U.S. COMMODITY FUTURES TRADING COMMISSION 

Office of Inspector General 

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5110 

Facsimile: (202) 418-5522 

January 13, 2016 

TO: Timothy G. Massad, Chairman 

Commissioner Sharon Y. Bowen 

Commissione1fhristophcr Giancarlo 

A. Roy LaviU 

Inspector General 

FROM: rc ~ 

SUBJECT: Follow-Up Report on the Orrice of the Chief Economist 

My Office has completed a follow-up lo our 20 14 repo1t on the Office of the Chief Economist 

(OCE) (attached).

1 We are pleased to report that OCE has made progress in each of the areas where our 

20 I 4 report recommended improvement. Nevertheless, I wish to emphasize that OCE remains 

understaffed. Between December 2012 and January 20 14, we estimate OCE economists (including 

contractors and consultants) decreased from 39 to 11 , a decrease of 72%.2 The Chief Economist was 

allotted $200,000 in FY20 I 5 to hire outside academics as contractors, but chose to allocate these funds 

elsewhere. Cun-ently we believe OCE employs12 full time economists (not including the Director) and 

five economist consultants (three unpaid), with two add itional economist consultants currently in the 

works. Seventeen economists in OCE is an improvement but it is not enough in our view to assure a 

robust research environment. 

I am pleased that the Chief Economist informed my office that he anticipates adding eight 

additional outside academic economists to OCE within the next few months. This anticipated staff 

increase certainly appears feasi ble as it is not unusual for academic economists to work in OCE for no 

pay, in exchange for the unique market research capabilities available only at CFTC. My office will 

follow up on staffing in OCE which, hopefully, will result in an increase ofjournal scholarship. 

Management issued a response to this report which did not motivate amendment to our review. 

The Management response and our brief rebuttal are also attached. 

As always, I appreciate your continuing support of my Office. 

Attachments 

Cc (with attachments): Sayee Srinivasan, Director, OCE 

1 By way ofbackground, in 20 13 then-Chairman Gensler requested that my Office review concerns ..regarding the 

use of non-public data by OCE and visiting academics," and related administrative issues. In February 2014, we 

issued our first review of OCE. We found no evidence of improper use or disclosures of non-public data by or 

related to OCE, but did issue findings and recommendations regarding the OCE economic research program, which 

CFTC had halted in December 20 12 in response to its concerns. We promised to revisit those issues. See, Review of 

the Commodity Futures Trading Commission's Response to Allegations Pertaining to the Office of the Chief 

Economist (Feb. 21, 2014) 01ttp://www.cftc.uov/ucm/groups/public/@aboutcftc/documents/file/cftc 046841.pdO. 1 \c\., at iii. 
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Follow Up Report: 

Review ofthe Commodity Futures Trading 

Commission's Response to Allegations Pertaining to the 

Office of the Chief Economist 

Prepared by the 

Office ofthe Inspector General 

Commodity Futures Trading Commission 

January 13, 2016 

This CFTC 0 I G Report is subject to the provisions of the Privacy Act of 197 4, 

5 U.S.C. § 552a, and has been redacted as determined by the Commodity 

Futures Trading Commission. The redactions are not determined by the 

CFTCOIG. 
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Table of Contents 

Executive Summary ......................................................................................................................... i 


Introduction..................................................................................................................................... 1 


Objective, Scope, and Methodology ............................................................................................... 1 


Findings........................................................................................................................................... 2 


OCE Has Reestablished Its Research Program........................................................................... 2 


OCE and OGC Have Improved the Review Process .............................................................. 2 


Clearance Times Have Improved Since Our Last Review ..................................................... 3 


Research ...................................................................................................................................... 4 


OCE Prohibited Relevant But Potentially Controversial Research ........................................ 4 


OCE Can Better Inform the CFTC about Ongoing Research................................................. 5 


Staffing..............................................................................................................................•.•....... 6 


OCE Has Not Restarted the Visiting Scholars Program ......................................................... 6 


OCE Has Had Difficulty Filling Available FTE Positions..................................................... 7 


OCE Economists Have Sufficient Technology........................................................................... 8 


Conclusions and Recommendations ............................................................................................... 9 


ii 
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Introduction 

Jn December 2012, the Chicago Mercantile Exchange (CME) accused Cf.TC economists 

of improper access to and pub] ication ofconfidential trade data. 1 We issued our first review of 

this matter in February 2014; there, we examined both the CME's allegations and the CFTC's 

response.

2 We found that, after a preliminary review, the CrTC shut down the Office ofthe 

Chief Economist's research program, halted publication ofcompleted research, eliminated 

approximately two dozen visiting academic economists, and removed the server that visiting 

academics had used to access CFTC trade data. At the time ofour 2014 review, neither the 

CFTC nor our office had found evidence that trade data had been published improperly. No 

evidence has been found since then either. While problems were found with personnel records of 

certain CFTC economists who had otherwise properly been hired or appointed, the problems 

were neither the fault ofthe economists themselves nor of OCE management. 

Our review determined that the CFTC should do the following: (I) restart the Office of 

the Chief Economist's research program as soon as feasible; (2) resolve the deficiencies in 

personnel records (including security clearances) in OCE in a like fashion as resolved for other 

CFTC employees; (3) assure the legality of any pre-publication review process for OCE research 

papers and presentations; and (4) streamline any pre-publication review undertaken by the 

Agency. 

We noted that we would follow up in approximately one year. Accordingly, CFTC OIG 

has completed a follow-up review to determine the current status of the OCE. 

Objective, Scope, and Methodology 

Our objective was to (l) review the efficiency and effectiveness of current publication 

procedures for OCE research papers; (2) determine if staffing issues in OCE have been resolved, 

including whether outside academics have been allowed to return to pursue research; and (3) 

determine if OCE economists have the IT infrastructure- both hardware and sofhvarenecessary to do their jobs efficiently. We began fieldwork for this review in June 20 l5. During 

our fieldwork, information came to light which prompted our Office to expand the scope of our 

review to include the independence of OCE economists to select research topics. 

To complete our review, we interviewed over 20 individuals within the CFTC in OCE, 

OGC, and the Office of Data and Technology (ODT). To better asce11ain the effectiveness of the 

approval procedures, we sought out best practices in the field by speaking with former CFTC 

Chief Economists and individuals in an equivalent position at other federal financial regulatory 

1 Letter from Mark Young and Jerrold Salzman on behalf of CME to Dan Berkovitz, dated December 14, 2012, 

available at 

Review of the Commodity Futures Trading Commission's Response to Allegations Pertaining to the Office of the 

Chief Economist (Feb. 21 , 2014) [hereinafter, "OIG's 2014 OCE Review"], available at 

hnp://www.cftc.gov/ucm/groups/public/@aboutcftc/document s/file/cftc 046841 .pdf. 
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agencies. We also obtained and reviewed policies, procedures, research paper publication 

approval emails, and other relevant records from OCE, OGC, and the Office ofthe Executive 

Director (OED). 

Findings 

OCE Has Reestablished Its Research Program 

At the time ofthe 2014 review, OCE continued to have a substantial backlog of research 

papers awaiting clearance,3 and economists were not yet allowed to publish new research.4 Since 

that time, the backlog has been eliminated and OCE has begun working on new research again. 

In 2014, five new papers were submitted for review, and all five completed the clearance 

process. In 2015, one new paper was submitted for review and completed the clearance process. 5 

Unfortunately, the CFTC had no formal tracking system in place for prior years, and so 

no direct comparison ofacademic productivity is possible. However, we note that 24 research 

papers were either in the CFTC's approval process or had recently been approved at the time the 

CFTC shut down academic research and publication in December 2012.6 To our knowledge, no 

research initiated since that time, by OCE economists or by outside academics using CFTC data, 

has been published in an academic journal.7 

OCE and OGC Have Improved the Review Process 

OCE research papers flow through a two-part clearance process. First, the research paper 

and supporting documentation are submitted to an internal OCE review committee. 8 During 

OCE's internal review, economists search for possible improper section 8 data usage. The OCE 

review committee then produces an approval report and submits the report and research paper to 

OGC for a secondary review. 

The stated value ofOGC's review is two-fold. First, OGC looks for section 8 data. An 

OGC attorney explained that although OGC does not have expertise in the aggregation ofsection 

8 data, it is beneficial as a safety precaution to have an additional review.9 Second, OGC reviews 

each author's on-boarding documentation prior to permitting publication. 10 Much ofOGC's 

3 Id at S-6, 29. 


4 Id at IS. 


s Our interviews revealed that a second paper was submitted to the OCE Review Committee and but was not 


reviewed due to incomplete materials. 
 6 OIG's 2014 OCE Review, at 5-6, 29. Our records indicate that the 24 papers dated back to 2010. 
 7 For comparison, one economist estimated that a half-dozen papers had been successfully published in peer 


reviewed journals in 2012 prior to the shutdown. 


