Futures Markets: Strengthening Trade Practice Oversight
GGD-89-120
Published: Sep 07, 1989. Publicly Released: Sep 07, 1989.
Skip to Highlights
Highlights
Pursuant to a congressional request, GAO assessed the Commodity Futures Trading Commission's (CFTC) and futures exchanges' effectiveness in deterring, detecting, and punishing trade practice abuses.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Commodity Futures Trading Commission | CFTC should direct the exchanges to independently, precisely, and completely time each trade and specify a time frame for meeting this requirement. Timing should be independent of the other trading data supplied by floor participants. Time recording should include the precise time the broker receives and records as executed each order, as well as the precise execution of times of noncustomer trades. CFTC should give the exchanges flexibility in deciding how to meet the requirement, but should also establish firm implementation dates. |
Improved trade-timing requirements, including specified implementation dates, are written into pending CFTC reauthorization legislation. Futures exchanges have already begun to design and evaluate automated trade-timing devices that will provide independent, precise, and complete timing of trades.
|
| Commodity Futures Trading Commission | CFTC should require exchanges to maintain complete documentation of automated surveillance systems. |
CFTC approved a legal interpretation to require that futures exchanges retain for 5 years documents on automated transaction-related systems, including electronic trading, order routing, and surveillance systems and hand-held trade entry terminals. The records will document steps taken to identify vulnerabilities, establish safeguards, and otherwise ensure the systems' accuracy and reliability.
|
| Commodity Futures Trading Commission | CFTC should expand its reviewing and testing of exchange automated surveillance systems, or require that they be independently reviewed and tested, to determine whether they are operating as intended. |
CFTC has adopted 10 principles for developing standards for automated trading systems. However, CFTC noted that its technical capability may fall short of that recommended because of limited resources and other priorities. CFTC has also taken steps to develop a formal policy for automated system assessments.
|
| Commodity Futures Trading Commission | CFTC should establish milestones for completing definitions of trade practice violations and trade practice investigations so that they can be consistently differentiated from other types of rule violations and so that the definitions are uniform across exchanges. |
The Joint Compliance Committee accepted its Disciplinary Action Subcommittee's proposed categories of rule violations at its April 1991 meeting and it has been adopted by all the self-regulatory organizations. The action taken is not fully responsive because no definition of trade practice investigation has been provided. They have now developed a definition of trade practice investigation.
|
| Commodity Futures Trading Commission | CFTC should begin making formal trend and comparative analyses of exchange investigations and disciplinary actions. |
CFTC is working toward fully addressing this recommendation. CFTC now has a disciplinary action notice database and is waiting for a few more months of data before doing analyses.
|
Full Report
Public Inquiries
Topics
AuditsBrokerage industryAudit trailCommodities exchangesDisciplinary actionsEthical conductFines (penalties)FuturesInformation systemsProgram abusesSecurities fraudSecurities regulation