Summary: In recent years, the commodity futures industry has experienced dramatic growth. The term "commodity" has come to embrace a variety of financial instruments including government securities and certificates of deposit. Substantial trading in futures contracts for these commodities has developed. An expected growth in the trading of these instruments and a continued growth in agricultural and natural resource futures will substantially increase the importance of futures in the national economy. GAO has concluded that federal programs which protect commodity futures customers should be reauthorized. The Commodity Futures Trading Commission, which is responsible for these programs, has made progress in developing a regulatory framework to protect customers. Its principal programs should be retained and improved to keep rapidly expanding futures trading reasonably free from abuse. Even if the futures industry assumes an increased responsibility for regulation, the Commission will need to continue to monitor the performance of industry self-regulatory bodies. Congress should amend the Commodity Exchange Act to shift responsibility for registering futures professionals to the newly created National Futures Association with the Commission having an oversight role in this area. The act should also be amended to allow for a flow of information on adverse market situations to the exchanges on a routine basis. The Commission's rule enforcement review program needs strengthening. The agency needs to: (1) make its criteria for contract approval more explicit and meaningful; (2) make contract approvals contingent on adequate rule enforcement; (3) assess a one-time fee to defray the appropriate costs of contract approval; (4) improve its registration program; and (5) simplify the reparations program's rules and procedures. A considerable burden can be shifted from the reparations program by removing certain limitations to increased use of arbitration. The Commission needs to improve its use of automatic data processing (ADP) to track and analyze the futures positions of large traders and identify possible situations which affect market identity. Once these improvements have been made, the Commission should use ADP in conducting market surveillance, managing the reparations program, and general operations.