8 The supporting documentation requires the authors to detail the paper's use ofsection 8 data. 
 9 OGC currently has an attorney on detail within OCE. However, this attorney does not have the authority to 


perfonn OGC's legal review and may not clear papers for publication. An OGC attorney explained that a single 


detailee may not have all the necessary knowledge to clear papers, and that OGC oversight is necessary. We note 


that this concern was not about expertise with respect to detecting confidential data under section 8, but rather with 


~ect to the Human Resource paperwork.
 10 In a memo submitted to our Office in response to a document request, the Office of Human Resources (OHR) 


revealed that two current OCE economists had documents missing from their files. OHR stated that these documents 


2 

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review consists ofthe analysis ofhuman resource documents. OGC explained that this part ofthe 

review needs to be done only once per author, and that subsequent publications by the same 

author proceed more quickly. 11 

Although both OCE and OGC reviews look for improper section 8 data usage, we note 

that multiple interviewees stated that neither OCE nor OGC have written policies for how section 

8 data must be aggregated in research papers. Further, some OCE economists reported that they 

do not receive any additional training on section 8 data outside ofwhat is required to be 

completed by all agency employees. However, the ChiefEconomist reported that OCE has held 

section 8 training at research meetings. 

Clearance Times Have Improved Since Our Last Review 

Beginning with papers submitted for review in 2014, OCE tracked author submission, 

OCE approval, and OGC approval dates. Since September 2014, six papers have been 

reviewed. 12 

Category DaysforOCE 

Committee approval 13 

Days forOGC 

approval 

Total days for final 

approval 

Longest aooroval 110 52 162 

Shortest approval I'! 14 13 39 

Average approval 52 33 85 

Since our initial OCE review, clearance times have improved from as long as 14 months 

to an average ofthree.

15 Most OCE economists find current clearance times to be acceptable. 

Some OCE economists view the current clearance process as an improvement to the voluntary 

review process in place prior to 2012, because it provides a more detailed review for confidential 

information. 

likely were completed but misplaced. The missing documents were not identified by OHR--<ir OGC-until our 

Office's document request was made. One individual was missing an Employment Eligibility Verification form, 

while the other was missing the CFTC Code ofEthical Conduct Agreement. These two items are not part ofOGC's 

review process. OGC informed us that its review only involves the Form SF-52. We are not clear why legal 

expertise is required to review a Form SF-52, or why this expertise cannot lie with the attorney detailed to OCE. We 

believe OGC continues to conflate improper administrative on-boarding paperwork with improper appointment 

status. See OIG's 2014 OCE Review, at 16-20. 11 We note that OGC will attempt to expedite its review ifnotified by OCE ofa presentation or other deadline 

authors wish to meet. This expedited process was utilized by one OCE economist to enable him to attend a 

conference. 12 September 2014 is the month when OCE started tracking the OCE approval date, thus enabling us to make the 

comparison. 

13 This day count includes weekends and holidays. 
 14 While the shortest OCE approval period was 14 days, and the shortest OGC approval period was 13 days, these 


were not for the same paper. The shortest overall approval period is not, therefore, 27 days. 


is The 85-day average is generated by dates provided by OCE. 

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Although economic research paper clearance times have improved at CFTC, other 

financial re~atory agencies clear papers for publication much faster. 16 The clearance time at 

one FIRREA17 agency was reportedly just two to three weeks. 18 The salient difference is that 

research papers are reviewed at that agency by subject-matter experts, 19 and there is no 

secondary legal review. 

Research 

OCE Prohibited Relevant But Potentially Controversial Research 

CFTC interprets the Dodd-Frank Act20 to mandate the establishment ofposition limits 

throughout the futures and swaps industry.21 During the fieldwork for our review, several OCE 

economists identified position limits as an example of a topic on which economic research is no 

longer permitted. As one OCE economist put it, ''you can't write a report on something that 

destroys three years of(CFTC) work."22 

This issue arose-unasked-during an interview with an OCE economist. We 

immediately broadened the scope ofour review and began asking other OCE economists about 

the issue. Several other economists confirmed their impression that OCE is now censoring 

research topics that might conflict with the official positions ofthe CFTC. Some ofthis 

censorship occurs on the part ofindividual staffeconomists themselves-when selecting 

potential topics, they now choose non-controversial ones. However, multiple OCE economists 

also reported that the Chief Economist has declined to permit research on certain topics relevant 

to the CFTC mission,23 including position limits. 

16 Note that our Office does not intend to imply that OCE must follow the procedures ofother financial regulatory 


afencies. Rather, where those agencies have seen positive results, we think those procedures are worth noting.
 1 FIRREA stands for Financial Institutions Refonn, Recovery, and Enforcement Act of 1989, Pub. L. 101-73, 103 


Stat 183. 


18 The fastest clearance reported by an OCE economist was three weeks. 
 19 The research paper is first presented to an in-house seminar panel for critique, and then it is submitted for review
 !>l a management-level Ph.D. economist. 


Dodd-Frank Wall Street Reform and Consumer Protection Act, 111 Pub. L. 203, 124 Stat. 1376 (2010).

21 Position Limits for Derivatives, 78 Fed. Reg. 75680 (Oct 12, 2013) ("Congress directed, i.e., mandated, that the 

Commission 'shall' establish limits on the amount ofpositions, as appropriate, that may be held by any person in 

agricultural and exempt commodity futures and options contracts traded on a DCM. Similarly, ... in amended CEA 

section 4a(a)(5), Congress mandated that the Commission impose position limits on swaps that are economically 

equivalent to the agricultural and exempt commodity derivatives for which it mandated position limits in CEA 

section 4a(a)(2)." (citations omitted)). 

22 While OCE economists expressed myriad views on whether censorship-self- or imposed-was appropriate, its 

existence was a consistent theme. OCE economists had various reasons for taking self-censoring measures. One 

concern was that the research program may be shut down ifthe Office publishes papers with results not supporting 

Commission policy. Another OCE economist expressed fear of personal retaliation from the ChiefEconomist ifhis 

research resulted in conclusions that might offend Commissioners. 23 Research paper topics originate in multiple ways. Intennittently, OCE holds research meetings to discuss topic 

ideas. Some ideas are generated by observing interesting trends in data, some ideas are proposed by the 

Commission, and other ideas stem from outside suggestions. AU topics flow through the ChiefEconomist before 

any research project proceeds past the idea-genesis stage. 

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Some OCE economists expressed uncertainty as to the purpose ofOCE's research 

program ifthe Office is prevented from studying topics relevant to current CFTC rulemaking. 

Yet OCE economists reported that the ChiefEconomist has rejected or delayed research paper 

topic ideas ifthey were related to pending rulemaking or could challenge the validity of agency 

regulations. One OCE economist described the policymaking process as one in which a decision 

is made and then analysis is done in a fashion designed to support the decision. There is a 

perception within OCE that the ChiefEconomist is "more Commission-friendly," and that he 

discourages research that might offend Commissioners. 

Although it is not unheard offor financial regulatory agencies to discourage research that 

conflicts with their policies,24 our fieldwork revealed that OCE economists were not historically 

subjected to prohibitions on politically controversial but timely and relevant research. We spoke 

with two former CFTC Chief Economists who worked under six different Chairmen or acting 

Chairmen. According to the former ChiefEconomists, the Chairmen supported the Office's 

ability to publish conclusions that were contrary to current Agency policy. Both Chief 

Economists stated that during their tenures, OCE published at least one research paper with 

results that called into question agency policy. Both also stated that so long as the intended 

research related to the Commission's mission, the Chainnan would support the paper's 

publication.25 

We discussed this concern on multiple occasions with the current Chief Economist. He 

agreed that he had initially rejected a research proposal on position limits on the basis that it was 

politically controversial. The ChiefEconomist later stated his belief that the CFTC did not have 

the data or the in-house expertise to do this project in any event. The Chief Economist explained 

that this was a matter of discretion, and that he did in fact permit research into politically 

controversial topics. He provided an example ofresearch into high-frequency trading and 

instances ofself-trading. When asked, the ChiefEconomist agreed that the Chairman actively 

supported this line ofresearch. The ChiefEconomist also stated that he wanted to be able to take 

to the Chairman and Commissioners anything he or OCE did. 

OCE Can Better Inform the CFTC about Ongoing Research 

In our interview with the research director of a FIRREA agency, we learned that he tries 

to keep agency staff abreast ofcurrent research by issuing quarterly reports. His office allows 

agency staffto read in-progress research and welcomes questions. This communication allows 

the agency to be prepared to respond to public comments. 

