Commodity Futures Trading Commission and the Chicago Futures Exchanges' Detection of Trade Practice Abuses
Highlights
GAO discussed how the Commodity Futures Trading Commission (CFTC), the Chicago Mercantile Exchange (CME), and the Chicago Board of Trade (CBT) detect and punish trading abuses. GAO found that: (1) CME and CBT identified and investigated trade practices abuses through internal sources, including audited trade information, trading floor activity, exchange member and customer complaints, and CFTC referrals; (2) member and customer complaints were the source of 133 of the 164 CME investigations in 1988; (3) the exchanges used audit trail systems to reconstruct trading activities and help detect questionable trades; (4) CFTC amended its audit trail regulations to require that the exchanges determine trade execution times to within 1 minute instead of within a 30-minute bracket; (5) if an exchange failed to meet its obligations to enforce exchange rules, CFTC could direct the exchange to improve its enforcement activity or forfeit its operating authority; (6) CFTC concluded that CME had an effective trade practice surveillance and reconstruction system, but CBT needed to improve its reconstruction system; and (7) although CBT made some improvements, its inquiries took too long and resulted in too few disciplinary actions. GAO believes that Congress may wish to pursue whether: (1) CFTC and the exchanges adequately assess trading system vulnerabilities and establish adequate controls; (2) the 1-minute timing standard is sufficient; (3) reliable data is available to determine the universe of abuses; and (4) CFTC and the exchanges have the information they need to improve their oversight.