Summary: Pursuant to a congressional request, GAO provided information on: (1) the Commodity Futures Trading Commission's (CFTC) and the Chicago Board of Trade's (CBT) policies, procedures, and practices related to emergency actions; and (2) how CFTC and CBT followed those policies and procedures during the July 1989 soybean futures emergency action.
GAO found that CFTC and CBT regulations: (1) prohibited price manipulations and corners; (2) required that exchanges enforce their rules by actively monitoring the markets; (3) required exchanges to enforce rules against staff use or disclosure of material or nonpublic information; (4) ensured that exchanges did not take emergency actions in bad faith; (5) did not provide a specific standard for defining potential conflicts of interest; and (6) required CFTC to review exchange emergency actions. GAO also found that CBT and CFTC: (1) followed their policies and procedures during the July 1989 emergency action; (2) preferred encouraging voluntary compliance to avert emergencies, rather than using their emergency action authority; (3) closely monitored the markets and frequently briefed CFTC and CBT commissioners on market developments; (4) encouraged exchanges to take steps, including disciplinary actions, to prevent employee use of non-public information; and (5) excluded members with conflicts of interest from emergency action meetings.