According to the ChiefEconomist, OCE does not currently provide the Commission or 

OGC with a comprehensive list ofongoing research projects. However, the Chief Economist 

24 One research program director from another agency explained, "[W]e're not in academics; we work for the 

government There isn't any academic freedom in the government." Further, it was explained that the other agency 

does not publish research that is directly contrary to the agency's positions. We report these observations for 

pwposes oftransparency and make no judgment regarding the economics research program at any other financial 

regulatozy agency. 25 We note that the Commission requires all papers published by OCE economists to contain a disclaimer stating 

"the analyses and conclusions expressed" are ''those of the authors and do not reflect the views ofother members of 

the Office ofChief Economist, other Commission staff, or the Commission itself." See 5 C.F.R. § 2635.807(b). 

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explained that he does take steps to infonn the CFTC of ongoing research. Internally, the team 

uses a SharePoint site and spreadsheet for tracking purposes. To keep the rest ofthe agency 

apprised ofongoing research topics, the team hosts research seminars discussing both topics 

intended for publication and those strictly for internal purposes. The ChiefEconomist also 

believes that OCE's white papers, which might serve as precursors for longer-term projects, can 

be viewed as a method ofeducating the public and the Commission on OCE research. 

Staffing 

OCE Has Not Restarted the Visiting Scholars Program 

The Visiting Scholars Program remains inoperative. The Chief Economist was allotted 

$200,000 in FY2015 to hire outside academics as contractors, but chose to allocate the funds 

elsewhere. He explained his belief that OCE would not be able to provide a collaborative 

infrastructure due to the limited size ofits current staff of full-time employees (FTEs). The Chief 

Economist explained that under a previous ChiefEconomist, OCE staffdevoted significant time 

to handling administrative tasks on behalfof visiting academics; OCE's responsibilities were 

reduced to showing visiting academics how to find and access data, without participating in the 

analysis.26 The Chief Economist cone! uded that this damaged staffmorale. The Chief Economist 

would prefer a more collaborative relationship in which OCE economists teach the visiting 

academics about the CFTC's data, and the visiting academics further enhance the OCE staff's 

economic-analysis skills. 

Our interviews with economic research directors at other financial regulatory agencies 

revealed strong support for collaboration with academics. Agencies that devote substantial 

resources to economic analysis might hire the academic on a full-time basis for a period of years 

to conduct research. One Director suggested that agencies with less ofa budgetary focus on longterm research could efficiently utilize outside academic through the use of undergraduates who 

work as research assistants. The research assistants are responsible for accessing data on behalf 

ofshort-term visiting academics as well as staff economists. 

When we suggested this option to the Chief Economist, he clarified that permitting 

outside academics to conduct research independent of full-time staff would not benefit the 

agency. He believes that the administrative and morale costs of permitting data access to outside 

academics exceed the benefits ofindependent, peer-reviewed academic research relevant to 

markets regulated by the CFTC.27 

26 In a follow-up interview shortly before releasing this Review, the Chief Economist clarified that earlier during the 

visiting scholar program, only the fonner Chief Economist and possibly an administrative assistant dealt with the 

administrative issues involving visiting scholars. He stated that, at the time, he was a staff economist and had no 

knowledge ofwhether the scholars posed an administrative burden on OCE full-time economists. He stated that his 

concerns about administrative burdens were only forward-looking. 27 We note that some previous OCE administrations also required visiting academics to work in collaboration with 

OCE economists. The philosophy behind this collaboration was to balance concerns regarding data access and the 

belief academics should not be allowed to use Commission resources without direct Commission benefit. 

Alternately, there were also OCE administrations that were significantly more liberal with allowing academics 

access to data. As a previous Chief Economist explained, under his tenure OCE would accept requests from outside 

6 

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OCE economists generally did not express concern that the Visiting Scholars Program 

damaged staffmorale or turned staff economists into administrative assistants. Staff economists 

expressed a different concern-if visiting academics were allowed to return and research 

independently, the Commission might attempt to further limit full-time economists' 

opportunities for long-term academic research. The staffeconomists believed that limiting staff 

research solely to short-term support for the Commission and other Divisions (while visiting 

scholars performed scholarly research) would further damage morale. 

While the ChiefEconomist apparently did not intend to re-create the once-robust Visiting 

Scholars Program, two new academics were anticipated to start during the fall of2015. In 

addition, the Chief Economist was developing the administrative infrastructure necessary to 

support these economists; for instance, he was revising the contracts used to bring on outside 

academics to be more flexible given that research does not always conclude on a predictable 

timeline. 

In a follow-up interview shortly before this review was released, the Chief Economist 

provided an update: eight visiting scholars, many from top universities, will be entering the 

CFTC as unpaid consultants within the next three months.28 We are pleased with the 

development and we plan to revisit this issue in the future. 

OCE Has Had Difficulty Filling Available FTE Positions 

At the time ofour initial 2014 review, OCE staff had dropped to nine FTEs (including the 

ChiefEconomist) and two part-time consultants.29 That number has slowly begun to climb. 

Currently OCE has 12 FTEs, one academic contractor, and two part-time consultants.30 This past 

summer, OCE also hosted four interns. 

In March 2015, OCE received authorization to hire four FTEs for FY2015. According to 

the ChiefEconomist and a number of staff, the Office struggled to fill these positions. OCE 

economists suggested several reasons why. First, OCE has not been present at academic hiring 

events to establish a presence in the community, nor has it been able to post positions and 

conduct recruiting efforts consistent with the standard academic hiring schedule. Academic 

hiring typically occurs with jobs posted in October, initial interviews in January, and final 

interviews in February. OCE, on the other hand, most recently posted positions in March, after 

many potential Ph.D. candidates had already accepted positions elsewhere. 

academics for datasets to be utilized in research taking place entirely outside ofthe CFTC. OCE would anonymize 


the requested data and provide it to the academics for their use. 


28 In addition, one academic had been working for CFTC on a contract This individual was recently converted to an 


unpaid consultant after the contract expired.
 29 OCE previously maintained a robust staff, with a mixture ofFTEs, paid consultants, unpaid consultants and 


contractors. An employee snapshot from September 30, 2012 revealed OCE had 13 FTEs, 4 paid consultants, 6 


unpaid consultants, and 16 contractors. OCE's staffing numbers continued to decrease from FY 2012 to FY 2015. 


OIG's 2014 OCE Review, at iii, note 10. 


30 These figures are according to a spreadsheet received from OCE. The consultants are FTEs but work only part­


time. 


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Second, many qualified economists are located in New York or Chicago and are 

unwilling to relocate to Washington, D.C. One interviewee noted that OCE may now be 

considering opening positions in those cities, despite past reservations to do so. 

Third, staff economists expressed a concern that the most qualified economic talent is 

attracted to positions with protected research time. The CFTC does not currently emphasize 

long-term academic research or publication in peer-reviewed journals. As noted above, 24 

academic papers were pending approval for publication in 2012, while five papers were 

approved in 2014 and just one paper has been cleared thus far in 2015. Full-time OCE staffmust 

currently prioritize support of the Commission and other Divisions over long-term research. As 

one staff economist phrased the dilemma, OCE is "mortgaging the future to pay for the present." 

Finally, staff economists reported that the academic community may still have a negative 

view ofthe agency resulting from the OCE research program shutdown in 2012. According to 

one member ofOCE, there is a perception that the CFTC is a "hostile place for research" and 

that other economic regulatory agencies "value" research more than the CFTC does. We received 

reports that academic careers suffered because ofthe shutdown when access to CFTC data was 

revoked; the halting ofOCE's research program forced visiting academics to abandon projects 

and start new research elsewhere. A couple ofinterviewees mentioned a potential hire for a 

Research Director who turned down the position because of his experience with the shutdown.31 

However, in our final interview with the Chief Economist, he stated that all four full-time 

positions had been filled. Further, the Chief Economist stated that academics still believe OCE is 

a viable place to perform research. The Chief Economist explained that academics who have 

worked with OCE in the past continue to work with the Office, and that he intended to bring on 

as many as eight unpaid visiting academics as consultants within the next three months. 

OCE Economists Have Sufficient Technology 

During our fieldwork, OCE economists expressed satisfaction with the hardware and 

software used within the Office. OCE economists are now offered access to a high-performance 

computing environment. According to members ofODT and OCE, this is a substantial 

improvement; economists can now run regressions and other data analyses in a fraction ofthe 

time it used to take. 

Current OCE economists who were hired by OCE prior to 2012 reported that they 

presently have the same level of data access. Ifan OCE economist requires data that is 

inaccessible, he requests the data from ODT and it is provided after an approval process. 

