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Commodity Futures Trading Commission

Article Discussion

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The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures, swaps, and certain kinds of options.

The Commodity Exchange Act (CEA), Template:UnitedStatesCode et seq., prohibits fraudulent conduct in the trading of futures, swaps, and other derivatives. The stated mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> After the 2008 financial crisis and since 2010 with the Dodd–Frank Wall Street Reform and Consumer Protection Act, the CFTC has been transitioning to bring more transparency and sound regulation to the multitrillion-dollar swaps market.<ref name=wsj>Template:Cite news</ref>

HistoryEdit

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Futures contracts for agricultural commodities have been traded in the U.S. for more than 150 years and have been under federal regulation since the 1920s.<ref>See the Futures Trading Act of 1921, Declared unconstitutional in Hill v. Wallace 259 U.S. 44 (1922), the Grain Futures Act of 1922 and Board of Trade of City of Chicago v. Olsen 262 US 1 (1923).</ref> The Grain Futures Act of 1922 set the basic authority and was changed by the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.).<ref name="CRS 2005">{{#invoke:citation/CS1|citation |CitationClass=web }}</ref><ref name="auto">{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

Since the 1970s,<ref>Template:Cite journal</ref> trading in futures contracts has rapidly expanded beyond traditional physical and agricultural commodities into a vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and foreign stock indices.Template:Citation needed

Congress created the CFTC in 1974 as an independent federal regulatory agency. The Commodity Futures Trading Commission Act of 1974 (P.L. 93-463) created the CFTC to replace the U.S. Department of Agriculture's Commodity Exchange Authority.Template:Citation needed The Act made extensive changes to the Commodity Exchange Act (CEA) of 1936, which itself amended the original Grain Futures Act of 1922. (7 U.S.C. 1 et seq.).<ref name="auto"/><ref name="CRS 2005" /> In 1975, the first members were selected, and John T. O'Hara became its first chairman.Template:Citation needed

The CFTC's mandate was renewed and expanded in December 2000 when Congress passed the Commodity Futures Modernization Act of 2000, which instructed the Securities and Exchange Commission (SEC) and the CFTC to develop a joint regulatory regime for single-stock futures, the products of which began trading in November 2002.Template:Citation needed

In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act expanded the CFTC's regulatory authority into the swaps markets.Template:Citation needed The swaps markets currently have a notional value of more than $400 trillion.Template:Citation needed

Regulated marketsEdit

Template:More citations needed section The CFTC oversees the derivatives markets by encouraging their competitiveness and efficiency, ensuring their integrity, protecting market participants against manipulation, abusive trading practices, fraud, and ensuring the financial integrity of the clearing process.Template:Citation needed The CFTC generally does not directly regulate the safety and soundness of individual firms, with the exception of newly regulated swap dealers and major swap participants, for whom it sets capital standards pursuant to Dodd–Frank.<ref name="murphy">{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> Through oversight, the CFTC enables the derivatives markets to serve the function of price discovery and offsetting price risk.Template:Citation needed

As of 2014 the CFTC oversees 'designated contract markets' (DCMs) or exchanges, swap execution facilities (SEFs), derivatives clearing organizations, swap data repositories (SDRs), swap dealers, futures commission merchants, commodity pool operators and other intermediaries.Template:Citation needed The CFTC coordinates its work with foreign regulators, such as its UK counterpart, the Financial Conduct Authority, which supervises the London Metal Exchange.<ref name=McGonagle>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

Over-the-counter derivativesEdit

File:Brooksley Born.jpg
Brooksley Born

In 1998 CFTC chairperson Brooksley E. Born lobbied Congress and the President<ref name=Hirsh20101213>Template:Cite news</ref>Template:Page needed<ref name="the_warning">Template:Citation</ref> to give the CFTC oversight of 'off-exchange markets' for over-the-counter (OTC) derivatives in addition to its existing oversight of exchange-traded derivatives,<ref name="conceptrelease">"Concept Release Concerning Over-The-Counter Derivatives market", CFTC Release #4142-98, May 7, 1998.</ref> but her warnings were opposed by other regulators.<ref name="nytimes">Template:Cite news</ref>

Two actions by the CFTC in 1998 led some market participants to express concerns that the CFTC might modify the "Swap Exemption" and attempt to impose new regulations on the swaps market.<ref name="wg_otc_deriv">Template:Citation</ref> First, in a February 1998 comment letter addressing the SEC's "broker-dealer lite" proposal, the CFTC stated that the SEC's proposal would create the potential for conflict with the Commodity Exchange Act (CEA) to the extent that certain OTC derivative instruments fall within the ambit of the CEA and are subject to the exclusive statutory authority of the CFTC.<ref>Letter from Jean A. Webb, Secretary, CFTC, to Jonathan G. Katz, Secretary, SEC (February 26, 1998).</ref>

