Planned Activities (FY 1985)

During FY 1985 the staff plans to:

--Increase the number of trade practice investigations. The staff will

conduct at least 100 such investigations during FY 1985, focusing on
newly designated contracts where the potential for manipulation is
often greatest and on the operation of selected rules.

--Increase the level of on-site floor surveillance in order to detect and

deter illegal trading activity.

--Increase the number of rule enforcement reviews and increase the number

and timeliness of limited scope follow-up reviews.

--Commence a program to review individual exchange disciplinary actions.

The notices filed by the exchanges with the Commission will be monitored in order to review the propriety of the sanctions levied, to detect patterns of violative conduct, and, if appropriate, to recommend further action by the exchange or by the Commission.

--Review approximately 15 applications for contract market designation

for futures and options contracts and two applications by new exchanges.

--Review approximately 900 rules submitted to the Commission by the

exchanges and by NFA. It is expected that the staff will also need to
consider several novel issues during FY 1985, including proposed addi-
tional "link-ups" of domestic and foreign exchanges, computerized trading,
and applications to trade financial futures and options contracts with
a "board broker" system.

--Propose rule amendments relating to the payment of option premiums and

develop proposed regulations relating to the procedures for Commission review of exchange membership denials and denials of regist tion by the National Futures Association.

--Assess the Commission's experience with the 3-year pilot program in

options on nonagricultural futures, and prepare a report for the Commission to submit to Congress by September 30, 1985.

--Continue to monitor NPA's progress in fulfilling its statutory mandate.

more superficial review of these submissions, which frequently involve complex and controversial legal and regulatory questions.

In addition, the reduced funding will result in the elimination of two staff-years from the rule enforcement review unit of this subprogram.

The number of reviews of exchange compliance programs will be reduced. The reduced staffing level will also preclude the rule enforcement review unit from performing as many trade practice investigations, including those designed to monitor activity in new contracts, interexchange trading programs and international linkages. In addition, the number of reviews of exchange disciplinary actions to determine the propriety of sanctions levied will decrease. The staff expects to receive about 500 notices of disciplinary action per year.

REGISTRATION

The Registration staff screens applicants for prior activities which may render them unfit to handle the accounts and funds of commodity customers, grants registration licenses, and maintains the official registration records of the Commission for categories of registrants whose applications are processed by the Commission. The staff also answers inquiries about registration status from other parts of the Commission, other State and federal enforcement agencies, and from the public. In addition, the staff participates in the process of revoking, suspending, restricting and denying applications.

Beginning in FY 1983, the Commission initiated a gradual transfer of certain of its registration processing functions to NFA. This transfer was completed during the first quarter of FY 1985. As of that time NFA is processing all registrations, except for the categories of Floor Broker, Leverage Transaction Merchant (LTM), and associated persons of LTMs. The Commission continues to process denials and revocations pending the development of new regulations. The Commission also retains the responsibility for hearing appeals of NFA registration decisions and granting exemptions to the registration provisions, as well as developing changes to the registration regulations. In addition, the Registration staff continues to work with the Enforcement Division and the Office of Proceedings on matters concerning the status of registrants and audits the NFA registration program.

Resource Changes (FY 1986)

Under the proposed budget, the Registration subprogram will be funded at $423,000, a net decrease of $157,000 from the FY 1985 level. The decrease includes a reduction of six staff-years (-$199,000), the proposed five percent reduction in pay (-$14,000) and a share of the Commission's anticipated increase in expenses in FY 1986 (+$56,000).

Accomplishments (FY 1984)

During FY 1984, the CFTC staff processed approximately 43, 907 registration applications. This total included 498 applications from Futures Commission Merchants (FCM), 3,035 applications from Commodity Trading Advisors (CTAs), 1,811 applications from Commodity Pool Operators (CPUs), 7,880 applications from Floor Brokers and 30,678 applications from persons seeking to associate with firms registered as FCM8, CTAs and CPUs.

