automated database tracks and 

calculates processing time from receipt date 

through to date of designation.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

In FY 2006, an unusually large proportion of new contract 

certifications was for security futures products (SFPs). 

SFPs typically are easier to review and analyze than other 

contracts, and thus the percentage of completed reviews 

for contract certifications filed in FY 2006 was higher than 

anticipated.

Data Source and Validation

DMO staff maintain files containing exchange certification filings, including new contract certification filings and 

certified rule amendments to correct deficiencies in new 

contract certification filings, and DMO memoranda. DMO 

memoranda provide descriptions, analyses, and conclusions regarding compliance with the CEA and Commission regulations and policies. The FILAC database includes 

the receipt date of the new product certification and the 

date of DMO’s memorandum. The database automatically 

calculates processing time.
48

Performance Measure 1.1.6 Percentage of rule change certification reviews completed within three months, to

identify and correct deficiencies in exchange rules that make contracts susceptible to manipulation or trading abuses or 

result in violations of law.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

70% 70% 84%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 86%

Measurement: Percentage

Data Source: Exchange certification filings and agency 

memoranda.

Verification: FILAC automated database tracks and 

calculates processing time from receipt date 

of certification filing through to date of DMO 

memorandum.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

The new FILAC database has improved tracking the 

processing of rule amendment certification filings. That 

database was delivered to DMO in May 2006. Thus, the 

percentage calculations of filings reviewed and analyzed 

within the last three months is more accurate than past 

entries. The percentage of rule amendments to contract 

terms and conditions was higher in FY 2006 than in past 

years.

Data Source and Validation

DMO staff maintain files containing exchange certification 

filings and DMO memoranda. Those DMO memoranda 

provide descriptions, analyses, and conclusions regarding 

compliance with the CEA and Commission regulations. 

The FILAC database includes the receipt date of the certification filing and the date of DMO’s memorandum. The 

database automatically calculates processing time.
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P E R F O R M A N C E S E C T I O N

Performance Measure 1.2.1 Percentage of derivative clearing organization applications demonstrating

compliance with core principles.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: Not Applicable

Measurement: Percentage

Data Source: New exchange(s) and DCO application(s) 

for registration.

Verification: Agency files containing applications, staff 

reviews, memoranda to the Commission and 

proposed orders.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

No applications for registration as a DCO were received in 

FY 2006.

Data Source and Validation

Supporting documentation would consist of an application for registration as a DCO including all attachments 

and supporting materials submitted by the applicant, and 

related materials produced by DCIO staff in reviewing the 

application including a memorandum to the Commission 

and a proposed order. 

DCIO staff maintain files containing supporting 

documentation related to the review of an application. 

The DCIO methodology for determining the statistic 

would be to tabulate the number of applications received 

and reviewed to determine that the applications demonstrated compliance with CEA core principles, and calculate 

the performance statistic.
50

Performance Measure 1.2.2 Ratio of contracts surveilled per economist

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

8 10 11

0

20

40

60

80

100

RATIO

FY 2006 Performance Results

Plan Actual

Results: 12

Measurement: Ratio

Data Source: Exchanges submit data to the Commission 

on all traded contracts, which are maintained 

in the Commission’s database.

Verification: Data is validated by internal program edits 

and quality checks in central database.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

The actual number of contracts surveilled per economist 

met expectations. Even though the number of contracts 

increased during the year, these were mostly extensions of 

existing commodities and therefore not counted as discreet contracts. Similar contracts on the same underlying 

commodity are normally analyzed together and do not 

add materially to the burden on the economist.

Data Source and Validation

Exchanges submit data to the Commission on all traded 

contracts. The individual contracts are grouped by underlying commodity in a central database. This grouping is used in the adjustment of the number of contracts 

surveilled by economist. 

Exchanges submit data on all products traded to the 

Commission electronically for each business day. The 

data is subject to a series of edit and quality checks and 

is maintained in a central database. The total number of 

contracts is extracted from this data. This number is then 

modified by subtracting out individual contracts that are 

very similar to, and have the same underlying commodity 

as, another contract. The final number is then divided by 

the number of regional office economists.
C

P E R F O R M A N C E S E C T I O N

Performance Measure 1.2.3 Percentage of contract expirations without manipulation

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

99.9% 99.9% 99.9%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 99.9%

Measurement: Percentage

Data Source: Surveillance reports and large trader 

position reports.

Verification: Economists daily track and monitor futures 

expirations and economic fundamentals.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

This measurement examines the number of contract expirations without manipulation compared to the total number of futures and option expirations. The total number 

of expirations may vary throughout the year as different 

contracts enter and exit the market.

Data Source and Validation

The number of referrals to and from the Division of Enforcement in conjunction with information and evidence 

gathered internally by surveillance economists is used to 

find the number of expirations without manipulations. 

The total number of futures and option expirations is 

retrievable from the database.

Economists track and monitor futures expirations 

and economic fundamentals on a daily basis. The large 

trader reporting system is also used to generate detailed 

surveillance reports of large trader positions going into 

expiration. Information on reportable traders’ positions is 

stored and kept in the system, and can be analyzed further 

through its internally developed integrated surveillance 

system.
Program Contributions to Strategic Goal

52

Economic and Statistical Analyses 

Commission staff performed economic and empirical 

analyses to evaluate the performance of futures markets 

and to evaluate the impact of changes in trading rules and 

contract specifications on the performance of the futures 

markets. For example, staff empirically examined the effects of participation by managed money traders in certain 

U.S. futures markets. Staff economists also conducted a 

study of the role of commodity index investing on the 

price discovery and hedging performance of commodity futures markets. Economists in the Office of the Chief 

Economist also provided economic and statistical consulting services to Commission staff and offered economic 

and financial research seminars and short courses in 

futures, option, and financial economics.

Staff also provided economic and statistical analysis 

on a number of cases involving foreign currencies and 

energy products, and conducted an examination of the appropriate role for Federal oversight of event-type markets 

and of several recently developed derivatives products. In 

addition, Commission staff presented research findings 

relating to price discovery, hedging, and market microstructure and development issues at industry or academic 

and industry conferences, as well as through publications 

available to the public.

Market Surveillance 

In FY 2006, the Commission conducted daily surveillance 

of 1,135 active futures and option contracts. Particularly 

close monitoring was conducted on the energy futures 

markets, which experienced periods of high prices and 

high price volatility due to, among other things, low 

stocks, tight production capacity, geopolitical tension in 

the Middle East, strong world economic demand and 

natural disasters. Close surveillance was also conducted 

on the copper market, which had record high prices due 

to strong demand, production disruptions and low world 

copper stocks. In addition, Commission staff closely 

monitored the expiration of the September 2005 10-Year 

Treasury futures contract because of concern about large 

long positions relative to the supply of the cheapest-to-deliver note on this contract.

Commission staff reviewed one formal and several 

draft applications of entities seeking to become designated 

contract markets. Staff also reviewed four formal filings by 

entities that notified the Commission of their intention 

to operate as exempt markets under the CEA, as well as 

several draft filings. 

In FY 2006, under the Commission’s certification 

procedures for listing new products, 182 new contracts 

were filed, including five SFPs, by eight different DCMs. 

Commission staff completed reviews of the terms and 

conditions of 248 contracts submitted under certification 

procedures to ensure that statutory and regulatory antimanipulation requirements were met and to provide essential background information in order to conduct market surveillance. Staff also reviewed 14 rule amendment 

approval requests for existing futures and option contracts. 

Under the Commission’s certification procedures, 124 

substantive product rule changes were filed. Staff completed the reviews of 72 certified rule amendments. 

The Commission’s review of exchange rules is a key 

aspect of the statutory framework for self-regulation under 

Commission oversight. The staff reviewed exchange rule 

submissions with a view toward maintaining the fairness and financial integrity of the markets, protecting 

customers, accommodating and fostering innovation, 

and increasing efficiency in self-regulation consistent with 

the Commission’s statutory mandates. During FY 2006, 

staff reviewed 178 exchange rule submissions containing 

1,237 separate new rules and rule amendments. Commission staff are also responsible for providing exemptive, 

interpretive, or other relief to various markets and market 

participants to facilitate the continued development of an 

effective, flexible regulatory environment responsive to 

evolving market conditions. 
C

P E R F O R M A N C E S E C T I O N

Integrated Surveillance System 

In FY 2005, the Commission’s primary mission-critical 

application to support futures and option data market 

surveillance, the Integrated Surveillance System (ISS), was 

significantly enhanced to address changes and growth in 

the futures industry. In FY 2006, those changes included 

the automation of the collection and review of data from 

ECMs. In addition, a number of noteworthy enhancements were established in the ISS that will improve the 

efficiency of market monitoring and analysis. These 

modifications include integrated document storage capabilities in support of large trader reporting, consolidated 

market queries that allow related markets to be grouped 

together for better market analysis, full search capabilities 

throughout the application, and comprehensive graphing 

capability.
54

Protect market users and the public.

Impact

Market users must be protected from possible wrongdoing on the part of firms and commodity professionals with whom 

they deal to access the marketplace, and they must be confident that the marketplace is free of fraud, manipulation, and 

abusive practices. The Commission plays a crucial role in deterring behavior that could affect market users’ confidence by 

investigating and taking action against these unscrupulous commodity professionals who engage in a variety of fraudulent sales practices against the public.

Strategic Goal 
C

P E R F O R M A N C E S E C T I O N

Performance Results for Performance Goal Two

Performance Measure 2.1.1 Number of enforcement investigations opened during the fiscal year

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

172 215 131

0

10

20

30

40

50

60

70

80

90

100

110

120

130

NUMBER

FY 2006 Performance Results

Plan Actual

Results: 123

Measurement: Number

Data Source: Agency documentation and reports 

maintained in the MSR (Monthly Status 

Report) case tracking system.

Verification: Internal reports on investigations and 

litigations documented and maintained in 

internal Enforcment systems.

Lead Program Office

Division of Enforcement

Performance Analysis and Review

Performance targets were met. Commencing in 2002, 

Commission case filings, as well as the complexity of cases 

filed, have increased substantially over prior fiscal years. 

By 2006, Enforcement’s litigation docket had increased 

approximately 30 percent from FY 2002. Concurrently, 

the complexity of the matters investigated, for example, 

investigation of alleged energy market manipulation, also 

has increased substantially since FY 2002. 

Data Source and Validation

Internal Enforcement reports identify each of the litigations and investigations opened during the fiscal year. 

Staff prepare opening reports for each Enforcement 

investigation and litigation. These opening reports are 

recorded in internal Enforcement systems (currently, 

Monthly Status Report (MSR); future, Practice Manager).
56

Performance Measure 2.1.2 Number of enforcement cases filed during the fiscal year

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

65 83 69

0

10

20

30

40

50

60

NUMBER

FY 2006 Performance Results

Plan Actual

Results: 38

Measurement: Number

Data Source: Agency documentation and reports 

maintained in the MSR (Monthly Status 

Report) case tracking system.

Verification: Final orders for each litigation are recorded 

in internal Enforcement system.

Lead Program Office

Division of Enforcement

Performance Analysis and Review

Performance targets were not met in terms of the number 

of cases filed. Commencing in FY 2002, Commission 

case filings as well as the complexity of cases filed have 

increased substantially over prior fiscal years. By FY 2006, 

Enforcement’s litigation docket had increased approximately 30 percent from FY 2002. Concurrently, the complexity of the matters investigated, for example, investigation of alleged market manipulation, also has increased 

since FY 2002. Moreover, due to a hiring freeze over the 

fiscal year, Enforcement was forced to operate with fewer 

staff members. As a result of the overall increased case 

filings over past years and refocus on the types of cases investigated there has been a dramatic increase in the relief 

obtained against defendants—restitution and penalties 

imposed in FY 2006 exceeded any other year in Commission history. 

Data Source and Validation

Enforcement results identify each litigation and litigation 

result obtained by the Division on behalf of the Commission. 

Staff are required to submit all final orders for each 

litigation as part of closing activities for their files. These 

orders are recorded in internal Enforcement systems (currently, MSR; future, Practice Manager).
C

P E R F O R M A N C E S E C T I O N

Performance Measure 2.1.3 Percentage of enforcement cases closed during the fiscal year in which the

Commission obtained sanctions (e.g. civil monetary penalties, restitution and disgorgement, cease and desist orders, 

permanent injunctions, trading bans, and registration restrictions).

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

99% 99% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency documentation and reports 

maintained in the MSR (Monthly Status 

Report) case tracking system.

Verification: Final orders for each litigation are recorded 

in internal Enforcement system.

Lead Program Office

Division of Enforcement

Performance Analysis and Review

Performance targets were met.

Data Source and Validation

Enforcement results identify each litigation and litigation 

result obtained by the Division on behalf of the Commission. 

Staff are required to submit all final orders for each 

litigation as part of closing activities for their files. These 

orders are recorded in internal Enforcement systems (currently, MSR; future, Practice Manager).
5

Performance Measure 2.1.4 Cases filed by other criminal and civil law enforcement authorities during the

fiscal year that included cooperative assistance from the Commission.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

20 23 23

0

5

10

15

20

25

NUMBER

FY 2006 Performance Results

Plan Actual

Results: 23

Measurement: Number

Data Source: Copies of final orders submitted to the 

Commission by cooperating authorities. 

Orders maintained in the MSR (Monthly 

Status Report) case tracking system.

Verification: Final orders for each litigation recorded in 

internal Enforcement system.

Lead Program Office

Division of Enforcement

Performance Analysis and Review

Performance targets were met

Data Source and Validation

Copies of all orders are collected by the Division’s Office 

of Cooperative Enforcement. 

Staff and cooperating authorities submit final orders 

to the Office of Cooperative Enforcement, which maintains a database of all cooperative enforcement matters. 

In addition, pending cooperative enforcement matters are 

tracked through internal enforcement systems (currently, 

MSR; future, Practice Manager).
C

P E R F O R M A N C E S E C T I O N

Performance Measure 2.2.1 Percentage of self-regulatory organizations that comply with core principles

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency reports and files from reviews and 

analyses.

Verification: Interviews, walk-through demonstrations, 

empirical testing and site visits of SROs.

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

Performance Analysis and Review

DCIO staff conduct risk-focused reviews of the financial 

and sales practice oversight programs of SROs. During FY 

2006, DCIO completed a review of NFA’s program for the 

oversight of CPOs and CTAs and initiated a review of the 

financial and sales practice program of the CBOT. DCIO 

presented a report to the Commission stating that NFA 

was complying with the CEA and its delegated responsibilities. The review of the CBOT is still in progress at this 

time, but no material deviations from CEA core principles 

have been observed. 

Data Source and Validation

Supporting documentation of DCIO’s assessment of SROs’ 

compliance with CEA core principles is contained in reports and the workpapers prepared by staff while carrying 

out the review and analyzing relevant SRO materials. Such 

documentation is maintained in DCIO’s files.

DCIO delivers a letter to the SRO requesting documents that reflect the systems, policies, procedures, practices, and internal controls implemented by the SRO. After 

reviewing these materials, DCIO staff interview selected 

management staff, followed by fieldwork at the SRO and a 

review of documents. The fieldwork at the SRO primarily 

consists of a walk-through demonstration. The purpose of 

the fieldwork is to confirm DCIO’s understanding of the 

SRO’s program and to provide reasonable assurance that it 

operates in the manner represented. 

The testing of execution of procedures is performed 

by sample testing and documentation review. DCIO 

staff use standard statistical techniques to size and select 

samples in the areas of disclosure documents, financial 

reports, exemption and extension notices, compliance 

examinations, and sales practices. However, samples are 

selected and tested to facilitate an understanding of the 

operation of a process or procedure in practice rather than 

to provide statistical assurances.

For further verification of compliance oversight 

procedures, DCIO staff also visit firms whose operations 

were reviewed by the SRO during the SRO’s examination. 

Such reviews include performing the same testing steps 

that the SRO conducted in its examinations of the firms. 

The results of such DCIO testing are then compared to the 

workpapers of the SRO’s examination of the selected firm. 

The methodology for collecting this statistic is based 

on ongoing oversight and planned reviews related to the 

aforementioned areas for which the results could potentially indicate an SRO’s noncompliance with CEA core 

principles. 
60 

Performance Measure 2.2.2 Percentage of derivative clearing organizations that comply with core principles

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Documentation from DCOs under review; 

agency reports; and financial surveillance 

materials.

Verification: Statistical data is obtained through financial 

surveillance and planned reviews.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

As of the end of FY 2006, reviews of compliance with CEA 

core principles were ongoing at six DCOs: CME, NYMEX, 

NYCC, KCBT, CCORP, and MGE. Reviews of the first five 

DCOs will be completed in the first quarter of FY 2007. A 

review of the sixth DCO will be completed in the second 

quarter of FY 2007. While analysis is currently underway, 

no affirmative conclusion of noncompliance can be made 

at this time. 

On a daily basis, DCIO staff conduct financial surveillance of DCOs and clearing members. Staff have identified 

no instances of noncompliance.

During the past fiscal year, 57 rule submissions were 

filed by DCOs under the self-certification provisions of the 

CEA. Staff reviewed each of the submissions and found 

none that violated CEA core principles.

Data Source and Validation

Each of the DCOs under review has submitted extensive documentation. DCIO staff have created extensive 

workpapers in conducting the reviews of DCOs. When the 

reviews are complete, DCIO staff provide reports to the 

Commission. Files are maintained containing many of 

these materials.

Financial surveillance materials are also maintained 

in files. Some of them are maintained on a DCIO shared 

drive called Financial Surveillance Home. In addition, 

written reports are periodically prepared and kept on file.

A paper file is created for each DCO rule submission. 

Typically, a staff memorandum is included in the file.

The methodology for collecting this statistic is based 

on ongoing oversight and planned reviews related to the 

aforementioned areas for which the results potentially 

could indicate a DCO’s noncompliance with core principles. 
CF

P E R F O R M A N C E S E C T I O N

Performance Measure 2.2.3 Percentage of professionals compliant with standards regarding testing,

licensing, and ethics training.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: National Futures Association audit reports.

Verification: NFA audits and the agency’s ongoing 

oversight of NFA’s compliance and 

registration programs.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

There is no variance; as planned, 100 percent of professionals were compliant with standards regarding testing, 

licensing, and ethics training. 

Data Source and Validation

DCIO relies on information provided by NFA. In FY 2006, 

NFA reported that, in 10 percent of the audits it completed, NFA cited the firms in its audit report for failing to 

have adequate ethics training procedures or failing to follow their procedures. In FY 2005, NFA reported that, in 12 

percent of the audits it completed, NFA cited the firms in 

its audit report for failing to have adequate ethics training 

procedures or failing to follow their procedures. However, 

through subsequent follow-up activity for both FY 2005 

and FY 2006, NFA confirmed that, in each case, the cited 

firm came into compliance. 

The methodology for collecting this statistic is based 

on information provided by NFA and DCIO’s ongoing 

oversight and examinations it periodically conducts with 

respect to NFA’s registration and compliance programs.
62 

Performance Measure 2.2.4 Percentage of self-regulatory organizations that comply with requirement to

enforce their rules.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency reports and files from reviews and 

analyses.

Verification: Interviews, walk-through demonstrations, 

empirical testing and site visits of DCOs.

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

Performance Analysis and Review

DCIO staff conduct risk-focused reviews of the financial 

and sales practice oversight programs of SROs. During FY 

2006, DCIO completed a review of NFA’s program for the 

oversight of CPOs and CTAs and initiated a review of the 

financial and sales practice program of the CBOT. Both of 

these reviews included an assessment of the disciplinary 

programs of the NFA and CBOT. DCIO presented a report 

to the Commission stating that NFA was complying with 

the CEA and its delegated responsibilities. The review of 

the CBOT is still in progress at this time, but no material 

deviations from core principles have been observed. 

Data Source and Validation

Supporting documentation is contained in the report and 

the workpapers prepared by the staff while carrying out 

the review and analyzing relevant SRO materials. Such 

documentation is contained in DCIO’s files. DCIO delivers a letter to the SRO, requesting documents that reflect 

the systems, policies, procedures, practices, and internal 

controls implemented by the SRO. After reviewing these 

materials, DCIO staff interview selected management 

staff, followed by performing fieldwork at the SRO and a 

review of documents. The fieldwork at the SRO primarily 

consists of a walk-through demonstration. The purpose of 

the fieldwork is to confirm DCIO’s understanding of the 

SRO’s program and to provide reasonable assurance that it 

operates in the manner represented. 

The testing of execution of procedures is performed 

by sample testing and documentation review. DCIO 

staff use standard statistical techniques to size and select 

samples in the areas of disclosure documents, financial 

reports, exemption and extension notices, compliance 

examinations, and sales practices. However, samples are 

selected and tested to facilitate an understanding of the 

operation of a process or procedure in practice rather than 

to provide statistical assurances.

For further verification of compliance oversight procedures, DCIO staff also visit firms whose operations were 

reviewed by the SRO. Such reviews include performing the 

same testing steps that the SRO conducted in its examinations of the firms. The results of such DCIO testing are 

then compared to the workpapers of the SRO’s examination of the selected firm. 

The methodology for collecting this statistic is based 

on ongoing oversight and planned reviews related to the 

aforementioned areas for which the results potentially 

could indicate an SRO’s and NFA’s noncompliance with 

the requirement to enforce their rules. 
CF

P E R F O R M A N C E S E C T I O N

Performance Measure 2.2.5 Percentage of total requests receiving CFTC response for guidance and advice

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

90% 90% 90%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 95%

Measurement: Percentage

Data Source: Signed letters (formal) and email & 

telephone responses (informal).

Verification: Agency files maintained in chronological 

files and responses to formal requests are 

published on Commission’s Web site.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

DCIO staff respond to numerous requests for guidance 

and advice on the CEA and Commission regulations each 

year. Requests are received from members of the public, 

market participants, intermediaries, SROs, foreign entities, 

and others. These requests may be formal, such as written 

requests for no-action, interpretative, or exemption letters. 

DCIO also receives numerous requests for guidance and 

advice via e-mail and phone calls. 

DCIO responds to all requests received. Many of 

these requests are routine in nature and are responded 

to in a very short time frame, if not immediately. This is 

particularly true for many of the requests that are received 

via e-mail and phone calls. Other requests that raise 

novel or complex issues, or requests for formal DCIO 

responses in the form of no-action letters, interpretations 

or exemptions, take more time to research and to prepare 

a response. It should be noted, however, that statistics 

on numbers of letters issued or e-mail responded to may 

not reflect the complexity of any particular matter or the 

resources necessary to address one issue versus another 

issue. In addition, matters commenced in one fiscal year 

may overlap into, and be completed during, a subsequent 

fiscal year, resulting in some imprecision in statistical 

measures for a given year. DCIO staff make every effort to 

respond to requests as quickly as possible, but the timeliness of a response also is affected by the speed with which 

a requester provides additional information sought by 

staff, and the length of time required by other Commission divisions or offices to review a draft response, factors 

outside the control of DCIO.

DCIO staff responded to five percent more requests 

than planned. This was due, among other reasons, to the 

ever-increasing experience and familiarity of staff with the 

CEA and the Commission’s regulations, and to the use by 

requestors of electronic communications to more easily 

and readily present and supplement their requests for 

guidance. 

Data Source and Validation

Supporting documentation is in the form of responses 

to formal (by signed letter) and informal (by e-mail and 

telephone) requests for guidance and advice contained in 

DCIO’s files.

Responses to formal requests are posted on the 

Commission’s Internet Web site and are maintained by 

hard copy in DCIO’s chronological files; responses to nonroutine, informal requests similarly are recorded by hard 

copy and maintained in DCIO’s chronological files. The 

methodology for collecting these statistics is to compare 

the files of requests received with responses sent and to 

calculate the performance statistic.
64 

Performance Measure 2.3.1 Percentage of filed complaints resolved within one year of the filing date

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

50% 41% 50%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 39%

Measurement: Percentage

Data Source: Reparations case tracking system and 

Judge/Judgment Officer Disposition report.

Verification: Monthly reports and statistics submitted by 

presiding officers.

Lead Program Office

Office of Proceedings

Performance Analysis and Review

As shown above, the performance results were 41 percent 

in FY 2004, 50 percent in FY 2005 and 39 percent in FY 

2006. The planned results were anticipated at 50 percent 

for each fiscal year regarding the percentage of complaints 

that would be resolved within one year of the filing date. 

The planned results were not met for FY 2004 and FY 

2006 because of the complexity of the complaints that 

were received, requests for extensions of time, lengthy 

discovery periods, and other factors that increased the 

number of days that it takes to resolve a complaint. However, the planned results were met for FY 2005. 

During FY 2006, the actual results were less than the 

FY 2005 results. Although the planned results were not 

met, the decline in performance could be attributed to the 

fact that the presiding officers decided more complaints 

in FY 2006 than in FY 2004 and FY 2005. Based upon 

the reports that were generated, one factor that may have 

contributed to meeting the planned result in FY 2005 was 

that there were fewer cases decided during that fiscal year.

It would be difficult to provide an alternative plan of 

action to meet the planned results because the Office of 

Proceedings does not have control over the various external factors that affect the filing and disposition of reparations cases. 

In resolving complaints, the targets cannot be arbitrarily set at a level at which achievement is automatic 

because of the numerous and various external factors that 

are involved in processing the complaints.

Data Source and Validation

The reparations case tracking system generates reports, 

which provide the total number of cases that were decided 

by fiscal year, the date that each case was received, the date 

of the decision, number of processing days, and decision 

type. There is also a report that provides the same information except that it breaks down the data by administrative law judge (ALJ) or judgment officer (JO) and 

fiscal year. These reports are used to provide the statistical 

information for the performance measure.

The Office of Proceedings uses “Repcase,” the integrated computerized case tracking system, to collect, 

maintain, and analyze performance information for each 

reparations case. The reparations case reports are separated 

into two sections: complaints and hearings. The data and 

information collected in the Complaints Section consist 

of the number of cases pending the first of the month, the 

number of cases received during the month, the number of cases disposed of in complaints, and the number 

of cases pending at the end of the month. The data and 

information collected for the Hearings Section consist 

of the number of cases pending with an ALJ or JO at the 

beginning of the month, the number of cases assigned 
CF

P E R F O R M A N C E S E C T I O N

during the month, including remands, reassignments, and 

motions to vacate, the number and type of cases disposed 

of during the month, and the number of cases pending 

with each ALJ and JO at the end of the month.

The data can be verified and validated by the reports 

and statistics that the presiding officers submit on a 

monthly basis. An additional report is prepared regarding 

the reparations cases pending one year or more.
66 

Performance Measure 2.3.2 Percentage of appeals resolved within six months

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

35% 35% 46%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 46%

Measurement: Percentage

Data Source: Opinions and orders issued by the 

Commission.

Verification: Final opinions and orders are posted on 

the Commission’s Web site. Pending cases 

are maintained by the Secretariat; status 

reports are issued monthly.

Lead Program Office

Office of General Counsel (OGC)

Performance Analysis and Review

The increase between FY 2004 and FY 2005 in the number 

of cases resolved within six months resulted from a strong 

push for increased productivity, together with a number 

of matters of limited complexity that could be resolved 

quickly. The lower number projected for FY 2006 reflects 

the issuance this year of several long-pending complex 

cases. The difference between the plan and the actual 

number indicates extended staff review.

Data Source and Validation

The principal supporting documentation consists of the 

opinions and orders issued by the Commission.

Apart from this documentation, which is posted on 

the Commission’s Web site, the Office of Proceedings, 

OGC, and the Secretariat maintain dockets on the status 

of pending cases. In addition, OGC prepares monthly 

reports to the Commission on the status of cases. Performance data is validated as follows: the date of the notice 

of appeal or other pleading bringing a matter before 

the Commission starts the six-month time period. The 

Commission’s order disposing of a matter stops the time 

period.
Program Contributions to Strategic Goal

CF

Oversight of NFA and Intermediary Registration 

A core element of the Commission’s mission is to protect 

market users and the public from fraud and abusive practices related to the offer and sale of commodity futures 

and options. Toward this goal, the Commission oversees 

NFA that operates as an industry-wide SRO with certain 

regulatory responsibilities over intermediaries. These 

include Commission-delegated responsibilities such as 

processing and screening registration applications of futures industry intermediaries and FTs, including initiating 

actions to revoke and/or deny registration, and reviewing 

CPO and CTA disclosure documents and CPO annual 

reports. 

Commission staff conduct formal oversight of NFA’s 

registration program and perform ongoing oversight related to screening market professionals for fitness. Oversight 

activities involve inspection of records and interviews with 

NFA staff as well as numerous informal contacts between 

NFA and the Commission staff on a weekly basis. These 

oversight activities are designed to protect market participants and the public interest by assuring that persons 

who deal directly with customers and those who handle 

customer orders and funds meet the standards for fitness 

and integrity established under the CEA. Persons who 

cannot meet these standards may be subject to statutory 

disqualification from registration and may have their 

registration denied, conditioned, or revoked. In addition, Commission staff oversee CPO and CTA disclosure 

standards, particularly for managed futures and option 

products, to assure that market users and potential market 

users are appropriately and consistently informed of the 

risks of futures and option trading, and are provided with 

information about trading managers. 

As part of the Commission’s formal oversight of NFA, 

Commission staff completed a review of certain self-regulatory activities of NFA to evaluate its members’ compliance with NFA rules and Commission regulations. The review addressed NFA’s programs involving CPOs and CTAs 

to assess NFA’s performance with respect to: 1) disclosure 

documents and annual reports; 2) compliance examinations; 3) monitoring of sales practices; 4) registration; and 

5) processing of exemption notices. The purpose of the 

review was to assess the effectiveness of NFA’s systems, 

practices, and procedures in monitoring its members that 

are Commission-registered CPOs and CTAs with respect 

to customer protection, including NFA’s performance of 

registration and compliance functions as authorized by 

the Commission.

In FY 2006, there were 70,083 industry registrants. 

These registrants included 210 FCMs (16 of which were 

securities broker-dealers registered with the SEC that “notice-registered” with the CFTC because their only futuresrelated activity involved SFPs), 1,741 IBs (45 of whom 

were notice-registered), 1,512 CPOs, and 2,589 CTAs. 

These firms employ 54,258 sales personnel, known as APs. 

In addition, there are 8,203 individuals registered as FBs 

and 1,507 individuals registered as FTs executing trades 

on U.S. exchanges. In connection with the huge number 

of industry registrants, the Commission seeks to protect 

market users and the public by requiring futures industry 

professionals to meet high standards through registration 

and passing of a proficiency exam by salespersons. When 

Commission staff identify persons who are not registered 

but should be, a letter is sent to the person, and/or the 

matter is referred for enforcement action. 

