Commissioner 

Walter Lukken

Presentation to the Agricultural Advisory Committee Mee

July 21, 2004
Commodity Futures Tradi

Commission (CFTC)

3⁄4 Independent agency created in 1974 to over

U.S. commodity futures and options market

3⁄4 Protects market participants against manipu

abusive trade practices and fraud

3⁄4 Fosters price discovery through liquid, fair a

financially secure trading facilities

3⁄4 Periodic reauthorization, which expires Sep

2005
Funding the CFTC

Annual Agricultur

Appropriations 

FY ’04 – $90 milliNo industry transa

fees
CFTC

Chairman

James Newsome Vacant

Commissioner

Walter Lukken Vacant

Division of Clearing 

and Intermediary 

Oversight

Division of 

Market Oversight

Division of 

Enforcement

General

Counsel

The

Commission

The Staff
Division of Market Oversigh

(DMO)

• Market Surveillance

– Oversees markets using CFTC’s large trader rep

ensure that commodities are not being manipula

– Provides weekly surveillance briefings to the 

Commission (Agricultural products and other phcommodities are most often the subjects of thesbriefings)

• Market and Product Review

– Reviews new market and product applications t

they comply with the Commodity Exchange Ac

• Market Compliance

– Conducts periodic audits to ensure exchanges co

with the CEA
Division of Clearing and 

Intermediary Oversight (DC

• Intermediary Policy and Oversight

– Oversees futures market intermediaries (e

FCMs, APs) to ensure financial integrity protection of customer funds

• Clearing Policy and Oversight

– Designates and oversees clearing houses t

ensure financial integrity
Division of Enforcement (DO

• Litigation arm of the agency that enfor

violations in the commodity laws, inclfraud, manipulation, false reporting, trpractice and registration violations

• Largest CFTC Division
Contracts

Mill ions

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20

Total Futures and Options Volume

 1990 - 2003

TotalVolume1990-2003
59.7

66.5 69.6

77.1

93.9 93.3 90.8 91.3 91.0 89.2

0.0

20.040.060.080.0

100.0120.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 

Total Volume in Agricultural Futures and Options Mark

1992-2003

1992-

2003 Ag 

Volume

Contracts in Millions
2003 FIA Total Volume by Grou

Equity 

Indexes

23.9%

Foreign 

Currency 

Index

2.8%

Ag 

Commodities

8.5%

Energy 

Products

8.9%

Precious 

Metals

1.7%

All others

0.5%

Inte

R

53
2003 FIA Volume by Exchan

NYBT

2.0%

CBT

35.9%

NYMEX 

8.9%

COMEX

1.9%

Other

0.6%

2003VolumebyExchange
CME VOLUME

GLOBEX vs. PIT

Jan 2000 - Jun 2004

0%

10%20%30%40%50%60%70%80%90%

100%

Jan-0 0 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-0 1 Mar-01 May-01 Jul-01 Sep-01 Nov-01 Jan-0 2 Mar-02 May-02 Jul-02 Sep-02 Nov-02 Ja n-0 3 Mar-03 May-03 Jul-03 Sep

0

N

P ercen t of To tal

CME GLOBEX CME PIT
CBOT VOLUME 

ELECTRONIC vs. PIT

Jan 2000 - Jun 2004

0%

10%20%30%40%50%60%70%80%90%

100%

Jan-00 Mar-00 M ay -00 J ul-00 Sep-00 N ov -00 J an-01 Mar-01 M ay -01 Ju l-01 Sep-01 N ov -01 Jan-02 M ar-02 M ay -02 Ju l-02 Sep-02 N ov -02 Jan-03 M ar-03 M ay -03 Jul-03 Sep

0

Percen t o f T o tal

CBOT Electronic CBOT Pit
The Commodity Futures 

Modernization Act of 2000 (CFM

President’s Working Group (PWG) issued Re

OTC Derivatives, Nov. 1999--

1. There is a strong public policy to provide legal certaint

OTC derivatives market by excluding financial OTC prbetween sophisticated investors from the CFTC’s jurisd

2. There is a public interest to provide regulatory reform f

futures markets and its participants.

3. Lifting the ban on single- and narrow-based security fu

products is attainable if a joint regulatory structure betwSEC and CFTC is provided. 
Three Legs of the CFMA

I. Legal Certainty – Generally exclude fro

CFTC’s jurisdiction if:

– Product being traded is not readily susceptibl

manipulation (financial products)

– Entity or person trading the product is a large

sophisticated customer

– Institutional customers trading financial prod

are generally otherwise regulated by other government agencies (Fed, FDIC, SEC, state insurance regulators)
Three Legs of the CFMA

II. Regulatory Reform for the Exchanges

– Created tiered regulatory structure for exchan

based on the types of products being traded ansophistication level of the traders

– Shifted from frontline regulator to oversight a

through the adoption of “Core Principles”

– Allowed exchanges to self-certify products an

without prior CFTC approval (except material changes on listed enumerated agricultural prowith open interest) 
Three Legs of the CFMA

III. Security Futures Products (SFPs)

– Lifted the 18-year Shad-Johnson ban on sing

stock futures 

– Provided outline for CFTC and SEC to jointl

regulate these products 

– OneChicago and NQLX have been trading S

the U.S. since November 2002 with limited s
CFMA Agriculture Issues

• Congress continued to recognize agricultur

products as a special class of commodity deserving of greater oversight

• Congress chose not to address in 2000 the H

cases or the cash or forward exclusions for agricultural products

• Congress required report on making futures 

exchanges more accessible to agricultural producers, which was completed and delivethe Congress (www.cftc.gov/cftc/cftcreport
Possible Agricultural Policy Iss

for the Next Reauthorization

• Is there a need for greater legal and regulato

clarification for off-exchange risk managemproducts?

• Should “agricultural” commodity be defined 

to the term’s use in the CFMA exclusions, exemptions and other sections (i.e., corn vs. ethanol)?

• Should Congress continue to treat the overs

agricultural products differently than other commodities?