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A Message from the Chairman

I am pleased to present the Agency Financial Report for Fiscal Year (FY) 2013. This has been a 

year of remarkable progress in bringing transparency, access and competition to the swaps market. 

Five years ago, the U.S. economy was in a free fall. Five years ago, the financial system and the 

financial regulatory system failed the American public. Five years ago, the unregulated swaps 

market was at the center of the crisis. 

With 94 percent of private sector jobs outside of finance, President Obama was looking for 

solutions to ensure finance better serves the rest of the economy. 

The reforms of the 1930s had tasked the Commodity Futures Trading Commission (CFTC or 

Commission) to swim in a very important lane – derivatives. The futures market has allowed 

farmers, ranchers and producers to lock in the price of a commodity since the 1860s. The 

derivatives lane, though, got a lot deeper a century later with the emergency of the vast swaps 

market. Both futures and swaps are essential to our economy and the way that businesses and 

investors manage risk. 

The President placed great confidence in the CFTC when he asked the agency to help bring muchneeded transparency and oversight to the dark, closed swaps market.

This confidence in the CFTC was well placed. As we’ve seen time and again in our nation’s history, 

when faced with real challenges, we Americans from different walks of life and perspectives find a 

way to come together to solve them. 

The talented CFTC staff and my fellow Commissioners – Mike Dunn, Jill Sommers, Bart Chilton, 

Scott O’Malia and Mark Wetjen – really have delivered for the American public. 

The CFTC has finalized 68 rules, orders and guidances. We have completed nearly all of the 

agency’s rulemakings, and the initial major compliance dates are behind us.

These reforms took into account nearly 60,000 public comments and input from more than 2,200 

meetings and 21 public roundtables. 

During this process, the Commission largely found consensus. In fact, two-thirds of our final 

actions have been unanimous, and nearly 85 percent have been bipartisan. 

Now, bright lights of transparency are shining on the $380 trillion swaps market. Now, a majority 

of the swaps market is being centrally cleared – lowering risk and bringing access to anyone 

wishing to compete.

Now, 91 swap dealers have registered and – for the first time – are being overseen for their swaps 

activity.

Five years after the financial crisis, the swaps marketplace truly has been transformed.
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Transparency

Foremost, the swaps marketplace has been transformed with transparency. 

First, the public can see the price and volume of each swap transaction as it occurs.

This information is available, free of charge, to everyone in the public. The data is listed in real 

time – like a modern-day tickertape – on the websites of the three swap data repositories (SDRs).

Second, building on the CFTC’s long tradition of promoting transparency, we recently began 

publishing a Weekly Swaps Report to provide the public with a detailed view of the swaps 

marketplace.

Third, regulators also have gained transparency into the details on each of the 1.8 million 

transactions and positions in the SDRs.

Fourth, starting this fall, the public – for the first time –is benefitting from new transparency, 

impartial access and competition on regulated swap trading platforms.

We now have 19 temporarily registered swap execution facilities (SEFs) where more than a quarter 

of a trillion dollars in swaps trading is occurring on average per day.

This pre-trade transparency lowers costs for investors, businesses and consumers, as it shifts 

information from dealers to the broader public.

Fifth, I anticipate that by mid-February, the congressionally mandated trade execution 

requirement will become effective for a significant portion of the interest rate and credit index 

swap markets.

Clearing

The swaps market also has been transformed with mandated central clearing for financial entities 

as well as dealers.

Central clearing lowers risk and fosters competition by allowing customers ready access to the 

market.

Clearinghouses have operated successfully at the center of the futures market for over 100 years –

through two world wars, the Great Depression and the 2008 crisis.

Reforms have taken us from only 21 percent of the interest rate swaps market being cleared five 

years ago to more than 70 percent of the market this fall. More than 60 percent of new credit 

index swaps are being cleared.

Further, we no longer have the significant time delays that were once associated with swaps 

clearing.
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Five years ago, swaps clearing happened either at the end of the day or even just once a week. This 

left a significant period of bilateral credit risk in the market, undermining a key benefit of central 

clearing.

Now reforms require pre-trade credit checks and straight-through processing for swaps trades 

intended for clearing.

With 99 percent of swaps clearing occurring within 10 seconds, market participants no longer have 

to worry about credit risk when entering into swap trades intended to be cleared.

Swap Dealers

The market also has been transformed for swap dealers.

Five years ago, swap dealers had no specific requirements with regard to their swap dealing 

activity. AIG’s downfall was a clear example of what happens with no registration or licensing 

requirement for such dealers.