Commission staff chaired the Registration Working 

Group (RWG), which is composed of Commission and 

NFA representatives. The RWG was created as a means for 

Commission and NFA staff to share ideas and concerns 

about issues that are not tied to any specific pending 

registration case. Commission staff participated in four 

meetings of the RWG during FY 2006.
68

Anti-Money Laundering (AML)

Commission staff continued to work with other Federal financial regulators on various aspects of a program to combat money laundering and terrorist financing. Specifically, 

staff continue to participate in developing regulations 

implementing the USA PATRIOT Act and in developing 

and issuing guidance concerning the application of these 

regulations. For example, staff worked with the Treasury in 

drafting joint guidance that addressed the customer identification program requirements for omnibus accounts 

and sub-accounts established by financial intermediaries. 

Commission staff also continue to work with the Treasury 

to share information about possible terrorist financiers 

and money launderers. As part of this process, staff maintain and update a list of FCMs and contact persons that 

the Treasury then uses when preparing a biweekly list of 

possible money launderers and terrorist financiers.

Opinions and Review

During FY 2006, the Commission issued 23 opinions and 

other orders, including orders issued pursuant to delegated authority, 17 of which were final dispositions of cases 

pending on the Commission’s docket. These included the 

Commission’s decision in In re Global Telecom, Inc. The 

Commission affirmed the initial decision, which held an 

FCM liable for misleading advertising created and used 

by three of its APs, although the FCM’s name was not 

used in the advertisements. The APs also owned a closely 

held CTA firm, Global Telecom, Inc., which was the only 

company named in the advertisements at issue. The FCM 

argued that the advertising was used outside the scope 

of the APs’ employment with it. It also argued that as a 

matter of law, the advertising could not violate Section 4b 

of the CEA, because it was not used “in or in connection 

with” a futures transaction executed “for or on behalf of” 

another person. The Commission held that the dually 

registered APs acted on behalf of both corporate principals 

in disseminating the fraudulent advertising. It found that 

the FCM benefited because customers who responded to 

the advertisements were solicited to open accounts at the 

FCM. The Commission also rejected the FCM’s Section 

4b arguments, distinguishing Commodity Trend Service, 

Inc. v. CFTC, 233 F.3d 981 (7th Cir. 2000). The FCM relied 

on Commodity Trend Service for its argument that the 

“for or on behalf of” element of Section 4b had not been 

satisfied.

In another administrative enforcement case, the 

respondent appealed from the ALJ’s decision to suspend 

his FB registration under Section 8a(11) of the CEA pending the resolution of securities and bank fraud, and other 

Federal felony charges brought against him. The Commission determined that the suspension was appropriate. It 

held that charges of fraud and other dishonesty, even if 

arising from markets not directly regulated by the Commission, clearly affect both a registrant’s general fitness to 

participate in financial markets and the public perception 

of market integrity. In re Anixter.

A reparations appeal presented the question of 

whether the 3H Commission’s Policy Statement Concerning Swap Transactions, issued in 1989, governed a 

disputed interest rate transaction. The respondent argued 

that the Policy Statement created a safe harbor for the 

transaction, and operated to deprive the Commission of 

jurisdiction over it. The complainant asserted that the 

Policy Statement had been superseded by amendments 

to the CEA, and that the transaction was an illegal, offexchange futures contract. The Commission stated that 

it had never withdrawn the Policy Statement and had 

expressly reaffirmed its continuing vitality on two occasions. It scrutinized the transaction at issue and concluded 

that all requirements of the Policy Statement had been 

met, the safe harbor applied, and the swap lay outside its 

regulatory authority. Khorram Properties, LLC v. McDonald 

Investments, Inc.

In another reparations case, the Commission held 

that solicitations involving high pressure sales techniques 

generally are not unlawful in the absence of other fraud, 

but that such marketing tactics become problematic when 

designed to prevent customers from making reasoned 

investment decisions. The Commission stated that such 

pressure may contribute to a consumer’s ultimate deception by increasing the likelihood that the customer will 

accept and act on other statements that are deceptive. The 

Commission affirmed the decision below in favor of the 

complainant, who was rushed into opening an account 

without receiving the complete risk disclosure statement 

required by Regulation 33.7. The company’s AP was held 

liable as an aider and abettor under Section 13(a) of the 

CEA. Sanchez v. Crown.
CF

P E R F O R M A N C E S E C T I O N

In a case raising procedural issues in the reparations 

forum, the Commission granted a petition for interlocutory review of an order by an ALJ retaining jurisdiction over 

a counterclaim after dismissing the complaint for lack of 

jurisdiction. The complainant sought dismissal after a year 

of prehearing proceedings, having become convinced that, 

even if he were able to prove that the injurious conduct 

actually happened as alleged, he would not be able to 

establish that respondents acted with scienter, as required 

by Commission precedent. The Commission held that, 

once the ALJ dismissed the main claim on jurisdictional 

grounds, he lost jurisdiction over the counterclaim as well. 

The Commission dismissed the counterclaim. Dunmire v. 

Hoffman.

The Commission affirmed the NFA’s denial of Daniel 

P. Marzano’s floor broker registration application based 

on his felony convictions for fraud and embezzlement. 

It found that Marzano’s argument that he lacked the 

requisite intent contradicted findings of an appeals court 

and thus did not show mitigating circumstances. Concerning rehabilitation, the Commission reiterated that 

rehabilitation may be shown without expert testimony. 

It stated that it considered favorably the testimony of 

futures industry participants who knew and worked with 

Marzano in the industry and in a personal capacity. The 

Commission nonetheless determined that Marzano did 

not introduce sufficient probative evidence that he had 

changed his direction, noting that he did not affirmatively 

accept responsibility for his misconduct, which included 

using laundered money to buy an exchange seat. Marzano 

v. National Futures Association.

Office of General Counsel 

Through the litigation program, OGC represents the 

Commission in the U.S. District Courts and the Courts of 

Appeals and assists the Solicitor General in representing 

the Commission before the U.S. Supreme Court. OGC 

also monitors litigation of interest to accomplishing the 

Commission’s mission, including the Commission’s cooperation with other Federal financial regulators through the 

President’s Working Group on Financial Markets and the 

President’s Corporate Fraud Task Force.

During FY 2006, before the Courts of Appeals, three 

separate appellate courts sustained the Commission’s authority to impose meaningful monetary penalties against 

violators of the CEA. R & W Technical Services v. CFTC, No. 

05-60641 (5th Cir. 2006); Miller v. CFTC, No. 04-73914 

(9th Cir. 2006); Slusser v. CFTC, No. 04-2138 (7th Cir. 

2006). With the Department of Justice, the Commission 

defeated a claim that public access to information could 

be barred by an unsubstantiated assertion that the Commission received the information in settlement negotiations. In re Subpoena Duces Tecum Issued to CFTC, 439 F. 3d 

740 (D.C. Cir. 2006). Also, OGC successfully argued the 

Commission’s right to prevent even a firm in bankruptcy 

from violating the Commodity Exchange Act. CFTC v. 

NRG Energy, No. 05-2570 (8th Cir. 2006).

Before the District Courts, OGC assisted the court in 

addressing issues critical to the financial stability of the 

commodity exchange clearing system. CFTC v. Eustace, 

No. 05-cv-2973 (E.D. Pa.). OGC also assisted the U.S. 

Attorney in obtaining dismissal of a suit seeking damages 

against Commission employees for their lawful conduct in 

investigating and prosecuting violations of the CEA. Mady 

v. CFTC, No. 2:05:cv73745 (E.D. Mich. 2006).

OGC monitors bankruptcy cases involving futures 

industry professionals and, as appropriate, assists courts, 

trustees, and customers in implementing special U.S. 

Bankruptcy Code provisions that pertain to commodity firms. In FY 2006, the OGC analyzed 35 bankruptcy 

cases and formally appeared before various Bankruptcy 

Courts in 14 cases. Notably, OGC appeared in one of the 

largest financial industry bankruptcies in history, Refco 

LLC. With other staff, OGC worked cooperatively and 

successfully with SROs, industry participants, government 

officials, and the U.S. Bankruptcy Court to ensure that 

Refco customers’ market positions and more than seven 

billion dollars in customer funds were safely and securely 

protected.

Regulatory and Legislative Matters 

In FY 2006, Commission staff continued to advise the 

Commission concerning the implementation of regulations issued pursuant to the CFMA. Commission staff 

assisted the Commission in new regulatory initiatives to 

further carry out CFMA mandates, including technical and 

clarifying amendments to regulations for exempt markets, 

derivatives transaction execution facilities and designated 

contract markets, and procedural changes for DCOs, and 

extending the interpretation of “eligible contract participant.”
70

The Commission, jointly with the SEC, promulgated 

final regulations to permit trading of futures on debt 

indexes and debt securities. The joint rulemaking was 

necessitated by the existing statutory obstacles making it 

difficult to trade these products. The regulations provide 

a definition for broad-based debt security indexes; futures 

transactions on these indexes will be able to trade subject 

to the sole jurisdiction of the CFTC. The regulations also 

provide for security futures product trading on debt securities, subject to joint regulation by the CFTC and SEC.

In FY 2006, the Commission continued to consult 

with staff of the Treasury and various Federal financial 

regulators to develop AML regulations required under the 

USA PATRIOT Act, providing guidance to certain customers of CTAs and working with other agencies to complete 

information-sharing agreements. 

During FY 2006, the Commission presented testimony before Congressional Committees on the Commission’s reauthorization.

Proceedings 

The Commission provides a forum for effectively and expeditiously handling customer complaints against persons 

or firms registered with the Commission at the time of the 

alleged wrongdoing or at the time the complaint is filed.

Of the 80 complaints disposed/completed, in FY 

2006, 39 percent of those cases were disposed/completed within one year from the date the complaint was 

filed. The remaining complaints were not resolved within 

one year as a result of issues beyond the Commission’s 

control. For example, parties requested additional time 

for one or more of the following reasons: 1) to supplement their cases; 2) to prepare pleadings; 3) to complete 

extensive discovery documents; or 4) to deal with personal 

or professional responsibilities. 

The Commission’s ALJs are responsible for hearing 

and rendering decisions in administrative enforcement 

cases brought by the Commission against alleged violators of the CEA or related regulations. The Commission 

decided 11 administrative enforcement cases in FY 2006.
C

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

markets.

Impact

The U.S. futures markets must be protected from abusive practices and influences to better operate and fulfill their vital 

role in the nation’s economy, as well as the global economy. The CFTC works diligently to ensure that futures markets 

do function properly so that the marketplace may be used with confidence by market participants ranging from the 

farmer who wishes to hedge his crop or feed, to the pension fund manager who desires to guarantee a particular return 

on money entrusted for investment.

Strategic Goal Th
72

Performance Results for Performance Goal Three

Performance Measure 3.1.1 (a) Lost Funds: Percentage decrease in number of customers who lose funds

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

0% 0% 0%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 0%

Measurement: Percentage

Data Source: Agency database for filing financial reports, 

1-FR-FCM and FOCUS reports.

Verification: Exchanges’ daily trading data and FCMs’ 

financial filings are maintained in SPARK and 

1-FR data systems.

Performance Measure 3.1.1 (b) Lost Funds: Amount of funds lost

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

$0 $0 $0

0

20

40

60

80

100

DOLLARS

FY 2006 Performance Results

Plan Actual

Results: $0

Measurement: Dollars

Data Source: Agency database for filing financial reports, 

1-FR-FCM and FOCUS reports.

Verification: Exchanges’ daily trading data and FCMs’ 

financial filings are maintained in SPARK and 

1-FR data systems. 

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

Through the use of DCIO’s Stressing Positions at Risk 

(SPARK) system, combined with required financial warning notices and market monitoring, as well as statutory 

requirements that customer funds be maintained in segregated accounts, DCIO staff are able to closely monitor the 

operations of registrants in possession of customer funds. 

There were no losses of regulated customer funds due to 

firm failures or the inability of customers to transfer their 

funds from a failing firm to a sound firm in 2005 or 2006.
C

P E R F O R M A N C E S E C T I O N

Data Source and Validation

Supporting documentation is contained in DCIO’s files 

and the database maintained for filing 1-FR-FCM forms 

and FOCUS reports.

The methodology for collecting and maintaining the 

data to use to analyze and validate this item is part of the 

daily procedures for handling the SPARK and 1-FR data 

systems. The data is obtained from daily trading information obtained from the exchanges combined with the 

periodic financial filings of the FCMs
74

Performance Measure 3.1.2 Number of rulemakings to ensure market integrity and financially sound markets

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

1 1 3

0

1

2

3

NUMBER

FY 2006 Performance Results

Plan Actual

Results: 3

Measurement: Number

Data Source: Code of Federal Regulations: proposed and 

final amendments to regulations.

Verification: Proposed and final regulations are published 

in the Federal Register and posted on the 

Commission’s Web site.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

The number of rulemakings to ensure market integrity 

and financial soundness is not a number that can be 

predetermined precisely. The final number of rulemakings is driven in part by changes in the marketplace, or 

in the structure of exchanges, clearing organizations, and 

intermediaries that operate within that marketplace. The 

number can be a function of what is needed to allow 

appropriate market interrelationships to be maintained 

and to allow these entities to operate in the most efficient 

manner. As such, these factors may not be foreseeable at 

the time the performance estimate is prepared. In addition, a requirement for a rulemaking may not be known 

or may not have reached a decision-making point until 

further analysis, study, and other actions or events have 

taken place. This also can account for a difference between 

the FY 2006 Plan estimate and actual. 

The number of rulemakings also can be affected by 

other factors that arise after the plan is prepared. For example, DCIO developed for issuance by the Commission 

proposed amendments to Regulation 4.41, which governs 

advertising by CPOs, CTAs, and their principals. DCIO 

developed this proposal at the request of the Division of 

Enforcement although the request was made after the FY 

2006 Plan estimate had been submitted. 

Data Source and Validation

In FY 2006, DCIO completed three rulemakings that addressed regulatory efforts to ensure market integrity and 

financially sound markets. The supporting documentation is maintained in DCIO’s system of files related to the 

respective rulemaking.

• 17 CFR Part 4, Advertising by Commodity Pool Operators, Commodity Trading Advisors, and the Principals 

Thereof, at 71 Fed. Reg. 49387 (August 23, 2006) – Proposed amendments to regulations.

• 17 CFR Parts 36, 37, 38, 39, and 40, Technical and 

Clarifying Amendments to Rules for Exempt Markets, 

Derivatives Transaction Execution Facilities and Designated Contract Markets, and Procedural Changes for 

Derivatives Clearing Organization Registration Applications, at 71 Fed. Reg. 1953 (January 12, 2006) – Final 

amendments to regulations.

• 17 CFR Parts 1, 145 and 147, Alternative Market Risk 

and Credit Risk Capital Charges for Futures Commission Merchants and Specified Foreign Currency Forward 

and Inventory Capital Charges, at 71 Fed. Reg. 5587 

(February 2, 2006) – Final amendments to regulations.
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P E R F O R M A N C E S E C T I O N

DCIO staff maintain files of the supporting documentation related to the respective rulemakings. The 

methodology for collecting these statistics is by tabulating 

the number of rulemakings for the fiscal year. In addition, proposed and final regulations are published in the 

Federal Register and are posted on the Commission’s Web 

site.
76

Performance Measure 3.1.3 Percentage of clearing organizations that comply with requirement to enforce

rules.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Documentation from DCOs under review; 

agency reports & files; and financial 

surveillance materials.

Verification: Statistical data is obtained through financial 

surveillance and planned reviews.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

As of the end of FY 2006, reviews of compliance with the 

core principles were ongoing at six DCOs: CME, NYMEX, 

NYCC, KCBT, CCORP, and MGE. Reviews of the first five 

DCOs will be completed in the first quarter of FY 2007. A 

review of the sixth DCO will be completed in the second 

quarter of FY 2007. While analysis is currently underway, 

no affirmative conclusion of noncompliance can be made 

at this time.

On a daily basis, DCIO staff conduct financial surveillance of DCOs and clearing members. Staff have identified 

no instances of noncompliance.

During the past fiscal year, 57 rule submissions were 

filed by DCOs under the self-certification provisions of the 

CEA. Staff reviewed each of the submissions and found 

none that violated CEA core principles.

Data Source and Validation

Each of the DCOs under review has submitted extensive 

documentation. DCIO staff have created extensive work 

papers in conducting the reviews of DCOs. When the 

reviews are complete, Commission staff provide reports to 

the Commission. Files are maintained containing many of 

these materials.

Financial surveillance materials are also maintained 

in files. Some of them are maintained on a DCIO shared 

drive called Financial Surveillance Home. In addition, 

written reports are periodically prepared and kept on file.

A paper file is created for each DCO rule submission. 

Typically, a staff memorandum is included in the file.

The methodology for collecting this statistic is based 

on ongoing oversight and planned reviews related to the 

aforementioned areas for which the results potentially 

could indicate a DCO’s noncompliance with the requirement to enforce its rules.
C

P E R F O R M A N C E S E C T I O N

Performance Measure 3.2.1 Percentage of intermediaries who meet risk-based capital requirements

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency database for filing financial reports, 

1-FR-FCM and FOCUS reports.

Verification: FCM’s financial filings are maintained in 

SPARK and 1-FR data systems.

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

Through the use of DCIO’s SPARK system, combined with 

required financial warning notices and market monitoring, DCIO staff are able to closely monitor the financial 

condition of FCMs. As DCIO performs enhanced monitoring of exchanges’ oversight of financial intermediaries 

upon the filing of notices, DCIO ensures that risk-based 

capital requirements continue to be met.

Data Source and Validation

Supporting documentation is contained in DCIO’s files 

and the database maintained for the filing of 1-FR-FCM 

forms and FOCUS reports.

The methodology for collecting and maintaining the 

data to use to analyze and validate this item is part of the 

daily procedures for handling the SPARK and 1-FR data 

systems. The data is obtained from daily trading information obtained from the exchanges combined with the 

periodic financial filings of the FCMs.
7

Performance Measure 3.2.2 Percentage of self-regulatory organizations that comply with requirement to

enforce their rules.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Documentation from SROs under review; 

agency reports & files; and financial 

surveillance materials.

Verification: SRO financial filings are maintained in 

SPARK and 1-FR data systems..

Lead Program Office

Division of Clearing and Intermediary Oversight

Performance Analysis and Review

DCIO staff conduct risk-focused reviews of the financial 

and sales practice oversight programs of SROs and NFA 

on risk-based examination cycles. During FY 2006, DCIO 

completed a review of NFA’s program for the oversight of 

CPOs and CTAs, and initiated a review of the financial and 

sales practice program of the CBOT. Both of these reviews 

included an assessment of the disciplinary programs of 

the NFA and CBOT. DCIO presented a report to the Commission stating that NFA was complying with the CEA and 

delegated responsibilities. The review of the CBOT is still 

in progress at this time, but no material deviations from 

CEA core principles have been observed. 

Data Source and Validation

DCIO delivers a letter to the SRO, requesting documents 

that reflect the systems, policies, procedures, practices, 

and internal controls implemented by the SRO. After 

reviewing these materials, DCIO staff interview selected 

management staff, followed by performing fieldwork at 

the exchange and a review of documents. The fieldwork at 

the SRO primarily consists of a walk-through demonstration. The purpose of the fieldwork is to confirm DCIO’s 

understanding of the program and to provide reasonable 

assurance that it operates in the manner represented. 

The testing of execution of procedures is performed 

by sample testing and documentation review. DCIO 

staff use standard statistical techniques to size and select 

samples in the areas of disclosure documents, financial 

reports, exemption and extension notices, compliance 

examinations, and sales practices. However, samples are 

selected and tested to facilitate an understanding of the 

operation of a process or procedure in practice rather than 

to provide statistical assurances.

For further verification of compliance oversight procedures, DCIO staff also visit firms whose operations were 

reviewed by the SRO during 2004. Such reviews include 

performing the same testing steps that the SRO conducted 

in its examinations of the firms. The results of such DCIO 

testing are then compared to the workpapers of the SRO’s 

examination of the selected firm. 

The methodology for collecting this statistic is based 

on ongoing oversight and planned reviews related to the 

aforementioned areas for which the results potentially 

could indicate an SRO’s noncompliance with the requirement to enforce its rules. 
C

P E R F O R M A N C E S E C T I O N

Performance Measure 3.3.1 Percentage of exchanges deemed to have adequate systems for detecting trade

practice abuses.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency reports and files from reviews 

and analyses, and documentation from 

exchanges subject to a rule enforcement 

review.

Verification: Reviews and analysis of systems, 

procedures, policies, practices and manuals. 

Reviews include site visits.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

DMO staff conduct rule enforcement reviews (RERs) of 

DCMs on a regular cycle that includes review and analysis 

of systems for detecting trade practice abuses. During FY 

2006, DMO completed an RER of the KCBT that included, 

among other things, review of KCBT’s trade practice 

surveillance program, including a detailed analysis of 

KCBT’s surveillance system. Shortly after the end of FY 

2006, DMO completed an RER of the CME that included, 

among other things, review of CME’s automated trade 

practice surveillance systems. These RERs resulted in 

reports that found that KCBT and CME maintain adequate 

trade practice surveillance programs that include surveillance systems. In addition, during FY 2006, DMO initiated 

a combined RER of the CCFE, U.S. Futures Exchange, and 

HedgeStreet. These exchanges all contract with the NFA 

to perform trade practice surveillance. In reviewing these 

exchanges’ trade practice surveillance programs, DMO is 

carefully reviewing and analyzing NFA’s automated surveillance system. Although this review is still in progress, 

staff have not identified any material deficiencies.

Data Source and Validation

Each DCM that is the subject of an RER, and its third party 

service provider, if applicable, submits extensive documentation during the course of RERs. DMO staff also create 

work papers during its analysis of submitted documentation. Exchange submissions and staff work papers are 

organized and maintained in DMO files.

When initiating an RER, DMO sends a letter to the 

exchange requesting documents that reflect the systems, 

policies, procedures, and practices that relate to the CEA 

core principles and programs under review. With respect 

to an exchange’s surveillance systems, DMO requests 

copies of all manuals, procedures, and/or guidelines 

relating to any automated surveillance system used by the 

exchange in connection with trade practice surveillance. 

After reviewing the requested material, DMO staff conduct 

an on-site visit that includes interviewing senior exchange 

officials and reviewing files that demonstrate exchange 

staff’s use of surveillance systems as part of their investigatory process. The verification of procedures and adequacy 

of exchange surveillance systems is measured by determining whether the exchange initiated a sufficient number 

of investigations given exchange volume, the adequacy 

of investigations, and the exchange’s success in bringing 

disciplinary actions.

The methodology for collecting this statistic is based 

on RERs relating to review and evaluation of exchange 

systems for detecting trade practice abuses.
80

Performance Measure 3.3.2 Percentage of exchanges that comply with requirement to enforce their rules

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency reports and files from reviews 

and analyses, and documentation from 

exchanges subject to a rule enforcement 

review.

Verification: Statistical data is obtained through financial 

surveillance and planned reviews.

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

Performance Analysis and Review

Division of Clearing and Intermediary Oversight

DCIO staff conduct risk-focused reviews of the financial 

and sales practice oversight programs of SROs. During FY 

2006, DCIO initiated a review of the financial and sales 

practice program of the CBOT. This review will include an 

assessment of the disciplinary program of the CBOT. The 

review of the CBOT is still in progress, but no material deviations from core principles have to date been observed. 

Division of Market Oversight

DMO staff conduct RERs of DCMs on a regular cycle 

to ensure that exchanges enforce their rules. CEA Core 

Principle 2 specifically requires that exchanges monitor 

and enforce compliance with their rules. DMO reviews 

exchange compliance with CEA Core Principle 2 when it 

conducts an RER of an exchange’s trade practice surveillance program. RERs also examine the adequacy of an exchange’s market surveillance, audit trail, disciplinary, and 

dispute resolution programs. When DMO examines these 

programs, its review includes an analysis to ensure that an 

exchange is enforcing its rules that relate to the particular 

program under review. During FY 2006, DMO completed 

an RER of the KCBT that examined KCBT’s compliance 

with those core principles that relate to market surveillance, audit trail, trade practice surveillance, disciplinary 

procedures and sanctions, and dispute resolution. DMO 

also completed an RER that examined the NYBOT’s 

market surveillance program. Shortly after the end of FY 

2006, DMO completed an RER of the CME that examined 

CME’s audit trail, trade practice surveillance, disciplinary, 

and dispute resolution programs. These RERs culminated 

in reports that found that the exchanges that were examined adequately enforced their rules and had no material 

deficiencies in any of the programs reviewed. In addition, 

during FY 2006, DMO initiated a combined RER of the 

CCFE, U.S. Futures Exchange, and HedgeStreet to examine their compliance with CEA core principles relating to 

market surveillance, audit trail, trade practice surveillance, 

disciplinary procedures and sanctions, and dispute resolution. Although this RER is still in progress, to date, DMO 

staff have not identified any material deficiencies. 

DMO also conducts ongoing daily surveillance of all 

exchanges to ensure that exchanges are enforcing their 

rules. 

Data Source and Validation

Division of Clearing and Intermediary Oversight

Supporting documentation of DCIO’s assessment of 

exchanges complying with requirements to enforce their 

rules is contained in the report and the work papers 

prepared by DCIO staff while carrying out the review and 

analyzing relevant exchange’s materials. Such documentation is contained in DCIO’s files.
C

P E R F O R M A N C E S E C T I O N

DCIO delivers a letter to the exchange, requesting 

documents that reflect the systems, policies, procedures, 

practices, and internal controls implemented by the 

exchange. After reviewing those materials, DCIO staff 

interview selected management staff, followed by performing fieldwork at the exchange and a review of documents. 

The fieldwork at the exchange primarily consists of a walkthrough demonstration. The purpose of the fieldwork is 

to confirm DCIO’s understanding of the exchange and to 

provide reasonable assurance that it operates in the manner represented. 

The testing of execution of procedures is performed 

by sample testing and documentation review. DCIO staff 

use standard statistical techniques to size and select samples in the areas of financial reports and audits. However, 

samples are selected and tested to facilitate an understanding of the operation of a process or procedure in practice 

rather than to provide statistical assurances.

For further verification of compliance oversight 

procedures, DCIO staff also visit firms whose operations are reviewed by the exchange. Such reviews include 

performing the same testing steps that the SRO conducts 

in its examinations of the firms. The results of such DCIO 

testing are compared to the work papers of the exchange’s 

examination of the selected firm. 

The methodology for collecting this statistic is based 

on ongoing oversight and planned reviews related to the 

aforementioned areas for which the results could potentially indicate an exchange’s noncompliance with the 

requirement to enforce its rules. 

Division of Market Oversight

Each DCM that is the subject of an RER, and its third party 

service provider, if applicable, submits extensive documentation during the course of RERs. DMO staff also create 

work papers during their analysis of submitted documentation. Exchange submissions and staff work papers are 

organized and maintained in DMO files.

DMO also maintains a log of its exchange floor surveillance and maintains trade practice investigation files 

that include exchange trade data and staff’s analysis. 

When initiating an RER, DMO sends a letter to the 

exchange requesting documents that reflect the systems, 

policies, procedures, and practices that relate to the CEA 

core principles and programs under review. After reviewing the requested material, DMO staff conduct an on-site 

visit that includes interviewing senior exchange officials 

and reviewing files that demonstrate exchange staff’s use 

of surveillance systems as part of the investigatory process. 

The verification of procedures and adequacy of exchange 

surveillance systems is measured by determining whether 

the exchange initiated a sufficient number of investigations given exchange volume, the adequacy of investigations, and the exchange’s success in bringing disciplinary 

actions.

The methodology for collecting this statistic is based 

on ongoing oversight and planned RERs relating to the 

aforementioned areas for which the results potentially 

could indicate a DCM’s noncompliance with the requirement to enforce its rules. 
82

Performance Measure 3.4.1 Percentage of CFMA Section 126(b) objectives addressed

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Agency reports, files and documentation.

Verification: Formal MOUs or seriatim approvals are 

published in the Federal Register and posted 

on the Commission’s Web site.

Lead Program Office

Executive Direction & Support

Performance Analysis and Review

The Commission’s Office of International Affairs (OIA) 

assists the Commission in formulating its international 

policy by: 1) coordinating with foreign regulatory authorities; 2) participating in international regulatory organizations and forums; and 3) providing technical assistance to 

foreign governmental bodies. These efforts are intended to 

facilitate cross-border transactions and the supervision of 

such transactions by developing internationally accepted 

standards, enhancing international supervisory cooperation, and improving the quality and timelines of international information sharing. The performance measure was 

met.

Data Source and Validation

OIA staff maintain files of supporting documentation 

under key words that reflect the Section 126(b) topics. 

Projects are also found in the Commission Secretariat’s 

file, e.g., formal Memoranda of Understanding (MOUs) 

or seriatim approvals of International Organization of 

Securities Commissions (IOSCO) documents, and published Federal Register notices. IOSCO projects will also 

be contained in those final reports adopted by the IOSCO 

Technical Committee and published on the IOSCO 

Web site. 
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P E R F O R M A N C E S E C T I O N

Performance Measure 3.4.2 Number of rulemakings, studies, interpretations, and guidances to ensure market

integrity and exchanges’ compliance with regulatory requirements.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

8 6 6

0

5

10

15

20

NUMBER

FY 2006 Performance Results

Plan Actual

Results: 20

Measurement: Number

Data Source: Code of Federal Regulations, proposed and 

final amendments to regulations; Federal 

Register, notice and order; and staff letters.

Verification: Proposed and final regulations are published 

in the Federal Register and posted on the 

Commission’s Web site.

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

Performance Analysis and Review

Division of Clearing and Intermediary Oversight

The number of rulemakings, studies, interpretations, and 

statements of guidance to ensure market integrity and 

exchanges’ compliance with regulatory requirements is 

not a number that can be predetermined precisely. The 

final number of these combined statistics reported by 

DCIO is driven in part by changes in the marketplace, or 

in the structure of the exchanges, clearing organizations, 

and intermediaries that operate within that marketplace. 

The number can be a function of what is needed to allow 

appropriate market interrelationships to be maintained 

and to allow the exchanges, clearing organizations, and 

intermediaries to operate in the most efficient manner. As 

such, these factors may not be foreseeable at the time the 

performance estimate is prepared. In addition, a requirement for a rulemaking, study, or interpretation may not be 

known or may not have reached a decision-making point 

until further analysis and other actions or events have 

taken place. This also can account for a difference between 

the FY 2006 plan and actual. 

