Summary: GAO conducted a major review of the Commodity Futures Trading Commission and found numerous improvements in the Commission's performance since its previous review in 1978. However, each of the key regulatory programs examined such as Registration, Surveillance, and Rule Enforcement Reviews, need to work better if rapidly expanding trading on the nation's commodity futures exchanges is to be free from abuse. The Rule Enforcement Review program is the Commission's method of determining how well exchanges are enforcing their own rules. GAO stated that marginal improvements have been made in the program since its last review, but substantial changes are still required. The reviews tend to be concerned with whether essential self-regulatory machinery is in place, rather than how well it works. GAO repeated a number of recommendations offered previously, including more systematic followups, improved evaluation criteria, and a continuation of comprehensive reviews until self-regulation is well enough established to permit review of selected aspects of exchange performance. The process by which the Commission evaluates an exchange's application to trade standardized futures contracts in a particular commodity is one of its best tools for maintaining properly functioning futures markets. This review process has shown marked improvement; however, changes in monitoring after contract approval are still needed. Finally, GAO concluded that the Market Surveillance Program, which serves to detect and address adverse situations in futures markets such as price manipulation, needs to improve its data collection and processing operations so that the system can more effectively support the surveillance effort.
