For the first time, the US Commodity Futures Trading Commission’s (“CFTC”) Division of Market Oversight (“DMO”), Division of Swap Dealer and Intermediary Oversight, and Division of Clearing and Risk published Examination Priorities for the year. While the CFTC has historically published its Rules Enforcement Review of specific commodity exchanges with notes as to areas for improvement, this is the first proactive statement of the intended focus of the upcoming reviews across all areas.

DMO will build on these existing Rule Enforcement Reviews, focusing this year “on specific elements of [Designated Contract Markets] DCMs’ traditional self-regulatory programs, as well as emerging areas of self-regulation, where regulatory requirements and best practices may still be developing.”

Below is a chart highlighting the 2019 Examination Priorities per Division, along with a description of the Division’s oversight authority.

 

Division 2019 Examination Priorities Include Division Oversight
DMO Compliance Branch ·       Cryptocurrency surveillance  practices;

·       Surveillance for disruptive trading;

·       Trade surveillance practices (selected elements);

·       Block trade surveillance practices;

·       Market surveillance practices (selected elements);

·       Real-time market monitoring practices;

·       Practices around market maker and trading incentive programs; and

·       DCMs’ relationships with and services received from regulatory service providers.

 DMO’s Compliance Branch currently conducts examinations of designated contract markets (“DCMs”) through Rule Enforcement Reviews (RERs).
Division of Swap Dealer and Intermediary Oversight (“DSIO”) Compliance Branch’s ·      Withdrawal of residual interest from customer accounts;

·       Accepted forms of non-cash margin;

·       Compliance with segregation requirements;

·       FCM use of customer depositories;

·       FCM customer account documentation; and

·       SD/MSP relationships with third-party vendors.

 

 Oversees derivative markets intermediaries, including:

·       Futures commission merchants (“FCMs”),

·       Swap dealers (“SDs”) and major swap participants (“MSPs”)

·       Commodity pool operators (“CPOs”),

·       Commodity trading advisors (“CTAs”),

·       Introducing brokers (“IBs”) and

·       Retail foreign exchange dealers (“RFEDs”).
Division of Clearing and Risk (“DCR”) The scope and methodology for each examination is risk-based and individually tailored to the unique characteristics of the DCO and the products it clears.

The primary goal of the examination process is to identify areas of weakness or non-compliance in activities that are critical to a safe and efficient clearing process.

This includes examining financial resources, risk management, system safeguards and cyber-security policies, practices, and procedures to assess the maturity, capabilities, and overall resilience of the DCO.

 DCR examines derivative clearing organizations (“DCOs”)

 

The full list of the DMO Examination Priorities for 2019 is available here: DMO Examination Priorities.

*Special thanks to Regulatory Compliance Project Manager Tom Lord for his assistance in preparing this post.