3: Market Integrity
Ensure market integrity in order to foster open, competitive, and financially sound markets. Other Information:
In fostering open, competitive, and financially sound markets, the Commissions two main priorities are to avoid disruptions
to the system for clearing and settling contract obligations and to protect the funds that customers entrust to FCMs. Clearing
organizations and FCMs are the backbone of the exchange system. together, they protect against the financial difficulties
of one trader becoming a systemic problem for other traders. Several aspects of the oversight framework help the Commission
achieve this goal with respect to traders: 1) requiring that market participants post margin to secure their ability to fulfill
obligations; 2) requiring participants on the losing side of trades to meet their obligations, in cash, through daily (sometimes
intraday) margin calls; and 3) requiring FCMs to segregate customer funds from their own funds. The Commission also works
with the exchanges and the NFA to monitor closely the financial condition of the FCMs themselves, who must provide the Commission,
exchanges, and NFA with various monthly, quarterly, and annual financial reports. The exchanges and NFA also conduct annual
audits and daily financial surveillance of their respective member FCMs. Part of this financial surveillance involves looking
at each FCMs exposure to losses from large customer positions that it carries. As an oversight regulator, the Commission reviews
the audit and financial surveillance work of the exchanges and NFA but also monitors the health of FCMs directly, as appropriate.
The Commission also periodically reviews clearing organization procedures for monitoring risks and protecting customer funds.
The Commission investigates and prosecutes FCMs alleged to have violated financial and capitalization requirements or to have
committed other supervisory or compliance failures in connection with the handling of customer business. Such cases can result
in substantial remedial changes in the supervisory structures and systems of FCMs and can influence the way particular firms
conduct business. This is an important part of fulfilling the Commissions responsibility for ensuring that sound practices
are followed by FCMs and that markets remain financially sound. The Commission also seeks to ensure market integrity by investigating
a variety of trade and sales practice abuses. For example, the Commission brings actions alleging unlawful trade allocations,
trading ahead of customer orders, misappropriating customer trades, and non-competitive trading. Outcomes for Strategic Goal
Three are: .. Clearing organizations and firms holding customer funds have sound financial practices. .. Commodity futures
and option markets are effectively self-regulated. .. Markets are free of trade practice abuses. .. Regulatory environment
is flexible and responsive to evolving market conditions.
Objective(s):
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