Today, all of the world’s largest financial institutions in the global swaps market are coming under 

reforms.

These reforms include new business conduct standards for risk management, documentation of 

swap transactions, confirmations, sales practices, recordkeeping and reporting.

With the approval of the Volcker Rule, swap dealers associated with banking entities will have to 

comply with new risk-reducing requirements prohibiting proprietary trading.

Further, the transformed marketplace covers the far-flung operations of U.S. enterprises, including 

their offshore branches and guaranteed affiliates.

The President and Congress were clear in financial reform that we had to learn the lessons of the 

2008 financial crisis.

AIG nearly brought down the U.S. economy through its guaranteed affiliate operating under a 

French bank license in London.

Lehman Brothers had 3,300 legal entities when it failed. Its main overseas affiliate was 

guaranteed here in the United States, and it had 130,000 outstanding swap transactions.

The lessons of modern finance are clear. If reform does not cover the far flung operations of U.S. 

enterprises, trades inevitably would just be booked in offshore branches or affiliates. If reform 

does not cover these far-flung operations, rather than reforming the financial system, we simply 

would be providing a significant loophole.

Benchmark Interest Rates

Five years ago, as the public now knows, multiple banks were pervasively rigging the world’s most 

important benchmark interest rates.
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The public trust has been violated through bad actors readily manipulating these benchmark 

interest rates.

I wish I could say that this won’t happen again, but I can’t.

As London Interbank Offered Rate (LIBOR) and Euro Interbank Offered Rate (Euribor) are not 

anchored in observable transactions, they are more akin to fiction than fact. 

That’s the fundamental challenge that the CFTC and law enforcement agencies around the globe 

have so dramatically revealed. 

We’ve made progress addressing governance and conflicts of interest regarding such benchmarks. 

But this alone will not resolve the fundamental vulnerability of these benchmarks – the lack of 

transactions in the interbank market underlying them. 

That is why the work of the Financial Stability Board to find replacements for LIBOR and to 

recommend a means to transition to such alternatives is so critical. The CFTC looks forward to 

continuing work with the international community on these much-needed reforms.

Customer Protection

Market events in the last five years highlighted the need to further ensure for the protection of 

customer funds. Segregation and the protection of customer funds is the core foundation of the 

futures and swaps markets.

The CFTC went through a two-year process with market participants – and six sets of finalized 

rules – to comprehensively reform the customer protection regime for futures and swaps. 

Resources

One of the most remarkable things about the CFTC is that today, it’s only five percent larger than it 

was 20 years ago. 

Since then, though, this small, effective agency has taken on the job of overseeing the $380 trillion 

swaps market, which is a dozen times the size of the futures market we have historically overseen. 

Further, the futures market itself has grown fivefold since the 1990s. 

Due to the budget challenges in Washington, not only has the CFTC been shrinking, but we had to 

notify employees of administrative furloughs. 

Though the agency has yet to secure necessary funding from Congress, I continue to have faith that 

one day the CFTC will be funded at levels aligned with its vastly expanded mission.
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The Journey Ahead

Though the CFTC has completed nearly all the rules of the road for the swaps market, reform is an 

ongoing journey. 

Just as our nation has come together on financial reform these last five years, our regulations will 

continuously need to evolve. We always need to be open to changes in the markets and how best to 

promote transparency, competition and protect the public. 

The journey is not over in transitioning to a replacement for LIBOR or in adequately funding the 

CFTC. 

I think that we’re in very firm setting on clearing, data reporting, real-time reporting, and business 

conduct reforms – all of which have been implemented. There are likely to be further challenges, 

however, with regard to the appropriate level of pre-trade transparency on trading platforms, as 

well as the scope of the cross-border application of reform.

I couldn’t be more proud of the dedicated group of public servants at the CFTC. I am honored to 

have served along with them during such a remarkable time in the history of the agency. 

Our nation benefits from free market capitalism, but it’s critical that we have common-sense rules 

of road to ensure that finance best serves the public at large. 

Agency Financial Report

The CFTC places a strong emphasis on being an effective steward of its operating funds. I am 

pleased that for the ninth consecutive year, the Commission has received an unqualified opinion 

on its financial statements. For the seventh consecutive year, the auditors disclosed no material 

instances of noncompliance with laws and regulations. I can also report that the CFTC had no 

material internal control weaknesses and that the financial and performance data in this report are 

reliable and complete under the Office of Management and Budget (OMB) guidance.

Gary Gensler

December 16, 2013