COMM ODITY FUR TU ES TRADNG I COMS M IS ION AGENCY FINANCIAL REPORT F ISCAL Y EAR 2 0 1 2 COMMODITY FUTURES TRADING COMMISSION Gary Gensler Chairman Tony Thompson Executive Director Mark Carney Chief Financial Officer November 2012 This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While permission to reprint this publication is not necessary, the citation should be: Commodity Futures Trading Commission, FY 2012 Agency Financial Report, Washington, D.C., 20581. All photographs in this document are proprietary and prior permission from the photographer is required for any use or reproduction of the photographs. COMM ODITY FUR TU ES TRADNG I COMS M IS ION AGENCY FINANCIAL REPORT F ISCAL Y EAR 2 0 1 2 In the Tradition of Quality Reporting, the Commodity Futures Trading Commission Proudly Presents the FY 2012 Agency Financial Report 2011 CEAR AND LACP AWARDS ANNUAL REPORT COMPETITION C O M M O D I T Y F U T U R E S T R A D I N G C OMMISSION CERTIFICATE OF EXCELLENCE IN ACCOUNTABILITY REPORTING® 2011 Certificate of Excellence Presented to the U.S. Commodity Futures Trading in Accountability Reporting Commission In recognition of your outstanding efforts in preparing the Agency Financial Report and Summary of Performance and Financial Information for the fiscal year ended September 30, 2011. Best in Class A Certificate of Excellence in Accountability Reporting is presented by AGA to federal government agencies whose Annual Best in Class for High-Level Financial Reports achieve the highest standards demonstrating accountability and communicating results. for High-Level Discussion Discussion of Performance in of Performance in an an Agency Financial Report Agency Financial Report Platinum 2011 Vision Award: 19 out of more than 5,500 entries Top 100 Annual Reports – Worldwide Top 50 Annual Reports – Americas Best Letter to Shareholders FISCAL YEAR 2012 COMMISSIONERS Back row from left; Scott D. O’Malia, Commissioner; Bart Chilton, Commissioner; Mark Wetjen, Commissioner Front row from left; Jill E. Sommers, Commissioner; Gary Gensler, Chairman CFTC 1 TABLE OF CONTENTS A Message from the Chairman 3 FY 2012 Commissioners 8 CFTC Whistleblower Program 14 CFTC Customer Protection 15 How This Report is Organized 16 MANAGEMENT’S DISCUSSION AND ANALYSIS Commission at a Glance 18 Performance Highlights 30 Financial Highlights 44 Management Assurances 48 Forward Looking – Future Business Trends and Events 51 FINANCIAL SECTION A Message from the Chief Financial Officer 56 Limitations of Financial Statements 57 Principal Financial Statements 58 Notes to the Financial Statements 63 Report of the Independent Auditors 77 OTHER ACCOMPANYING INFORMATION Inspector General’s FY 2012 Assessment 82 Summary of Audit and Management Assurances 85 APPENDIX Glossary of Abbreviations and Acronyms 88 2 CFTC A MESSAGE FROM CFTC MISSION THE CHAIRMAN TO PROTECT MARKET USERS AND THE PUBLIC FROM FRAUD, MANIPULATION, ABUSIVE PRACTICES AND SYSTEMIC RISK RELATED TO DERIVATIVES THAT am pleased to present the Agency Financial Report for Fiscal Year 2012 It chronicles a critical time in ARE SUBJECT TO THE COMMODITY EXCHANGE I the history of the Commodity Futures Trading Commission ACT, AND TO FOSTER OPEN, COMPETITIVE, AND (CFTC or Commission), a year of transition and real progress FINANCIALLY SOUND MARKETS. toward ensuring that the futures and swaps markets are transparent and work for the American public THE NEW ERA OF SWAPS MARKET REFORM This past year has been a very active year for the CFTC We have made significant progress in bringing comprehen- sive oversight to the once opaque swaps market The swaps marketplace had operated without the basic transparency and common-sense reforms of the financial markets that Americans have benefitted from since the 1930s Those historic reforms put in place in the aftermath of the Great Depression established a foundation of transparency, competition and market integrity for the futures and securi- ties markets This democratization of our financial markets has led to many decades of economic growth and innovation The 2008 financial disaster caused great damage Eight million American jobs were lost, millions of Ameri- cans lost their homes, and thousands of businesses closed their doors In response, Congress and the President borrowed from what has worked best in the futures markets in passing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) CFTC 3 The CFTC also will continue to consult broadly on appropri- ately phasing in compliance The Commission has included phased compliance schedules within many of our rules Extensive information on the compliance schedule for each of the CFTC’s reforms is available on our website I believe it’s also critical that we continue our efforts