Division of Market Oversight

The number of rulemakings, studies, interpretations, 

and statements of guidance is not a number that can be 

forecasted precisely. The final number is driven, in part, 

by changes in the marketplace or in the operations of 

exchanges that may not be foreseeable at the time the 

performance estimate is prepared.

Data Source and Validation

Division of Clearing and Intermediary Oversight

In FY 2006, DCIO completed a combined total of 12 

rulemakings, studies, interpretations, and statements of 

guidance that addressed regulatory efforts to ensure market integrity and exchanges’ compliance with regulatory 

requirements. The supporting documentation is maintained in DCIO’s files related to the respective rulemaking, 

study, interpretation, and statements of guidance.

DCIO staff maintain files of the supporting documentation related to the respective rulemaking, studies, 

interpretations, and statements of guidance. The methodology for collecting these statistics is by tabulating the 

number of such rulemakings, studies, interpretations, and 

statements of guidance for the fiscal year. In addition, proposed and final regulations are published in the Federal 

Register and, along with staff no-action, interpretative and 

exemptive letters, are posted on the Commission’s 

Web site.
84

• 17 CFR Part 1, Financial Reporting Requirements for 

Introducing Brokers, at 71 Fed. Reg. 54789 (September 

19, 2006) – Proposed amendments to regulations.

• 17 CFR Part 1, Definition of “Client” of a Commodity Trading Advisor, at 71 Fed. Reg. 9442 (February 24, 

2006) – Final amendments to regulations.

• 17 CFR Part 4, Commodity Pool Operator Electronic 

Filing of Annual Reports, at 71 Fed. Reg. 8939 (February 

22, 2006) – Final amendments to regulations.

• 17 CFR Parts 36, 37, 38, 39, and 49, Technical and 

Clarifying Amendments to Rules for Exempt Markets, 

Derivatives Transaction Execution Facilities and Designated Contract Markets, and Procedural Changes for 

Derivatives Clearing Organization Registration Applications, at 71 Fed. Reg. 1953 (January 12, 2006) – Final 

amendments to regulations.

• Recognition of Multilateral Clearing Organizations 

(re: NetThruPut, Inc.), at 71 Fed. Reg. 10958 (March 3, 

2006) – Notice and Order. 

• 17 CFR Part 4, CPO and CTA Electronic Filing of Notices and Exemptions and Exclusions under Part 4 of the 

Commission’s regulations, at 71 Fed. Reg. 60454 (October 13, 2006) – Proposed amendments to regulations.

• Staff Letter 06-16, dated July 7, 2006, granting an exemption to a registered CPO of a publicly offered, publicly traded commodity pool from otherwise applicable 

disclosure, reporting and recordkeeping requirements.

• Staff Letter 06-15, dated July 12, 2006, granting an exemption to a registered CPO of a publicly offered, publicly traded commodity pool from otherwise applicable 

disclosure, reporting and recordkeeping requirements.

• Staff Letter 05-19, dated November 10, 2005, granting 

an exemption to a registered CPO of a publicly offered, 

publicly traded commodity pool from otherwise applicable disclosure, reporting and recordkeeping requirements.

• Staff Letter 06-20, dated September 7, 2006, extending 

previous relief to permit institutional customers to trade 

certain futures contracts in a securities account with a 

notice-registrant FCM by accepting “substantial compliance” with the applicable securities laws.

• DCIO letter of guidance, issued on May 23, 2006, regarding segregation treatment of customer funds related 

to intra-day variation settlements held by the NYCC. 

• DCIO memorandum to the Commission, issued on 

November 14, 2006, regarding customer funds in segregated amounts, Section 4d(2) of the CEA, and secured 

accounts, Part 30 of the Commission regulations – describing trends in growth and concentration.

Division of Market Oversight

DMO staff maintain files of the supporting documentation related to the referenced rulemakings and study. The 

methodology for collecting these statistics is by tabulating the number of rulemakings and studies for the fiscal 

year. In addition, the referenced rulemakings and study 

were published in the Federal Register and posted on the 

Commission’s Web site.

• 17 CFR Parts 36, 37, 38, 39 and 40, Technical and Clarifying Amendments to Rules for Exempt Markets, Derivatives Transaction Execution Facilities and Designated 

Contract Markets, and Procedural Changes for Derivatives Clearing Organization Registration Applications, 

at 71 Fed. Reg. 1953 (January 12, 2006) - final amendments to regulations.

• Commission order In the Matter of the New York Mercantile Exchange, Inc. Petition To Extend Interpretation 

Pursuant to Section 1a (12) (C) of the Commodity 

Exchange Act , at 71 Fed. Reg. 6755 (February 9, 2006) 

– final Commission order. 

• 17 CFR Parts 1, 15, 16, 17, 18, 19, 21, and 37, Technical 

and Clarifying Amendments to Rules for Market and 

Large Trader Reporting, at 71 Fed. Reg. 37809 (July 3, 

2006) – final amendments to regulations. 

• 17 CFR Parts 41 and 240, Application of the Definition 

of Narrow-Based Security Index to Debt Securities Indexes and Security Futures on Debt Securities, at 71 Fed. 

Reg. 39534 (July 13, 2006) – joint final amendments to 

regulations with the SEC. 

• 17 CFR Part 38, Conflict of Interest in Self-Regulation and Self-Regulatory Organizations, at 71 Fed. Reg. 

38739 (July 7, 2006) - proposed amendments to regulations.

• Comprehensive Study of the Commitments of Traders Reporting Program, at 71 Fed. Reg. 35627 (June 21, 

2006) – study of the continued use of the Commitments of Traders reports. 
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P E R F O R M A N C E S E C T I O N

Performance Measure 3.4.3 Percentage of requests for no-action or other relief completed within six months

related to novel market or trading practices and issues to facilitate innovation.

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

100% 100% 100%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 100%

Measurement: Percentage

Data Source: Applicant’s letter requesting relief and 

Commission letter of response.

Verification: Applicant’s letter and supporting 

documentation maintained in internal 

tracking system, FILAC. Responses to 

formal request published on Commission’s 

Web site.

Lead Program Office

Division of Market Oversight

Performance Analysis and Review

In FY 2006, DMO issued nine no-action letters in response 

to requests for formal no-action relief from requirements 

of the CEA. Each letter was issued by DMO within six 

months of the receipt of the relief request.

Data Source and Validation

Supporting documentation is in the form of the applicant’s letter requesting relief and the Division’s signed 

letter in response to the formal requests for guidance and 

advice.

DMO maintains the FILAC internal tracking system 

for recording DMO actions, such as the issuance of no-action letters, which reflects the dates for relief requests and 

responsive letters, as well as the length of staff review. Reponses to formal requests are posted on the Commission’s 

Web site.
86

Performance Measure 3.4.4 Percentage of total requests receiving CFTC responses for guidance and advice

History of Results: FY 2003 Actual FY 2004 Actual FY 2005 Actual

90% 90% 90%

0

20

40

60

80

100

PERCENTAGE

FY 2006 Performance Results

Plan Actual

Results: 95%

Measurement: Percentage

Data Source: Signed letters (formal) and email & 

telephone responses (informal).

Verification: Agency files maintained in chronological 

files and responses to formal request are 

published on Commission’s Web site.

Lead Program Office

Division of Clearing and Intermediary Oversight

Division of Market Oversight

Performance Analysis and Review

Division of Clearing and Intermediary Oversight

DCIO staff respond to numerous requests for guidance 

and advice on the CEA and Commission regulations each 

year. Requests are received from members of the public, 

market participants, intermediaries, SROs, foreign entities, 

and others. These requests may be formal, such as written 

requests for no-action, interpretative, or exemption letters. 

DCIO also receives numerous requests for guidance and 

advice via e-mail and phone calls. 

DCIO responds to all requests received. Many of 

these requests are routine in nature and are responded 

to in a very short time frame, if not immediately. This is 

particularly true for many of the requests that are received 

via e-mail and phone calls. Other requests that raise novel 

or complex issues, or requests for formal DCIO responses 

in the form of no-action letters, interpretations or exemptions, may take more time because of the need for research 

and for preparation of an appropriate response. It is noted 

that the statistics on numbers of letters issued or e-mail 

responses may not reflect the complexity of any particular 

matter or the resources necessary to address one particular 

issue. In addition, matters commenced in one fiscal year 

may overlap into, and be completed during, a subsequent 

fiscal year, resulting in some imprecision in statistical 

measures for a given year. DCIO staff make every effort to 

respond to requests as quickly as possible, but the timeliness of a response also is affected by the speed with which 

a requester provides additional information sought by 

staff, and the length of time required by other Commission divisions or offices to review a draft response, factors 

outside the control of DCIO. All these factors contributed 

to DCIO responding to five percent fewer requests than 

planned.

Division of Market Oversight

DMO staff respond to numerous requests for guidance 

and advice on the CEA and Commission regulations each 

year. These requests may be informal, via e-mail or phone 

calls, or formal in the form of requests for no-action, interpretation, or exemption letters. Staff respond to informal 

guidance and advice requests in a very short period of 

time, usually no longer than a period of days. To the extent that staff are unable to provide an informal response 

to such requests, the requester is advised to submit his/her 

request formally. DMO staff strive to address such formal 

requests within six months of receipt. 

Data Source and Validation

Division of Clearing and Intermediary Oversight

Supporting documentation is in the form of responses 

to formal (by signed letter) and informal (by e-mail and 

telephone) requests for responses for guidance and advice.
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P E R F O R M A N C E S E C T I O N

Responses to formal requests are posted on the 

Commission’s Internet Web site and are maintained by 

hard copy in the chronological files; responses to non-routine, informal requests similarly are recorded by hard copy 

and maintained in the chronological files. The methodology for collecting these statistics is by comparing the files 

of requests received with responses sent and calculating 

the performance statistic.

Division of Market Oversight

DMO does not track the length of time needed to respond 

to informal requests for guidance. Staff, however, operate under the presumption that, if guidance cannot be 

provided in response to informal requests, the requester is 

advised to submit his/her request in the form of a written 

request for a no-action, interpretation, or exemption letter. Supporting documentation with respect to no-action, 

interpretation and exemption requests is in the form of an 

e-mail or signed letter from the requesting entity and the 

Division’s signed letter in response.

DMO maintains the FILAC internal tracking system 

for recording DMO actions, such as the issuance of no-action, interpretation and exemption letters, which reflects 

the dates of request and responsive letters, as well as the 

length of staff review. Reponses to formal requests are 

posted on the Commission’s Web site.
Program Contributions to Strategic Goal T

8

Fostering Sound Business Practices: Oversight of SROs, 

DCOs, and Market Intermediaries 

A key aspect of assuring effective self-regulation is oversight by the Commission of futures industry SROs, which 

include exchanges, NFA and DCOs, to ensure the fulfillment of their own responsibilities for monitoring and 

ensuring the financial integrity of market intermediaries 

and the protection of customer funds. Toward this end, 

Commission staff oversee, review, and report to the Commission concerning SRO and DCO self-policing programs 

in order to evaluate their compliance with applicable provisions of the CEA and Commission regulations. Similar 

to the approach of other Federal financial regulators and 

certain overseas financial supervisors, the Commission 

employs a risk-based approach to its examination cycles 

of SROs and DCOs, i.e., both the scheduling and scope 

of the risk-based reviews are based on an analysis of the 

underlying risks to which an institution is exposed and the 

controls that it has in place to address those risks. 

Commission staff perform periodic risk-based examinations, daily financial surveillance, and other oversight 

activities concerning the self-policing programs by which 

the SROs monitor and enforce member compliance with 

requirements concerning fitness, net capital, segregation 

of customer funds, disclosure, sales practices, and related 

reporting and recordkeeping. The oversight of SRO compliance programs is necessary to ensure that SRO member 

firms are properly capitalized and maintain appropriate 

risk management capabilities, and that customer funds 

are held in segregation by appropriate custodians and are 

protected from misappropriation. 

The oversight functions of the Commission took on 

increased importance with the passage of the CFMA in 

2000. The CFMA defined a new category of registered entities, DCOs, and set forth core principles governing such 

entities. The core principles require a DCO to demonstrate, among other things, that it has adequate financial 

resources, risk management, default procedures, protections for customer funds, and system safeguards. 

In addition to its formal oversight of SROs, Commission staff performed examinations and reviews of approximately 30 FCMs during FY 2006 to test compliance with 

the Commission’s financial requirements for the safekeeping of customer funds, and staff processed about 3,000 financial reports filed by registrants. As a result of these and 

other ongoing oversight activities, no regulated customer 

funds were lost in FY 2006, thereby meeting the program’s 

objective of ensuring sound financial practices of clearing 

organizations and firms holding customer funds.

Financial Surveillance 

The Commission monitors the potential for, and instances 

of, market volatility, market disruptions, or emergencies 

that have the potential to impact: 1) the proper capitalization of firms; 2) the proper segregation of customer funds; 

3) the ability of financial intermediaries to make payments to a DCO in a timely manner; and 4) issues with 

respect to systemic risk. This financial surveillance function performed by Commission staff has taken on greater 

importance in recent years due to the number of instances 

of market volatility and its impact on market intermediaries and the clearing system. 

Staff monitor cases of volatile markets in order to 

advise the Commission of any potential financial impairment of a registrant or potential systemic risk. It is not 

possible to estimate in advance the number of such events 

that will occur annually because market volatility cannot be predicted. Nevertheless, such events are expected 

to occur. Commission staff conducted 65 market move 

reviews in FY 2006. Such reviews met the objectives of assuring that registrants and financial intermediaries are not 

impaired by market volatility or disruptions and continue 

to meet financial obligations; and detecting any failure by 

a DCO to meet its obligations. 
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P E R F O R M A N C E S E C T I O N

Ensuring a Flexible and Responsive Regulatory 

Environment 

In FY 2006, staff supported the Commission’s ongoing 

regulatory reform program, as well as actions required 

by or appropriate to the implementation of the CFMA. 

These actions, in the form of rulemakings, interpretations, 

orders, and guidance, include the preparation of a number 

of rulemakings during the fiscal year. One of these actions, 

issued in February 2006, was a final rulemaking that 

defined the term “client” as it relates to a CTA. Another 

action is a proposed rulemaking to be issued in FY 2007, 

which concerns the regulation of advertising by CPOs, 

CTAs, and their principals. In addition, in March 2006, the 

Commission issued an order with respect to the multilateral clearing activities for over-the-counter derivative 

instruments of a new foreign facility.

The Commission adopted amendments to Part 4 of 

its regulations to require the electronic filing of commodity pool annual reports with NFA, at the request of NFA.

The Commission continues to increase electronic filing 

by proposing amendments to Part 4 of its regulations to 

require electronic filing of notices of exemption submitted to NFA, and by proposing amendments to Regulation 

1.10 to require and permit the electronic filing of certified annual reports by IBs. Electronic filing is expected to 

increase the efficiency of the filing process. Further, the 

Commission adopted amendments to its regulations that 

recognize the growing use by FCMs of internally developed mathematical VaR models, especially in light of SEC 

regulations that permit well-capitalized broker-dealers 

to incorporate VaR measurements in the market risk and 

credit risk capital deductions that are required for their 

proprietary trading assets.

The Commission issued clarifying and conforming amendments to Part 39 of its regulations relating to 

applications for registration as a DCO. During FY 2006, 

the Commission received 50 submissions in which DCOs 

certified rules as being in compliance with the CEA.

During FY 2006, staff reviewed 22 NFA rule submissions. Under Section 17(j) of the CEA, NFA may either 

make a proposed rule change effective ten days after 

submission for review, absent determination that full 

review is called for, or seek full review of the proposed 

rule change on its own. Some of the rule change proposals 

reviewed by staff were technical changes and others were 

substantive in nature. 

Also during FY 2006, Commission staff issued three 

separate exemptive letters to CPOs of publicly-offered, 

exchange-listed commodity pools. In each case, relief was 

provided from specific disclosure and reporting requirements ordinarily applicable to CPOs, based upon representations that the relevant information would be made 

readily available to pool participants on several private 

and regulator-provided Web sites. The relief was necessary in order to permit shares in the pools to be listed and 

traded on national securities exchanges.

Remote Clearing 

As a matter of first impression, a foreign firm requested 

to become a full clearing member of a combined DCM 

and DCO to clear trades only for non-U.S. located 

customers without first registering under the CEA, commonly referred to as “remote clearing.” Commission staff 

researched the legal question as to whether a remote clearing foreign firm that would clear trades only for non-U.S. 

located customers would be required to register with the 

Commission as an FCM, and addressed the material policy issues of remote clearing with respect to both customer 

protection and the financial integrity of the markets. After 

discussions with staff, the foreign firm decided to become 

registered with the Commission as an FCM.

CME Over-the-Counter (OTC) Clearing 

The Commission issued an order permitting the CME, a 

registered DCO, and its clearing FCMs to hold funds securing positions executed in certain OTC markets in accounts 

segregated pursuant to Section 4d of the CEA.

Foreign Currency 

Commission staff continue to work with NFA staff regarding retail foreign currency trading by FCMs and their affiliates. NFA submitted several additional rules concerning retail foreign currency, which the Commission subsequently 

approved. These rules are intended to address ongoing 

problems in the off-exchange retail forex market. 

Commission staff have considered ways to provide 

additional formal guidance regarding compliance and registration issues pertaining to entities involved in retail foreign currency trading and have met with other divisions to 

discuss their concerns regarding issues that may be raised 

in such an advisory. Staff also have discussed issues with 

NFA concerning NFA examinations and required adjusted 

net capital for firms engaged in retail forex transactions. 
90

Foreign Futures and Option Transactions

The Commission took action to approve the offer and 

sale of certain foreign futures and option transactions 

(U.S. customers trading on non-U.S. markets) in FY 2006. 

In this regard, the Commission issued orders to several 

foreign exchanges granting firms designated by these exchanges an exemption from certain of the Commission’s 

foreign futures and option regulations.

Hedge Funds

During FY 2006, Commission staff monitored the SEC’s 

implementation of new regulations requiring registration 

of hedge fund advisers under the Investment Advisers Act 

of 1940 for potential impacts on the Commission’s regulatory programs. The staff also prepared the Chairman for 

his testimony on hedge funds before the Senate Committee on Banking, Housing, and Urban Affairs in July 2006.

Security Futures Products and Cooperation with the 

SEC 

The CFMA directs the Commission and the SEC to implement a joint regulatory framework for SFPs and narrowbased stock index futures. As part of the ongoing SFP supervisory and oversight process, the Commission and the 

SEC signed an MOU to clarify the ability of each agency 

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

associations. The MOU provides that the CFTC and SEC 

will notify each other of any planned examinations, advise 

the other of reasons for an intended examination, provide 

each other with examination-related information, and 

conduct examinations jointly, if feasible. The agencies 

will notify each other of significant market issues and will 

share trading data and related market information. 

In furtherance of the goals of the CFMA, the Commission and the SEC jointly promulgated final rules to permit 

trading of futures on debt indexes and debt securities, 

subject to the sole jurisdiction of the CFTC. In addition, 

the Commissions’ new rules allowed trading of security 

futures products based on debt securities, subject to joint 

regulation by the SEC and CFTC. This joint rulemaking 

was necessitated by existing statutory language that made 

it difficult to trade such products.

The Commission permitted NFA in FY 2004 to 

postpone indefinitely updating the Series 3 and Series 30 

examinations to include questions on SFPs. Staff have 

discussed with NFA and the National Association of 

Securities Dealers how to accomplish eventual updating 

of the examinations, but, for the time being, salespersons 

will be permitted to continue to offer SFPs after taking a 

Web-based training module. The SEC is in accord with this 

approach.

International Policy 

The Commission formulates international policy by: 

1) coordinating with foreign regulatory authorities; 2) 

participating in international regulatory organizations 

and forums; and 3) providing technical assistance to 

foreign governmental bodies. These efforts are intended to 

facilitate cross-border transactions, and the supervision of 

such transactions, by developing internationally accepted 

standards, enhancing international supervisory cooperation and improving the quality and timelines of international information sharing. In FY 2006, the Commission 

contributed to this effort by:

• Coordinating representation in IOSCO, through its 

direct participation in the development of regulatory 

standard-setting and guidance papers in areas such as 

recordkeeping, error trades, the role of prime brokers 

in providing hedge fund valuation services, information sharing for surveillance purposes, enforcement 

issues related to the Internet, preserving and repatriating 

property in cross-border enforcement cases and crossborder enforcement cooperation. The Commission also 

participates directly in the IOSCO Technical Committee, and in a special IOSCO Executive Committee Task 

Force on Implementation of the IOSCO Objectives and 

Principles of Securities Regulation;

• Coordinating Commission representation in the Council of Securities Regulators of the Americas (COSRA), 

including participating in ways to advance COSRA’s 

regional technical assistance and training initiatives;

• Advancing the work program of the Commission’s 

Trans-Atlantic Initiative with Council of European 

Securities Regulators (CESR) by publishing ‘Frequently 

Asked Questions’ in the form of online guides for conducting derivatives business in the U.S. and the E.U.; 

• Coordinating the Commission’s participation in the 

International Institute for the Unification of Private Law 

(Unidroit) discussions concerning a draft document 

that would create new international rules in the area of 

clearing and settlement of securities products;
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P E R F O R M A N C E S E C T I O N

• Coordinating the Commission’s participation in various Treasury-led financial services dialogues, including 

dialogues with China, India, and Japan, as well as commenting on various Treasury position papers, including 

work on a Hague Convention addressing intermediated 

securities;

• Coordinating with the U.K.’s Financial Services Authority to ensure the sharing of information needed to 

conduct surveillance of cross-border electronic markets 

in the U.S. and U.K.;

• Coordinating the Commission’s provision of representations and regulatory information to regulatory authorities in Australia and Singapore that supported the 

recognition of U.S. futures exchanges’, electronic trading 

systems; and

• Coordinating the Commission’s technical assistance 

program through: entering into a technical assistance 

arrangement with the Office of the Agricultural Futures 

Trading Commission of Thailand (AFTC), and providing technical assistance to foreign regulators through 

visits with staff at the Commission by nine jurisdictions, 

one on-site visit by Commission staff to China, and a 

week-long seminar organized by the Commission in 

Chicago that was attended by 54 representatives from 

38 jurisdictions that examined the techniques used to 

promote market, firm, and customer protections.

Standing Committee 5

Commission staff continued to participate in IOSCO’s 

Standing Committee 5 (SC5) on Investment Management. 

Throughout 2006, SC5 continued to consider and issue 

reports on several topics of importance to collective investment vehicles. 

Foreign Futures Contracts

OGC continued its review of requests for no-action relief 

to allow the offer and sale of foreign exchange-traded 

stock index futures contracts in the U.S. Through mid-July 

2006, OGC issued four such no-action letters.

Market Compliance 

Commission staff completed two RERs of SRO compliance programs at the KCBT and NYBOT. Periodic review of 

SRO compliance programs is a component of the program’s oversight activity to promote and enhance effective 

self-regulation and ensure that SROs enforce compliance 

with their rules.

During FY 2006, the Commission’s Trade Practice 

Investigation (TPI) program generated 145 TPIs which 

resulted in a total of 24 referrals to exchanges and the 

Division of Enforcement. The TPI program, in conjunction 

with the Commission’s RER program, supports the Commission in ensuring that market participants are protected 

from abusive trading practices, protecting the integrity of 

the markets as a price discovery mechanism, and maintaining public confidence in the markets.

The Commission’s review of exchange rules is a key 

aspect of the statutory framework for self-regulation. The 

DMO staff review exchange rule submissions with the 

goals of: 1) maintaining the fairness and financial integrity 

of the markets; 2) protecting customers; 3) accommodating and fostering innovation; and 4) increasing efficiency 

in self-regulation consistent with the Commission’s statutory mandates. To these ends, staff reviewed 178 exchange 

rule submission packages and, within those packages, staff 

reviewed 1,237 new rules and rule amendments. 

Commission staff also work to facilitate industry innovations and new trading methods and market 

structures, thereby meeting the Commission’s objective 

of promoting and enhancing effective self-regulation and 

competition. During FY 2005, staff were involved in a 

number of significant matters including issues related to 

new exchanges and exempt markets, exchange mergers, 

novel trading procedures and contract designs, and new 

automated trading systems.

Other Exemptive, Interpretive, and No-Action Relief 

The Commission staff provide exemptive, interpretive, or 

other relief to facilitate the continued development of an 

effective, flexible regulatory environment responsive to 

evolving market conditions. For example, in FY 2006, staff 

issued a no-action letter regarding speculative position 

limits to a registered CPO that planned to offer shares of 

an index-based fund composed of notional amounts of 

various physical commodities, including wheat and corn. 

The fund sought relief from the position limits for wheat 

and corn to the extent that its positions resulted from 

maintaining long futures positions in the commodities 

that made up the index. The letter conditioned the relief 

upon the fund: passively tracking a widely recognized 

commodity index; having unleveraged positions; and not 

having price exposure or maintaining positions into the 

spot month. During the past year, the Commission also 
92

issued: 1) a no-action letter to a to-be-formed, wholly 

owned subsidiary of Cargill, Inc. permitting it to register 

as an agricultural trade option merchant, even though 

such entity might not qualify as a “producer, processor, or 

commercial user of, or a merchant handling” the commodity underlying the option under a strict interpretation 

of those terms; and 2) a comprehensive no-action letter 

to all the designated contract markets allowing them to 

comply with the requirement to file notice of changes to 

option strike prices under Regulation 40.6(c)(2)(v) by 

complying with the daily reporting requirement of Regulation 16.01.

The Commission also issued amended no-action letters to Eurex Deutschland and SGX-DT (formerly known 

as the Singapore International Monetary Exchange Limited). The letter to Eurex permitted members who are registered with the Commission as CPOs or CTAs, or who are 

exempt from such CPO or CTA registration, to use Eurex 

terminals located in the U.S. for the transmission of orders 

on behalf of U.S. pools they operate or U.S. customer 

accounts over which they have discretionary authority, respectively, provided that an FCM or Regulation 30.10 Firm 

acts as the clearing firm with respect to all activity conducted by such CPOs and CTAs through the submission of 

orders on the trading system. The letter to SGX extended 

that exchange’s relief to include the Joint Asian Derivatives 

Exchange (JADE), a joint venture between SGX and CBOT 

Holdings, Inc., that will be operated as a division of SGX 

and whose products will be made available for trading on 

the CBOT’s electronic trading and order-matching system 

known as the e-cbot trading platform.

Financial and Segregation Interpretation No. 10 (Interpretation No. 10), issued in 1984, effectively permitted 

customer margins to be deposited at a bank in a safekeeping or custodial account, otherwise known as “safekeeping account” or “third-party custodial account”, in lieu of 

posting such funds directly with an FCM, without being 

deemed to violate the customer funds segregation provisions of Section 4d(a)(2) of the CEA and related Commission regulations. Through analysis and discussions with 

industry participants, it was determined that third-party 

custodial accounts are no longer necessary or justified in 

light of developments since the issuance of Interpretation No. 10 and may present significant cost and burdens 

for market participants. Accordingly, DCIO withdrew 

Interpretation No. 10 in May 2005 and issued an amended 

Interpretation No. 10-1 to prohibit FCMs from depositing, holding, or maintaining margin funds for customer 

accounts in third-party custodial accounts, with a limited 

exception for FCMs not eligible to hold the assets of their 

Registered Investment Company (RIC) customer, i.e., due 

to their affiliation with the RIC or its adviser. The ban 

against the use of third-party accounts is intended to prevent potential delay or interruption in securing required 

margin payments that, in times of significant market 

disruption, could magnify the impact of such market 

disruption and impair the liquidity of other FCMs and 

clearinghouses.
C
F I N A N C I A L S E C T I O N

Message from the Chief Financial Officer..............95

Limitations of Financial Statements .....................96

Principal Financial Statements ............................97

Report of the Independent Auditors......................117
C

The public accounting firm, KPMG LLP, on behalf of 

our Inspector General, reported that the financial statements included in this report were presented fairly, in all 

material respects, and in conformity with U.S. generally 

accepted accounting principles for Federal agencies. However, to achieve this result, the financial statements were 

restated for FY 2005. This was necessary to conform with 

the Financial Accounting Standards Board’s Statement 

of Financial Accounting Standards No. 13, Accounting for 

Leases. Management will rely on this principle requiring 

straight-lining of rent expenses going forward. Commission error and other deficiencies led KPMG to find that 

there were material weaknesses in the controls over financial reporting. The Commission initiated corrective actions 

during FY 2006 that conclude next year. 

KPMG also disclosed noncompliance with the Federal 

Information Security Management Act. Specifically, they 

recommended that the Commission continue to improve 

entitywide security and contingency planning programs, 

access controls, segregation of duties, and service continuity to fully meet guidelines of the E-Government Act 

of 2002 and OMB Circular A-130, Management of Federal 

Information Resources. 

The FY 2006 audit report noted three reportable 

conditions that were repeated from last year. The three 

conditions affirmed the Commission’s action to move to 

a new financial management system, Delphi, operated by 

the Department of Transportation, and its desire to leverage an asset management system in its new environment. 

A reportable condition related to undelivered orders was 

modified to report inappropriate budgetary accounting for 

replacement contracts. Last year’s finding that improvements were needed in recording accruals and preparing 

financial statements was revised, and reported as part of 

the material weakness above. 

The Commission recognizes that these conditions 

impact reporting balances, and if left uncorrected increase 

the risk that future statements could be misstated. There 

were carryover matters from the prior year. The major 

impediments to correcting them center on our successful 

transition to the Delphi operating environment and fully 

realizing the benefits of a full accounting services agreement.

Over the last two years, the Commission has taken a 

number of positive steps to enable it to accumulate, analyze 

and present reliable financial information, or provide reliable, 

timely information for managing current operations and timely 

reporting of financial information to central agencies. The 

intent of these actions is to improve our audit results by 

leveraging the financial management systems, resources, 

and expertise of the Department of Transportation, a cabinet level agency.

The Commission has implemented an audit followup process to track corrective action taken by management 

on findings and recommendations. Every attempt will be 

made to put a plan into place within 60 days of November 

15. Corrective actions are typically scheduled for completion before June 30 for systems related items and September 30 for financial reporting and underlying data. Items 

taking greater effort or that are dependent on longer term 

solutions, carryover into the next audit cycle.

Mark Carney

Chief Financial Officer

November 15, 2006

A Message From the Chief Financial O
96

Management has prepared the accompanying financial statements to report the financial position and operational results for the CFTC for FY 2005 and FY 2004 pursuant to the requirements of Title 31 of the U.S. Code, section 3515(b).