In our prior review, we recommended that the stand-alone computer network known as 

OCEnet be revitalized (or replaced with comparable research capabilities) as soon as feasible.32 

Our interviews during this follow-up review revealed that OCE full-time staff did not use 

OCEnet; rather, OCEnet was used primarily by outside academics. In addition to providing a 

31 No interviewees expressed opposing views, that is, that the OCE maintains the reputation it enjoyed prior to the 


2012 shut down. 
 32 See OlG's 2014 OCE Review, at 33. 


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segregated environment for outside researchers and the general benefit offaster data processing, 

OCEnet hosted some specialized data processing programs specifically requested by outside 

academics that are not utilized by OCE economists or any other CFTC groups. With few outside 

academics cmrently at the CFTC, a stand-alone network is unnecessary. Moving forward, our 

interviews suggest that even if the Visiting Scholars Program were to be reinstituted in full, a 

stand-alone network would not be needed given the current state of the agency's IT infrastructure 

and the ability of administrators to reliably restrict network access on a per-user basis. 

Conclusions nnd Recommendations 

Our prior review had many elements, but its focus was to ensure that the CfTC 

maintained a robust economic research program. This remains our focus today. OCE has made 

unambiguous progress in tem1s offaster administrative review of papers for publication, 

additional hiring, and available technology. Though each of these areas could still use 

improvement, we have nvo more serious concerns. The first is the diminished academic 

productivity of the Office of the Chief Economist. As noted above, to our knowledge, the CFTC 

has not published a single paper in a peer-reviewed journal based on research initiated since the 

shutdown in 2012. Our second concern is that some academic research relevant to the CFTC's 

mission may be off-limits on the grounds that it may conflict with the Commission's current 

policy goals. 

• 	 We recommend that the CFTC reestablish the Visiting Scholars Program to enhance the 

quality and quantity of long-tenn academic research and publications. 

CFTC has the opportunity to employ top academic talent from prestigious universities at 

no direct cost to the Commission. These economists are willing to work for free. ln exchange for 

access to CFTC data and administrative support they research and publish peer-reviewed 

academic articles that help the CFTC, Congress, and the public to understand economic issues 

essential to our economy-everything from the costs and benefits of high-frequency trading, to 

the utility ofposition limits in futures markets, to the consequences of the pronounced 

consolidation among Futures Commission Merchants that has occurred over the past seven 

years.

33 Regardless ofthe conclusions reached on these issues and others, the problem is that 

this sort oftop-quality, peer-reviewed research is occurring at the CFTC to such a limited degree 

that there have been no publications in an academic journal since late 2012. 

We believe such research is central to what Congress intended when it included section 

18 in the Commodity Exchange Act, requiring the Cl'TC to "establish and maintain, as part of its 

ongoing operations, research and information programs to ... carry out the general purposes of 

[the] Act."34 In some sense, every Division at the CFTC does " research." Lawyers do legal 

research, and the various Divisions constantly analyze the markets and market participants they 

n The number of FCMs has fallen in the past 8 years: from 154 in 2007 (before the 2008 financial crisis and 20 I 0 


passage of Dodd-Frank) to 7 1 in 2015. See, CFTC, Selected FCM Financial Data as of December 31 , 2007, 


http://www.cftc.gov/files/tm/fcm/fcmdata 1207.ru!f; CFTC, Selected FCM Financial Data as ofSeptember 30, 2015, 


http://www.cftc.gov/idc/groups/public/@financialdataforfcms/docurnents/fi le/fcrndata09 I5. pd f (excludes firms 


registered solely as retail fore ign exchange dealers and/or swaps dealers). 


H Commodity Futures Trading Commission Act of 1974 § 415, 7 U.S.C. § 22. See disc11ssio11 nt OlG's 2014 OCE 


Review, nt 6-8. 

9 

U.S. Commodity Futures Trading Commission UNREDACTED 

Office ofthe Inspector General and CONFIDENTIAL 

oversee, etc. But we distinguish these types ofresearch from the sort oflong-tenn academic 

research-published in peer-reviewed academic journals-in which only the Office ofthe Chief 

Economist historically has excelled. That focus no longer exists in OCE, and consequently it no 

longer exists at the CFTC as a whole. This is a primary concern. 

We note that the Chief Economist has expressed his intent to bring in as many as eight 

new outside academics within the next three months to contribute to Iong-tenn research within 

OCE.35 We believe this is a great start, and we will revisit this issue in the future. 

• We recommend that the CFTC provide economists in OCE with protected research time. 

Since our last review, OCE has focused almost exclusively on short-tenn research and 

economic analysis in support ofother Divisions and the Commission. We recognize that such 

research and analytical support is a vital role ofOCE, and we endorse those efforts fully. 

Nevertheless, whether due to the relatively limited number offull-time positions CFTC has 

currently devoted to OCE, or due to the increased reliance by the Commission and other CFTC 

Divisions on expertise from OCE staff, little time is being devoted to long-tenn research. Our 

interviews revealed that this not only damages morale but also likely contributes to OCE's 

difficulty in filling open positions for new staff. Ph.D. economists from the best universities must 

publish or perish; to the extent the CFTC wishes to obtain the services ofsuch individuals, we 

believe the current emphasis on only short-tenn research in support ofother Divisions will 

inhibit hiring. 

• We recommend that OCE not prohibit research topics relevant to the CFTC mission. 

Within government research programs, there is the potential for agency officials to 

interfere with researchers' topics in two ways. The first, which is always problematic, involves 

interference with publication ofresults after research is complete based on political concerns or a 

desire to avoid controversy. We have not heard allegations ofthis occurring within OCE or at the 

Commission. 

The second involves prior approval oftopics to be researched using government money 

or time. The extent to which such interference is appropriate can vary. Certainly, government 

resources should only be spent conducting research both timely and relevant to the CFTC's 

mission. It would not, for instance, be appropriate for an economist to research cattle prices in 

the 19th Century, assuming they have no current relevance to CFTC policy. 

However, it is not the role ofOCE's Iong-tenn research to protect the CFTC from 

criticism. Ifanything, its role is to improve discussion about topics the Commission is currently 

or will in the future be regulating. For instance, the CFTC currently has a proposed rule open to 

35 As noted, visiting academics used to access data through OCEnet, a stand-alone computer network. While we do 

not make any recommendations regarding what technology should be used moving forward, we believe ODT should 

be involved early in the process, to help ensure protection ofconfidential CFTC data, including data protected under 

section S. 

10 

U.S. Commodity Futures Trading Commission UNREDACTED 

Office ofthe Inspector General and CONFIDENTIAL 

public comment on the topic ofposition limits.36 Accordingly, it is entirely appropriate for an 

OCE economist to research and publish on this subject as a part ofhis or her duties. We fear that 

preventing agency economists or future visiting scholars from researching relevant topics based 

on political concerns will limit infonned public debate37 and deter highly-qualified economists 

from working with, or joining, the CFTC. 

We emphasize that there has been no allegation that the Chainnan or Commissioners 

have attempted to prevent certain topics from being researched or to alter conclusions. However, 

our interviews nevertheless revealed a perception of institutional censorship occurring, with the 

issue ofposition limits most commonly cited as a topic for which research was not permitted. 

We believe that this is not acceptable; OCE economists should not be prevented from 

researching current topics ofinterest related to the CFTC's mission. 

• 	 We recommend that the OCE Review Committee and OGC adopt standardized review 

deadlines (and follow them). 

An analysis ofOCE Review Committee and OGC approval dates for papers submitted 

since 2014 revealed a wide variance in approval times at both stages ofthe process. Uncertain 

clearance times have the potential to negatively impact OCE economists' publication and 

presentation opportunities, as well as to limit OCE's attractiveness to outside academics. We 

recommend that OCE use other FIRREA and FSOC agencies as a guide to establishing review 

deadlines.38 

• 	 We recommend that OCE prepare a quarterly research report to infomt the Commission 

ofongoing research. 

OCE does not provide a comprehensive list ofongoing research topics to the 

Commission. We learned in interviews with other economic regulatory agencies that keeping 

senior leadership informed about upcoming research enabled the agency to prepare for 

potentially controversial articles. Our interviews also indicated that academic research papers are 

cleared faster when those involved in the process are aware ofall ongoing research. Accordingly, 

we believe OCE would benefit from tracking its ongoing research and disseminating that 

infonnation to the Commission. 

36 See Position Limits for Derivatives, 78 Fed. Reg. 75680 (Dec. 12, 2013); Aggregation ofPositions, 80 Fed. Reg. 


58365 (Sept. 29, 2015). The closing date for comment is November 13, 2015. 
 37 Including Congressional hearings. See, High Frequency and Automated Trading in Futures Markets: Hearings 


Before the Senate Comm. On Agriculture, Nutrition & Forestry, I 13th Cong., 2d Sess. (May 13, 2014) (statement of 


Dr. Andrei Kirilenko, Professor ofthe Practice ofFinance, MIT Sloan School ofManagement). 


