Futures Markets: Heightened Audit Trail Standards Not Met But Progress Continues

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DIANE Publishing, 1996 - 54 pages
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Reports on the status of compliance by the Chicago Board of Trade & the Chicago Mercantile Exchange with the existing & heightened standards as well as the Commodity Futures Trading Commission actions to enforce the Futures Trading Practices Act of 1992 audit trail provisions. These improved audit trails stemmed from an undercover investigation by the U.S. Justice Dept. in August 1989 of the commodities exchanges which disclosed illegal trading practices designed to enrich participants. Charts & tables.
 

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Contents

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Page 1 - NFA, the Chicago Board of Trade (CBT), and the Chicago Mercantile Exchange (CME) — and those of one smaller SRO — the Commodity Exchange, Inc.
Page 29 - Mr. James L. Bothwell Director, Financial Institutions and Market Issues General Government Division United States General Accounting Office Washington, DC 20548 Dear Mr. Bothwell: We have reviewed your draft report titled, FAILING BANKS: Lessons Learned From Resolving First Citv Bancorporation of Texas.
Page 18 - Agency Comments and Our Evaluation We requested comments on a draft of this report from the Secretary of the Treasury and the Commissioner of Customs.
Page 2 - Forwards and futures obligate the holder to buy or sell a specific amount or value of an underlying asset, reference rate, or index at a specified price on a specified future date.
Page 7 - April 1994 in accordance with generally accepted government auditing standards. We obtained written comments on a draft of this report from occ, FDIC, and Labor.
Page 3 - Weaknesses in controls over futures trading provide dishonest floor participants with the opportunity to cheat customers by noncompetitively executing orders and to conceal this cheating by manipulating the recorded price and time of trades. The actions CFTC and the exchanges have proposed or taken are important interim measures for reducing the opportunity for dishonest floor participants to commit trading violations. While detecting every abuse may never be possible, most of the types of abuses...
Page 2 - ... against adverse changes in the cash price of an underlying product or financial Instrument, such as wheat or Treasury bonds. They provide protection by transferring the risk of price fluctuations to those willing to speculate on those fluctuations in return for a potential profit. Futures contracts are traded through a competitive system called 'open-outcry," in which floor participants verbally make bids and offers to each other at centralised exchange locations, called 'trading pits.
Page 3 - ... qualify for an exemption from the heightened standards if they could demonstrate substantial compliance with the act's audit trail standards and trade monitoring requirements. In November 1994, five exchanges were covered by the heightened standards because of their trading volume: (1) CBT; (2) CME; (3) the Coffee, Sugar & Cocoa Exchange (CSCE); (4) the Commodity Exchange, Inc. (COMEX); and (5) the New York Mercantile Exchange (NYMEX).
Page 12 - These automated order routing systems could enhance audit trails by meeting the FTPA requirements for recording the time an order reaches the exchange floor, the time the broker receives an order, and the time the order fill is recorded. According to CFTC officials, these systems should result in better timing data for orders by augmenting existing sequencing information.
Page 10 - In addition to meeting the requirements of the existing 1-minute trade timing and sequencing standards, including capturing the essential data on the participants, terms, times, and sequencing of all trades, the heightened standards require that this information be continually provided to the exchange in an unalterable manner and that it be precise, complete, and independent.

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