Futures Markets:

Heightened Audit Trail Standards Not Met But Progress Continues

GGD-96-177: Published: Sep 25, 1996. Publicly Released: Sep 25, 1996.

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Pursuant to a congressional request, GAO provided information on the Commodity Futures Trading Commission's (CFTC) actions to enforce Futures Trading Practices Act (FTPA) audit trail provisions.

GAO found that: (1) 7 U.S. futures exchanges are in compliance with FTPA 1-minute trade timing and sequencing standards; (2) CFTC is unable to determine the status of four other exchanges until it reviews the results of the audit trail tests; (3) audit trail test results for the Chicago Board of Trade (CBT) and the Chicago Mercantile Exchange (CME) are not precise enough to verify their compliance with existing audit trail standards; (4) none of the exchanges fully complied with the heightened audit trail standards as of October 28, 1995; (5) CFTC has delayed requiring some audit trail enhancements to existing systems due to assurances that electronic trading terminals would be in place by the statutory deadline; (6) CFTC has granted the Coffee, Sugar & Cocoa Exchange and the New York Mercantile Exchange temporary relief from the FTPA statutory deadline; (7) CBT and CME were not in compliance with the heightened FTPA guidelines after additional retests; (8) CFTC has not determined the practicability of certain FTPA provisions, including the requirement to capture broker receipt time for customer orders; (9) CFTC plans to act on exchange petitions for exemption from the dual trading ban; and (10) CFTC needs to keep Congress informed of its actions to facilitate additional FTPA audit standards.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: CFTC has reported to the Senate and House Agriculture committees on the status of exchange progress toward compliance with the heightened audit trail standards and has acted on each exchange's dual trading ban exemption petition.

    Recommendation: The Chairperson, CFTC, should inform Congress periodically on exchange progress towards compliance with the FTPA heightened audit trail standards and on implementation of the dual trading ban--including any mitigating factors delaying compliance or implementation and the steps CFTC is taking to encourage continued progress. Such information could be provided annually in a report on or about October 28, the anniversary of the statutory deadline for compliance with the heightened standards, or through periodic testimonies before congressional committees.

    Agency Affected: Commodity Futures Trading Commission


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