38 See, 12 U.S.C. § 1833b (listing the FIRREA agencies) and the Dodd-Frank Wall Street Refonn and Consumer 

Protection Act, sec. 111, P.L. l 11-230 (July 21, 2010) (listing the FSOC or Financial Stability Oversight Council 

agencies). 

11 

Privileged & Confidential 

Authorized For Internal CFTC Distribution andReview Only 

Management Response to the Draft IG Follow-Up Report Dated November 16, 2015 


Regarding a Review of the CFTC's Response to 


Allegations Pertaining to the Office of the Chief Economist 


Dated: December 18, 2015 


CFTC Management is pleased to have the opportunity to review and respond to the 

CFTC's Office ofthe Inspector General's (OIG) November 16, 2015, follow-up report on the 

status ofthe Office ofthe Chief Economist (OCE) (OIG Follow-Up Report). The OIG's FollowUp Report recognizes many ofthe improvements that CFTC Management has made since the 

OIG issued its February 21, 2014 report. 1 For example, the OIG Follow-Up Report states that 

the Commission has made "unambiguous progress in terms offaster administrative review of 

[research] papers for publication, additional hiring, and available technology."2 The OIG 

Follow-Up Report also offers several recommendations that relate to the Commission's OCE 

research program, OCE's hiring efforts, and OCE's selection and distribution of work 

assignments. CFTC Management has considered these recommendations and wishes to respond. 

First, CFTC Management will discuss OCE's role in relation to the Commission's regulatory 

responsibilities.3 Second, CFTC Management will address the specific recommendations 

proposed by the OIG in its Follow-Up Report. 

1 The OIG February 21, 2014 report is titled, "Review ofthe Commodity Futures Trading 

Commission's Response to Allegations Pertaining to the Office ofthe Chief Economist." 

2 OIG Follow-Up Report at p. 9. 

3 In 20 I 0, after a major financial crises in the United States, Congress passed the Dodd-Frank 

Wall Street Reform and Consumer Protection Act, Public Law 111-2-3, 124 Stat. 1376 (DoddFrank Act or Dodd-Frank). The Dodd-Frank Act amended the Commodity Exchange Act, 

among other things. 

Appx. 1. page 12 or OIG Follow-up Report on OCE 
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I. 	 The Office of the Chief Economist's Responsibilities and Resources 

While CFTC Management agrees on the importance of a robust economic research 

program, the OIG's view ofwhat should be the priorities ofthe Commission's OCE do not 

sufficiently account for OCE' s paramount role in helping the Commission meet all of its 

responsibilities under the Commodity Exchange Act (CEA) as well as the limited resources of 

OCE and the Commission generally. The OIG continues to advance an agenda for OCE and its 

economic research that we do not believe is practical. The OIG has articulated its desire for the 

Commission's OCE to increase its productivity through long-tenn academic research, as 

expressed on page nine ofthe OIG Follow-Up Report: the OIG "believes [that peer-reviewed 

research] is central to what Congress intended when it included section l 8 ofthe Commodity 

Exchange Act, requiring the CFTC to 'establish and maintain, as part of its ongoing operations, 

research and information programs to ... carry out the general purposes of [the] Act."'4 The OIG 

also has stated that it is concerned about "the diminished academic productivity" ofOCE.5 

Despite the fact that OCE remains engaged in rigorous economic analysis of a wide range of 

issues without necessarily targeting publications in peer-reviewed journals, in OIG's view, "the 

problem is that this sort oftop-quality, peer-reviewed research is occurring at the CFTC to such a 


limited degree that there have been no publications in an academic journal since late 2012."6 It 


is concerned that the emphasis on Iong-tenn academic research "no longer exists in OCE, and 


4 010 Follow-Up Report at p. 9. The OIG report references CEA section 18, which is located at 


7 u.s.c. § 22. 


s 010 Follow-Up Report at p. 9. 


6 OIG Follow-Up Report at p. 9. 


2 

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consequently it no longer exists at the CFTC as a whole. This is a primary concern."7 In order 

to correct this perceived "problem," the OIG believes it appropriate that Jong-term, academic 

research should be given a higher priority within OCE-a goal made even more explicit by 

recommending that "the CFTC provide economists in OCE with protected research time."8 

CFTC Management recognizes that rigorous study ofissues ofrelevance to the 

Commission is vital, and could result in publications in peer-reviewed journals. But the 

Commission and its operating Divisions have extensive responsibilities under the CEA for which 

OCE is critical, and the priority given to research that is not directly tied to current 

responsibilities and activities must be considered in that light. OCE is currently an office of 14 

employees.9 The Chairman has been committed to increasing the size ofthe division-it has 

gone up from 10 employees in 2014. However, given resource constraints, CFTC Management 

must be judicious in defining OCE's role so that the economic knowledge, analytical skills, and 

market and technical e?'pertise that reside within OCE are utilized efficiently to fulfill the 

Commission's statutory responsibilities. 

The following describes some of OCE's responsibilities in various priority areas of 

Commission activity: 

• 	 Cost-Benefit Considerations: OCE is responsible for providing economic advice and 

counsel on Commission regulations and orders. For example, since the passage of DoddFrank, the Commission has issued 74 proposed rules and 57 final rules, and the 

Commission was required to consider the costs and benefits of each rule. Each costbenefit consideration requires considerable time and effort on the part of OCE staff. 

7 OIG Follow-Up Report at p. I 0. 


8 OIG Follow-Up Report at p. I 0. 


9 OCE is currently in the process of back-filling an economist position. 


3 

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• 	 Concept Releases and Other Studies. In addition to rules, OCE staff members have 

played a central role in the development of concept releases, reports and similar 

documents issued by the Commission and staff from various Divisions that are used to 

gather information from the public on market developments or explore areas of 

rulemaking. Examples include the ··concept Release on Risk Controls and System 

Safeguards in Automated Trading Environments," 10 and a request for comment on draft 

technical specifications for certain swap data elements. 11 Along with the Division of 

Swap Dealer and Intermediary Oversight (DSIO), OCE co-authored the recently released 

Preliminary Report on the de 111i11imis exception as required under Commission rules. 

12 

• 	 Registrations and Product Reviews. OCE staff work closely with the Commission's 

other Divisions on registration applications, product reviews and similar actions. For 

example, OCE staff has worked on projects concerning execution methods, the madeavailable-for-trade rules, mandatory clearing rules, economic analysis to study the impact 

of various rules on market participants, and proposals by Designated Clearing 

Organizations (DCOs) to clear new products. A number ofeconomists from OCE have 

been working closely with Division of Market Oversight (OMO) staff for the past two 

years in the review process to grant permanent registration to Swap Execution Facilities 

(SEFs), a new category of regulated trading platforms mandated by the Dodd-Frank 

Act.13 

• 	 Data. A major aspect of the reforms implemented by Dodd-Frank was to require the 

reporting of data on all swaps. OCE has played a key role in developing and refining a 

weekly swaps report from big data sets, and preparing staff reports, white papers, and 

research papers on both futures and swaps markets. There is consistent focus within 

OCE on integrating information from multiple data sources to help develop better insight 

and deeper understanding of the markets and participants the Commission regulates. In 

addition, OCE has worked with other Divisions on the development and implementation 

10 See Concept Release, 78 Fed. Reg. 56542 (September 12 2013), located at, 

< http://www.cftc.1?ov/idc/1?roups/public/UiHrfederalregistcr/documents/file/20 I 3-22 l 85a.pdf > 

[link accessed on December 16, 20 15]. 

11 The request for comment is currently under review by the Chairman and Commissioners; it has 

yet to issue publicly. 

12 The "Swap Dealer De Minimis Exception Preliminary Report" is located at, 

< http://www.cftc.Qov/idc/groups/public/(@swaps/documents/file/dfreporl sddeminis 111 5.pdf> 

[link address as of December 7, 20 15]. 

13 In Sections 721 , 723, and 733 of the Dodd-Frank Act, Congress added SEFs, among other 

things, to the Commission's oversight duties. (See Public Law 111-2-3, 124 Stal. 1376.) The 

Commission's rules regulating SEFs are located in Parts 37 and 38 ofthe Code of Federal 

Regulations. There are currently a number of SEFs temporarily registered with the Commission, 

and Commission staff, including OCE staff, is reviewing these applications. 