During fiscal 1984, NFA processed and granted registrations for approximately 680 Introducing Broker (IB) applications and 4,500 applications for associated persons of firms registered as IBs. Introducing Brokers are a new category of registrant created by the Futures Trading Act of 1982. In addition, regulations to issue temporary licenses to qualified applicants for registration as an associated person were proposed, adopted and implemented by the Commission in the first half of FY 1984. NFA staff, using CFTC computers and staff support, processed 4,000 applications for temporary licenses pursuant to the new regulations which allow apparently qualified prospective associated persons of registrants, under certain circumstances, to begin employment while their application for registration is being processed. As a result of this program, apparently

qualified applicants are now able to begin work in as little as three weeks from the date an application is received rather than the 10-12 weeks necessary to do a complete fitness check.

As part of the registration fitness program, the CFTC staff completed 19,334 fitness checks. Commission staff then performed 425 in-house investigations, resulting in 175 applications for registration being denied, revoked or withdrawn.

These increases in the registration staff's workload were unanticipated due to the fact that when the FY 1984 budget was prepared during FY 1982 the Commission assumed that NFA would take over a larger portion of CFTC's registration responsibilities than it actually did during FY 1984. In addition, the industry experienced another year of growth during FY 1984. While a decline of six staff years to a staffing level of 16 had been projected for FY 1984, staffing actually had to continue at slightly above the authorized 1983 level of 22 staff years.

Furthermore, one additional staff year was devoted to an oversight review of the proposed NFA registration program to assure that NFA's plan for receipt of registration functions was adequate to the task and would be operational in a timely fashion.

Extensive revisions to the Commission's regulations were necessary to implement six new categories of registrants created by the Futures Trading Act of 1982, to implement procedures for the issuance of temporary licenses of qualified applicants for AP registration, and to establish procedures pursuant to which the registration of applicants or registrants subject to a statutory disqualification could be denied, revoked, restricted, suspended or conditioned. In this connection, the staff also developed with the ADP staff appropriate changes in the computer software, prepared a number of written interpretations and "no action" positions and conducted public meetings to assist members of the industry in complying with the changes.

Implementation required a phase-in period. For example, in connection with Introducing Brokers, the Division issued more than 70 specific extensions of time for compliance and 25 written interpretations. In connection with the adoption of regulations governing leverage transactions under Section 19 of the Act, two additional categories of registrant were created, Leverage Transaction Merchants ("LTMs") and Associated Persons of Leverage Transaction Merchants. Processing of applications for registration of these categories of registrant began in the third quarter of FY 1984 and forms were revised and simplified.

Planned Activities (FY 1985)

NFA met its commitment to assume responsibility for processing all categories of registrants, except Floor Brokers, LTMs and the Associated Persons of LTMs, by the end of the first quarter of FY 1985. Althou the Act permits the Commission to delegate the registration of LTMs, their APs and Floor Brokers to NFA, NFA cannot be required to accept this responsibility because none of these are NFA membership categories and the Commission can only mandate that NFA assume registration processing for its members. In addition, since this is a new regulatory program, initial implementation requires the direct involvement of CFTC staff to bring LTMs into compliance, make appropriate rule changes

and grant exemptions where appropriate. Delegation to a self-regulatory organization in its implementation stage would be premature. Nevertheless, the Commission intends to explore the possible delegation of responsibility for these categories to NFA during FY 1986, particularly if a decision is made to lift the moratoria.

During fiscal 1985, it is anticipated that NFA will continue to refer to the Commission all applications in which there is a question of fitness. Commission staff will retain responsibility during FY 1985 to review, investigate and take appropriate action leading to denial, revocation or withdrawal of the application in such cases.

CFTC expects to process 12,000 registrations and the NFA will process 41,000 registrations during FY 1985.

Impact of Recommended Level (FY 1986)

At the proposed FY 1986 level, the Registration subprogram will be able to fund 10 staff-years. This staff-year level will add approximately two weeks to the time required for processing applications for registration of floor brokers, LTMs and APs of LTMs. The reduction will also slow the consideration of appeals from applicants for registration whose applications have been denied or otherwise conditioned by NFA. NFA will be delegated authority to deny or condition registrations in the first quarter of FY 1986, making review of NFA standards and procedures via appeals during FY 1986 particularly important. In addition, the ability of the staff to prepare responses to interpretation requests from members of the public and the industry will be reduced. Because these requests affect the business operations of the requestors, the staff seeks to respond within three weeks. At a reduced staffing level, responses will be delayed by two to three weeks.