In May 1998 the CFTC issued a 'concept release' requesting comment on whether regulation of OTC derivatives markets was appropriate and, if so, what form such regulation should take.<ref>Over-the-Counter Derivatives, 63 Fed. Reg. 26,114 (May 12, 1998).</ref> Legislation enacted in 1999 at the request of the US Treasury, the Federal Reserve Board, and the SEC limited the CFTC's rulemaking authority with respect to swaps and hybrid instruments until March 30, 1999, and froze the pre-existing legal status of swap agreements and hybrid instruments entered into in reliance on the 'Swap Exemption', the 'Hybrid Instrument Rule', the 'Swap Policy Statement, or the 'Hybrid Interpretation'.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> The text of that act read: "...the Commission may not propose or issue any rule or regulation, or issue any interpretation or policy statement, that restricts or regulates activity in a qualifying hybrid instrument or swap agreement".Template:Citation needed Shortly after Congress had passed this legislation prohibiting CFTC from regulating derivatives, Born resigned.<ref name="the_warning"/> She later commented the failure of Long-Term Capital Management and the subsequent bailout as being indicative what she had been trying to prevent.<ref name="the_warning"/><ref group=notes>Born was the focus of an October 2009 Frontline documentary titled "The Warning" and was also chronicled in the documentary Inside Job. The two films recount her attempts to investigate and regulate the OTC derivatives market (PBS Frontline The Warning)</ref>

Regulating digital currenciesEdit

In March 2014 the CFTC acknowledged it was considering the regulation of Bitcoin.<ref>Template:Cite news</ref> The CFTC has since taken the position that Bitcoin is a commodity under the CEA.Template:Citation needed In October 2019, former CFTC Chairman Heath Tarbert, now Chief Legal Officer of Citadel Securities, declared that ether was also a commodity under the CEA.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

In 2015, the CFTC ruled that for purposes of trading, cryptocurrencies were legally classified as commodities.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> However, in view of market volatility and other factors, the CFTC noted several risks associated with trading virtual currencies.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> In 2017, the CFTC cited the US SEC's warning against digital token sales and initial coin offerings (ICOs) that can "improperly entice investors with promises of high returns".<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> In recent years, the CFTC has expanded its efforts to civilly prosecute fraud and misappropriation in the digital asset markets.Template:Citation needed

OrganizationEdit

Based in Washington, D.C., the CFTC maintains regional offices in Chicago, New York and Kansas City, Missouri.Template:Citation needed The Commission consists of five Commissioners appointed by the President of the United States to serve staggered five-year terms.<ref>Template:USC</ref> The commissioners may continue to serve until their successor is confirmed, but not beyond the expiration of the next session of Congress subsequent to the expiration their term.<ref>Template:USC</ref> The President, with the consent of the United States Senate, designates one of the commissioners to serve as chairman.<ref>Template:USC</ref> No more than three commissioners at any one time may be from the same political party.<ref>Template:USC</ref>

Current commissionersEdit

File:CFTC Commissioner Caroline D. Pham.jpg
Acting Chairman Caroline Pham

The current CFTC commissioners Template:As of:<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

Position Name Party Took office Term expires
Acting Chair Template:Sortname Template:Party shading/Republican | Republican Template:Dts Template:Dts
Member Template:Sortname Template:Party shading/Democratic | Democratic Template:Dts Template:Dts
Member Template:Sortname Template:Party shading/Democratic | Democratic Template:Dts Template:Dts
Member Template:Sortname Template:Party shading/Republican | Republican Template:Dts Template:Dts
Member Vacant Template:Sdash Template:Sdash Template:Dts

Major operating unitsEdit

Division of EnforcementEdit

The Division of Enforcement (DOE) investigates and prosecutes alleged violations of the Commodity Exchange Act and CFTC regulations. Violations may involve commodity futures or option trading on domestic commodity exchanges, or the improper marketing of commodity investments. The Division may, at the direction of the commission, file complaints before the agency's administrative law judges or in the U.S. District Courts. Alleged criminal violations of the Commodity Exchange Act or violations of other Federal laws which involve commodity futures trading may be referred to the Justice Department for prosecution. The Division also provides expert help and technical assistance with case development and trials to U.S. Attorneys' Offices, other Federal and state regulators, and international authorities.