While these statements have been prepared from the books and records of the Commission in accordance with 

GAAP for Federal entities and the formats prescribed by OMB Circular A-136, Financial Reporting Requirements, these 

statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared 

from the same books and records.

The statements should be read with the understanding that they represent a component of the U.S. Government, a 

sovereign entity. One implication of this is that the liabilities presented herein cannot be liquidated without the enactment of appropriations, and ongoing operations are subject to the enactment of future appropriations.

Limitations of Financial Stateme
C

Commodity Futures Trading Commission

Balance Sheet

As of September 30, 2006 and 2005

2006 2005

(As Restated)

A

Intr

Fund Balance with Treasury (Note 3) $ 20,055,508 $ 23,464,887 

Accounts Receivable (Note 4) - 175,595

Prepayments (Note 2G) 461,038 -

Total Intragovernmental 20,516,546 23,640,482 

Custodial Fines and Interest Receivable, Net (Note 4) 5,756,605 28,663,845 

Accounts Receivable (Note 4) 63,855 10,332 

Property, Equipment , and Software, Net (Note 5) 3,674,493 1,919,650 

Total Assets $ 30,011,499 $ 54

L

Intr

FECA Liabilities $ 29,484 $ 138,496 

Accounts Payable 236,108 90,950 

Total Intragovernmental 265,592 229,446 

Accounts Payable 2,338,427 1,601,461 

Accrued Funded Payroll 4,099,832 2,852,389 

Annual Leave 5,083,005 5,230,125 

Actuarial FECA Liabilities (Note 8) 281,801 491,304 

Custodial Liabilities 5,756,605 28,663,845 

Contingent Liabilities (Note 10) 11,600 -

Deposit Fund Liabilities 47,488 20,094 

Other - Deferred Lease Liabilities (Note 9) 2,837,403 2,166,518

Total Liabilities $ 20,721,753 $ 41,255,182 

Commitments and Contingencies (Notes 9 and 10)

Net

Cumulative Results of Operations (Note 12) $ (4,568,800) $ (6,106,083)

Unexpended Appropriations 13,858,546 19,085,210 

Total Net Position 9,289,746 12,979,127 

Tota Liabilities and Net Position 

The accompanying notes are an integral part of these financial statements. 

Principal Financial Stateme
9

Commodity Futures Trading Commission

Statements of Net 

For the Years Ended September 30, 2006 and 2005

2006 2005

(As Restated)

Goal 1: Ere 

Intragovernmental Gross Costs $ 5,254,073 $ 5,839,022

Less: Earned Revenue - (35,169)

Intragovernmental Net Cost of Operations 5,254,073 5,803,853

Gross Costs with the Public 28,107,867 28,205,924

Less: Earned Revenue (7,407) (3,831)

Net Cost of Operations with the Public 28,100,460 28,202,093

Net ost of Operations- Goal One $ 33

Goal 2: Pte

Intragovernmental Gross Costs $ 6,403,402 $ 6,869,438

Less: Earned Revenue - (41,375)

Intragovernmental Net Cost of Operations 6,403,402 6,828,063

Gross Costs with the Public 34,256,464 33,183,440

Less: Earned Revenue (9,029) (4,507) 

Net Cost of Operations with the Public 34,247,435 33,178,933

Net ost of Operations- Goal Two $ 40,

Goal 3: Emark

so

Intragovernmental Gross Costs $ 4,761,504 $ 4,465,134

Less: Earned Revenue - (26,894)

Intragovernmental Net Cost of Operations 4,761,504 4,438,240

Gross Costs with the Public 25,472,755 21,569,236

Less: Earned Revenue (6,714) (2,929) 

Net Cost of Operations with the Public 25,466,041 21,566,307

Net ost of Operations- Goal Three $ 3

Gra

Intragovernmental Gross Costs $ 16,418,979 $ 17,173,594

Less: Earned Revenue - (103,438)

Intragovernmental Net Cost of Operations 16,418,979 17,070,156

Gross Costs with the Public 87,837,086 82,958,600

Less: Earned Revenue (23,150) (11,267) 

Net Cost of Operations with the Public 87,813,936 82,947,333

Total et Cost of Operations $ 104,2

The accompanying notes are an integral part of these financial statements.
C

F I N A N C I A  S E C T I O 

Commodity Futures Trading Commission

Statements of Changes in Net Pos

For the Years Ended September 30, 2006 and 2005

2006 2005

(As Restated)

Cumua

Beginning Balances, October 1 $ (6,10

Adjustments: Correction of errors (Note 12) - (1,785,274)

Beginning Balances as adjusted, October 1 (6,106,083) (6,984,400)

Budge

Appropriations Used: 101,840,088 96,565,213

Other 

Imputed Financing Sources 3,930,110 4,330,593

Net Cost of Operations (104,232,915) (100,017,489)

Net Change 1,537,283 878,317

Total umulative Results of Operations, Se

Unex

Beginning Balances, October 1 $ 19,

Adjustments: Correction of errors (Note 12) - (661,079)

Beginning Balances as adjusted, October 1 19,085,210 22,367,306

Budge

Appropriations Received 98,386,000 94,327,000 

Less: Rescinded (983,860) (754,616)

Less: Canceled (788,716) (289,267)

Appropriations Used (101,840,088) (96,565,213)

 Total Budgetary Financing Sources (5,226,664) (3,282,096)

Total Unexpended Appropriations, September 30 $ 13,858,546 $ 19,085,210

Net Position $ 9,289,746 $ 1

The accompanying notes are an integral part of these financial statements. 
100

Commodity Futures Trading Commission

Statements of Budgetary Resou

For the Years Ended September 30, 2006 and 2005

2006 2005

Bud

Unobligated Balance, October 1 $ 3,768,541 $ 1,395,503

Recoveries of Prior Year Unpaid Obligations 5,598,356 6,920,117

Total Prior Resources 9,366,897 8,315,620 

New R

Appropriations 98,386,000 94,327,000

Spending Authority from Offsetting Collections

 Collected 208,371 69,394

 Change Receivables from Federal sources (175,595) 152,789

Total New Resources $ 98,418,776 $ 94,549,183 

Permanentl

Cancellation of Expired Accounts (788,716) (289,267)

Enacted Reduction (983,860) (754,616)

Total Budgetary Resources $ 106,0

Sttu 

Obligations Incurred, Direct $ 101,255,783 $ 98,029,681

Obligations Incurred, Reimbursable 23,150 22,698

Total Obligations Incurred (Note 13) 101,278,933 98,052,379

Unobligated Balance Apportioned 552,827 768,613

Unobligated Balance Not Available 4,181,337 2,999,928

Tota Satus of Budgetary  Resources 

Chage 

Net Obligate

Unpaid Obligations $ 19,851,847 $ 24,931,530

Uncollected customer payments from Federal sources (175,595) (22,806)

Net Obligated Balance, October 1 19,676,252 24,908,724

Gross Obligations Incurred 101,278,933 98,052,379

Gross Outlays (100,258,569) (96,211,945)

Recoveries of Prior Year Unpaid Obligations (5,598,356) (6,920,117)

Change in Receivables from Federal sources 175,595 (152,789)

$ 15,273,855 $ 19,676,252
CF

F I N A N C I A  S E C T I O 

Commodity Futures Trading Commission

Statements of Budgetary Resou

For the Years Ended September 30, 2006 and 2005

2006 2005

Net Obligated

Unpaid Obligations $ 15,273,855 $ 19,851,847

Uncollected customer payments from Federal sources - (175,595)

Net Obligated Balance, September 30 15,273,855 19,676,252

Net

Gross Outlays $ 100,258,569 $ 96,211,945

Offsetting Collections Received (208,371) (69,394)

Distributed Offsetting Receipts (5,499) (9,474)

Net Outlays $ 100,044,699 $ 96

The accompanying notes are an integral part of these financial statements.
102

Commodity Futures Trading Commission

Statements of Financi

For the Years Ended September 30, 2006 and 2005

2006 2005

(As Restated)

Resorce

Budget

Obligations Incurred $ 101,278,933 $ 98,052,379

Less: Spending Authority from Offsetting Collections and Recoveries (5,631,132) (7,142,300)

Obligations Net of Offsetting Collections and Recoveries 95,647,801 90,910,079

Less: Offsetting Receipts (5,499) (9,474)

Net Obligations After Offsetting Receipts 95,642,302 90,900,605

Othe

Imputed Financing from Cost Absorbed by Others 3,930,110 4,330,593

Total Resources Used to Finance Activities $ 99,572,412 $ 95,231,198

Resorces Use to Fin

Offsetting Receipts $ 5,499 $ 9,474

Change in Budgetary Resources Obligated for Goods, Services, and Benefits Ordered

But not yet Provided

6,707,559 5,655,299

Resources that Finance the Net Acquisition of Fixed Assets (2,447,064) (1,248,014) 

Resources that Fund Expenses Recognized in Prior Periods (Note 16) (465,635) (353,810)

Total Resources Used to Finance Items Not Part of the Net Cost of Operations $ 3,800,359 $ 4,062,949

Resources Used to Finance the Net Cost of Operations $ 103,372,771 $ 99,294,147

Coponent of t Ne 

Reource

Components Requiring or Generating Resources in Future Periods:

Increase in Exchange Revenue Receivable from the Public $ - $ (875) 

Increase in Unfunded Annual Leave and Contingent Liabilities 11,600 454,822

Increase in Other Unfunded Liabilites - Deferred Leases 670,885 226,840

Total Components of Net Cost of Operations that will Require or Generate Resources 

in Future Periods (Note 16) $ 682,485 $ 680,787

Componets 

Depreciation and Amortization $ 225,049 $ 134,562

Revaluation of Assets or Liabilities 6,133 (92,007)

Other - Increase in Exchange Revenue Receivable from the Public (53,523) - 

Total Components of Net Cost of Operations that will Not Require or

Generate Resources $ 177,659 $ 42,555 

Net ost of Operations $ 104,232,9

The accompanying notes are an integral part of these financial statements. 
CF

F I N A N C I A  S E C T I O 

Commodity Futures Trading Commission

Statements of Custodial Acti

For the Years Ended September 30, 2006 and 2005

2006 2005

Rev

Sorces of

Registration and Filing Fees $ 1,239,020 $ 742,133 

Fines, Penalties, and Forfeitures 12,395,880 34,260,078

General Proprietary Receipts 5,499 9,474

Total Cash Collections 13,640,399 35,011,685

Change in Accounts Receivable (Primarily write-offs) (22,907,240) (6,739,094)

Total Custodial Revenue $ (9,266,841) $ 28,272,591

Dip

Trnsfere

 Treasury $ (13,640,399) $ (35,011,685)

 Change in Custodial Liabilities 22,907,240 6,739,094

Net Custodial

The accompanying notes are an integral part of these financial statements.
104

Notes to the Financial Statements

As of and For the Fiscal Years Ended September 

30, 2006 and 2005

Note 1. Reporting Entity

The Commodity Futures Trading Commission (CFTC) 

is an independent agency of the executive branch of the 

Federal Government. Congress created the CFTC in 1974 

under the authorization of the Commodity Exchange Act 

(CEA) with the mandate to regulate commodity futures 

and option markets in the United States. The agency’s 

mandate was renewed and expanded under the Futures 

Trading Acts of 1978, 1982, and 1986; under the Futures Trading Practices Act of 1992; and under the CFTC 

Reauthorization Act of 1995. The Commodity Futures 

Modernization Act of 2000 reauthorized the Commission. 

Since its inception, the CFTC has continuously operated 

through authorized appropriations. 

The CFTC is responsible for ensuring the economic 

utility of futures markets by encouraging their competitiveness and efficiency, ensuring their integrity, and protecting market participants against manipulation, abusive 

trade practices, and fraud.

Note 2. Summary of Significant 

Accounting Policies

A. Basis of Presentation 

The financial statements have been prepared to report the 

financial position and results of operations for the CFTC, 

as required by the Chief Financial Officers’ Act of 1990 

along with the Accountability of Tax Dollars Act of 2002, 

and the Government Management Reform Act of 1994. 

They are presented in accordance with the form and content requirements contained in Office of Management and 

Budget (OMB) Circular No. A-136, “Financial Reporting 

Requirements.” 

The financial statements have been prepared from the 

agency’s books and records in conformity with U.S. generally accepted accounting principles, as prescribed for the 

federal government by the Federal Accounting Standards 

Advisory Board (FASAB). 

The financial statements report on the CFTC’s 

financial position, net cost of operations, changes in net 

position, budgetary resources, financing, and custodial 

activities. The books and records of the agency served as 

the source of information for preparing the financial statements in the prescribed formats. All agency financial statements and reports used to monitor and control budgetary 

resources are prepared from the same books and records. 

The statements should be read with the understanding 

that they are for a component of the U.S. Government, a 

sovereign entity.

The Balance Sheets present the financial position 

of the agency. The Statements of Net Cost present the 

agency’s operating results; the Statements of Changes in 

Net Position display the changes in the agency’s equity 

accounts. The Statements of Budgetary Resources present the sources, status, and uses of the agency’s resources 

and follows the rules for the Budget of the United States 

Government. The Statements of Financing present the 

reconciliation of the agency’s use of budgetary resources 

with its operating results. The Statements of Custodial 

Activity present the sources and disposition of collections 

for which the CFTC is the fiscal agent, or custodian, for the 

Treasury General Fund Miscellaneous Receipt accounts.

Throughout these financial statements, intragovernmental assets, liabilities, earned revenue, and costs have 

been classified according to the type of entity with whom 

the transactions were made. Intragovernmental assets 

and liabilities are those from or to other federal entities. 

Intragovernmental earned revenue represents collections 

or accruals of revenue from other federal entities, and 

intragovernmental costs are payments or accruals to other 

federal entities. 

B. Budgetary Resources and Status 

The CFTC is funded through Congressionally approved 

appropriations. The CFTC is responsible for administering 

the salaries and expenses of the agency through the execution of these appropriations. 

Congress annually enacts one-year appropriations that 

provide the CFTC with the authority to obligate funds 

within the respective fiscal year for necessary expenses to 

carry out mandated program activities. In addition, Congress enacted a permanent indefinite appropriation that is 

available until expended. All appropriations are subject to 

quarterly apportionment as well as Congressional restrictions.

The CFTC’s budgetary resources for FY 2006 consist of: 

• Unobligated balances of resources brought forward 

from the prior year, 
CF

F I N A N C I A  S E C T I O 

• Recoveries of obligations in prior years, and 

• New resources in the form of appropriations and spending authority from offsetting collections. 

Unobligated balances associated with resources 

expiring at the end of the fiscal year remain available for 

five years after expiration only for upward adjustments of 

prior year obligations, after which they are canceled and 

may not be used. All unused monies related to canceled 

appropriations are returned to Treasury and the canceled 

authority is reported as a line item on the Statements of 

Budgetary Resources and the Statements of Changes in 

Net Position.

C. Entity and Non-Entity Assets

Assets consist of entity and non-entity assets. Entity assets 

are those assets that the CFTC has authority to use for its 

operations. Non-entity assets are those held by the CFTC 

that are not available for use in its operations. Non-entity 

assets held by the CFTC include deposit fund balances, 

custodial fines, and interest receivable, net. 

D. Fund Balance with Treasury 

Fund Balance with Treasury is the aggregate amount of the 

CFTC’s funds with Treasury in expenditure, receipt, and 

deposit fund accounts. Appropriated funds recorded in 

expenditure accounts are available to pay current liabilities 

and finance authorized purchases. Custodial collections 

recorded in the deposit fund account and miscellaneous 

receipts accounts of the Treasury are not available for 

agency use. At fiscal year end, receipt account balances are 

cleared and returned to Treasury.

The CFTC does not maintain bank accounts of its 

own, has no disbursing authority, and does not maintain 

cash held outside of Treasury. Treasury disburses funds for 

the agency on demand. Spending authority from offsetting 

collections is recorded in the agency’s expenditure account 

and is available for agency use subject to certain limitations. (See Note 3.)

E. Accounts Receivable 

Accounts receivable consists of amounts owed by other 

federal agencies and the public to the CFTC and is valued 

net of an allowance for uncollectible amounts. The allowance is based on past experience in the collection 

of receivables and analysis of the outstanding balances. 

Accounts receivable arise from reimbursable operations, 

earned refunds or the Civil Monetary Sanctions program. 

(See Note 4.)

F. Property, Equipment, and Software 

Property, equipment, and software represents furniture, 

fixtures, equipment, and information technology hardware and software, which are capitalized and depreciated 

or amortized over their useful lives. 

The CFTC capitalizes assets annually if they have 

useful lives of at least two years and an individual value of 

$25,000 or more. Bulk or aggregate purchases are capitalized when the individual useful lives are at least two years 

and a value of $25,000 or more. Property, equipment, and 

software that does not meet the capitalization criteria are 

expensed when acquired. Depreciation and amortization 

is computed on a straight-line basis using a 5-year life. 

The Commission’s assets are valued net of accumulated 

depreciation. (See Note 5.) 

G. Prepayments

Payments in advance of the receipt of goods and services 

are recorded as prepayments, and recognized as expenses 

when the related goods and services are received. Prepayments reported on the Balance Sheet were made primarily 

to the Department of Transportation (DOT) for implementation of the Delphi Financial System in 2007. 

H. Liabilities 

The CFTC’s liabilities consist of actual and estimated 

amounts that are likely to be paid as a result of transactions covered by budgetary resources for which Congress 

has appropriated funds or funding, or are otherwise available from reimbursable transactions to pay amounts due.

Liabilities include those covered by budgetary resources in existing legislation and those not yet covered by 

budgetary resources (See Note 6). The CFTC liabilities not 

covered by budgetary resources include: 

• Annual leave benefits which will be funded by annual 

appropriations as leave is taken,

• Actuarial Federal Employees Compensation Act (FECA) 

liabilities,

• Custodial liabilities for custodial revenue transferred to 

Treasury at fiscal year end,

• Contingent liabilities, 

• Deposit funds, and

• Other- Deferred Lease Liabilities.
106

The CFTC’s liabilities that are covered by budgetary resources are considered current liabilities.

I. Accounts Payable

Accounts payable consists primarily of contracts for goods 

or services, such as leases, utilities, telecommunications, 

and consulting and support services. 

J. Accrued Payroll and Benefits and Annual Leave 

Liability

The accrued payroll liability represents amounts for salaries and benefits owed for the time since the payroll was 

last paid through the end of the fiscal year. The annual 

leave liability is the amount owed employees for unused 

annual leave as of the end of the fiscal year. At the end 

of each quarter, the balance in the accrued annual leave 

account is adjusted to reflect current balances and pay 

rates. Sick leave and other types of non-vested leave are 

expensed as taken.

The agency’s employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees’ 

Retirement System (FERS). On January 1, 1987, FERS went 

into effect pursuant to Public Law 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired prior to 

January 1, 1984, could elect to either join FERS and Social 

Security or remain in CSRS.

For employees under FERS, the CFTC contributes 

an amount equal to one percent of the employee’s basic 

pay to the tax deferred Thrift Savings Plan and matches 

employee contributions up to an additional four percent 

of pay. FERS and CSRS employees can contribute a portion 

their gross earnings to the plan up to IRS limits; however, 

CSRS employee receive no matching agency contribution.

K. Leases

The CFTC does not have any capital lease liabilities. The 

operating leases consist of commercial property leases 

for the CFTC’s headquarters and regional offices. Lease 

expenses are recognized on a straight-line basis. 

L. Deposit Funds 

Deposit funds are expenditure accounts used to record 

monies that do not belong to the Federal government. 

They are held awaiting distribution based on a legal 

determination or investigation. The CFTC deposit fund is 

used to record and later distribute monetary awards to the 

appropriate defendants as restitution. 

M. Net Position

Net position consists of unexpended appropriations and 

cumulative results of operations. 

Unexpended appropriations are appropriations that 

have not yet been used to acquire goods and services or 

provide benefits. Appropriations are considered expended, 

or used, when goods and services have been acquired by 

the CFTC or benefits have been provided using the appropriation authority, regardless of whether monies have 

been paid or payables for the goods, services, or benefits 

have been established. Appropriations were used primarily to acquire goods and services to operate the CFTC’s 

programs or to provide benefits. 

Cumulative results of operations represent the excess 

of financing sources over expenses since inception. Cumulative results of operations are derived from the net effect 

of capitalized assets, expenses, exchange revenue, and 

unfunded liabilities. 

N. Earmarked Funds 

As of September 30, 2006, the CFTC’s financing sources 

did not have any earmarked funds. Earmarked funds were 

not received by the agency for designated activities, benefits or purposes as specifically required by statute. 

O. Revenues 

The CFTC receives reimbursement and earns revenue for 

the following activities:

• Reimbursement for travel, subsistence, and related expenses from non-federal sources for attendance at meetings or similar functions that an employee has been 

authorized to attend in an official capacity on behalf of 

the Commission. 

• Reimbursement for Intergovernmental Personnel Act 

Mobility Program assignments from state and local governments, institutions of higher education, and other 

eligible organizations for basic pay, supplemental pay, 

fringe benefits, and travel and relocation expenses.

• Reimbursement from non-federal sources for registration fees to cover the cost of expenses related to the 

CFTC's annual International Regulators Conference.

P. Net Cost of Operations 

Net cost of operations is the difference between the CFTC’s 

expenses and its earned revenue. The presentation of 

program results by strategic goals is based on the CFTC’s 
CF

F I N A N C I A  S E C T I O 

current Strategic Plan established pursuant to the Government Performance and Results Act of 1993.

The mission statement of the CFTC is to protect 

market users and the public from fraud, manipulation, 

and abusive practices related to the sale of commodity and 

financial futures and options, and to foster open, competitive, and financially sound futures and option markets. 

The mission is accomplished through three strategic goals, 

each focusing on a vital area of regulatory responsibility:

• Ensure the economic vitality of the commodity futures 

and option markets. 

• Protect market users and the public. 

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

Q. Reconciliation of Net Obligations and Net Cost of 

Operations

The Statements of Financing reconcile the net obligations with the net cost of operations. On the Statements 

of Budgetary Resources, net obligations are calculated by 

subtracting downward adjustments of prior-period obligations and offsetting collections from gross obligations. 

The net cost of operations, reported on the Statements of 

Net Cost represents the difference between gross costs and 

earned revenue.

Resources Used to Finance Activities reflects the 

budgetary resources obligated and other resources used to 

finance the activities of the agency. The obligations of budgetary resources are net of offsetting collections, recoveries, 

and offsetting receipts. The other resources are financing 

sources that increase net position but are not budgetary 

resources.

Resources Used to Finance Items Not Part of the Net 

Cost of Operations adjusts total resources used to finance 

the activities of the entity to account for items that were 

included in net obligations and other resources but were 

not part of the net cost of operations. This section includes 

items in which the expense was recognized in a prior 

period but the budgetary resource and obligation are recognized in the current period (e.g., changes in the balance 

for undelivered orders, or decreases in unfunded liabilities). It also includes budgetary resources and obligations 

recognized in the current period that do not affect the net 

cost of operations (e.g., the acquisition of assets reflected 

in net obligations but not in net cost of operations for the 

period).

The costs of the Federal Government are not always 

funded in the period the costs are incurred. Components 

Requiring or Generating Resources in Future Periods 

identifies items that are recognized as a component of the 

net cost of operations for the period but the budgetary 

resources (and related obligation) will not be provided (or 

incurred) until a subsequent period (e.g., an increase to 

the annual leave liability).

Components Not Requiring or Generating Resources 

includes items recognized as part of the net cost of operations for the period but will not generate or require the 

use of resources, such as depreciation expense.

Net Cost of Operations is the sum of the line items 

Total Resources Used to Finance Net Cost of Operations 

and Total Components of Net Cost of Operations that will 

not Require or Generate Resources in the Current Period. 

This line item agrees with the Net Cost of Operations as 

reported on the Statements of Net Cost.

R. Custodial Activity

The CFTC collects penalties and fines levied against 

firms for violation of laws as described in the Commodity Exchange Act as codified at 7 U.S.C. § 1, et seq, and 

the Commodities Futures Modernization Act of 2000, 

Appendix E of P.L. 106-554, 114 Stat. 2763. Unpaid fines, 

penalties and accrued interest are reported as custodial 

receivables, with an associated custodial liability. The 

receivables and the liability are reduced amounts determined to be uncollectible. Revenues earned and the losses 

from bad debts are reported to Treasury. 

Collections made by the CFTC during the year are 

deposited and reported into designated Treasury miscellaneous receipt accounts for: 

• Registrations and filing fees, 

• Fees, fines, penalties and forfeitures, and 

• General miscellaneous recoveries and refunds. 

At fiscal year end, custodial collections made by the 

CFTC are returned to Treasury. The CFTC does not retain 

any amount for custodial activities including reimbursement of the cost of collection. 
10

S. Use of Management Estimates

The preparation of the accompanying financial statements in accordance with accounting principles generally accepted in the United States of America requires 

management to make certain estimates and assumptions 

that directly affect the results of reported assets, liabilities, 

revenues, and expenses. Actual results could differ from 

these estimates.

T. Tax Status

The CFTC is not subject to Federal, state or local income 

taxes. Accordingly, no provision for income taxes is recorded.
CF

F I N A N C I A  S E C T I O 

Note 3. Fund Balance with Treasury

A. Reconciliation to Treasury

There are no differences between the Fund Balance reflected in the CFTC Balance Sheets and the balance in the Treasury 

accounts.

B. Fund Balance with Treasury

Fund Balances with Treasury consist of entity assets such as appropriations and reimbursements for services rendered. 

Obligation of these funds is controlled by quarterly apportionments made by the OMB. Work performed under reimbursable agreements is initially financed by the annual appropriation and is subsequently reimbursed. Other funds 

include non-entity deposit fund receipts.

Fund Balance with Treasury at September 30, 2006 and 2005 consisted of the following: 

2006 2005

Appropriated Funds $ 20,008,0

Other Funds:

Deposit Fund 47,488 20,094

$ 20,055,508 $ 23,464,887

C. Status of Fund Balance with Treasury

Status of Fund Balance with Treasury at September 30, 2006 and 2005 consisted of the following:

2006 2005

App

 Unobligated Fund Balance

Available $ 42,385 $ 756,075

Expired 510,443 12,538

Unavailable 4,181,337 2,999,928

Obligated Balance Not Yet Disbursed 15,273,855 19,676,252

Deposit Fund 47,488 20,094

Total Fund Balance with Treasury $ 2

Note 4. Accounts Receivable

Accounts receivable consist of amounts owed to the CFTC by other Federal agencies and the public. Accounts receivable 

are valued net of estimated uncollectibles. Non-custodial accounts receivable are primarily for overpayments of expenses 

to other agencies, or vendors, and repayment of employee benefits. Historical experience has indicated that most of the 

non-custodial receivables are collectable and there are no material uncollectible amounts. 

Custodial receivables (non-entity assets) are those for which fines and penalties have been assessed and levied 

against businesses for violation of law. The CFTC litigates against defendants for alleged violations of the CEA, as 

amended. Violators may be subject to a variety of sanctions including fines, injunctive orders, bars or suspensions, 

rescissions of illegal contracts, disgorgements, and restitutions to customers. 

Historical experience has indicated that a high percentage of custodial receivables prove uncollectible. The methodology used to estimate the allowance for uncollectible amounts related to custodial accounts is that custodial receivables 

are considered 100% uncollectible unless otherwise noted in the judgment. An allowance for uncollectible accounts has 

been established and included in accounts receivable on the balance sheets. The allowance is based on past experience 

in the collection of accounts receivable and analysis of outstanding balances. Accounts are reestimated quarterly based 

on account reviews and the agency determination that changes to the net realizable value are needed. 
11

Accounts receivable, as of September 30, 2006 and 2005, consisted of the following:

2006 2005

Intragovernmental Accou

Custodial Fines and Interest Receivable, Net:

Civil Monetary Penalty Interest $ 9,438,316 $ 2,501,590 

Civil Monetary Penalties, Fines, and Administrative Fees 530,489,941 328,168,373 

Less: Allowance for Loss on Interest (9,421,924) (2,290,056)

Less: Allowance for Loss on Penalties, Fines, and Administrative Fees (524,749,728) (299,716,062)

Net Custodial $ 5,756,605 $ 28,663,845

Other Accounts Receivable

Note 5. Property, Equipment, and Software, Net 

Assets are capitalized annually if they have useful lives of at least two years and an individual value of $25,000 or more. 

Bulk or aggregate purchases are capitalized when the individual useful lives are at least two years and a value of $25,000 

or more. Depreciation and amortization is computed on a straight-line basis using a 5-year life. The CFTC did not defer 

any maintenance in FY 2006 or FY 2005. Property and Equipment as of September 30, 2006 and 2005 consisted of the 

following:

2006

Service Life and Method Cost

Accumulated 

Amortization/

Major Class Depreciation Net Book Value

Equipment 5 Years/Straight Line $ 1,146,835 $ (334,735) $ 812,100 

IT Software 5 Years/Straight Line 2,966,169 (103,776) 2,862,393 

$ 4,113,004 $ (438,511) $ 3,674,493 

2005

Service Life and Method Cost

Accumulated 

Amortization/

Major Class Depreciation Net Book Value

Equipment 5 Years/Straight Line $ 562,894 $ (176,878) $ 386,016 

IT Software 5 Years/Straight Line 1,580,271 (46,637) 1,533,634 

 $ 2,143,165 $ (223,515) $ 1,919,650 

Note 6. Liabilities Not Covered by Budgetary Resources

As of September 30, 2006 and 2005, the following liabilities not covered by budgetary resources exist:

2006 2005

Intragovernmental - FECA Liabili

Annual Leave 5,083,005 5,230,125

Actuarial FECA Liabilities 281,801 491,304

Custodial Liabilities 5,756,605 28,663,845

Contingent Liabilities 11,600 -

Deposit Fund Liabilities 47,488 20,094

Other - Deferred Lease Liabilities 2,837,403 2,166,518

Total Libilities Not Covered by Budget
C

F I N A N C I A  S E C T I O 

Note 7. Retirement Plans and Other Employee Benefits

The CFTC imputes costs and the related financing sources for its share of retirement systems accruing to its past and 

present employees which are in excess of the amount of contributions from the CFTC and its employees, which are 

mandated by law. The Office of Personnel Management (OPM), which administers federal civilian retirement programs, 

provides the cost information to the CFTC. The CFTC recognizes the full cost of providing future pension and Other 

Retirement Benefits (ORB) for current employees as required by Statement of Federal Financial Accounting Statement 

(SFFAS) No. 5, “Accounting for Liabilities of the Federal Government.”