4 

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of the reporting requirements, the ongoing extensive harmonization efforts with other 

jurisdictions including establishment of new standards like Unique Product Jdentifier 

(UPI), and the development ofanalytical tools and reports to use this data. 14 

• 	 Responses to Requests/ram Market Participants. OCE has assisted the other Divisions 

in evaluati ng requests from market participants seeking relief from or interpreting 

regulatory obligations. For example, OCE has worked on no-action letters and other 

requests related to real time repo1ting, mandatory clearing, execution methods on SEFs 

and DCMs, and made-available-for-trade rules. 

• 	 Surveillance and General Monitoring ofMarket Developments. OCE staff assists in 

surveilling markets, and monitoring trends and market developments. OCE works 

closely with DMO Surveillance on various technical aspects pertaining to our markets. 

Many ofthese projects leverage the staff reports and white papers authored by OCE 

economists. The 'Nork on automated trading is a good example. Insights from OCE staff 

help DMO surveillance and other Divisions and Offices, such as DSIO and the Office of 

International Affairs, execute their responsibilities. In addition, OCE has provided 

counsel to the Commission's Agricultural Advisory Committee and other advisory 

committees on industry trends concern ing futures commission merchants and other 

issues; OCE's role is thus helpful in monitoring market developments and keeping 

market participants and the public informed. 

• 	 Assistance to Enforcement Division. OCE works closely with the Commission's 

Enforcement Division on various technical aspects pertaining to our markets and data and 

analytics. Recent notabl e enforcement actions where OCE provided counsel include the 

LIBOR and other benchmark actions. 

• 	 Other Oversight Activities. OCE assists with the general oversight acti vities of the 

agency in other ways as we! I, such as in working with the Division of Clearing and Risk 

(OCR) on central counterparty resilience issues or with DSIO on oversight of swap 

dealers and use of Volcker data. OCE economists also actively contribute to CFTC's 

Learning Circles In itiative by leading continuing-education sessions on vari ous aspects of 

the futures and swaps markets as well as methods to analyze data. 

• 	 Special Reports and Proj ects. OCE, on behalfof the Commission, has produced joint 

repo1ts for the public with domestic regulatory agencies. A recent example is the Joint 

Report on acti vities in the Treasury Markets on October 15th, 20 14. 15 OCE also has 

16 worked on international benchmark studies. 

14 Keynote Remarks of Chairman Timothy Massad before the Futures Industry Association 

Futures and Options Expo dated November 4, 201 5, located at, 

< http://www.cftc.uov/PressRoom/SpeechesTesti mony/opamassad-33 > [link address as of 

December 7, 20 15]. 

15 The report is titled, "Joint Staff Report: The U.S. Treasury Market on October 15, 20 14," is 

located at, < https://www.treasury.gov/press-ccntcr/press5 

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• 	 Jnteragency Activities and Jvfulti-lateral initiatives. OCE also represents the Commission 

in various multi-lateral initiatives, both domestic and international- FSOC and its sub

committees, IOSCO, FSB-and collaborates with other domestic regulatory agencies 

including the SEC, the Fed, and the Treasury.

17 

­

In short, OCE has had extensive responsibilities over the last few years to support the 

Commission in carrying out its mission critical activities. As a result, long-term academic 

research, while one among many ways to disseminate educational and informational material as 

provided in CEA section 18, cannot be OCE's primary focus. 

II. Responses to Recommendations in the OIG's Follow-Up Report 

A. OCE Engages in Research Important to the CFfC's Mission 

The OlG's Follow-Up Report states that, "OCE economists should not be prevented from 

researching current topics of interest related to the CFTC's mission," and asserts that based on 

OCE staff interviews, there is a "perception of institutional censorship." 18 In short, the OIG 

recommends that OCE should not prohibit research topics relevant to the Commission's mission. 

CFTC Management agrees that Commission employees should be able to research and 

conduct rigorous economic analysis on topics and issues related to the CFTC's mission, 

irrespective of whether or not these are published in peer reviewed journals. Research topics, 

releases/Documents/Joint Staff Report Treasury I 0-15-2015.pdf > [link address as of 


December 7, 2015]. 


16 See, e.g., "Reforming Major Interest Rate Benchmarks," issued by the Financial Stability 


Board in July 2014, and located at,< http://www.financialstabilityboard.orn/2014/07/r 140722/ 


[link address as of December 15, 2015]. 


17 For example, OCE provides critical input towards the FSOC's annual report. See, e.g., "FSOC 


2014 Annual Report," located at, 


< https://w\l'JW.treasurv .!!ov/initiatives/f soc/Docurnents/FSOC%202014 %20A n nual%20 Report.p 


df> [link address as of December 16, 2015). 


18 0 10 Follow-Up Report at p. 11. 

6 

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however, cannot be pursued in a vacuum; the Commission's many statutory commitments and 

resource limitations should not be ignored for the sake ofperforming any economic research 

which happens to be ofpersonal interest to an individual. OCE management has the right and 

responsibility to assign work and to prioritize research projects on behalf of the Commission. 

Moreover, OCE management has a duty to evaluate projects and exercise prudent judgment 

when it assigns tasks and when it approves or rejects projects proposed by staff. OCE 

management's failure to exercise such managerial authority will cause OCE to fai l to deliver on 

its responsibility to support the Commission's mission. 

With regard to research projects, OCE management's approach to selecting topics is 

driven by a few critical and objective considerations, especially in the context ofany empirical 

analysis: 

(i) is the scope ofthe project well-defined so as to justify the investment ofscarce 

resources such as labor, time, and expertise; 

(ii) does staffhave access to the appropriate data; and 

(iii) can the project be completed in a timely manner, especially in the context ofanalysis 

associated with a specific rulemaking or other time sensitive project? 

Such factors are core components ofany reasoned decision-making process, and do not 

necessarily support a conclusion that institutional censorship exists within OCE. 

In addition, OCE management does not prohibit research on politically-sensitive or 

controversial topics. Much ofthe research that is conducted by OCE is on matters of relevance 

to the Commission that typically generate a multiplicity ofopinions and views, often conflicting 

with each other. OCE has been, and will continue to be, thoughtful in selecting projects, in 

designing and conducting economic analysis, and in articulating findings, without preordaining 

7 

Appx. 1. page 18 of OIG FoJIOW·UP Report on OCE 
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any result. Given its critical role in providing economic advice to the Commission, as well as 

supporting policy development and the rulemaking process, OCE has conducted and will 

continue to conduct economic analysis on so-called politically-sensitive topics, and share those 

findings with the Commission, agency staff, and the public, as well as academic experts. Recent 

examples are the ongoing research pertaining to various aspects of automated or algorithmic 

trading (also known as high-frequency trading) as well as the de minimis exception to the swap 

dealer definition. 

The OIG seems to suggest that CFTC Management ought to adopt a less controlled 

approach to economic research at the Commission. CFTC Management believes that such an 

approach would be unwise and inconsistent with its statutory responsibilities. To ensure that 

resources are expended in a manner consistent with the responsibilities ofthe Commission under 

the CEA, OCE must have the ability to set priorities and to determine those topics which warrant 

research and further study based on objective criteria as noted above. 

B. 	 The Commission has a Robust Research Program that Includes OCE Staff 

and Academics 

The OIG Follow-Up Report recommends that OCE re-establish the Visiting Scholars 

Program as a means to produce "long-tenn academic research-published in peer-reviewed 

academic journals .... " 19 The OIG Follow-Up Report also states that there would be "no direct 

cost to the Commission" to have academic economists work on CFTC research projects.20 

CFTC Management continues to believe that collaboration with academic experts is a sound 

approach to enhancing the quality ofeconomic analysis conducted by Commission staff. At the 

time of drafting this response, OCE has initiated a set of projects across both futures and swaps 

19 OIG Follow-Up Report at p. 10. 

20 OIG Follow-Up Report at p. 9. 

8 

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markets on issues of interest to both CFTC and the academic community, identified experts who 

are willing and able to participate, and started the process ofonboarding them.21 And, as noted 

in the Follow-Up Report, OCE intends to "bring in as many as eight new outside academics 

within the next three months to contribute to long-term research within OCE."22 

We have sought and are seeking experts who strive to advance interesting and 

challenging discussion on derivatives markets-related topics of interest to the Commission. This 

coincidence in interests and expectations is important because recruiting and onboarding places 

significant resource demands on offices outside ofOCE, such as the Office of Human Resources 

(for completing personnel requirements), the Office ofFinancial Management (for contracting 

services), the Office of Data and Technology (for providing secure access to data), and the 

Office ofthe General Counsel (for legal and ethics counsel). In addition, collaborating with such 

experts requires a commitment by CFTC and OCE management to allocate management, staff, 

and technology resources for each ofthe different projects. 

