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Commodity Futures Trading Commission

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The Commodity Futures Trading Commission is an independent government agency responsible for the regulation of futures and option markets. Established in 1974, markets regulated by the commission include commodities (e.g., crude oil and gold), as well as financial products.[1]

Background

Key terms

The following is a list of key terms relevant to the activities of the Commodity Futures Trading Commission:

  • Futures contract: Also called futures, futures contracts are agreements to buy or sell a commodity or commodities at some point in the future.[2]
  • Option: An option, according to Investopedia, is a "financial derivative that represents a contract sold by one party (the option writer) to another party (the option holder). The contract offers the buyer the right, but not the obligation, to buy or sell a security or other financial asset an an agreed-upon price during a certain period of time or on a specific date."[3]

History

The Commodity Futures Trading Commission (CFTC) was created in 1974 as part of the Commodity Futures Trading Commission Act of 1974. The CFTC replaced the Commodity Exchange Authority, a division of the Department of Agriculture. The act created the CFTC as an independent agency responsible for regulating the commodity futures and option market. The CFTC's authority was expanded in December 2000 with the passage of the Commodity Futures Modernization Act of 2000, an act requiring the Securities and Exchange Commission and the CFTC to develop regulations for single-stock futures. The passage of the Dodd-Frank Act in 2010 expanded the CFTC's authority into swap markets.[1]

Organization

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The CFTC consists of five commissioners, who are appointed by the President with the advice and consent of the United States Senate. The commissioners serve five-year terms. The President, with the advice and consent of the Senate, appoints one of these commissioners to serve as the chair. No more than three members can belong to the same political party.[4]

The CFTC comprises several divisions with differing responsibilities. The Division of Clearing and Risk oversees derivatives clearing organizations. The Division of Enforcement investigates and prosecutes alleged violations of CFTC regulations and the Commodity Exchange Act. The Division of Market Oversight is responsible for ensuring that the derivatives market is free of disruptive activity. The Division of Swap Dealer and Intermediary Oversight registers and oversees intermediaries and futures industry self-regulatory organizations.[4]

Authority and responsibilities

The CFTC has regulatory authority over the futures markets. The CFTC may set rules to prevent market manipulation, fraud, or other abusive trading practices. The CFTC sets capital standards for new firms trading in the market, but does not otherwise oversee individual firms.[1]

See also

External links

Footnotes

  1. ↑ 1.0 1.1 1.2 Commodity Futures Trading Commission, "Mission and Responsibilities," accessed March 29, 2017
  2. ↑ Congressional Research Service, "Who Regulates Whom and How? An Overview of U.S. Financial Regulatory Policy for Banking and Securities Markets," January 30, 2015
  3. ↑ Investopedia, "Option," accessed March 31, 2017
  4. ↑ 4.0 4.1 Commodity Futures Trading Commission, "CFTC Organization," accessed March 29, 2017
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