Full costs include pension and ORB contributions paid out of the CFTC’s appropriations and costs financed by 

OPM. The amount financed by OPM is recognized as an imputed financing source. Reporting amounts such as plan assets, accumulated plan benefits, or unfunded liabilities, if any, is the responsibility of OPM. 

Liabilities for future pension payments and other future payments for retired employees who participate in the Federal Employees Health Benefits Program and the Federal Employees Group Life Insurance Program are reported by OPM 

rather than the CFTC. 

Note 8. Actuarial FECA Liabilities

FECA provides income and medical cost protections to covered federal civilian employees injured on the job, to employees who have incurred work-related occupational diseases and to beneficiaries of employees whose deaths are attributable to job-related injuries or occupational diseases. The FECA program is administered by the U.S. Department of 

Labor (DOL), which pays valid claims against the CFTC and subsequently seeks reimbursement from the CFTC for these 

paid claims. Accrued FECA liabilities represent amounts due to DOL for claims paid on behalf of the agency.

Actuarial FECA liability represents the liability for future workers compensation (FWC) benefits, which includes the 

expected liability for death, disability, medical, and miscellaneous cost for approved cases. The liability is determined 

using a formula provided by DOL annually as of September 30th using a method that utilizes historical benefits payment patterns related to a specific incurred period to predict the ultimate payments related to that period. The projected 

annual benefits payments are discounted to present value using OMB’s economic assumptions for ten-year Treasury 

notes and bonds. To provide more specifically for effects of inflations on liability for FWC benefits, wage inflation factors 

(Consumer Price Index-Medical) are applied to the calculation of projected future benefits. These factors are also used to 

adjust historical payment so benefits are stated in current-year constant dollars.
11

Note 9. Leases

The CFTC leases office space in publicly owned buildings for its locations in Washington D.C., Chicago, New York, Minneapolis, and Kansas City. The lease contracts for publicly-owned buildings are operating leases. The CFTC has no real 

property. Future estimated lease payments are not accrued as liabilities and are expensed on a straight-line basis. 

As of September 30, 2006, future estimated minimum lease payments through FY 2011, and thereafter, is as follows:

Fiscal Year Dollars

2007 $ 10,400,699 

2008 10,608,221

2009 10,801,166

2010 10,970,312

2011 11,268,766

Thereafter 34,636,011

Total Minimum lease payments 88,685,175

Add: Amount representing estimated executory costs (such as taxes, maintenance, and insurance) 16,557,028

Tol nium lease payme

Lease expense is recognized on a straight-line basis. Because the lease payment amounts vary, and in some cases, 

CFTC received periods of up-front free rent, a deferred lease liability representing expense amounts in excess of payments to date, has been recorded. The deferred lease liabilities at September 30, 2006 and September 30, 2005 were 

$2,837,403 and $2,166,518, respectively.

Note 10. Contingent Liabilities

The CFTC records commitments and contingent liabilities for legal cases in which payment has been deemed probable 

and for which the amount of potential liability has been estimated, including certain judgments that have been issued 

against the agency and which have been appealed. In FY 2006, the Office of General Counsel signed an agreement on 

behalf of the CFTC to pay $11,600 in attorney fees for an Equal Employment Opportunity complaint and a contingent 

liability was established.

Note 11. Undelivered Orders

The amount of budgetary resources obligated for undelivered orders as of September 30, 2006 and 2005 consisted of the 

following:

2006 2005

Undelivered Orders $ 8,599,488 $ 15,307,047 
C

F I N A N C I A  S E C T I O 

Note 12. Restatement of FY 2005 Financial Statements

During FY 2006, the CFTC corrected its accounting for lease expenses. The CFTC previously recorded its lease expense 

in the period in which the actual payments were made, rather than on a straight-line basis, as required. As a result, the 

CFTC has restated its FY 2005 financial statements. Additionally, the CFTC recorded reductions to FY 2005 expenses for 

transactions that should have been recorded as expenses in FY 2004. The effects of the restatements on CFTC’s 2005 

financial statements are as follows: 

FY 2005 Restatement

September 30, 2005

As Reported

2005

Adjustment

September 30, 2005

As Restated

Balance Sheet

Other - Deferred Lease Liabilities $ - $ 2,166,518 (A) $ 2,166,518 

Total Liabilities $ 39,088,664 $ 2,166,518 (A) $ 41,255,182 

Cumulative Results of Operations $ (3,939,565) $ (2,166,518) (A) $ (6,106,083)

Unexpended Appropriations $ 19,085,210 $ - $ 19,085,210 

Total Net Position $ 15,145,645 $ (2,166,518) (A) 

Statement of Net C

Goal 

Gross Costs with the Public $ 28,301,068 $ (172,270) (B)

$ 77,126 (A) $ 28,205,924 

Net Cost of Operations with the Public $ 28,297,237 $ (172,270) (B)

$ 77,126 (A) $ 28,202,093 

Net Cost of Operations - Goal One $ 34,101,090 $ (172,270) (B)

$ 77,126 (A) $ 34,005,946 

Goal 

Gross Costs with the Public $ 33,295,374 $ (202,670) (B)

$ 90,736 (A) $ 33,183,440 

Net Cost of Operations with the Public $ 33,290,867 $ (202,670) (B)

$ 90,736 (A) $ 33,178,933 

Net Cost of Operations - Goal Two $ 40,118,930 $ (202,670) (B)

$ 90,736 (A) $ 40,006,996 

Goal 

Gross Costs with the Public $ 21,641,993 $ (131,735) (B)

$ 58,978 (A) $ 21,569,236 

Net Cost of Operations with the Public $ 21,639,064 $ (131,735) (B)

$ 58,978 (A) $ 21,566,307 

Net Cost of Operations - Goal Three $ 26,077,304 $ (131,735) (B)

$ 58,978 (A) $ 26,004,547 

Grand

Gross Costs with the Public $ 83,238,435 $ (506,675) (B)

$ 226,840 (A) $ 82,958,600 

Net Cost of Operations with the Public $ 83,227,168 $ (506,675) (B)

$ 226,840 (A) $ 82,947,333 

Total et Cost of Operations $ 100,297

$ 226,840 (A) $ 100,017,489 

(A) To record lease expense on a straight-line basis and record a resulting deferred lease liability

(B) To reduce FY 2005 expenses for transactions that should have been recorded as expenses in FY 2004
11

FY 2005 Restatement

September 30, 2005

As Reported

2005

Adjustment

September 30, 2005

As Restated

Statement of Changes in Net Posi

Cumulative Results of Operations:

Beginning Balance, October 1 $ (5,199,126) $ - $ (5,199,126)

Adjustments - Correction of errors $ - $ 154,404 (B) $ - 

$ - $ (1,939,678) (A) $ (1,785,274)

Beginning Balance, as adjusted $ (5,199,126) $ (1,785,274) $ (6,984,400)

Appropriations Used $ 97,226,292 $ (661,079) (B) $ 96,565,213 

Net Cost of Operations $ (100,297,324) $ 506,675 (B)

$ (226,840) (A) $ (100,017,489)

Net Change in Cumulative Results of Operations $ 1,259,561 $ 506,675 (B)

$ (226,840) (A)

$ (661,079) (B) $ 878,317 

Ending Cumulative Results of Operations $ (3,939,565) $ (2,166,518) $ (6,106,083)

Unexpended Appropriations:

Beginning Balance, October 1 $ 23,028,385 $ - $ 23,028,385 

Adjustments - Correction of errors $ - $ (661,079) (B) $ (661,079)

Beginning Balance, as adjusted $ 23,028,385 $ (661,079) $ 22,367,306 

Appropriations Used $ (97,226,292) $ 661,079 (B) $ (96,565,213)

Total Budgetary Financing Sources $ (3,943,175) $ 661,079 (B) $ (3,282,096)

Ending Unexpended Appropriations $ 19,085,210 $ - $ 19,085,210 

Statement of Financin

Resorces Use to 

Change in Undelivered Orders $ 6,316,378 $ (661,079) (B) $ 5,655,299 

Net Acquisition of Assets $ (1,472,567) $ 224,553 (B) $ (1,248,014)

Resources that Fund Expenses Recognized in Prior 

Periods

$ - $ (353,810) (C) $ (353,810)

Total Resources Used to Finance Items Not Part of 

Net Cost

$ 4,853,285 $ (436,526) (B)

$ (353,810) (C) $ 4,062,949 

Resources Used to Finance Net Cost of Operations $ 100,084,483 $ (436,526) (B)

$ (353,810) (C) $ 99,294,147 

Coponent of the

not equie o

Pe

Increase in Unfunded Annual Leave, FECA

Expenses, and Contingent Liabilities

$ 171,161 $ (70,149) (B)

$ 353,810 (C) $ 454,822 

Increase in Other Unfunded Liabilities - Deferred 

Leases

$ - $ 226,840 (A) $ 226,840 

Total Components of Net Cost of Operations that 

will Require or Generate Resources in Future 

Periods 

$ 170,286 $ (70,149) (B)

$ 226,840 (A)

$ 353,810 (C) $ 680,787 

Net ost of Operations $ 101,297,324

$ 226,840 (A) $ 100,017,489 

(A) To record lease expense on a straight-line basis and record a resulting deferred lease liability

(B) To reduce FY 2005 expenses for transactions that should have been recorded as expenses in FY 2004

(C) To reclassify amounts to conform with FY 2006 presentation
C

F I N A N C I A  S E C T I O 

Note 13. Apportionment Categories of Obligations Incurred

Obligations incurred and reported in the Statements of Budgetary Resources in 2006 and 2005 consisted of 

the following: 

2006 2005

Direct Obligations, Category A $ 101,255,783 $ 98,029,681 

Reimbursable Obligations, Category A 23,150 22,698

Total Obligations Incurred $ 101,

Note 14. Permanent Indefinite Appropriations

The CFTC’s permanent indefinite appropriation funds emergency expenses to respond to the terrorist attacks on the 

United States that occurred on September 11, 2001 as authorized by Public Law 107-38. The fund provides support to 

deal with consequences of the attacks and support national security.

Note 15. Explanation of Differences Between the Statement of Budgetary Resources 

and the Budget of the United States Government

The CFTC had no material differences between the amounts reported in the Statement of Budgetary Resources and the 

actual amounts reported in the Budget of the U.S. Government for FY 2005, except for the restated amounts. The Budget 

of the U.S. Government with actual numbers for FY 2006 has not yet been published. The expected published date is 

February 2007. A copy of the Budget can be obtained from OMB’s Internet site at http://www.whitehouse.gov/omb/.
11

Note 16. Explanation of Differences Between Liabilities Not Covered by Budgetary 

Resources and Components Requiring or Generating Resources in Future Periods

Liabilities that are not by realized budgetary resources and for which there is not certainty that budgetary authority will 

be realized, such as enactment of an appropriation, are considered liabilities not covered by budgetary resources. These 

liabilities totaling $14,047,386 and $36,710,382 on September 30, 2006 and 2005, respectively, are discussed in Note 

6, Liabilities Not Covered by Budgetary Resources. Deposit and custodial liabilities are non-entity liabilities and do not 

affect the Statement of Budgetary Resources or the Statement of Financing. For the remaining liabilities that are not 

covered by budgetary resources: (1) decreases in liabilities result from current year budgetary resources that are used to 

fund expenses recognized in prior periods, and (2) increases in liabilities represent unfunded expenses recognized in the 

current period. These increases represent components of current period net cost of operations that will require or generate resources in future periods. The changes in CFTC’s entity liabilities not covered by budgetary resources are comprised 

of the following:

2006 2005

CompoentsRequ

Increase in Exchange Revenue Receivable from the Public $ - $ (875)

Increase in Annual Leave - 454,822 

Increase in Contingent Liabilities 11,600 - 

Increase in Other Unfunded Liabilities-Deferred Lease Liabilities 670,885 226,840 

Total Cm

Reour

$ 682,485 $ 680,787 

Resources tht Fu

Decrease in Annual Leave $ 147,120 $ - 

Decrease in FECA Liabilities 318,515 113,340 

Decrease in Contingent Liability - 240,470 

Total Resourc

in P

$ 465,635 $ 353,810 
C

A Report of the Independent Au
Independent Auditors’ Report

Chairman and Inspector General of the 

U.S. Commodity Futures Trading Commission:

We have audited the accompanying balance sheets of the U.S. Commodity Futures Trading 

Commission (CFTC) as of September 30, 2006 and 2005, and the related statements of net cost, 

changes in net position, budgetary resources, financing, and custodial activity (hereinafter 

referred to as “financial statements”) for the years then ended. The objective of our audits was to 

express an opinion on the fair presentation of these financial statements. In connection with our 

fiscal year 2006 audit, we also considered CFTC’s internal controls over financial reporting and 

performance measures, and tested CFTC’s compliance with certain provisions of applicable laws, 

regulations, and contracts that could have a direct and material effect on these financial 

statements. 

SUMMARY

As stated in our opinion on the financial statements, we concluded that CFTC’s financial 

statements as of and for the years ended September 30, 2006 and 2005, are presented fairly, in all 

material respects, in conformity with U.S. generally accepted accounting principles. 

During 2006, CFTC restated certain 2005 financial statement amounts, as discussed in the 

opinion section below. 

Our consideration of internal controls over financial reporting and performance measures resulted 

in the following conditions being identified as reportable conditions: 

x Improvement is Needed over Financial Reporting; 

x Financial Management Systems Need Improvement; 

x Improvement is Needed in the Fixed Asset System; and 

x Improvement is Needed in Evaluating Undelivered Orders and Recording Budgetary 

Transactions

We consider the first reportable condition, above, to be a material weakness.

The results of our tests of compliance with certain provisions of laws, regulations, and contracts 

disclosed the following instances of noncompliance or other matters that are required to be 

reported under Government Auditing Standards, issued by the Comptroller General of the United 

States, and Office of Management and Budget (OMB) Bulletin No. 06-03, Audit Requirements 

for Federal Financial Statements:

KPMG LLP 

2001 M Street, NW 

Washington, DC 20036 

KPMG LLP, a U.S. limited liability partnership, is the U.S. 

member firm of KPMG International, a Swiss cooperative. 

1
x Federal Information Security Management Act (FISMA); and 

x Federal Financial Management Improvement Act of 1996 (FFMIA). 

The following sections discuss our opinion on CFTC’s financial statements; our consideration of CFTC’s 

internal controls over financial reporting and performance measures; our tests of CFTC’s compliance with 

certain provisions of applicable laws, regulations, and contracts; and management’s and our 

responsibilities. 

OPINION ON THE FINANCIAL STATEMENTS 

We have audited the accompanying balance sheets of the U.S. Commodity Futures Trading Commission as 

of September 30, 2006 and 2005, and the related statements of net cost, changes in net position, budgetary 

resources, financing, and custodial activity for the years then ended. 

As discussed in Note 12 to the financial statements, the 2005 financial statements have been restated. 

In our opinion, the financial statements referred to above present fairly, in all material respects, the 

financial position of CFTC as of September 30, 2006 and 2005, and its net costs, changes in net position, 

budgetary resources, reconciliation of net costs to budgetary obligations, and custodial activity for the 

years then ended, in conformity with U.S. generally accepted accounting principles. 

The information in the Management’s Discussion and Analysis is not a required part of the financial 

statements, but is supplementary information required by U.S. generally accepted accounting principles 

and OMB Circular No. A-136, Financial Reporting Requirements. We have applied certain limited 

procedures, which consisted principally of inquiries of management regarding the methods of measurement 

and presentation of this information. However, we did not audit this information and, accordingly, we 

express no opinion on it. 

The information in the FY 2006 Performance Section, Appendices, and pages 1 and 2 of the FY 2006 

Performance and Accountability Report, are presented for purposes of additional analysis and are not 

required as part of the financial statements. This information has not been subjected to auditing procedures 

and, accordingly, we express no opinion on it. 

INTERNAL CONTROL OVER FINANCIAL REPORTING 

Our consideration of internal control over financial reporting would not necessarily disclose all matters in 

the internal control over financial reporting that might be reportable conditions. Under standards issued by 

the American Institute of Certified Public Accountants, reportable conditions are matters coming to our 

attention relating to significant deficiencies in the design or operation of the internal control over financial 

reporting that, in our judgment, could adversely affect CFTC’s ability to record, process, summarize, and 

report financial data consistent with the assertions by management in the financial statements. 

Material weaknesses are reportable conditions in which the design or operation of one or more of the 

internal control components does not reduce to a relatively low level the risk that misstatements caused by 

error or fraud, in amounts that would be material in relation to the financial statements being audited, may 

occur and not be detected within a timely period by employees in the normal course of performing their 

assigned functions. Because of inherent limitations in internal control, misstatements due to error or fraud 

may nevertheless occur and not be detected. 

C

F I N A N C I A  S E C T I O 
In our fiscal year 2006 audit, we noted certain matters, described in Exhibits I and II, involving internal 

control over financial reporting and its operation that we consider to be reportable conditions. We believe 

that the reportable condition presented in Exhibit I is a material weakness. Exhibit II presents the other 

reportable conditions. Exhibit III presents the status of prior year reportable conditions.

We noted certain additional matters that we have reported to management of CFTC in two separate letters, 

addressing information technology and other matters, dated July 28 and November 15, 2006, respectively. 

INTERNAL CONTROLS OVER PERFORMANCE MEASURES 

Under OMB Bulletin No. 06-03, the definition of material weaknesses is extended to other internal 

controls as follows. Material weaknesses are reportable conditions in which the design or operation of one 

or more of the internal control components does not reduce to a relatively low level the risk that 

misstatements caused by error or fraud, in amounts that would be material to a performance measure or 

aggregation of related performance measures, may occur and not be detected within a timely period by 

employees in the normal course of performing their assigned functions. Because of inherent limitations in 

internal control, misstatements due to error or fraud may nevertheless occur and not be detected. 

Our consideration of the design and operation of internal control over the existence and completeness 

assertions related to key performance measures would not necessarily disclose all matters involving the 

design and operation of the internal control over the existence and completeness assertions related to key 

performance measures that might be reportable conditions. 

In our fiscal year 2006 audit, we noted no matters involving the design and operation of the internal control 

over the existence and completeness assertions related to key performance measures that we considered to 

be material weaknesses as defined above. 

COMPLIANCE AND OTHER MATTERS 

Our tests of compliance with certain provisions of laws, regulations, and contracts, as described in the 

Responsibilities section of this report, exclusive of those referred to in FFMIA, disclosed one instance of 

noncompliance that is required to be reported under Government Auditing Standards or OMB Bulletin No. 

06-03, and is described below. 

x FISMA, passed as part of the E-Government Act of 2002, requires that Federal agencies: (1) provide a 

comprehensive framework for ensuring the effectiveness of information security controls over 

information resources that support Federal operations and assets; (2) provide effective governmentwide management and oversight of the related information security risks; (3) provide for development 

and maintenance of minimum controls required to protect Federal information and information 

systems; (4) provide a mechanism for improved oversight of Federal agency information security 

programs; (5) acknowledge that commercially developed information security products offer advanced, 

dynamic, robust, and effective information security solutions, reflecting market solutions for the 

protection of critical information infrastructures important to the national defense and economic 

security of the nation that are designed, built, and operated by the private sector; and (6) recognize that 

the selection of specific technical hardware and software information security solutions should be left 

to individual agencies from among commercially developed products. OMB Circular No. A-130, 

Management of Federal Information Resources, provides further information security guidance. We 

noted that CFTC needs continued improvements with its entity-wide security and contingency planning 

programs, access controls, segregation of duties, and service continuity, to fully meet these guidelines. 

This matter is further described in the reportable condition entitled Financial Management Systems 

Need Improvement, in Exhibit II. 

120
The results of our tests of compliance with certain provisions of other laws and regulations, exclusive of 

those referred to in FFMIA, disclosed no instances of noncompliance or other matters that are required to 

be reported under Government Auditing Standards or OMB Bulletin No. 06-03. 

The results of our tests of FFMIA disclosed instances, described below and in Exhibits I and II, in which 

CFTC’s financial management systems did not substantially comply with the Federal financial 

management systems requirements or the applicable Federal accounting standards, discussed in the 

Responsibilities section of this report. 

x FFMIA mandates that Federal financial management be advanced by ensuring that Federal financial 

management systems can and do provide reliable, consistent disclosure of financial data, and that they 

do so on a basis that is uniform across the Federal government from year-to-year consistently, using 

U.S. generally accepted accounting principles. Federal agencies need to comply with FFMIA by 

adhering to policies established by OMB, such as OMB Circular No. A-127, Financial Management 

Systems, and OMB Circular No. A-130. FFMIA requires that Federal agencies implement information 

security controls and contingency planning capabilities in accordance with OMB Circular No. A-130. 

Although CFTC has implemented certain security measures to alleviate prior year vulnerabilities, the 

agency needs to improve in these areas to be in compliance with OMB Circular No. A-130. This 

matter is discussed in further detail in our separate IT report, dated July 28, 2006, and we recommend 

that CFTC implement the recommendations presented in that report in fiscal year 2007. 

x FFMIA mandates that Federal financial management systems comply with Federal accounting 

standards. We noted that CFTC did not appropriately account for its lease expenses in accordance with 

Statement of Financial Accounting Standards No. 13, Accounting for Leases, resulting in a restatement 

of its 2005 financial statements. This matter is further discussed in Exhibit I. 

The results of our tests of FFMIA disclosed no instances in which CFTC’s financial management systems 

did not substantially comply with the United States Government Standard General Ledger at the 

transaction level. 

 * * * * * 

RESPONSIBILITIES

Management’s Responsibilities. The United States Code, Title 31, Sections 3515 and 9106 require 

agencies to report annually to Congress on their financial status and any other information needed to fairly 

present their financial position and results of operations. To meet these reporting requirements, CFTC 

prepares and submits financial statements in accordance with OMB Circular No. A-136. 

Management is responsible for the financial statements, including: 

x Preparing the financial statements in conformity with U.S. generally accepted accounting principles; 

x Preparing the Management’s Discussion and Analysis (including the performance measures); 

x Establishing and maintaining effective internal control; and 

x Complying with laws, regulations, and contracts applicable to CFTC, including FFMIA. 

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F I N A N C I A  S E C T I O 
In fulfilling this responsibility, management is required to make estimates and judgments to assess the 

expected benefits and related costs of internal control policies. 

Auditors’ Responsibilities. Our responsibility is to express an opinion on the fiscal year 2006 and 2005 

financial statements of CFTC based on our audits. We conducted our audits in accordance with auditing 

standards generally accepted in the United States of America; the standards applicable to financial audits 

contained in Government Auditing Standards, issued by the Comptroller General of the United States; and 

OMB Bulletin No. 06-03. Those standards and OMB Bulletin No. 06-03 require that we plan and perform 

the audits to obtain reasonable assurance about whether the financial statements are free of material 

misstatement. An audit includes consideration of internal control over financial reporting as a basis for 

designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing 

an opinion on the effectiveness of CFTC’s internal control over financial reporting. Accordingly, we 

express no such opinion.

An audit also includes: 

x Examining, on a test basis, evidence supporting the amounts and disclosures in the financial 

statements; 

x Assessing the accounting principles used and significant estimates made by management; and 

x Evaluating the overall financial statement presentation. 

We believe that our audits provide a reasonable basis for our opinion. 

In planning and performing our fiscal year 2006 audit, we considered CFTC’s internal control over 

financial reporting by obtaining an understanding of CFTC’s internal control, determining whether internal 

controls had been placed in operation, assessing control risk, and performing tests of controls in order to 

determine our auditing procedures for the purpose of expressing our opinion on the financial statements. 

We limited our internal control testing to those controls necessary to achieve the objectives described in 

Government Auditing Standards and OMB Bulletin No. 06-03. We did not test all internal controls 

relevant to operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 

1982. The objective of our audit was not to provide an opinion on CFTC’s internal control over financial 

reporting. Consequently, we do not provide an opinion thereon. 

As required by OMB Bulletin No. 06-03, in our fiscal year 2006 audit, with respect to internal control 

related to performance measures determined by management to be key and reported in the Management’s 

Discussion and Analysis and Performance sections, we obtained an understanding of the design of internal 

controls relating to the existence and completeness assertions and determined whether these internal 

controls had been placed in operation. We limited our testing to those controls necessary to test and report 

on the internal control over key performance measures in accordance with OMB Bulletin No. 06-03. 

However, our procedures were not designed to provide an opinion on internal control over reported 

performance measures and, accordingly, we do not provide an opinion thereon. 

As part of obtaining reasonable assurance about whether CFTC’s fiscal year 2006 financial statements are 

free of material misstatement, we performed tests of CFTC’s compliance with certain provisions of laws, 

regulations, and contracts, noncompliance with which could have a direct and material effect on the 

determination of the financial statement amounts, and certain provisions of other laws and regulations 

specified in OMB Bulletin No. 06-03, including certain provisions referred to in FFMIA. We limited our 

tests of compliance to the provisions described in the preceding sentence, and we did not test compliance 

with all laws, regulations, and contracts applicable to CFTC. However, providing an opinion on 

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compliance with laws, regulations, and contracts was not an objective of our audit and, accordingly, we do 

not express such an opinion. 

Under OMB Bulletin No. 06-03 and FFMIA, we are required to report whether financial management 

systems for executive departments and agencies subject to the Chief Financial Officers Act of 1990

substantially comply with (1) Federal financial management systems requirements, (2) applicable Federal 

accounting standards, and (3) the United States Government Standard General Ledger at the transaction 

level. As an agency requiring financial statement reporting under the Accountability of Tax Dollars Act of 

2002, CFTC is not subject to FFMIA. However, it has elected to implement the provisions as described 

above. Therefore, we performed tests of compliance with FFMIA Section 803(a) requirements. 

RESTRICTED USE

This report is intended solely for the information and use of CFTC’s management, CFTC’s Office of 

Inspector General, OMB, the U.S. Government Accountability Office, and the U.S. Congress and is not 

intended to be and should not be used by anyone other than these specified parties. 

November 15, 2006 

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F I N A N C I A  S E C T I O 
Exhibit I 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Material Weakness 

Improvement is Needed over Financial Reporting 

CFTC has a material weakness in the area of financial reporting that hinders preparation of timely and 

accurate financial statements. We noted the following conditions in our fiscal year 2006 audit: 

x Allowance for Custodial Fines Receivable 

The Division of Enforcement (DOE) within CFTC is responsible for reviewing each case and 

determining the Custodial Fines and Interest Receivable balance as well as estimating the allowance for 

loss on each receivable. CFTC’s policy is to assume that all custodial fines are 100% uncollectible, 

unless otherwise noted in the judgment. During the year, DOE reported four cases totaling 

approximately $65.6 million as collectible, when in fact they were uncollectible. These receivables 

were reported as collectible on the third quarter Treasury Report on Receivables (TROR) and in the 

interim financial statements submitted to the Office of Management and Budget (OMB). The error was 

discovered by the Office of Financial Management (OFM) during its third quarter fluctuation analysis. 

However, the fluctuation analysis was not performed prior to the issuance of the above reports. The 

lack of an adequate review process at DOE and OFM caused the error to occur and be reported. 

Statement of Federal Financial Accounting Standards (SFFAS) No. 1, Accounting for Selected Assets 

and Liabilities, paragraphs 44-46, states that losses on receivables should be recognized when it is 

more likely than not that the receivables will not be totally collected. Losses due to uncollectible 

amounts should be measured through a systematic methodology. The systematic methodology should 

be based on analysis of both individual accounts and a group of accounts as a whole. 

During our test work over the fourth quarter activity, we noted that DOE implemented corrective 

actions to address this finding. DOE and OFM developed a spreadsheet to track each case and the 

related allowance. This spreadsheet was reviewed by the Deputy Director of DOE. We did not find 

any exceptions during our test work over the fourth quarter. 

x Accounting for Leases and Knowledge of Accounting Principles 

CFTC does not recognize lease expense, for rental of its various office spaces, on a straight-line basis, 

as required under generally accepted accounting principles. Instead, lease expense is recognized in the 

period in which the actual payments are made. Because CFTC is a relatively small federal agency, the 

cumulative impact of the straight-lining of lease expense results in a significant adjustment. The 

deferred lease liability as of September 30, 2006, was $2.8 million, but had not been recorded prior to 

our audit. Of this amount, $0.7 million should have been expensed in FY 2006, $0.2 million should 

have been expensed in FY 2005, and $1.9 million should have been expensed prior to FY 2005. As a 

result, CFTC restated its FY 2005 financial statements. 

The Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 13, 

Accounting for Leases, paragraph 15, states that “if rental payments are not made on a straight-line 

basis, rental expense nevertheless shall be recognized on a straight-line basis unless another systematic 

and rational basis is more representative of the time pattern in which use benefit is derived from the 

leased property, in which case that basis shall be used.” For purposes of the calculation of the prepaid 

124
Exhibit I 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Material Weakness 

rent or deferred rent liability, the lease term is “the fixed noncancelable term of the lease,” including a 

period after the lease term meeting certain criteria, as defined in SFAS No. 13 paragraph 5f. The 

CFTC error occurred because management was not aware of this accounting principle requiring 

straight-lining of rent expenses. 

x Improvements are Needed in Recording Accruals and Preparing Financial Statements 

Although CFTC has developed and implemented a process for estimating its interim and year-end 

accounts payable and accruals, the process needs improvement. At year-end, CFTC makes a rigorous 

effort to pay all of its invoices received prior to September 15. This effort is designed to ensure that 

CFTC does not have a significant accounts payable balance at year-end. In addition, each individual 

Contracting Officer’s Technical Representative (COTR) evaluates contracts for open obligations as of 

September 15, 2006 to determine whether a liability should be accrued, and informs the OFM. CFTC 

did not properly record the accounts payable, operating leases, subsequent cash disbursements, and 

undelivered orders. Over all these areas, 16 out of 95 transactions we tested were either 

inappropriately included or excluded from accounts payable as of September 30, 2006. 

The aggregated amount of all known differences identified in our sample totaled to a net overstatement 

of accounts payable of $12,703, and the statistically projected error was $261,458. 

Office of Management and Budget’s Circular No. A-136, Form and Content of Performance 

Accountability Report (PAR), defines accounts payable as the amounts owed by the reporting agency 

for goods and services received from other entities, progress in contract performance made by other 

entities, and rents due to other entities. 

Statement of Federal Financial Accounting Standards No. 1, Accounting for Selected Assets and 

Liabilities, paragraph 74, states that when the entity accepts title to goods, whether goods are received 

or in transit, the entity should recognize a liability for the unpaid amount of the goods. If invoices for 

those goods are not available when financial statements are prepared, the amounts should be estimated. 