CFTC Management has pursued a deliberative approach in developing a framework for 

engagement with academic experts that is, it believes, in line with the Commission's mission as 

it implements the CEA, post Dodd-Frank. It also reflects a disciplined approach to managing 

available resources to leverage such collaboration. The framework will include a research 

agenda designed and managed by OCE staff. It is important to emphasize that Commission data 

is complex, and external researchers will need regular support and assistance from CFTC staff to 

do any economic analysis with it. A less controlled approach wherein external researchers have 

unfettered access to Commission data would neither be efficient nor consistent with the 

21 Numerous scholars continue to express interest in collaborating with the Commission's OCE, 

and we expect these engagements to expand in a judicious manner. 

22 OIG Follow-Up Report at p. 10. 

9 

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Commission's legal requirement to protect and prevent the unauthorized disclosure of 

information protected by Section 8 of the CEA or information which is otherwise considered 

confa\ential or non-public. 23 Jt would impose a heavy burden on OCE staff to explain CFTC 

data sets and their structures; indeed, such an approach would require OCE staff to continually 

support external researchers as they try to wade through the data, reducing OCE economists' 

roles to largely providing technical support.24 This would not be a prudent allocation of 

government resources, nor would it enable the Commission to recruit and retain highly 

competent and motivated staff for OCE. 

Retaining academics for OCE research must also be conducted with the goal of informing 

the Commission and the public on matters pertaining to the agency's mission, and not with the 

primary goal of producing papers for publication in peer-reviewed journals. While we appreciate 

the value gained from producing papers fo r publication in peer-reviewed journals, we have to be 

mindful of the various binding resource and other constraints specific to government work. 

The framework for academic research also includes the expectation of active 

collaboration between staff and visiting scholars; given staffing constraints, any engagement 

with visiting scholars will be limited to a relatively small number because management believes 

strongly that collaborations with academic experts ought to be collaborative both in letter and in 

spirit. Such engagements serve the interests of OCE and the Commission, and potentially, the 

larger public. OCE's approach is to have staff and academic experts share the work-load by 

working together to jointly define research questions, and then partner to leverage competitive 

23 CEA Section 8, 7 U.S.C. § 12. 

24 The Commission receives considerably more data than before the Dodd-Frank Amendments to 

the CEA, which greatly expanded the Commission's regulatory authority. The Commission 

receives approximately 6-10 gigabytes ofcompressed data daily. 

10 

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advantages to ensure that the findings are relevant to the Commission (through internal 

presentations that might include confidential data), the public (through white papers) and the 

academic community (through publications in peer-reviewed journals). 

In sum, CFTC Management believes that OCE management and its staff should drive its 

research agenda. We also expect that OCE will actively collaborate with visiting academics in 

conducting economic analysis. Our goal is to focus on the quality ofthe research, measured not 

in tenns ofpublications in academic journals, but in terms ofcurrent relevance to the 

Commission and the public. 

C. 	 CFTC Will Continue to Ensure that OCE Economists Work on a Range of 

Projects Including Research 

The 010 Follow-Up Report recommends protected research time for OCE staff. 

Presumably, 010 is referring to its desire to have OCE research aimed at generating reports for 

publication in peer-reviewed journals. This recommendation appears not to recognize the 

importance ofthe work perfonned by OCE economists that does confonn with the OIG's stated 

preference for long-term academic research. CFTC Management takes a different perspective, 

one that recognizes that research is integral to other Commission activities. 

Like all other CFTC staff, OCE employees are hired to conduct Commission work. OCE 

staffers are expected to work on a range of projects in many areas as outlined earlier, including 

rulemaking, registrations, data collection and analysis, surveillance, enforcement and other 

matters. Frequently, projects come from individual staff members' suggestions and initiative. 

Recent examples include the ongoing work on particular aspects ofautomated trading, including 

self-trading, and research into the variance derivatives markets.25 The Commission encourages 

25 See, e.g., "Anticipatory Traders and Trading Speeds," by R. Fische, R. Haynes, and E. Onur, 

Dated March 26, 2015, located at, 

11 

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and supports individual initiative; yet, at the same time, agency employees must operate within 

the parameters of the Commission 's mission and pending needs. 

It would not be a practical to allocate limited Commission resources such that individual 

staff can pursue research that is not related to current Commission needs. CFTC Management 

has a strong interest in ensuring that OCE leverages its strengths to conduct thorough economic 

analysis and research on issues important to the Commission, public and the academic 

community while respecting the Commission's resource constraints. Publications in peerreviewed journals are a positive result of rigorous economi c analysis conducted to inform the 

Commission and the public, but they are not, nor should they be, the sole or even primary focus 

of OCE staff. 

D. 	 Standardized Deadlines for Paper Review are Unwarranted Because the 

OCE and OGC Paper Review Process is Effective and Efficient 

Over the past three years, OCE and OGC have implemented a robust approval process for 

OCE research papers. That process is designed to ensure both compliance with statutory 

requirements and efficient reviews. The OIG Follow-Up Report acknowledges "unambiguous 

progress in terms of faster administrative review of [research] papers for publication ...."26 The 

review process has sufficient flexibility to accommodate any special requests from OCE staff to 

meet any timelines for submission of papers for presentation at conferences, or for submission to 

academic journals. And the process also accounts for OCE and OGC staffing demands and 

managerial discretion to allocate resources for different projects including reviewing papers. 

< http://ww\.v.cftc.!!ov/A bout/Econom icAnalysis/RcscarchPapers/ssLIN K/oce anticipatorvtrader 

>[li nk accessed on December 16, 2015]; '·Volatility Derivatives in Practice: Activity and 

Impact," by S. Mixon and E. Onur, Dated November 20 14, located at, 

< http://www.cfic.gov/About/EconomicAnalysis/RescarchPapers/ssLINK/occ volderivatives > 

[link accessed on December 16, 2015). 

26 010 Follow-Up Report at p. 9. 

12 

Appx. 1, page 23 of OIG Follow-up Report on OGE 
Privileged & Confidential 

Authorized For Internal CFTC Distribution andReview Only 

Because ofthese positive features, the iterative nature ofpaper review, and the realities of 

operating with limited resources and competing priorities, CFTC Management respectfully 

disagrees with the OIG's recommendation that standardized deadlines for the review ofOCE 

papers by the agency should be implemented. 

A standardized deadline for review of OCE papers fails to take into account the iterative 

nature ofthe paper review process. At the initial stage of review, the Paper Review Committee 

engages with the author(s) of a paper and this engagement can range from discussions with the 

author(s) to the redrafting of some or all ofthe paper in order to ensure compliance with CEA 

Section 8 or other legal requirements. And the iterative process continues once the Paper 

Review committee provides its conclusions to OGC. On many occasions, an OGC attorney may 

have questions for OCE, the Paper Review Committee and/or the paper's author(s) which must 

be addressed before the paper can be cleared. This iterative process does not lend itselfto 

standardized deadlines especially given the difference in the length and complexity ofthe papers 

submitted for review and the expectation from Congress and market participants that the agency 

will faithfully comply with its statutory obligation to protect Section 8 data from unauthorized 

disclosure. 

A standardized deadline for the review ofpapers also ignores the competing priorities of 

the agency as a whole and also within OCE and OGC. In terms of OCE staffing, we rely on the 

same staff who are tasked with all the other Commission activities described above. As we 

discussed earlier, OCE management has to manage its resources efficiently to ensure that it does 

the best it can with the resources that it has. This means the Commission must have the 

flexibility to temporarily shift resources from paper reviews to other more time sensitive projects 

ifnecessary. 

13 

Appx. 1, page 24 of OIG Follow-up Report on OCE 
Privileged & Confidential 

Authorized For Internal CFTC Distribution and Review Only 

Additionally, attorneys in OGC's General Law Branch are involved in the review ofall 

OCE papers. They ensure compliance with the ethics regulations, confidentiality regulations, the 

Privacy Act, and Section 8. Other OGC staffmembers are sometimes involved in such reviews 

as well. OGC's General Law Branch is also responsible for providing guidance to the CFTC on 

a variety of important and sensitive issues such as: appropriations; ethics; the Federal Advisory 

Committee Act; the Freedom ofInformation Act; labor relations issues; employee relations 

issues; equal opportunity laws; and government contracting/procurement. Due to the broad area 

ofwork handled by the General Law Branch, imposing a standardized deadline for paper review 

could compromise OGC's ability to properly respond to competing priorities. For this reason, 

and because ofthe iterative nature ofthe review process discussed above, CFTC Management 

believes establishing a standardized deadline would be unwise. 