Division of Market OversightEdit

The Division of Market Oversight (DMO) has regulatory responsibility for initial recognition and continuing oversight of trade execution facilities, including new registered futures exchanges, swap execution facilities, and swap data repositories. The regulatory functions of the Division include, among other things, rule enforcement reviews, reviews of new products and product- and market-related rule amendments, and associated product and market-related studies. The Division was previously responsible for market and trade practice surveillance.

Market Participants DivisionEdit

Formerly known as the Division of Swap Dealer and Intermediary Oversight, the Market Participants Division (MPD) primarily oversees derivatives market intermediaries, including commodity pool operators, commodity trading advisors, futures commission merchants, introducing brokers, major swap participants, retail foreign exchange dealers, and swap dealers, as well as designated self-regulatory organizations. MPD conducts the registration, compliance, and business conduct standards of intermediaries, swap dealers and major swap participants. The division also oversees the agency's customer education initiatives.

Division of Clearing and RiskEdit

The Division of Clearing and Risk (DCR) oversees derivatives clearing organizations (DCOs) and other market participants in the clearing process. These include futures commission merchants, swap dealers, major swap participants, and large traders. DCR monitors the clearing of futures, options on futures, and swaps by DCOs, assesses DCO compliance with Commission regulations, and conducts risk assessment and surveillance. DCR also makes recommendations on DCO applications and eligibility, rule submissions, and which types of swaps should be cleared.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> As of 2019, Clark Hutchison serves as Director of the Division of Clearing and Risk.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

List of past commissionersEdit

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Notable events of past commissionersEdit

Roy Lavik served as the CFTC (Commodity Futures and Trading Commission) Inspector General from 1990 until 2023. On May 3, 2023, the Wall Street Journal Reports that Mr. Lavik was suspended by the CFTC as the Inspector General after an oversight body alleging "Substantial Misconduct". Complaints of misconduct go back as far as late 2018. Allegations include:

  • Divulging the identity of whistleblowers on multiple occasions
  • Misappropriating around $165,000 in funds for a hire that did little or no work
  • Violating agency security policies by allowing others to use his username and password to access sensitive systems

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Funding/budgetEdit

Unlike the other four main financial regulators, the CFTC does not have self-funding. A transaction fee has been "requested" for several years but Congress has not taken any legislative action. During the government shut down in October 2013, SEC and Federal Reserve stayed open, but "futures and most swaps markets were left with essentially no cop on the beat".<ref name=Chilton />

In 2007, the CFTC's budget was Template:US$ and it had 437 full-time equivalent employees (FTEs). After 2008, funding increased by 80% to Template:US$ and 687 FTEs for fiscal year (FY) 2012, but was cut to Template:US$ and 682 FTEs for FY 2013.<ref>Template:Cite news</ref> In 2013 CFTC's performance was severely affected by limited resources and had to delay cases.<ref>Template:Cite news</ref> The current, FY 2014 funding of Template:US$ did not keep up with CFTC's increasing swaps market oversight and regulation, equivalent to tens of trillions of dollars in formerly dark market trading, according to outgoing Commissioner Bart Chilton in his last speech.<ref name=Chilton>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> The Obama administration's latest budget proposal for FY 2015 requested Template:US$, which is Template:US$ less than the request for the previous year,<ref>Template:Cite news</ref> and would fund "100 less employees than we need" per Chilton, who called the budget "woefully insufficient" for CFTC's more than 40-fold increased purview.<ref name=Chilton /> In February 2014, Commissioner Scott D. O'Malia dissented from the FY 2014 spending plan saying that it did not allocate enough funding to new technology investments, but allocated too much to swap dealer oversight, duplicating the work of the self-regulatory National Futures Association.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref> In March he dissented from the FY 2015 budget request stating CFTC "makes an unrealistic request for new staff and funding in this budget request without a firm understanding of its mission priorities, specific goals, and corresponding personnel and technology needs."<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>

In December 2019, the CFTC secured funding of Template:US$ for FY2020, an increase of nearly 6 percent from the Template:US$ appropriated for FY2019.<ref>Template:Cite news</ref> Chairman Tarbert commented that this "fully matched" the CFTC's request, the first time that had happened in "nearly a decade.<ref>{{#invoke:citation/CS1|citation |CitationClass=web }}</ref>"

Primary exchanges monitoredEdit

See alsoEdit

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NotesEdit

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ReferencesEdit

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Further readingEdit

External linksEdit

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