Recommendations

We recommend that CFTC: 

1. Establish timely management review controls over the determination and reporting of the allowance 

for losses for Custodial Fines and Interest Receivable at DOE; 

2. Provide formal training on generally accepted accounting principles to key accounting personnel at 

least annually; 

3. Hire additional people with experience in financial reporting; 

4. Implement timely internal controls which requires OFM to review the Custodial Fines and Interest 

Receivable balance prior to recording in the accounting system and inclusion in the financial 

CF

F I N A N C I A  S E C T I O 
Exhibit I 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Material Weakness 

statements. The review should include DOE justifying and explaining to OFM why they believe 

receivable amounts are collectible if identified as such; 

5. Develop a system to assure that existing leases are properly recorded on a straight-line basis; 

6. Ensure that new leases or changes to existing leases are properly accounted for; 

7. Review CFTC’s accounting policies to identify any others which may not be in accordance with U.S. 

generally accepted accounting principles; 

8. Improve accrual procedures to ensure that accounts payable and other accruals are recorded when the 

goods or services are received and accepted, including determining a reasonable and logical accrual 

estimate for invoices not yet received; and 

9. Evaluate the adequacy of the prior year accrual by comparing subsequent payments received after yearend against the accrual. Consider making changes to the accrual methodology based on the results of 

the analysis. 

Agency Response 

We concur with this finding and agree with the recommendation. 

126
Exhibit II 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Reportable Condition 

Financial Management Systems Need Improvement

Effective general information technology (IT) controls add assurance that data used to prepare and report 

financial information and statements is complete, reliable, and has integrity. Our fiscal year 2006 IT 

assessment was focused on general IT controls over CFTC’s management systems and supporting network 

infrastructure, using GAO’s Federal Information System Controls Audit Manual (FISCAM) as a guide. 

The six FISCAM general IT control review elements are as follows: 

x Entity-wide security program; 

x Secure access controls; 

x Application software development and change control; 

x System software; 

x Segregation of duties; and 

x Service continuity. 

CFTC management has not implemented test plans that will allow them to assess their efficiency and 

effectiveness in carrying out the process steps in its IT Continuity of Operations Plan. Additionally, 

controls in the following areas need to be strengthened: granting of system access to users, managing of 

software change controls, and the proactive assessing of device security controls to identify potential 

vulnerabilities. 

These weaknesses led to our determination that CFTC was not in compliance with the Federal Information 

Security Management Act and the Federal financial management system requirements called for in the 

Federal Financial Management Improvement Act of 1996, as discussed in the Compliance and Other 

Matters section of our auditors’ report. 

Recommendations

Specific recommendations to address IT controls are included in a separate limited distribution IT general 

controls report dated July 28, 2006, issued as part of the fiscal year 2006 financial statement audit. We 

recommend that CFTC take steps to ensure effective implementation of our recommendations. 

Agency Response

We concur with this finding and agree with the recommendation. 

Improvement is Needed in the Fixed Asset System 

CFTC does not have adequate internal controls to account for, record, track, or monitor its Property and 

Equipment and IT Software (collectively P&E). Based on discussions with OFM, and review of CFTC’s 

fixed asset policy and records, CFTC’s assets are comprised of furniture, equipment, computer hardware 

and software, copiers, and fax machines. CFTC has completed the development of its asset management 

policy but has not completed the implementation of its asset management program. CFTC has designated 

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F I N A N C I A  S E C T I O 
Exhibit II 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Reportable Condition 

several individuals to track its fixed assets; however, the information maintained by these individuals is not 

complete or precise as required by the Federal Accounting Standards Advisory Board (FASAB) and Joint 

Financial Management Improvement Program (JFMIP) standards, that requires an accounting and control 

function that ensures standard transaction processing, accurate valuation, and disclosure of the acquisition 

and disposition of assets. 

In addition, CFTC has not conducted a detailed physical inventory of all property and equipment within the 

last five years. Partial inventories performed during the last five years by different CFTC groups have not 

been uniform or consistent with an established set of physical inventory policies and procedures. For 

example, CFTC’s Office of Information Management may perform a physical inventory using one set of 

guidelines, and CFTC’s Office of Management Operations may use entirely different guidelines. 

We used a substantive approach in auditing the balance of CFTC’s P&E and the related accumulated 

depreciation as of September 30, 2006. OFM manually compiled all obligations, purchase orders, and 

contracts related to fixed asset purchases that were recorded in Federal Financial System (FFS) from 2001 

through 2006, to determine total P&E capitalizable assets. An accumulated depreciation and write-off 

schedule was also prepared. We noted during our test work that CFTC inappropriately expensed software 

development costs of $1.2 million instead of capitalizing the costs to P&E. 

Statement of Federal Financial Accounting Standards (SFFAS) No. 6, Accounting for Property, Plan, and 

Equipment, defines property, plant, and equipment (PP&E) as any property, plant, or equipment used in 

providing goods or services or supports the mission of the entity. All general PP&E shall be recorded at 

cost and the cost shall be charged to expense through depreciation. 

SFFAS No. 10, Accounting for Internal-Use Software, states that for internally developed software, 

capitalized cost should include the full cost (direct and indirect) incurred during the software development 

stage. These costs include salaries of programmers, systems analysts, project managers, and administrative 

personnel, associated employee benefits, and outside consultants’ fees. 

Recommendations

We recommend that CFTC: 

x Implement a property management system that will do the following: (1) classify P&E by assets or 

classes described in SFFAS No. 6, Accounting for Property, Plant, and Equipment, and No. 10, 

Accounting for Internal Use Software; (2) allow user defined transaction types and automatically 

record the transaction type when the property record is created or updated; (3) provide unique 

identification; (4) provide a complete audit trail of all changes to property records including, but not 

limited to, modifications, improvements, changes in value, and the individual entering or approving the 

information; (5) designate property tracked in the property management system as either capitalized or 

expensed; (6) allow user defined capitalization thresholds to be established for property classes; and (7) 

notify the user when depreciation, amortization, or depletion thresholds are exceeded. 

x Improve internal controls, policies, and procedures related to fixed assets to ensure that assets and 

depreciation are recorded in the financial statements on a timely basis. CFTC should also ensure that 

12
Exhibit II 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Reportable Condition 

appropriate personnel are designated to maintain adequate and timely records of inventories and 

property additions/disposals and that this information is communicated to OFM on a timely basis for 

recording in the financial statements. 

x Improve procedures for property accountability that includes tracking the movement of assets, 

recording changes in physical condition, and verification of physical counts. In addition, a unique item 

identification system should be implemented to track each individual asset and assist in performing 

physical inventories. 

Agency Response

We concur with this finding and agree with the recommendations. 

Improvement is Needed in Evaluating Undelivered Orders and Recording Budgetary Transactions

At the end of each quarter, OFM sends correspondence to program office officials responsible for 

recording obligations to request the status of undelivered orders. The program offices are required to 

review the obligations and determine if each should be de-obligated. During the year, CFTC program 

offices did not provide timely information to OFM for the undelivered orders review, and OFM did not 

follow-up to ensure that memorandums were returned timely. 

We performed test work over balances for a statistical sample of 43 undelivered orders. Four of the sample 

items were not properly de-obligated, and two additional sample items were delivered orders that had not 

been properly recorded for the year ended September 30, 2006. These errors result in an overstatement of 

undelivered orders of $482,014 as of September 30, 2006, for which CFTC made a correcting entry for 

September 30, 2006 financial statement purposes. The statistically projected overstatement is $504,645. 

In addition, CFTC inappropriately accounted for replacement contracts on its quarterly Standard Form (SF) 

133, Report on Budget Execution and Budgetary Resources. Per GAO Appropriations Law, Chapter 5, 

obligations can be made for replacement contracts without a new apportionment when a previous 

contractor defaults. The replacement contract seeks only to meet the pre-existing and continuing need. 

CFTC reported the defaulted contracts as recoveries of prior year obligations and the replacement contracts 

as new obligations in FY 2006. OMB guidelines indicate that these transactions should not be shown as 

recoveries and new obligations in the current fiscal year. Also, during its analysis, CFTC discovered that 

$193,563 of new replacement contracts were obligated; however, the previous contract was not deobligated; therefore, these were double counted on the general ledger and on the SF 133. Correcting 

entries were made for this matter for September 30, 2006 financial statement purposes. 

The United States Standard General Ledger defines undelivered orders as the amount of goods and/or 

services ordered, which have not been actually or constructively received. 

The GAO Appropriations Law, Chapter 5, states that “appropriations are made to be used and not to be 

defeated in their use, and it would be a narrow construction to hold that a default on a properly made 

CF

F I N A N C I A  S E C T I O 
Exhibit II 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Reportable Condition 

contract would prevent the use of the appropriation for the object for which it was made and for carrying 

out which the contract was executed.” 

Recommendation

We recommend that: 

x CFTC improve its process for analyzing its undelivered orders balance on a quarterly and year-end 

basis, to determine those obligations that should be de-obligated or expended (the process should 

ensure that OFM can accurately and timely identify those outstanding undelivered orders that should be 

de-obligated); 

x Program office officials provide necessary documentation in a timely manner to support why 

outstanding obligations should remain open; and 

x OFM properly account for replacement contracts on its general ledger and SF 133 submissions. 

Agency Response 

We concur with this finding and agree with the recommendation. 

13
Exhibit III 

U.S. COMMODITY FUTURES TRADING COMMISSION 

Fiscal Year 2006 – Status of Prior Year Comments 

The status of prior year reportable conditions and compliance matters is presented below. 

Internal Control Over Financial Reporting Fiscal Year 2006 Status 

Reportable Conditions 

Financial Management Systems Need Improvement Repeated.

Improvement is Needed in the Fixed Asset System Repeated. 

Improvement is Needed in Evaluating Undelivered 

Orders

Repeated.

Improvements are Needed in Recording Accruals and 

Preparing Financial Statements 

Revised and reported as part of the 

Material Weakness in Exhibit I. 

Compliance with Laws and Regulations 

Noncompliance with the Federal Information 

Security Management Act 

Repeated.

Noncompliance with the Federal Financial 

Management Improvement Act of 1996 (Although 

CFTC is not required to comply with FFMIA, it has 

elected to do so.) 

Repeated.

C

F I N A N C I A  S E C T I O 
FY 2006 Commissioners....................................133

Enforcement Litigation by Strategic Goals ...........136

CFTC Information Technology Systems ...............153

Glossary of Abbreviations and Acronyms .............154

A P P E N D I C E S
Reuben Jeffery III, Chairman

Reuben Jeffery III was nominated by President George 

W. Bush to serve as Chairman of the Commodity Futures 

Trading Commission. He was confirmed by the U.S. Senate on June 30, 2005, to a term expiring April 13, 2007. 

In his capacity as Chairman, Mr. Jeffery serves as a 

member of the President’s Working Group on Financial 

Markets along with the Secretary of the Treasury, the 

Chairman of the Board of Governors of the Federal Reserve, and the Chairman of the SEC. 

Prior to joining the CFTC, Mr. Jeffery was the Special 

Assistant to the President and Senior Director for International Economic Affairs at the National Security Council. 

He was previously the Representative and Executive Director of the Coalition Provisional Authority Office at the 

Pentagon, after having served as an advisor to Ambassador 

Bremer in Iraq. Before joining the Coalition Provisional 

Authority in May of 2003, Mr. Jeffery served as Special Advisor to the President for Lower Manhattan Development. 

In this capacity he helped coordinate ongoing Federal efforts in support of the longer term recovery and redevelopment of Lower Manhattan in the aftermath of September 

11, 2001. 

Mr. Jeffery spent eighteen years working for Goldman, 

Sachs & Co. where he was managing partner of Goldman 

Sachs in Paris (1997-2001) and of the firm’s European 

Financial Institutions Group (1992-1997) based in London. Mr. Jeffery has a broad range of international capital 

markets, corporate finance and merger and acquisition 

experience. 

Prior to joining Goldman Sachs, Mr. Jeffery was a lawyer with the New York firm of Davis Polk & Wardwell. He 

began his career as a commercial banker with the Morgan 

Guaranty Trust Company of New York. 

Mr. Jeffery received his BA degree in Political Science 

from Yale University in 1975 and his Juris Doctor and 

Master of Business Administration degrees from Stanford 

University in 1981. He was admitted to the New York Bar 

in 1982. Mr. Jeffery lives with his wife, Robin and three 

children, Jocelyn, Ben and Bob in Washington, D.C. 

Walter L. Lukken, Commissioner

Walter L. Lukken was sworn in on August 7, 2002 as a 

Commissioner of the CFTC. He was nominated by President George W. Bush on April 16, 2002, and confirmed by 

the Senate on August 2, 2002, to a term expiring April 13, 

2005. On May 25, 2005, Mr. Lukken was nominated by 

President Bush to a second term as a Commissioner expiring April 13, 2010. The Senate confirmed that nomination 

on June 30, 2005.

Commissioner Lukken was appointed in October 

2003 to serve as Chairman and Designated Federal Official of the CFTC’s Global Markets Advisory Committee 

(GMAC). The GMAC was created by the Commission to 

provide a forum in which it can discuss the many complex 

C

FY 2006 Commission
and novel issues raised by the ever-increasing globalization of futures markets. Commissioner Lukken has also 

represented the CFTC before the International Organization of Securities Commissions (IOSCO), the European 

Union, and other foreign regulatory bodies.

In May 2003, CFTC Chairman James Newsome and 

SEC Chairman William Donaldson tasked Commissioner 

Lukken and SEC Commissioner Paul Atkins, respectively, 

to work together with agency staff on the completion of 

issues arising from the implementation of the CFMA of 

2002 (H.R. 5660). Their efforts resulted in a memorandum of understanding between the agencies regarding 

security futures products in March 2004.

Mr. Lukken joined the Commission after serving four 

years on the professional staff of the U.S. Senate Agriculture Committee under Chairman Richard Lugar (R-IN). 

While working for the committee, Mr. Lukken specialized 

in futures and derivatives markets, agricultural banking, 

and agricultural tax issues. In this capacity, Mr. Lukken was 

involved in the drafting of the CFMA of 2002 (H.R. 5660) 

and the 2002 Farm Bill (H.R. 2646). 

Before joining the committee, Mr. Lukken worked 

for five years in the personal office of Senator Lugar as a 

legislative assistant specializing in finance and tax matters.

A native of Richmond, Indiana, Mr. Lukken received 

his B.S. degree with honors from the Kelley School of 

Business at Indiana University, and his Juris Doctor degree 

from Lewis and Clark Law School in Portland, Oregon. 

Mr. Lukken is a member of the Illinois Bar. He is married 

to Dana Bostic Lukken of Morgan City, Louisiana, and 

they and their son William and daughter Genevieve reside 

in Washington, D.C. 

Frederick W. Hatfield, Commissioner

Fred Hatfield was confirmed by the U.S. Senate on November 21, 2004, as a Commissioner of the Commodity 

Futures Trading Commission. He was sworn in on December 6, 2004 to a term expiring April 13, 2008.

Since joining the Commission, Mr. Hatfield has 

worked on several cross regulatory issues, such as portfolio 

margining, and has represented Chairman Reuben Jeffery 

on the President’s Corporate Fraud Task Force.

Prior to joining the CFTC, Mr. Hatfield was Chief of 

Staff to Senator John Breaux (D-LA), Assistant Minority 

Whip and Member of the U.S. Finance, Commerce, Rules 

and Aging Committees. In this position, he advised Senator Breaux on all policy decisions, as well as coordinating 

Senator Breaux’s lead role in the Senate bipartisan Centrist 

Coalition. Mr. Hatfield also served as Chief of Staff to the 

House Majority Whip, Tony Coelho (D-CA) where he 

managed Congressman Coelho’s personal and whip staffs.

In between stints on Capitol Hill, Mr. Hatfield served 

as Deputy Commissioner General of the U.S. Pavilion at 

the 1998 World’s Fair in Lisbon, Portugal where he was 

responsible for outreach to 139 foreign governments participating in the World’s Fair. 

Mr. Hatfield has significant experience in public 

service, but has also been influential in the private sector. 

In 1989, Mr. Hatfield partnered with a colleague to form 

a government affairs company which concentrated on issues under the jurisdiction of the House Ways and Means 

Committee, the House Energy and Commerce Committee 

and the Senate Environmental and Public Works Committee. He also directed and oversaw communications and 

public affairs for a start-up education telecommunications 

company called Education Training Communications, Inc. 

Mr. Hatfield is a native of California and graduated 

Summa Cum Laude from California State University, 

Fresno. He now resides in Washington, DC.

Michael V. Dunn, Commissioner

Michael V. Dunn was nominated to a second term as 

a Commissioner of the Commodity Futures Trading 

Commission by President Bush on June 16, 2006, and 

confirmed by the Senate on August 3, 2006, to a term 

expiring June 19, 2011. Mr. Dunn has served as a Commissioner since December 6, 2004. On January 9, 2006, he 

was chosen by his colleagues to chair the Commission’s 

Agriculture Advisory Committee and on March 13, 2006, 

he was appointed Chairman of the Commission’s Forex 

Task Force.

Prior to joining the CFTC, Mr. Dunn served as Director, Office of Policy and Analysis at the Farm Credit Administration (FCA). Prior to this position, in January 2001 

he served briefly as a member of the FCA Board. 

Prior to joining FCA, Mr. Dunn was the Under Secretary of Agriculture for Marketing and Regulatory Programs 

at the U.S. Department of Agriculture (USDA). He also 

served as the Acting Under Secretary for Rural Economic 

Community Development and as Administrator of the 

Farmers Home Administration (FmHA) at USDA. 

13
Mr. Dunn has had a long involvement in agricultural 

credit dating back to the late 1970s, when he was the 

Midwest Area Director for the FmHA. He has been a loan 

officer and vice president of the Farm Credit Banks of 

Omaha and has served as a member of the professional 

staff of the Senate Agricultural Committee, specializing in 

agricultural credit. At the USDA, Mr. Dunn also served as a 

member of the Commodity Credit Corporation and Rural 

Telephone Bank Board. He is a past member of the Iowa 

Development Commission and has served as the Chairman of the State of Iowa’s City Development Board.

A native of Keokuk, Iowa, and a current resident of 

Harpers Ferry, West Virginia, Mr. Dunn received his B.A. 

and M.A. degrees from the University of New Mexico.

Sharon Brown-Hruska, Former Commissioner

Sharon Brown-Hruska resigned from the Commission on 

July 28, 2006. She was first nominated to the Commission 

by President Bush on April 9, 2002, confirmed by the Senate on August 2, 2002, and sworn in on August 7, 2002. 

She was subsequently nominated by President Bush to a 

second term as a Commissioner, and confirmed by the 

Senate on November 21, 2004, to a term expiring April 13, 

2009. Dr. Brown-Hruska was designated by President Bush 

as Acting Chairman at the Commodity Futures Trading 

Commission on July 26, 2004 and served in that capacity 

until July 5, 2005.

In her capacity as Acting Chairman, Brown-Hruska 

served as a member of the President’s Working Group on 

Financial Markets along with the Secretary of the Treasury, 

the Chairman of the Board of Governors of the Federal 

Reserve, and the Chairman of the SEC. Dr. Brown-Hruska 

was also the Chairman of the CFTC’s Technology Advisory 

Committee.

Energy. In March 2003, then CFTC Chairman James 

Newsome announced that Dr. Brown-Hruska would be 

evaluating legislation, issues and economic developments 

of relevance to our Nation’s energy markets, in addition 

to her other duties as a Commissioner. She has spoken on 

energy issues to many forums and organizations, including the Energy Bar Association, Edison Electric Institute, 

and the World Forum on Energy Regulation. She has 

recently published articles in the Energy Daily on energy 

derivatives and the Futures and Derivatives Law Report on 

market manipulation in the energy markets. For her work 

in this area, she was awarded the Key Women in Energy’s 

Global Leadership Award, announced at the March 31, 

2004, National Energy Marketers Association Conference 

in Washington, D.C. 

Financial Literacy and Education. Dr. Brown-Hruska 

served as the CFTC’s representative on the Financial 

Literacy and Education Commission, chaired by Treasury 

Secretary John Snow. Subsequently, she was named Chairman of the Subcommittee on Web site Development, 

which is made up of representatives from various agencies within the Federal government. In September 2004, a 

Web site that serves as a clearinghouse for information on 

financial literacy was successfully launched.

Financial Markets. Dr. Brown-Hruska holds a Ph.D. in 

economics (1994) from Virginia Tech in Blacksburg, 

Virginia. Prior to coming to the CFTC, Dr. Brown-Hruska 

was an Assistant Professor of Finance at George Mason 

University’s School of Management (1998 – 2002) and 

the A.B. Freeman School of Business at Tulane University 

(1995-1998). Courses taught by Professor Brown-Hruska 

included Risk Management and Financial Innovation, 

International Finance, Venture Capital, Investments, and 

Financial Markets. Dr. Brown-Hruska has authored numerous scholarly and applied papers based on her research in 

the areas of derivatives and market microstructure, including, “A Penny for Your Trade” in Barron’s (2001); “Financial Markets as Information Monopolies?” in Regulation 

(2000), and “Fragmentation and Complementarity: The 

Case of EFPs” in the Journal of Futures Markets (2002).

A native of Winchester, Virginia, she lives with her 

husband Donald Hruska and their son, Jacob, in Burke, 

Virginia.

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Strategic Goal One – Ensure the economic 

vitality of the commodity futures and 

option markets.

Manipulation, Attempted Manipulation and False 

Reporting

Enforcement actions filed during FY 2006:

• Manipulation, Attempted Manipulation, and False 

Reporting Enforcement 

On June 28, 2006, the Commission filed a civil injunctive enforcement action against BP Products North 

America, Inc. (BP), a wholly-owned subsidiary of BP 

plc, alleging that BP manipulated the price of February 2004 TET physical propane by, among other things, 

cornering the market for February 2004 TET physical 

propane. (The term “TET propane” refers to propane 

that is deliverable at the TEPPCO storage facility in 

Mont Belvieu, Texas, or anywhere within the TEPPCO 

system. “TEPPCO” is an acronym for Texas Eastern 

Products Pipeline Co, LLC.) 

The Commission also charged BP with attempting to manipulate the price of April 2003 TET physical 

propane by attempting to corner the April 2003 TET 

physical propane market. According to the lawsuit, TET 

propane is the primary propane used for residential and 

commercial heating in the Northeast U.S., particularly 

in rural areas that are not served by natural gas pipelines, and the price of TET propane at Mont Belvieu 

affects the price of propane paid by consumers. Furthermore, prices of TET propane affect the price of the 

NYMEX futures contract for propane, in part because 

the NYMEX propane contract provides for delivery of 

propane at TEPPCO. CFTC v. BP Products North America, 

Inc., No. 06C 3503 (N.D.Ill. filed June 28, 2006).

With the filing of the BP enforcement action, 

the Commission has, since December 2002, filed a 

total of 35 enforcement actions charging a total of 55 

respondents/defendants (31 companies and 24 individuals) with alleged wrongdoing in the energy markets. 

The Commission has settled 27 of these enforcement 

actions and obtained $302,863,500 in civil monetary 

penalties. Eight Commission energy market-related enforcement actions remain pending. The Commission’s 

Division of Enforcement is currently investigating approximately 70 individuals and companies for alleged 

violations in the energy sector.

• In re Dominion Resources, Inc.

On September 27, 2006, the Commission simultaneously filed and settled an administrative enforcement 

action against Dominion Resources, Inc. (Dominion) 

finding that Dominion falsely reported trade information concerning natural gas transactions in violation of 

the Act. Specifically, the order finds that, from at least 

December 2000 through November 2002, several traders on Dominion’s natural gas trading desks knowingly 

reported false, misleading and knowingly inaccurate 

natural gas trading information, including price and 

volume information, to Gas Daily, Inside FERC, and 

Natural Gas Intelligence. According to the order, the reports contained both fictitious trades and certain actual 

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Enforcement Litigation for Goal
trades in which the prices and/or volumes were altered, 

as well as selected trades observed in the market, all of 

which were represented to be Dominion’s actual trades. 

The order explains that reporting firms including Gas 

Daily, Inside FERC, and Natural Gas Intelligence use 

price and volume information collected from participants like Dominion to calculate indexes of natural gas 

prices for various hubs throughout the United States. 

According to the order, participants in the natural gas 

markets use these indexes to price and settle commodity transactions, and natural gas futures traders refer 

to the published indexes for price discovery and for 

assessing price risks. The Commission assessed sanctions including: a civil monetary penalty ($4.5 million); 

order to comply with certain undertakings, including 

providing future cooperation to the Commission. The 

Commission received cooperation from the Richmond 

Division of the Federal Bureau of Investigation, and the 

United States Attorney’s Office of the Eastern District of 

Virginia in connection with this matter. In re Dominion 

Resources, Inc., CFTC Docket No. 06-06 (CFTC filed Sept. 

27, 2006).

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Strategic Goal Two – Protect market users 

and the public. 

Commodity Pools, Hedge Funds, Commodity Pool 

Operators, and Commodity Trading Advisors

Enforcement actions filed during FY 2006:

• CFTC v. Lake Dow Capital, LLC, et al.

On October 19, 2005, the Commission filed a civil 

enforcement action charging Lake Dow Capital, LLC 

(Lake Dow), a registered commodity pool operator and 

commodity trading advisor, and Ty Edwards, a Lake 

Dow principal and registered associated person, with 

fraud in their operation of the Aurora Investment Fund 

(Aurora Fund) hedge fund. The Commission alleges 

that the defendants misrepresented the amount of funds 

they managed ($60 to $100 million, when in fact the 

Aurora Fund did not exceed $20 million) and falsely 

represented that the fund had consistently generated 

annual profits without a single losing month. The court 

entered a statutory restraining order, which included an 

asset freeze, on the same date that the action was filed. 

On November 8, 2005, the court issued a consent order 

of preliminary injunction against all defendants prohibiting further violations of the Commodity Exchange 

Act and continuing the asset freeze. CFTC v. Lake Dow 

Capital, LLC, et al., No. 1 05-CV 2709 (N.D. Ga. filed 

Oct. 19, 2005).

• In re Veras Investment Partners, LLC, et al.

On December 22, 2005, the Commission simultaneously filed and settled an administrative enforcement 

action against Veras International Partners, LLC (Veras), 

a registered commodity pool operator and commodity 

trading advisor, and James McBride and Kevin Larson, 

both of whom were registered associated persons of 

Veras. The Commission found that the defendant the 

fraudulently operated two pools as hedge funds that 

traded commodity futures contracts and securities. 

Specifically, the Commission found that the defendants 

failed to disclose to fund participants certain deceptive 

and illegal market timing and late trading practices that 

Veras used to execute its securities trading strategies. The 

Commission assessed sanctions including: a cease and 

desist order; $500,000 joint and several civil monetary 

penalty; and 18-month trading bans for McBride and 

Larson. The U.S. Securities and Exchange Commission 

and the New York Attorney General’s Office filed and 

settled related actions against Veras, McBride, Larson 

and others. In re Veras Investment Partners, LLC, et al., 

CFTC Docket No. 06-01 (CFTC filed Dec. 22, 2006).

• CFTC v. DeFazio.

On January 5, 2006, the Commission filed a civil 

enforcement action charging Charles A. DeFazio, and 

Galaxy Resources 2000, LLC with fraud. The complaint 

alleges that, from March through September 2005, 

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Enforcement Litigation for Goal
DeFazio solicited and accepted at least $900,000 from 

at least 85 customers while claiming that Galaxy was 

a profitable commodity pool when, in fact, Galaxy 

lost more $937,000 trading commodity futures. The 

complaint also alleges that in September 2005, DeFazio 

confessed to pool participants that their funds had been 

wiped out completely. According to the complaint, 

DeFazio improperly commingled funds, used customer 

funds to pay personal expenses, and that DeFazio and 

Galaxy falsely claimed to be registered with the CFTC. 

On January 10, 2006, the court issued consent order 

of preliminary injunction that: enjoins the defendants 

from trading commodity futures contracts and options and also enjoins them from further violations 

as charged; and freezes the defendants’ assets. CFTC v. 

DeFazio, et al., No. 06CV 0020 (S.D. Cal. filed Jan. 5, 

2006).

• CFTC v. Rodriguez.

On February 3, 2006, the Commission filed a civil 

enforcement action charging Lazaro Jose Rodriguez with 

fraud. The complaint alleges that, between March 2005 

and January 2006, Rodriguez, doing business as The 

FIRM “Financial” and as Financial Investments Require 

Money – Financial Consultants, solicited and received 

approximately $1.5 million from at least 400 customers to trade commodity futures and options contracts. 

As part of those solicitations, Rodriguez allegedly made 

false promises guaranteeing large profits without risk. 

The complaint also alleges that as part of his fraudulent 

scheme, Rodriguez pretended to be an experienced commodities trader, which he was not. Rather than using 

customer funds to trade commodity futures and options, Rodriguez allegedly misappropriated the money 

and used it to purchase luxury cars, jewelry, and other 

personal items. On the same day that the complaint 

was filed, the court entered a statutory restraining order 

freezing the defendant’s assets and, among other things, 

enjoining the defendant from destroying, or denying CFTC representatives access to books and records. 

The Commission received cooperation from the U.S. 

Attorney’s Office for the Southern District of Florida, the 

Federal Bureau of Investigation, and the Florida Office 

of Financial Regulation in connection with this matter. 

CFTC v. Rodriguez, No. 06 CV 0855 (S.D.N.Y. filed Feb. 

3, 2006).

• CFTC v. Aurifex Commodities Research Company, et al.

On March 7, 2006, the Commission filed a civil enforcement action charging Ty and Monette Klotz, and 

their two Michigan companies, Aurifex Commodities 

Research Co. and Aurifex Research LLC, with hedge 

fund fraud. The CFTC complaint alleges that, between 

at least April 2004 and February 2006, Ty and Monette 

Klotz, doing business as Aurifex Investments, engaged in 

a Ponzi scheme while soliciting participants for and operating what they described as a “private hedge fund.” 

According to the complaint, Ty Klotz told potential participants that Aurifex invested participants’ funds in a 

pooled commodity futures account, and falsely claimed 

that the Aurifex fund earned monthly profits of 20 

percent. The complaint alleges that Klotz falsely assured 

potential participants that their Aurifex deposits would 

be insured against loss with Lloyd’s of London, and that 

Aurifex would receive fees only after participants’ funds 

doubled. Also, according to the complaint, Ty Klotz 

claimed to have more than 200 participants whose 

funds were deposited into a commodity futures trading 

account opened in the name of Monette Klotz in April 

2004. Trading in this account lost money, whoever, as 

alleged, the Klotzes falsely informed participants that 

the fund was profitable while concealing the trading 

losses and their misappropriation of participants’ funds. 