While the costs of imposing a rigid deadline would be high, it is unclear what benefit it 

would provide. OCE and OGC have worked successfully since 2013 to implement a paper 

review process that is more comprehensive to ensure compliance with Section 8, ethics rules and 

other applicable laws, and this enhanced process has not come at the expense ofefficiency. 

Indeed, as noted in the OIG Follow-Up Report, there is no longer a backlog ofpapers under 

review. Not only is there no backlog, but OCE and OGC staffhave shifted other work priorities 

to expedite the review process when notified that there is an imminent presentation or 

publication deadline identified by the author(s). The record demonstrates that OCE research 

papers are now cleared by both OCE and OGC in a reasonable time period given the many work 

priorities ofboth offices. 

While CFTC Management believes the current paper review process is working well, we 

will continue to consider ways to more efficiently review OCE papers. 

14 

Appx. 1, page 25 ofOIG Follow-up Report on OCE 
Privileged & Confidential 

Authorized For Internal CFTC Distribution and Review Only 

E. 	 OCE Informs the Commission of Pending Research when Appropriate and 

Continuously 

In the OIG Follow-Up Report, there is a recommendation for OCE to provide the 

Commission with quarterly reports on research projects. The current OCE practice is to inform 

the Commissioners in weekly meetings regarding the status of various projects and to be 

available for questions. The director of OCE also meets frequently with the Chairman and 

provides regular written reports on OCE's activities. OCE shares findings with the Commission 

and its staff, and then the public, following completion of the economic analysis. CFTC 

Management believes that this approach is appropriate in keeping the Chairman, Commissioners, 

and senior leadership informed of economic analysis and the findings from such research but it 

will review its practices to see if improvements are needed. 

III. Conclusion 

We appreciate the opportunity to review and respond to the OIG Follow-Up Report, and 

we welcome the opportunity to discuss the recommendations with the OIG further. 

15 

Appx. 1, page 26 of OIG Follow-up Report on OCE 
January 13, 2016 

TO: 	 Timothy G. Massad, Chairman 

Commissioner Sharon Y. Bowen 

Commissioner J. Christopher Giancarlo 

l><j"' ,..,...11., ...."' .. ""'I•

O'f '".Ad.Uli A. lll?t. ,,.._( JtC.ou-OG.

rui..r~'f~ftc_go1,,..us

O..:.v 6.01 IJ1UU,.OSW 

FROM: 	 A. Roy Lavik Judith A.

Inspector General Ringle 

SUBJECT: 	 Brief Rebuttal to the Management Response to CFTC OIG Draft Follow-Up Report on the 

Office of the Chief Economist 

In December 2015, Management responded to our follow-up report. A few issues require 

comment: 

• 	 Management argues that '"Lhe OIG's view of what should be the priorities of the 

Commission's OCE do[ es] not suffi ciently account for OCE's paramount role in helping the 

Commission meet ... its responsibil ities" and that "[t]he OIG continues to advance an 

agenda for OCE and its economic research that we do not believe is practical." 1 Management 

repeated ly refers to "resource constraints," "resource limitations." "scarce resources," etc., 2 

and spends three pages listing the many Commission tasks OCE supports/ arguing that a 

research program involving external academics would place '·significant resource demands·• 

on other divisions and impose a "heavy burden on OCE staff to conti nually support external 

researchers as they try to wade through the data."'~ 

In our 2014 review and again in this follow-up review. we recommend that the Cf-TC re-establish 

the visiting scholars program. which nourished for decades without complaints about excessive burdens, 

misuse of information, or any other misconduct. Management does not explain why that program has now 

become impractical. Nor does it acknowledge that past and present members of its own staff appear to 

disagree. Indeed, Management's assertions about resource demands of external academics are 

inconsistent with statements made to us by the Chief Economist himself in our final interview. Moreover, 

CFTC's decision to reduce the OCE workforce in 20 13 explains current resource constraints, and we 

recommended last year acquiring outside academics to perform scholarly research for no pay. And as we 

noted lo the Chief Economist and note in our current review, other agencies facilitate academic research 

programs by, among other things, using unpaid unclcrgradunte interns to support outside academics. In 

short, the CFTC argues that its administrative costs are too high to bring on and support academic 

economists from top universities who are wil ling. for no pay, to research and publish on topics relevant to 

CFTC's mission. We disagree. 

1 Management Response. p. 2. 

: Management Response, pp. 3, 7. 3 Management Response, pp. 3-6. 4 Management Response, pp. 9-10. 

Appx. 2, page 27 of OIG Follow-up Report on OCE 
• 	 Management argues that the recommendation that OCE staffeconomists be given protected 

research time "appears not to recognize the importance ofthe work performed by OCE · 

economists."5 

Our recommendation ofprotected time is based on the views communicated to us by OCE 

economists themselves, who surely "recognize the importance ofthe work perfonned by OCE 

economists." Management's response indicates a troubling disconnect between Management and its own 

staff. Management expresses concern for the Commission's ability "to recruit and retain highly competent 

and motivated stafffor OCE,"6 yet ignores the fact that our recommendations communicate its own 

economists' desire for protected research time. In our view, ignoring the views ofthe staffthat 

Management wishes to recruit and retain may not lead to success. 

• Management states that "research topics ... cannot be pursued in a vacuum," and that ''the 

Commission's many statutory commitments and resource limitations should not be ignored 

for the sake of.•. research ... of personal interest to an individual."7 

We specifically disclaimed any suggestion that OCE economists be free to pursue irrelevant 

research. Rather, we stated that economists should be pennitted to research and publish on topics of 

current interest which is the core ofOCE's research program and which Congress intended in adopting§ 

416 ofthe Commodity Futures Trading Commission Act of 1974.8 

• 	 Management states that various factors involved in choosing research topics "do not 

necessarily support a conclusion that institutional censorship exists within OCE...• OCE 

management does not prohibit research on politically sensitive or controversial topics."9 

Management's response swnmarily dismisses specific reports by multiple OCE economists of 

censorship ofpolitically sensitive research topics. In particular, staffeconomists noted that research on 

position limits would not be permitted; and this is an issue that has been the subject of political 

controversy (and Commission activity) since the passage ofDodd..frank. Management's assertion is also 

inconsistent with statements made to us by the ChiefEconomist. We stand by our report. 

• Management states that "[t]he OIG seems to suggest that CFTC Management ought to adopt 

a less controlled approach to economic research at the Commission," 10 and that "CFTC 

Management takes a different perspective, one that recognizes that research is integral to 

other Commission activities." 11 

Certainly research is integral to other Commission activities-we have never suggested 

otherwise. And the CFTC employs economists in the Divisions with direct responsibility for those "other" 

activities. But unlike those Divisions, which specialize in data..heavy, day-to..day analysis ofshort..term 

market conditions, OCE has a unique ability to research and publish on long..tenn trends. We emphasize 

that DQ new research has been published in a peer-reviewed journal since the CFTC shut down OCE in 

2012. And yet former ChiefEconomists successfully balanced Management's competing priorities while 

utilizing outside economists to assist with scholarly research. In short, Management's attempt to 

characterize this report as out oftouch with the needs ofthe agency seems itself out oftouch with the 

opinions of its own staff, and the still-recent practices ofsuccessful former Chief Economists. 

5 Management Response, p. 11. 
 6 Management Response, p. 10. 
 7 Management Response, pp. 6-7. · 
 8 Codified at 7 U.S.C. § 22; See also our original report at p 6-7. 


9 Management Response, p. 7. 
 10 Management Response, p. 8. 


11 Management Response, p. 11. 


Appx. 2, page 27 of OIG FoJlow-up Report on OCE 
• Management states that "[s]tandardized deadlines for paper review ru:e unwarranted because . 

. . the review process is effective and efficient."12 

While it is true that the timeliness of the review process has improved, there have also been very 

few papers going through the process. The last time there were a substantial number ofpapers in need of 

review, that process frequently exceeded 14 months. As we noted in our first report, this negatively 

impacted not only the careers of academics but the reputation ofthe CFTC in the academic community. 

We believe a published timeline for the review process will attract economists (including academics) 

because it will alleviate concerns that publication will be delayed due to political considerations or 

bureaucratic lethargy. 13 And once again, our recommendation reflects interviews with current and former 

staff and academic economists and managers. 

Conclusion 

Nothing in the management response has convinced us to alter our report. We believe 

Management is missing an opportunity to take note ofand act on the reasonable views of its own staff. 

As always, I appreciate your continuing support of this Office. 

12 Management Response, p. 12. 
 13 One OCE staffpublication delayed for more than a year following the OCE shut down is dubbed "The paper that 


shall not be named" by outside economists in professional conference settings. Amelioriating an obviously negative 


view ofOCE by outside economists is an important step in recruiting accomplished economists. 


Appx. 2, page 27 of OIG Follow-up Report on OCE