to put in place aggregate position limits across futures and swaps, as Congress directed the CFTC to do PROMOTING TRANSPARENCY U.S. President Barack Obama, right, speaks in the Rose Garden of the White House with Timothy F. Geithner, U.S. treasury secretary, Dodd-Frank reforms are bringing needed transparency to center, and Gary Gensler, chairman of the Commodity Futures the swaps market Trading Commission (CFTC), in Washington, D.C., U.S., on Tuesday, April 17, 2012. Obama urged Congress to bolster federal Transparency lowers costs for investors, consumers and supervision of oil markets, including bigger penalties for market businesses It increases liquidity, efficiency and competi- manipulation and greater power for regulators to increase the tion And it shifts some of the information advantage from amount of money traders must put up to back their energy bets. swap dealers to businesses across the country that use these (Photo by Andrew Harrer/Bloomberg via Getty Images ) markets to lock in a price or rate and hedge a risk In 2012, the agency completed significant transparency rules The CFTC is now close to completing the Dodd-Frank rule and bright lights have begun to shine on the swaps market set with 41 finalized rules of the road for the swaps market Swaps transactions are being reported to regulators through Last month, at the start of Fiscal Year 2013, the new era of swap data repositories The public also will benefit from swaps market reform began real-time reporting of the price and volume of transactions Also of note, the CFTC finished an agency-wide reorganiza- beginning in 2013, based on the CFTC’s completed rules tion in Fiscal Year 2012 Regulators and the public will have their first full window into the swaps marketplace As we begin 2013, the agency is increasingly shifting to the implementation of rules, as well as the direct oversight of In addition, the CFTC will initiate a new weekly report so the swaps market We will require the necessary resources that the public can benefit from seeing aggregate data in to oversee this vast market the swaps market This week, the CFTC put out to public comment the first draft proposal of this report For years, the Given this new era of swaps market reform, it’s the natural public has benefited from the futures market data we have order of things that market participants have questions and published in our weekly Commitment of Traders reports, have sought further guidance This regularly occurs as we and our goal is to provide similar transparency to the public move to market implementation from congressional legisla- for the swaps market After reviewing the public input, we tion and agency rulemaking intend to issue this swaps data regularly in 2013 We welcome inquiries from market participants My fellow In the coming months, the CFTC is working to finalize commissioners and I, along with the CFTC staff, are reforms that promote pre-trade transparency, including rules all committed to sorting through issues as they arise on minimum block sizes and trading platforms called swap Fine-tuning is expected execution facilities Market participant compliance for these rules will be phased throughout 2013 4 CFTC LOWERING RISK AND DEMOCRATIZING will come under comprehensive regulation We anticipate THE MARKET THROUGH CLEARING many dealers will register in early 2013 Another significant Dodd-Frank reform is bringing swaps Once registered, swap dealers will report their trades to both into central clearing, which will lower the risk of the highly regulators and the public In addition, they will implement interconnected financial system crucial back office standards that lower risk and increase efficiency Swap dealers also will be required to implement For over a century, through good times and bad, central clearing sales practices that prohibit fraud, treat costumers fairly, and in the futures market has lowered risk to the broader public improve transparency Central clearing also equalizes access to the market and democ- Moving forward, in consultation with international regulators, ratizes it by eliminating the need for market participants to the CFTC will move to finalize guidance on the cross-border individually determine counterparty credit risk, as now the application of swaps market reform and an accompanying clearinghouse stands between buyers and sellers release on phased-compliance for foreign swap dealers In 2012, the CFTC largely finished the clearing rule set The CFTC also is collaborating on a global approach to Clearinghouses have adopted risk management reforms, margin requirements for uncleared swaps through the Basel including critical customer protection enhancements Committee on Banking Supervision and the International