Monette Klotz, the complaint alleges, used participant 

funds for a down-payment on the purchase of a house, 

and for the purchase of multiple automobiles. On the 

same day the complaint was filed, the court issued a 

statutory restraining order freezing the defendants’ assets. CFTC v. Aurifex Commodities Research Company, et 

al., No. 1:06-cv-0166-RHB (W.D. Mich. filed March 7, 

2006).

• CFTC v. Scholze.

On June 9, 2006, the Commission filed a civil enforcement action charging Gary F. Scholze with fraudulently 

soliciting approximately $1.2 million in a scheme involving commodity futures and options. Specifically, the 

complaint alleges that, since about August 2001 through 

May 2006, Scholze, a retired chiropractor, fraudulently 

solicited — through professional publications for 

chiropractors and at commodity trading seminars -- at 

least 14 customers located throughout the United States 

to invest in commodity futures and options, through 

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A P P E N D I C E S
either individual accounts or a pooled account with 

other customers that he would trade on their behalf. 

The complaint further alleges that Scholze fraudulently 

promised some customers that they would make a profit and reassured others that they would not lose their 

principal investment due to his specialized trading strategy. However, the complaint alleges that Scholze traded 

less than half of the customer funds, sustaining losses 

of over $200,000, and misappropriated additional participant funds to pay for personal expenses. Throughout 

the time period, Scholze allegedly concealed his trading 

losses and misappropriation by falsely reporting to 

customers that their investments were growing due to 

profitable trading. For example, in one alleged incident, 

a customer who invested $300,000 believed, based on 

the statements from Scholze, that by early 2005, his 

investment had grown to over $1 million. According to 

the complaint, while some customers received partial 

returns of their investments, since March 2005, customers have not received any funds from Scholze, despite 

repeated demands. The complaint also charges Scholze 

with failure to register as a commodity trading advisor 

and a commodity pool operator, and with committing 

other regulatory violations, including failing to provide 

required disclosure documents, accepting money in 

his own name and commingling customer funds with 

personal funds. In a related matter, on June 19, 2006, 

Scholze was arraigned in federal court on one count of 

wire fraud based on a criminal complaint filed by the 

United States Attorney for the District of Vermont. The 

Commission received assistance from the Federal Bureau of Investigation, the United States Postal Inspector, 

and the United States Attorney’s Office for the District 

of Vermont in connection with this matter. CFTC v. 

Scholze, NO. 2:06-CV-114 (D. Vt. filed June 9, 2006).

• In re Liskiewicz.

On June 12, 2006, the Commission simultaneously 

filed and settled an administrative enforcement action 

against Michael J. Liskiewicz. Without admitting or 

denying the findings, Liskiewicz consented to entry of 

the order that finds he, while unlawfully acting as an 

unregistered commodity pool operator, engaged in 

fraud by misappropriating customer funds and issuing false account statements. According to the CFTC’s 

order, Liskiewicz, who has never been registered with 

the CFTC in any capacity, solicited and pooled approximately $193,000 from nine participants to trade in S&P 

futures contracts. Liskiewicz misappropriated a portion 

of the pool participants’ funds for his personal use and 

lost the remaining funds in unprofitable trading, according to the order. Liskiewicz fraudulently concealed 

his conduct from the pool participants by issuing false 

account statements showing healthy profits from futures 

trading, the order finds. The order further finds that 

Liskiewicz failed to operate his commodity pool as a 

legal entity separate from himself, commingled pool 

participants’ funds with his personal funds, and failed 

to provide required disclosure documents to the pool 

participants. The Commission imposed the following 

sanctions: a cease and desist order from further violations as charged; civil monetary penalty ($240,000); 

permanent trading ban; and undertaking to neither 

apply for registration with the Commission nor act in 

a capacity requiring such registration. In re Liskiewicz, 

CFTC Docket No. 06-04 (CFTC filed June 12, 2006).

• CFTC v. King, et al.

On August 30, 2006, the Commission filed a civil enforcement action charging Carl W. King and his company, Carl W. King Investments, LLP (King Investments), 

with fraud and the issuance of false reports to customers. The complaint alleges that since 1995 and continuing through February 2003, King, individually and as 

the agent of King Investments, engaged in a scheme 

to defraud customers of more than $4.5 million. King 

allegedly told potential customers that King Investments managed over $15 million in assets for customers with which he traded commodity futures contracts 

on their behalf. King purportedly informed customers 

that he achieved positive returns on his trading which, 

at times, yielded profits in excess of 20 percent. As alleged in the complaint, the defendants accepted money 

from individual customers and placed the money in an 

account in the name of King Investments (the Corporate Account). After receiving money from individual 

customers, the complaint alleges that the defendants 

did not invest the money in commodity futures trading, 

but left the money in the Corporate Account where King 

could access it for his personal use on items including his home mortgage and health care expenses. The 

complaint further alleges that the defendants concealed 

the misappropriation of customer finds by issuing 

customers false statements showing profits and mak-

140
ing purported profit payments from other customers’ 

investments. In a related criminal action, King pled 

guilty in the United States District Court for the Eastern 

District of Texas to one count of mail fraud as a result of 

his fraudulent activities. King is currently serving an 87 

month prison term in Federal prison. The Commission 

received cooperation from the United States Securities 

and Exchange Commission, the Texas State Securities 

Board, and the United States Attorney’s Office for the 

Eastern District of Texas in connection with this matter. 

CFTC v. King, et al., No. 3-06CV1583-M (N.D. Tex. filed 

Aug. 30, 2006).

• In re Holman.

On September 27, 2006, the Commission simultaneously filed and settled an administrative enforcement 

action against Eddie Holman Jr., who did business 

under the name C-THRU Inc., finding commodity 

pool fraud. The order finds that, beginning in at least 

September 2000, Holman, while acting as a commodity pool operator, fraudulently solicited members of the 

public to deposit funds with the C-THRU pool. Specifically, the order finds that Holman falsely represented 

that the pool was earning profits through the trading 

of commodity futures, and delivered false performance 

statements to pool participants that supported these 

false claims that the pool was generally making profits. 

In fact, the order finds that when Holman did trade, the 

trading generally incurred losses and the account closed 

with a net loss. The order further finds that Holman 

commingled pool funds with other funds, failed to 

furnish monthly trading statements received from the 

futures commission merchant, and failed to maintain 

certain records. The Commission assessed sanctions 

including: a cease and desist order; permanent trading ban; payment of restitution ($146,000) and a civil 

monetary penalty ($240,000); and order to comply 

with certain undertakings, including not applying for 

registration with the CFTC. In September 2006, Holman was arrested in Jupiter, Florida, by the Indian River 

County Sheriff’s Office and criminally charged with two 

second degree felonies, organized scheme to defraud 

($50,000 or more) and grand theft ($50,000 or more). 

In re Holman, CFTC Docket No. 06-07 (CFTC filed Sept. 

27, 2006).

• CFTC v. Kis.

On September 27, 2006, the Commission filed a civil 

enforcement action charging Christian Kis with fraud in 

his operation of Raptor Capital, Inc. (Raptor Capital), a 

company he formed primarily for purposes of trading 

commodity futures contracts, as a commodity pool. The 

complaint alleges that, from approximately March 2003 

through January 2006, Kis used the internet to solicit 

over $400,000 from members of the general public in 

the U.S. and the United Kingdom to purchase shares in 

Raptor Capital, lost all of the investors’ money, and then 

concealed those losses by issuing false statements to investors. The complaint further alleges that although Kis 

was sustaining losses throughout the time he was trading, he routinely sent false written statements to investors indicating that the share price of Raptor Capital was 

increasing as a result of his supposedly profitable commodity futures trading. The complaint also alleges that 

Kis failed to register with the Commission as a commodity trading advisor and a commodity pool operator 

and committed other regulatory violations, including 

failure to provide required disclosure documents and 

accepting customer funds in his own name. On October 

6, 2006 the court entered a statutory restraining order 

freezing assets and preserving books and records. The 

Commission received cooperation from the Securities 

Division of the Tennessee Department of Commerce 

and Insurance in connection with this matter. CFTC v. 

Kis, No. 3 06 0935 (M.D. Tenn. filed Sept. 27, 2006).

• CFTC v. Perkins, et al.

On September 28, 2006, the Commission filed a civil 

enforcement action charging William D. Perkins with 

fraudulently soliciting participation interests in a commodity pool he operated under the name Universe Capital Appreciation, LLC (Universe), which led to the loss 

of over $2 million of the $3.4 million that participants 

invested. The Commission alleges that, from at least 

January 2002 through March 2004, Perkins touted Universe as a way for investors with less than $100,000 to 

participate in a so-called “superfund” trading in selected 

financial futures contracts. Specifically, the complaint 

alleges that Perkins: falsely claimed that “astonishing” 

profits of approximately 100 percent per annum were 

being made by the superfund and that those profits 

were “verified” by an allegedly independent CPA, whose 

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name was not disclosed; misrepresented the compensation he expected to receive from operating Universe; 

prepared and distributed false statements to investors. 

In fact, as the complaint alleges, the superfund accepted 

approximately $43 million during the relevant time and 

used only a portion to trade commodity futures contracts but lost, misappropriated, or dissipated approximately $13.6 million. The complaint further alleges 

that Perkins failed to disclose that, immediately prior to 

forming Universe, he had participated in at least three 

other failed high-yield investment schemes in which 

Perkins and the business acquaintance and partner 

who brought the Universe opportunity to Perkins had 

solicited and lost over $2 million of participant funds in 

other apparent investment scams. In 2004, the Commission filed a related civil enforcement action, CFTC v. Equity Financial Group, LLC, et al., No. 04-cv-1512 (D.N.J.), 

which remains pending, and the United States Attorney’s Office for the Western District of North Carolina 

filed a criminal action against one of the defendants in 

that case, United States v. Coyt E. Murray, No. 3:06cr79-

1 (W.D.N.C.). CFTC v. Perkins, et al., CFTC Docket No. 

1:06-cv-4674 (D.N.J. filed Sept. 28, 2006).

Results obtained during FY 2006 in enforcement actions 

filed during previous fiscal years:

• CFTC v. Steele, No. 05-3130, Order of Default Judgment (N.D. Ill. filed Nov. 22, 2005) (enforcement 

action filed May 25, 2005; default judgment included 

the following sanctions: permanent injunction from 

further violations, permanent trading and registration 

bans, payment of restitution ($7.4 million), and, after 

full restitution to customers is made, payment of a civil 

monetary penalty ($6.2 million)).

• CFTC v. Charles L. Harris, Tradewinds International, 

L.L.C., Civil Action No. 04-C-5723, Consent Order 

of Permanent Injunction (N.D. Ill. filed Feb. 9, 2006) 

(enforcement action filed Sept. 1, 2004; consent order 

included the following sanctions: permanent injunction 

from further violations, permanent trading ban, payment of restitution, jointly and severally ($13,904,331), 

and, upon full payment of restitution, payment of a 

civil monetary penalty ($7 million)).

• CFTC v. Bayou Management, LLC, No. 05 CIV. 8374, 

Consent Order of Permanent Injunction (S.D.N.Y. entered April 3, 2006) (filed Sept. 29, 2005 alleging misappropriation and fraud involving Connecticut hedge 

fund manager Bayou Management, LLC (Bayou Management), its principals, Samuel Israel III and Daniel E. 

Marino, and Richmond Fairfield Associates, Certified 

Public Accountants PLLC (Richmond Fairfield); consent 

order with Bayou Management and Israel included a 

permanent injunction and trading ban with monetary 

sanctions to be determined later; action remains pending against Marino and Richmond Fairfield).

• CFTC v. Pippin, No. CV 05 4120, Consent Order of 

Permanent Injunction (E.D.N.Y. filed April 26, 2006) 

(enforcement action filed Aug. 29, 2005; consent order 

included the following sanctions: permanent injunction 

from further violations, permanent trading ban, payment of restitution ($1.68 million), and payment of a 

civil monetary penalty ($106,500)).

Commodity Trading Advisors, Managed Accounts, and 

Trading Systems

Enforcement actions filed during FY 2006:

• CFTC v. Maggio, et al. 

On November 25, 2005, the Commission filed a civil 

enforcement action charging John Anthony Maggio and 

two companies he owned, Trade Risk Management LLC 

(OR) and Trade Risk Management (WA), with fraudulent solicitation of over 420 customers to purchase a 

futures charting service known as Sigma Band Charting. 

Specifically, the complaint alleges that the defendants, 

none of whom were registered with the Commission, 

misrepresented, among other things, that use of the 

Sigma Band Charting charts would give customers a 

99 percent chance of making money every time they 

traded. The complaint alleges that the defendants collected approximately $400,000 in customer fees. CFTC 

v. Maggio, et al., No. C05 5766RJB (W.D.Wash. filed 

Nov. 25, 2005).

• In re Burgess, et al.

On January 31, 2006, the Commission simultaneously 

filed and settled an administrative enforcement action 

against James R. Burgess, and his firm, Optioneer Inc. 

(Optioneer) finding that they fraudulently solicited 

customers for a commodity options trading system and 

related products and services. Specifically, the Commission found that, between August 2002 and July 2004, 

the respondents fraudulently solicited clients through 

142
their Web site to purchase an options trading system 

known as The Optioneer System. According to the 

order, the respondents falsely touted substantial profits 

from using The Optioneer System, failed to disclose that 

certain performance histories posted on the Optioneer 

Web site were based on hypothetical or simulated trading rather than actual trading, and failed to provide the 

required disclosure statement concerning the inherent 

limitations of hypothetical or simulated trading. The 

Commission’s sanctions included a civil monetary 

penalty ($130,000) and a cease and desist order. In re 

Burgess, et al., CFTC Docket No. 06-03 (CFTC filed Jan. 

31, 2006).

• CFTC v. McCall.

On February 2, 2006, the Commission filed a civil 

enforcement action charging Richard McCall, doing 

business as The Mastery Group International, with 

fraudulent solicitation with respect to his futures trading workshop called Sabaki-Micro Trading for Futures. 

The complaint alleges that, between March and June 

2004, McCall made the following misrepresentations, 

among others: 1) he was an experienced futures trader 

with his trading results consistently ranked among “the 

top five percent of traders worldwide” (in fact he had 

traded commodity futures for only one year, and that 

the account in which he traded experienced consistent 

trading losses); and 2) students following his SabakiMicro Trading for Futures would have “a better than 90 

percent chance of being profitable.” On February 22, 

2006, the court entered a consent order of preliminary 

injunction preserving books and records and enjoining the defendant from further violations as charged. 

CFTC v. McCall, No. 2:06-cv-00132 (D.Nev. filed Feb. 2, 

2006).

• CFTC v. Castillo, et al.

On April 12, 2006, the Commission filed a civil enforcement action charging Gilbert Philip Castillo, Jr. 

and his company, Castle Enterprise Corporation, with 

fraudulent solicitation. The complaint alleges that, 

during the period of February 1999 through mid-2005, 

the defendants fraudulently solicited over $800,000 

from the retail public to purchase commodity trading 

advice and services related to the trading of S&P 500 

commodity futures and options contracts. Specifically, 

the complaint alleges that the defendants made on their 

Web sites the following misrepresentations, among others: defendants represented that their advisory service 

had a record of 90-96 percent accuracy and profitability, 

with purported returns for each year from 1998 through 

2002 that ranged from 302 percent to 447 percent; and 

defendants failed to reveal that purported trading was 

based on hypothetical or simulated performance. In 

fact, the complaint alleges that the defendants’ advisory 

services never operated, and clients were abandoned 

after purchasing trading systems or training courses, 

receiving little or nothing of value and losing their 

money. The complaint further alleges that Castle acted 

as an unregistered commodity trading advisor and Castillo acted as an unregistered associated person. CFTC v. 

Castillo, et al., No. C 06 2540 (N.D. Cal. filed April 12, 

2006).

• CFTC v. Schroeder.

On September 27, 2006, the Commission filed a civil 

enforcement action charging Steven G. Schroeder with 

fraudulently soliciting more than $1 million from at 

least 10 clients, whose commodity futures trading accounts he managed and who lost in excess of $184,465. 

Specifically, the complaint alleges that, commencing at 

least as early as September 2004 and continuing to the 

present, Schroeder fraudulently solicited and defrauded 

existing and prospective managed futures account 

clients, while holding himself out to the public as a 

commodity trading advisor, including soliciting clients 

via contacts he established by postings on an internet 

Web site, letstalkwinning.com. Among other things, 

Schroeder is alleged to have: lied about the size of his 

personal trading accounts, the profitability of his past 

trading, and his educational background; and created 

a fictitious brokerage statement showing his personal 

trading account with more than $1 million in equity 

at a time when his personal trading account had a zero 

balance. On the same day the complaint was filed, the 

court entered a statutory restraining order freezing assets 

and preserving books and records. CFTC v. Schroeder, 

No. 1:06CV0705 (W.D. Mich. filed Sept. 27, 2006).

• CFTC v. Hayes, et al.

On September 29, 2006, the Commission filed a 

civil enforcement action charging Michael Hayes and 

Coldwell Publishing, Inc. (Coldwell) with fraudulently 

promoting a commodity futures and options trading 

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system that was contained in a book entitled, The Insider’s Profit Matrix (IPM), which was authored by Hayes 

under the pseudonym Frank Richards. Specifically, that 

Hayes authored both the trading system and the promotional material used to sell that system to the general 

public through Coldwell. The complaint alleges that 

Hayes acted as a commodity trading advisor by offering 

and selling approximately 15,000 copies of the book to 

the public, grossing more than $1 million in sales from 

2001 through 2004. The complaint further alleges that 

Hayes: misrepresented that IPM’s performance record 

and profit results presented were based an actual trading, when, in fact, the results were either derived from 

hypothetical trading or simply made-up; overstated the 

profit potential of the trading system; failed to adequately warn potential purchasers of the risks inherent 

in futures and options trading; and presented hypothetical performance results without the required cautionary 

statement. CFTC v. Hayes, et al., No. 4:06cv130 (E.D. Va. 

filed Sept. 29, 2006).

Results obtained during FY 2006 in enforcement actions 

filed during previous fiscal years:

• CFTC v. Webman, et al., No. 05-CV-4819 (MBM), Orders 

(S.D.N.Y. filed Nov. 5, 2005 and July 10, 2006) (enforcement action filed May 19, 2005; order of default 

judgment against International Forex Advisory Group 

(IFA Group) and Worldwide Currencies Corp. (WCC) 

filed Nov. 5, 2005; consent order of permanent injunction against Melvin and Larry Webman filed July 10, 

2006; orders included the following sanctions: permanent injunction from further violations (all defendants), permanent trading and registration bans (both 

Webmans), payment of restitution (Webmans jointly 

and severally $2,957,912, IFA Group $2,701,960, and 

WCC $255,952), and payment of civil monetary penalties (Webmans $500,000 each, IFA Group $3,178,530, 

and WCC $526,470); litigation remains pending against 

Wexler).

• CFTC v. Longhorn Financial Advisors, LLC, et al., No. 

04cv00911 (Beatty), Consent Orders of Permanent Injunction (M.D.N.C. filed March 28, 2006) (enforcement 

action filed October 5, 2004; consent orders included 

the following sanctions: permanent injunction from further violations (all defendants), permanent trading and 

registration bans (all defendants), payment of restitution (Owen, Longhorn and Phoenix jointly and severally $308,400, and Belbeck $26,000) and payment of 

civil monetary penalties (Owen, Longhorn and Phoenix 

each $480,000, and Belbeck $10,000)).

• CFTC v. Poole, No. 1:05CV00859, Order for Entry of Default Judgment (M.D.N.C. filed May 1, 2006) (enforcement action filed September 30, 2005; default judgment 

included the following sanctions: permanent injunction 

from further violations, permanent trading and registration bans, and payment of a civil monetary penalty 

($240,000)).

• CFTC v. Wall Street Underground, Inc., No. 03-2193-CM, 

Orders (D.Kan. filed April 7 and July 11, 2006) (enforcement action filed April 22, 2003; consent order of 

permanent injunction against Asaro and Web Fulfillment Centre, Inc. (Web) filed April 7, 2006; default 

judgment against Guarino and Wall Street Underground, Inc. (WSU) filed July 11, 2006; consent order 

and default judgment included the following sanctions: 

permanent injunctions from further violations (all 

defendants), permanent trading bans (all defendants), 

permanent registration bans (Asaro and Web), payment 

of restitution (Guarino and WSU jointly and severally 

$2,374,582), and payment of civil monetary penalties 

(Asaro and Web jointly and severally $310,000, and 

Guarino and WSU jointly and severally $7,123,746)).

Futures Commission Merchants, Introducing Brokers 

and Their Associated Persons

Enforcement actions filed during FY 2006:

• CFTC v. Executive Commodity Corp., et al.

On June 20, 2006, the Commission filed a civil 

enforcement action charging Executive Commodity Corporation (Executive), a registered introducing 

broker, and three of Executive’s registered associated 

persons (Thomas Kennedy, Don Campbell, and Alberto 

Jimenez) with fraudulent solicitation. Specifically, the 

complaint alleges that the defendants fraudulently solicited more than $6.2 million from approximately 495 

retail customers to trade in exchange-traded options on 

commodities futures contracts during the period from 

January 2003 through December 2003. CFTC v. Executive Commodity Corp., et al., No. 06-60886 CIV-DIMITROULEAS (S.D. Fla. filed June 20, 2006).

144
• In re Denniston.

On August 7, 2006, the Commission simultaneously 

filed and settled an administrative enforcement action 

against Toby Wayne Denniston, II, who has never been 

registered with the Commission in any capacity. The 

Commission found that Denniston, while employed 

by registered IB Castle Trading Inc, committed fraud 

and misappropriation of customer funds. Specifically, 

the Commission found that between November 2004 

and August 2005, Denniston misappropriated over 

$190,000 from Acceleration Mercury Fund 4X LP, a 

commodity pool, for his own use and benefit. Denniston accomplished the misappropriation by forging 

signatures on at least 58 checks. To conceal his misappropriation, Denniston regularly altered the pool’s 

bank and trading account statements and created false 

account statements to be sent to pool participants. The 

Commission assessed sanctions including: a cease and 

desist order; permanent trading ban; payment of restitution ($209,070, which includes prejudgment interest) 

and a civil monetary penalty ($250,000); and an order 

to comply with his undertaking to neither apply for 

registration with the Commission nor act in a capacity 

requiring such registration or acting as a principal, officer, or employee of any person registered, required to be 

registered or exempt from registration. The Commission 

received cooperation from the National Futures Association in connection with this matter. In re Denniston, 

CFTC Docket No. 06-05 (CFTC filed August 7, 2006).

Results obtained during FY 2006 in enforcement actions 

filed during previous fiscal years:

• CFTC v. Wilshire Investment Management Corp., et al., 

No. 04-80862, Final Judgment Trial Order (S.D. Fla. 

filed Dec. 5, 2005) (enforcement action filed September 14, 2004; final judgment included the following 

sanctions: permanent injunction from further violations 

(all defendants), payment of restitution (all defendants 

$147,892), and payment of civil monetary penalties (Wilshire, Malcolmson and Russo each $100,000, 

corporate defendants Wilshire Investment Management 

Corp. and National Commodities Corp., Inc. jointly 

and severally $100,000)).

• CFTC v. Carnegie Trading Group, Ltd., et al., No. 1:04 

CV 1403, Orders (N.D. Ohio filed Dec. 16, 2005 and 

June 27, 2006) (enforcement action filed July 23, 2004; 

consent orders against John Hollenbaugh and Reid 

Henshaw entered December 16, 2005 included permanent injunction from further violations and from trading commodity futures and options, and order to pay 

restitution ($165,695, to be offset by restitution paid by 

other defendants) and civil monetary penalties (Hollenbaugh $50,000 and Henshaw $75,000); judgment 

against Carnegie and John Glase filed June 27, 2006 

included order to pay restitution ($229,971), disgorgement (32,850) and a civil monetary penalty ($32,850)).

• CFTC v. Chase Commodities Corp., et al., No. CV04-6463 

PA (CWx), Consent Order of Permanent Injunction 

(C.D.Cal. filed Jan. 25, 2006) (enforcement action filed 

August 4, 2004; the consent order included the following sanctions: permanent injunction from further 

violations (Chase, LaGorio and Obando), permanent 

trading bans (permanent against Chase and LaGorio, 

and five-year against Obando); payment of restitution, 

jointly and severally (all defendants, $4,252,645 total), 

and payment of civil monetary penalties (LaGorio and 

Obando, $120,000 each)).

• CFTC v. Lanier, No. CIV-05-516-F Consent Order of 

Permanent Injunction (W.D. Okla. field March 3, 2006) 

(enforcement action filed March 10, 2005; consent 

order included the following sanctions: permanent 

injunction from further violations, permanent trading 

ban, payment of restitution ($110,860) and payment of 

a civil monetary penalty ($120,000)).

• CFTC v. First American Investment Services, Inc., et al., 

No. 04-60744-CIV-HURLEY/HOPKINS, Consent Order 

of Permanent Injunction (S.D. Fla. filed May 22, 2006) 

(enforcement action filed June 7, 2004; consent order 

included the following sanctions: permanent injunction 

from further violations as charged (all defendants), payment of restitution, jointly and severally (First American 

$7,983,388, Knowles $1,600,000, Allotta $1,137,000, 

Savitsky $660,000, Mills $250,000 and Eulo $200,000) 

and civil monetary penalties (First American 

$1,000,000, Knowles $400,000, Allotta $373,000, Savitsky $140,000, Mills $75,000 and Eulo $75,000)).

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Foreign Currency

Enforcement actions filed during FY 2006:

• CFTC v. Madison Forex International, LLC, et al.

On October 18, 2005, the Commission filed a civil 

enforcement action charging: two related companies, 

Madison Forex International, LLC (Madison) and 

its predecessor, Chadwick Grayson Bauer & Co., Inc. 

(Chadwick); four employees of Madison and Chadwick, 

John Peter D’Onofrio (who is also the owner of Madison), Christopher Peck, Gary Baugh and Lea Lauren, 

and a registered FCM, Qualified Leverage Providers, 

Inc. (QLP), for whom Madison allegedly acted as a de 

facto agent pursuant to an “Introducing Agreement.” 

The complaint alleges a series of violations that started 

at Chadwick and continued at Madison. Madison 

Allegations: Specifically, the complaint alleges that, 

from November 2003 through March 2005, Madison, 

Peck, Lauren, and other Madison employees fraudulently solicited retail customers to trade forex options 

misrepresenting the potential trading profit and risks. 

Contrary to their representation that none of Madison’s 

customers had ever lost money, the complaint alleges 

that at least 177 Madison customers had losses totaling approximately $2.7 million. Also, according to the 

complaint, D’Onofrio, as the owner, and Baugh, as the 

managing partner, are liable for Madison’s violations 

as controlling persons of Madison, and QLP is liable 

for violations of its agent, Madison. Chadwick Allegations: Peck and other employees of Chadwick engaged 

in similar fraud in soliciting customers to trade foreign 

currency futures and options between September 2002 

and November 2003, according to the complaint. 

Chadwick allegedly churned customer accounts by 

trading those accounts for the purpose of generating 

commissions, without regard for customers’ interests. 

In a seven-month period in 2003, it is alleged that these 

managed accounts lost $320,000 of $440,000 invested, 

including $230,000 in commissions paid to Chadwick. 

The complaint alleges that D’Onofrio and Baugh, as 

President and Vice President of Chadwick, respectively, 

are liable for Chadwick’s fraud violations as controlling 

persons. On the same day that the complaint was filed, 

the court entered a statutory restraining order freezing 

the assets of all the defendants except QLP, and prohibiting the defendants from destroying documents. CFTC 

v. Madison Forex International, LLC, et al., No. 05-61672 

(S.D. Fla. filed Oct. 18, 2005).

• CFTC v. Saume, et al.

On December 13, 2005, the Commission filed a civil 

enforcement action charging Carlos Alejandro Libera 

Saume and three of his companies (Asesoria Invertrust 

C.A., Forinex Investment Corp., and Invertrust, Inc.) 

with forex futures fraud. The complaint alleges that, 

since 2000, the defendants fraudulently solicited more 

than $14 million from at least 140 customers. Specifically, the complaint alleges that the defendants, who 

have never been registered with the Commission, misrepresented their trading history and misappropriated 

customer funds for personal use, trading, and the distribution of false profits to prior customers. On the same 

date that the action was filed, the court issued an order 

freezing assets and ordering the defendants to repatriate 

all funds in offshore accounts. CFTC v. Saume, et al., No. 

05-61903 CIV-MARRA (S.D. Fla. filed Dec. 13, 2005).

• CFTC v. Valko, et al.

On January 3, 2006, the Commission filed a civil 

enforcement action charging International Investments Holdings Corp. (IIHC), Doreen Valko (IIHC’s 

president) and Frank DeSantis (who allegedly provided 

consulting and marketing services to both Valko and 

IIHC) with foreign currency options fraud. Specifically, 

the complaint alleges that the defendants misappropriated and defrauded approximately 205 retail customers 

of at least $1.13 million while purportedly trading foreign currency options. The complaint alleges that IIHSC 

and DeSantis sought to hide the misappropriation by 

generating false statements for customer accounts, confirming the purported foreign currency options transactions. On January 4, 2006, the court entered a statutory 

restraining order freezing assets and preserving books 

and records. On August 16, 2006 the court entered a 

Judgment by Default and Order of Permanent Injunction against IIHC, which included the following sanctions: a permanent injunction from further violations 

and from engaging in any business activities related to 

commodity futures and options trading; and payment 

of restitution ($6,060,000) and a civil monetary penalty 

($6,060,000). The Commission’s enforcement action 

remains pending against Valko, and DeSantis. CFTC v. 

Valko, et al., No. 06-060001-CIV-DIMITROULEAS/SELTZER (S.D. Fla. filed Jan. 3, 2006).

146
• CFTC, et al. v. Rask.

On February 6, 2006, the Commission and the State 

of Oregon Department of Consumer and Business 

Services jointly filed a civil enforcement action charging James John Rask with forex fraud. The complaint 

alleges that, from at least December 2000 to August 

2002, Rask fraudulently solicited retail customers to 

participate in a purported foreign currency investment 

fund called the Orion Fund, which was operated by 

Orion International, Inc. (Orion) and its owner Russell 

Cline. An enforcement action is pending against Orion 

and Cline charging illegal off-exchange forex fraud in 

connection with the solicitation of at least $27 million 

from over 600 retail customers. See CFTC, et al., v. Orion 

International, Inc., et al., No. CV-03-603-KI (D. Ore. filed 

May 7, 2003). On February 26, 2006, the court entered 

a consent order of permanent injunction against Rask. 

The order found that Rask fraudulently solicited $3.4 

million from 44 retail customers, which funds were deposited into an account controlled by Orion and Cline. 

Among Rask’s misrepresentations were his claims that 

the Orion Fund had produced annual profits in excess 

of 150 percent and that customer funds would be used 

to trade foreign currency futures. In fact, the consent order found that Rask personally misappropriated almost 

$2 million of customer funds, and virtually all Orion 

Fund customer funds were misappropriated by Orion, 

Cline and Rask. The order included the following sanctions: permanent injunction from further violations, as 

charged; $2,409.885 in restitution; and a $1,965,565 

civil monetary penalty. CFTC, et al. v. Rask, No. CV ’06 

162 (D. Ore. filed Feb. 6, 2006).

• CFTC v. Falco & Stevens, Inc.

On March 3, 2006, the Commission filed a civil enforcement action charging Falco & Stevens, Inc. (F&S) 

and its President, Vyacheslav Nass, neither of whom 

were registered with the Commission, with: illegally 

selling forex futures contracts to over 100 retail customers; fraudulently soliciting retail customers; and 

misappropriating millions of dollars of customer funds. 

The complaint alleges that, beginning in August 2005, 

F&S made false promises that guaranteed customers 

large profits without risk in foreign currency trading. 

According to the complaint, however, instead of trading 

customer monies as promised, F&S and Nass misappropriated more than $4.3 million of customer funds. 

Customer funds were sent to various overseas bank 

accounts in the names of foreign companies, according 

to the complaint. On the same date that the complaint 

was filed, the court entered a statutory restraining order 

preserving books and records and freezing assets. CFTC 

v. Falco & Stevens, Inc., No. 06 CV 1692 (S.D.N.Y. filed 

March 3, 2006).

• CFTC v. First Int’l Group, Inc., et al.

On April 17, 2006, the Commission filed a civil enforcement action charging First International Group, Inc. 

(FIG) and two of the firm’s brokers, Michael Mesa and 

Tom Keesee, with fraudulent solicitation since at least 

June 2004. Specifically, the complaint alleges that FIG, 

through its brokers, fraudulently represented that their 

trade recommendations would result in large profits 

in a short period of time, and also fraudulently failed 

to inform customers and prospective customers that 

the vast majority of FIG customers who traded closed 

their accounts at a loss. According to the complaint, 93 

percent of First International Group’s customers lost 

money, and approximately two-thirds of the customers 

lost virtually all of their investments. On April 18, 2006, 

the court entered a statutory restraining order preserving 

books and records and freezing assets. The Commission 

received assistance from the Florida Bureau of Financial 

Investigations and the U.S. Postal Inspection Service in 

this matter. CFTC v. First Int’l Group, Inc., et al., No. 06-

20979 CIV-JORDAN (S.D. Fla. filed April 17, 2006).

Results obtained during FY 2006 in enforcement actions 

filed during previous fiscal years:

• CFTC v. International Funding Association, et al., No. CIV 

03-1826 PHX, Consent Order of Permanent Injunction (D. Ariz. filed Feb. 22, 2006) (enforcement action 

filed September 18, 2003; consent order included the 

following sanctions: permanent injunction from further 

violations, permanent trading ban, payment of restitution, jointly and severally ($15,963,433), and payment of a civil monetary penalty, jointly and severally 

($15,963,433)).

• CFTC v. Hawker, et al., No. 2:03 CV 0260 JTG, Supplemental Consent Order (D. Utah filed March 29, 2006) 

(enforcement action filed March 12, 2003; consent order of permanent injunction entered October 24, 2003; 

supplemental consent order included the following 

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sanctions: payment of restitution, jointly and severally 

($245,163) and payment of a civil monetary penalty, 

jointly and severally ($120,000)).

• CFTC v. Sonoma Trading Corporation, et al., No. 05-CIV60342-COOKE/BROWN, Judgment by Default and Order of Permanent Injunction (S.D. Fla. filed March 30, 

2006) (enforcement action filed March 9, 2005; default 

judgment included the following sanctions: permanent 

injunction from further violations, and payment of a 

civil monetary penalty ($500,000)).

• CFTC v. Tambiev, et al., No. 03-CV-0177 (RJD), Judgment 

(E.D.N.Y. filed May 5, 2006) (enforcement action filed 

January 7, 2003; order adopting magistrate’s recommendation included the following sanctions: permanent 

injunction from further violations, and payment of civil 

monetary penalties (Tambiev and Tamb International, 

Inc. each to pay $240,000)).

• CFTC v. Firsone, et al., NO. 2:05-CV-02547 (TCP) 

(MLO), Order of Default Judgment (E.D.N.Y. filed 

March 23, 2006) (enforcement action filed May 26, 

2005; default judgment against Windsor Forex Trading 

Corp. included the following sanctions: permanent injunction from further violations, permanent trading and 

registration bans, payment of restitution ($266,768), 

and payment of a civil monetary penalty ($266,768)).

• CFTC v. Gibraltar Monetary Corporation, Inc., et al., No. 

04-80132-CIV-DIMITROULEAS, Final Judgment (S.D. 

Fla. filed June 14, 2006) (enforcement action filed February 10, 2004; permanent injunction from further violations (Kline, Fremer and Johnson), permanent trading 

bans (Kline, Fremer and Johnson), payment of restitution, jointly and severally (all defendants $2,752,337 

total), and payment of civil monetary penalties (Gibraltar $120,000, Kline $240,000, Fremer $352,011, and 

Johnson $191,367)).

• CFTC v. Orion Int’l, Inc., et al., No. 03-CV-603-KI, Order 

of Default Judgment (D. Ore. filed June 16, 2006) 

(enforcement action filed May 7, 2003; default judgment against Orion International, Inc. included the 

following sanctions: permanent injunction from further 

violations, permanent trading and registration bans, 

payment of restitution ($28,823,034), and payment of a 

civil monetary penalty ($84,469,100); litigation remains 

pending against Cline).

• CFTC v. World Market Advisors, Inc., et al., Order of Default Judgment (S.D. Fla. filed June 27, 2006) (enforcement action filed June 9, 2005; default judgment against 

World Market Advisors, Inc., U.S. Capital Management, 

Inc., United Equity Group, Inc., Liberty One Advisors, LLC, and Lighthouse Capital Management, LLC 

included the following sanctions: permanent injunction against further violations, permanent trading and 

registration bans, payment of restitution (jointly and 

severally $20,514,361), and payment of disgorgement 

(jointly and severally $12,632,841); litigation remains 

pending against five individual and three corporate 

defendants).

Other Illegal Off-Exchange

Enforcement action filed during FY 2006:

• CFTC v. American Energy Exchange.

On September 12, 2006, the Commission filed a civil 

enforcement action charging American Energy Exchange 

(AMENX) and York Commodities (York) with fraud in 

the solicitation of customers to purchase options on 

commodity futures contracts. The complaint alleges 

that AMENX and York, through misrepresentations on 

their Web sites, www.amenx.com and www.york-commodities.com, defrauded customers out of over $1.39 

million. York allegedly solicited customers to trade 

options on energy futures contracts with AMENX by 

duping customers into believing that: 1) AMENX is a 

futures exchange; 2) York is its broker; and 3) both are 

located in the United States. As alleged, York leased the 

use of a fax number with a (212) New York area code 

to substantiate its representations as a United Statesbased company. Likewise, as part of the fraud to deceive 

customers into believing it was a reputable commodity 

futures exchange, the complaint alleges that AMENX on 

its Web site listed firms as members of AMENX when, 

in fact, none were members and had never heard of 

AMENX. On the same day the complaint was filed, the 

court entered a statutory restraining order preserving 

books and records. The Commission received cooperation from the Australian Securities and Investment 

Commission, the Bundesbank and German Financial 

Supervisory Authority, the Hong Kong Securities and 

Futures Commission, the Swiss Federal Banking Commission, the New York Mercantile Exchange, and the 

Office of Investor Education and Assistance, U.S. Securi-

14
ties and Exchange Commission for their assistance. 

CFTC v. American Energy Exchange, et al., No. 06 CV 7017 

(S.D.N.Y. filed Sept. 12, 2006).

Statutory Disqualification

• In re Chase Commodities Corp.

On April 7, 2006, the Commission filed a Notice of Intent to Revoke Registration against Chase Commodities 

Corporation (Chase), a registered introducing broker. 

The Commission seeks to determine whether Chase’s 

registration should be revoked based upon entry of a 

consent order against it by a federal district court that 

contained findings of fact and conclusions of law that 

respondent committed options fraud (see CFTC v. Chase 

Commodities Corp., et al., No. CV 04-6463 PA (CWx) 

(C.D. Cal. filed Jan. 24, 2006)). In re Chase Commodities 

Corp., CFTC Docket No. SD 06-01 (CFTC filed April 7, 

2006)

• In re United Investors Group, Inc. 

On August 21, 2006, the Commission filed a Notice of 

Intent to Revoke Registration against United Investors 

Group, Inc. (UIG). The Commission seeks to determine 

whether UIG is subject to statutory disqualification of 

its registration as an Introducing Broker based on the 

entry of a district court consent order of permanent injunction against it. CFTC v. United Investors Group, Inc., 

et al., No. CV 05-80002-CIV-HURLEY/HOPKINS (S.D. 

Fla. entered June 6, 2006). The district court found UIG 

liable for options fraud committed by its APs and assessed sanctions against UIG including: a permanent injunction from further violations and from either applying for registration or acting in a capacity requiring such 

registration with the Commission except as provided 

for in Commission Regulation 4.14(a)(9); permanent 

trading ban; and payment of restitution ($8,025,021) 

and a civil monetary penalty ($16,299,903). In re United 

Investors Group, Inc., CFTC Docket No. SD 06-02 (CFTC 

filed August 21, 2006).

• In re Israel and In re Bayou Management LLC.

On August 21, 2006 and September 27, 2006, the Commission filed Notices of Intent to Revoke Registration 

against Samuel Israel III and Bayou Management LLC 

(Bayou Management), respectively. The Commission 

sought to determine whether registered CPO Bayou 

and its registered AP Israel were subject to statutory 

disqualification of their registrations based upon entry 

of a district court consent order of permanent injunction entered against them. CFTC v. Bayou Management, 

LLC, et al., No. 05cv8374 (CM), Partial Consent Order 

of Permanent Injunction and Ancillary Equitable Relief 

Against Samuel Israel and Bayou Management LLC 

(S.D.N.Y. entered April 3, 2006). The district court order 

found that Israel and Bayou defrauded commodity 

pool participants, submitted to NFA annual reports that 

were not prepared by an independent certified public 

accountant or independent licensed public accountant. 

The district court assessed sanctions including: a permanent injunction from further violations and from either 

applying for registration or acting in a capacity requiring such registration with the Commission; permanent 

trading ban; and payment of restitution and a civil 

monetary penalty in amounts to be determined by later 

agreement between the Commission and Israel and 

Bayou. The Commission accepted Israel’s settlement 

offer and revoked his registration on the day the notice 

was filed; the statutory disqualification action against 

Bayou remains pending. In re Israel, CFTC Docket No. 

SD 06-03 (CFTC filed Aug. 21, 2006) and In re Bayou 

Management LLC, CFTC Docket No. SD 06-05 (CFTC 

filed September 27, 2006).

• In re Risk Capital Trading Group, Inc.

On September 1, 2006, the Commission filed a Notice 

of Intent to Revoke Registration against Risk Capital 

Trading Group, Inc. (Risk Capital). The Commission 

seeks to determine whether Risk Capital is subject 

to statutory disqualification of its registration as an 

Introducing Broker based on the entry of a district court 

consent order of permanent injunction against it. CFTC 

v. Risk Capital Trading Group, Inc., No. 03-CV-2633-ODE, 

Consent Order of Permanent Injunction and Equitable 

Relief (N.D. Ga. entered June 16, 2006) (the Consent 

Order). The Consent Order found that from at least 

January 2001 through September 2003 Risk Capital’s 

associated persons fraudulently solicited customers to 

trade commodity options. The Consent Order assessed 

sanctions including: a permanent injunction from further violations and from either applying for registration 

or acting in a capacity requiring such registration with 

the Commission; permanent trading ban; and payment 

of restitution (over $12 million) and a civil monetary 

penalty (over $8 million). In re Risk Capital Trading 

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A P P E N D I C E S
Group, Inc., CFTC Docket No. SD 06-04 (CFTC filed 

Sept. 1, 2006). 

• In re Wilshire Investment Management Corp.

On September 28, 2006, the Commission filed a Notice 

of Intent to Revoke Registration against Wilshire Investment Management Corp. (Wilshire). The Commission 

seeks to determine whether Wilshire is subject to statutory disqualification of its registration as an Introducing Broker based on the entry of a district court trial 

order and final judgment against it. CFTC v. Wilshire 

Investment Management, et al., No. 04-80862-CIVMIDDLEBROOKS/JOHNSON (S.D. Fla. entered Dec. 5, 

2005). The court’s order found that Wilshire, through 

its employees, engaged in the fraudulent solicitation 

of retail customers to invest in options on commodity 

futures contracts, as charged by the CFTC in its complaint filed in September 2004. The court’s order found 

that Wilshire and others fraudulently solicited members 

of the public to open accounts to trade options on commodity futures contracts by misrepresenting and failing 

to disclose material facts concerning, among other 

things: 1) the likelihood that a customer would realize 

large profits from trading options; 2) the risk involved 

in trading options; and 3) the performance record 

of Wilshire customers. The court assessed sanctions 

included requiring Wilshire to pay restitution and a civil 

monetary penalty, and barring Wilshire from engaging 

in any commodity related activity. In re Wilshire Investment Management Corp., CFTC Docket No. SD 06-06 

(CFTC filed Sept. 28, 2006).

15
Strategic Goal Three – Ensure market 

integrity in order to foster open, 

competitive, and financially sound 

markets. 

Financial, Supervision, Compliance and Recordkeeping 

Enforcement

Enforcement action filed during FY 2006:

• CFTC v. FX Trading, LLC.

On December 8, 2005, the Commission filed a civil 

enforcement action charging registered futures commission merchant FX Trading, LLC with failure to maintain 

required minimum net capital requirements since at 

least October 31, 2005. On the same day that the complaint was filed, the court entered a statutory restraining 

order preserving books and records and freezing approximately $3.5 million in assets. CFTC v. FX Trading, 

LLC, No. 05-5722 (D.N.J. filed Dec. 8, 2005).

Trade Practice

Enforcement actions filed during FY 2006:

• In re Shell Trading US Company, et al.

On January 4, 2006, the Commission simultaneously 

filed and settled an action against Shell Trading US 

Company (STUSCO) and Shell International Trading 

and Shipping Co. (STASCO), two companies whose 

ultimate parent is Royal Dutch Shell, and Nigel Catterall, who was the chief trader on behalf of STUSCO. 

The Commission found that the defendants engaged 

in non-competitive transactions and fictitious sales by 

prearranging NYMEX trades. Specifically, the Commission found that, on five occasions between November 

2003 and March 2004, traders for STUSCO and STASCO 

prearranged trades for crude oil futures contracts. In 

each instance, according to the order, the traders prearranged the trade by agreeing in advance on the quantity 

and the settlement month, agreeing to take the opposite 

positions of the trade and executing the trade on the 

NYMEX. The order finds that Catterall was involved in 

the prearrangement of certain of these trades. Without 

admitting or denying the findings, the respondents consented to entry of the order, which included the following sanctions, among others: a cease and desist order; 

and civil monetary penalties for STASCO ($200,000) 

and Catterall ($100,000). Separately, NYMEX has taken 

disciplinary action against its member firm, STUSCO, 

and an employee of the firm. The Commission received 

assistance in this matter from NYMEX staff. In re Shell 

Trading US Company, et al., CFTC Docket No. 06-02 

(CFTC filed Jan. 4, 2006).

• CFTC v. Doyle.

On August 10, 2006, the Commission filed a civil 

enforcement action charging Matthew Doyle, a telephone clerk for a registered floor broker, in connection 

with an alleged scheme to defraud certain customers 

and his employer. Specifically, the Commission alleges 

C

Enforcement Litigation for Goal T
that, during the week of April 18, 2005, Doyle willfully prepared or caused to be prepared order tickets for 

hundreds of natural gas futures contracts containing 

false customer account identification to be executed 

by his employer on the NYMEX. Through this scheme, 

the complaint alleges, Doyle attempted to assign losing 

trades to the accounts of certain customers, and when 

that failed, he caused these losing trades to be assigned 

to his employer’s account. According to the complaint, 

as a result of this scheme, Doyle’s employer suffered 

millions of dollars in losses through the losing trades. 

The Commission received cooperation from the NYMEX 

Compliance staff in connection with this matter. CFTC 

v. Doyle, Docket No. 06 CV 6094 (S.D.N.Y. filed August 

10, 2006).

• In re Machata, et al.

On September 27, 2006, the Commission simultaneously filed and settled an administrative enforcement 

action against Andrew Machata and his company, Rolling Meadow Ranch, Inc. (RMR), finding they violated 

NYBOT trading limits for frozen concentrated orange 

juice commodity futures contracts. Specifically, the 

order finds that, between March 2004 and August 2005, 

RMR, by and through Machata, traded frozen concentrated orange juice futures contracts on the NYBOT and 

exceeded the position limits set by the NYBOT in violation of the Act. Machata, as president and sole operator of RMR, opened the trading accounts, determined 

trading strategies, and placed all trades, according to the 

order. The Commission assessed sanctions including: 

a cease and desist order; and a civil monetary penalty 

($130,000 jointly and severally). The Commission received cooperation from the NYBOT in connection with 

this matter. In re Machata, et al., CFTC Docket No. 06-08 

(CFTC filed Sept. 27, 2006).

International Cooperative Enforcement

• December 2005, Protocol with the Dubai Financial 

Services Authority.

• January 2006, Amendment of the Commission’s Statement of Intent with the Japanese FSA to reflect new authority obtained by the Japanese FSA over all financial 

derivatives including foreign currency.

• June 2006, Information Sharing Agreement with the 

Israeli Securities Authority.

15
Integrated Surveillance System (ISS)

User: Market Oversight

Functionality: ISS collects futures and options position 

data for large traders from reporting firms and open 

interest, volume, price, and clearing member data from 

exchanges and is used to monitor futures and options 

trading in order to detect any market anomalies that may 

occur.

Regulatory Statement Review (RSR 

Express)

User: Clearing & Intermediary Oversight

Functionality: RSR Express collects 1-FR reports and Focus 

reports from all firms and is used to monitor the financial 

status of firms and the changes to that status over time.

Stressing Positions at Risk (SPARK)

User: Clearing & Intermediary Oversight,

Market Oversight

Functionality: SPARK is a tool used by Commission staff 

to perform “what if” analysis to determine the effect of 

market movement on margin.

Filings and Actions (FILAC)

User: Clearing & Intermediary Oversight,

Market Oversight

Functionality: FILAC manages data associated with the approval organizations, products, rules, foreign filings, and 

actions.

Strategic Planning Workforce (SWP)

User: CFTC-Wide

Functionality: SWP is designed to allow the Commission 

to matech current CFTC skill needs to the existing talent 

base in the workforce. This matching will help determine 

skill gaps and allow for future planning on how to meet 

skill needs.

Project eLaw

User: Enforcement, General Counsel, Proceedings

Functionality: Project eLaw is a CFTC-wide initiative to 

define requirements that will lead to the creation of an 

automated law office that seamlessly integrates technology 

and work processes to support Commission managers 

and staff in their investigative, trial, and appellate work.

C

CFTC Information Technology 
A Guide to the Language of the Futures Industry

http://www.cftc.gov/opa/glossary/opaglossary_a.htm

Because the acronyms of many words and phrases used throughout the futures industry are not readily available in standard references, the Commission’s Office of External Affairs compiled a glossary to assist members of the public. 

This glossary is not inclusive, nor are general definitions intended to state or suggest the views of the Commission 

concerning the legal significance, or meaning of any word or term. Moreover, no definition is intended to state or suggest the Commission’s views concerning any trading strategy or economic theory. 

Glossary of Acronyms

AE...............................................................................................The Actuarials Exchange, LLC

AFTC...........................................................................................Office of the Agricultural Futures Trading Commission of 

Thailand

ALJ..............................................................................................Administrative Law Judge

AML............................................................................................Anti-Money Laundering

AP...............................................................................................Associated Persons

BTEX...........................................................................................BrokerTec Futures Exchange

CBOE .........................................................................................Chicago Board Options Exchange

CBOT .........................................................................................Chicago Board of Trade

CCORP.......................................................................................The Clearing Corporation

CCX............................................................................................Chicago Climate Exchange, Inc.

CDXCHANGE ...........................................................................Commodities Derivative Exchange, Inc.

CCFE ..........................................................................................Chicago Climate Exchange, Inc.

CEA ............................................................................................Commodity Exchange Act

CESR ..........................................................................................Council of European Securities Regulators

CFE.............................................................................................CBOE Futures Exchange

15

TheCFTC Gl
CFFE...........................................................................................Cantor Financial Futures Exchange

CFTC ..........................................................................................Commodity Futures Trading Commission

CFMA.........................................................................................Commodity Futures Modernization Act of 2000

CME ...........................................................................................Chicago Mercantile Exchange

CME AM ....................................................................................CME Auction Markets

COMEX......................................................................................Commodity Exchange Division

COSRA.......................................................................................Council of Securities Regulators of the Americas

CPO............................................................................................Commodity Pool Operator

CSCE ..........................................................................................Coffee Sugar and Cocoa Exchange

CTA.............................................................................................Commodity Trading Advisor

DCIO .........................................................................................Division of Clearing and Intermediary Oversight (CFTC)

DCM ..........................................................................................Designated Contract Market

DCO...........................................................................................Derivatives Clearing Organization

DJIA VIX.....................................................................................Dow Jones Industrial Average Volatility Index

DMO..........................................................................................Division of Market Oversight (CFTC)

DOJ ............................................................................................Department of Justice

ECM ...........................................................................................Exempt Commercial Markets

EGA............................................................................................E-Government Act

EPFE ...........................................................................................Exchange Place Futures, LLC

EUREX US..................................................................................U.S. Futures Exchange, LLC

FB ...............................................................................................Floor Brokers

FCM............................................................................................Futures Commission Merchant

FCOM ........................................................................................FutureCom

FIA..............................................................................................Futures Industry Association

FILAC .........................................................................................Filings and Actions 

FISMA.........................................................................................Federal Information Security Management Act

FMFIA.........................................................................................Federal Managers’ Financial Integrity Act

FOREX........................................................................................Foreign Currency

FSA .............................................................................................Financial Services Authority

FT................................................................................................Floor Trader

FTE .............................................................................................Full-time Equivalent

FY ...............................................................................................Fiscal Year

GAAP..........................................................................................U.S. Generally Accepted Accounting Principles

GAO ...........................................................................................General Accountability Office

GCC ...........................................................................................Guaranty Clearing Corporation

GPRA..........................................................................................Government Performance and Results Act

HSE ............................................................................................HoustonStreet Exchange, Inc.

C

A P P E N D I C E S
IB................................................................................................Introducing Broker

ICAP...........................................................................................ICAP Commodity Derivatives Trading System

ICAP ETC...................................................................................ICAP Electronic Trading Community

ICAP HYDE................................................................................ICAP Hyde Limited Trading System

ICC.............................................................................................Intermarket Clearing Corporation

ICE .............................................................................................IntercontinentalExchange, Inc.

IMAREX......................................................................................International Maritime Exchange

INET...........................................................................................INET Futures Exchange

INTRADE ...................................................................................INTRADE Board of Trade

ISS ..............................................................................................Integrated Surveillance System

IOSCO .......................................................................................International Organization of Securities Commissions

JADE...........................................................................................Joint Asian Derivatives Exchange

JO ...............................................................................................Judgment Officer

KCBT ..........................................................................................Kansas City Board of Trade

LCH............................................................................................London Clearing House

LLC.............................................................................................Limited Liability Corporation

MACE.........................................................................................MidAmerica Commodity Exchange

MDA...........................................................................................Management’s Discussion and Analysis

ME..............................................................................................Merchants Exchange

MGE ...........................................................................................Minneapolis Grain Exchange

MOU..........................................................................................Memoranda of Understanding

MSR............................................................................................Monthly Status Report

NFA ............................................................................................National Futures Association

NGX ...........................................................................................Natural Gas Exchange

NQLX.........................................................................................NQLX LLC

NTP ............................................................................................NetThruPut

NYBOT.......................................................................................New York Board of Trade

NYCC.........................................................................................New York Clearing Corporation

NYCE..........................................................................................New York Cotton Exchange

NYFE ..........................................................................................New York Futures Exchange

NYMEX ......................................................................................New York Mercantile Exchange

OCC...........................................................................................The Options Clearing Corporation

OCX ...........................................................................................OneChicago Futures Exchange

OGC...........................................................................................Office of the General Counsel (CFTC)

OHR...........................................................................................Office of Human Resources (CFTC)

OIA.............................................................................................Office of International Affairs (CFTC)

OIG ............................................................................................Office of Inspector General (CFTC)

15
OITS ...........................................................................................Office of Information and Technology Services (CFTC)

OMB...........................................................................................Office of Management and Budget

ONXCC......................................................................................OnExchange Clearing Corporation

OPEX..........................................................................................Optionable, Inc.

OTC............................................................................................Over-the-Counter

PBOT..........................................................................................Philadelphia Board of Trade

PPGC..........................................................................................Pay Parity Governance Committee

RBOB .........................................................................................Reformulated Gasoline Blendstock for Oxygen Blending

RER.............................................................................................Rule Enforcement Reviews

RIC .............................................................................................Registered Investment Company

RWG...........................................................................................Registration Working Group

SC5.............................................................................................IOSCO’s Standing Committee 5 on Investment Management

SEC.............................................................................................Securities and Exchange Commission

SFP .............................................................................................Security Futures Products

SL................................................................................................Spectron Live.com Limited

SPARK ........................................................................................Stressing Positions at Risk

SRO ............................................................................................Self-Regulatory Organization

TCX.............................................................................................Trade Capture Exchange

TFS..............................................................................................Traditional Financial Services Pulp and Paper Division

TFSE ...........................................................................................TFS Energy, LLC

TPI..............................................................................................Trade Practice Investigation

TRADE........................................................................................Trade Practice Surveillance System

TREASURY.................................................................................U.S. Department of the Treasury

TS................................................................................................TradeSpark, LP

UK ..............................................................................................United Kingdom

UNIDROIT.................................................................................International Institute for the Unification of Private Law

US...............................................................................................United States of America

USA PATRIOT ............................................................................Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism 

VaR .............................................................................................Value at Risk

VIX..............................................................................................Volatility Index

WBOT.........................................................................................Weather Board of Trade

WXL............................................................................................WeatherXchange Limited

XBOT..........................................................................................Exempt Boards of Trade

C

A P P E N D I C E S
1

Cover Page Photo Credits:

Top of page, from left to right: 

KCBT Building, 1877. Photo provided by Kansas City Board of Trade

KCBT Trading Floor, 1877. Photo provided by Kansas City Board of Trade

KCBT Building, 1887–1924. Photo provided by Kansas City Board of Trade 

CME Trading Floor, 1950’s. Photo provided by Chicago Mercantile Exchange

The last day in the old Board of Trade Building, January 1, 1925. Photo provided by Kansas City Board of Trade

Trading Floor Board of Trade, Kansas City, January 9, 1925. Photo provided by Kansas City Board of Trade

CME Trading Floor Soon After 1928 Opening. Photo provided by Chicago Mercantile Exchange

KCBT Trading Floor, 1930’s. Photo provided by Kansas City Board of Trade

KCBT Trading Floor, July 19, 1932. Photo provided by Kansas City Board of Trade

KCBT 80th Anniversary, February 6, 1936. Photo provided by Kansas City Board of Trade

CME, 1940’s . Photo provided by Chicago Mercantile Exchange

CBOT Building. Photo provided by Chicago Board of Trade

KCBT Building, 1925–1966. Photo provided by Kansas City Board of Trade 

Ticker Tape Parade with CBOT Building in the Background. Photo provided by Chicago Board of Trade.

KCBT Building. Photo provided by Kansas City Board of Trade 

CBOT Trading Floor. Photo provided by Chicago Board of Trade

CME S&P Pit. CME-NYSE AP photo provided by Chicago Mercantile Exchange

CBOT Trading Floor. Photo provided by Chicago Board of Trade

CME Trading Floor. Photo provided by Chicago Mercantile Exchange

CME Trading Floor. Photo provided by Chicago Mercantile Exchange

CBOT Building. Photo provided by Chicago Board of Trade

CBOT Trading Floor. Photo provided by Chicago Board of Trade

Internal Report Photo Credits:

Robert Rathe Photography; Pages 2, 26, 54, 133, 138, and 151; photos by Robert Rathe

Commodity Futures Trading Commission; Pages 1, 5, 14, 30, 33, 41, 42, 71, 95, 96, 97, 117, 136, 153, and 154; 

photos by Stacy D. Yochum

Acknowledgements

This Performance and Accountibility Report was produced with the energies and talents of Commission staff. To these 

individuals, the Office of Financial Management would like to offer our sincerest thanks and acknowledgement.

We would also like to acknowledge the Office of Inspector General and KPMG, LLP for the professional manner in 

which they conducted the audit of the Fiscal Year 2006 Financial Statements.

We offer our special thanks to Sledd Studios, in particular John Sledd, for his outstanding contribution to the design of 

this report.

Photo Credits and Acknowledgemen
Additional copies of the Commodity Futures Trading Commission FY 2006 Performance and Accountability Report

are available by contacting the Office of Financial Management:

Office of Financial Management

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, DC 20581

Telephone: Emory Bevill, 202.418.5187 or Lisa Malone, 202.418.5184

Fax: 202.418.5414

E-mail: ebevill@cftc.gov or lmalone@cftc.gov

Web: http://www.cftc.gov/cftc/cftcreports.htm

The CFTC’s Strategic Plan is available on the Web at: http://www.cftc.gov/files/ofm/ofmfy2009strategicplan.pdf
COMMODITY FUTURES TRADING COMMISSION

Thre Lafayette Centre • 1155 21st S

202.418.5000 • www.cf