Commodity Futures Trading Commission

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The Commodity Futures Trading Commission (CFTC) is an independent agency in the U.S. government with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.

The CFTC's mission is "to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets."[1]

Organization

Structure

The CFTC organization consists of the Commissioners, the offices of the Chairman, and the agency's operating units.

The Commission consists of five Commissioners appointed by the President, with the advice and consent of the Senate, to serve staggered five-year terms. The President designates one of the Commissioners to serve as Chairman. No more than three Commissioners at any one time may be from the same political party.

The Offices of the Chairman include

  • the Office of External Affairs, which acts as the CFTC's liaison with news media, producer and market user groups, educational and academic groups, and the general public, provides information about the CFTC, and spearheads customer protection initiatives;
  • the Office of International Affairs, which coordinates the CFTC's global regulatory efforts and assists the Commission in the formulation of international policy;
  • the Office of the Inspector General, which performs audits of CFTC programs and operations and reviews legislation and regulations;
  • the Office of the Secretariat, which coordinates preparation and dissemination of policy documents and responds to requests filed under the Freedom of Information Act; and
  • the Office of Equal Employment Opportunity.

The CFTC monitors markets and market participants closely and, in addition to its headquarters office in Washington, DC, maintains offices in Chicago, Kansas City, and New York, cities where futures exchanges are located.

The Office of the General Counsel is the Commission's legal advisor, represents the Commission in appellate litigation and certain trial-level cases, including bankruptcy proceedings involving futures industry professionals, and advises the Commission on the application and interpretation of the Commodity Exchange Act and other administrative statutes.

The Office of the Executive Director formulates and implements the management and administrative functions of the CFTC and the agency's budget.

The Division of Clearing and Intermediary Oversight oversees market intermediaries, including derivatives clearing organizations, financial integrity of registrants, customer fund protection, stock index margin, sales practice reviews, foreign market access by intermediaries, and National Futures Association activities related to intermediaries.

The Division of Market Oversight is responsible for fostering markets that accurately reflect the forces of supply and demand for the underlying commodity and are free of abusive trading activity, oversees trade execution facilities, and performs market surveillance, market compliance, and market and product review functions.

The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations. Violations may involve commodity futures or option trading on U.S. futures exchanges or the improper marketing and sales of commodity futures products to the general public.

The Office of the Chief Economist provides economic support and advice to the Commission, conducts resesarch on policy issues facing the agency, and provides education and training for Commission staff.

Advisory committees

The CFTC's Advisory Committees were created to provide input and make recommendations to the Commission on a variety of regulatory and market issues that affect the integrity and competitiveness of U.S. markets. The committees facilitate communication between the Commission and U.S. futures markets, trading firms, market participants, and end users.

The committees, governed by the provisions of the Federal Advisory Committee Act, currently include the Agricultural Advisory Committee, the Global Markets Advisory Committee, Energy and Environmental Markets Advisory Committee, and the Technology Advisory Committee (inactive).[1]

Regulatory authority

Despite being created to protect investors from fraud and ensuring efficient operation of futures market exchanges, the CFTC has mainly followed a deregulatory path since its creation in 1974. [2] However, as of fall 2008, the Congress has pressured the CFTC to monitor price manipulation in several markets. "In May 2008, the commission disclosed that it had conducted a six-month investigation, after the prices of gold, copper, corn, wheat and gasoline set record highs. The regulators were pressured to demand more information about investors to determine whether they were skirting market limits on speculation and artificially driving up global food prices." [3]

The appointment of Gary Gensler as head of the CFTC in 2009 ushered in a new era of regulation at the CFTC. "The agency also announced that it would pull back part of the veil on the oil and gas markets, publishing more detailed information about the aggregate activity of hedge funds and traders who arbitrage between domestic and foreign energy prices." [4] Gensler made it very clear from the beginning of his appointment at the CFTC that he intends to seek tougher regulation of futures markets by the CFTC.

Specifically, the CFTC considered more regulations with respect to futures in oil and gas markets. "The Commodity Futures Trading Commission said it would consider imposing volume limits on trading of energy futures by purely financial investors and that it already has adopted tougher information requirements aimed at identifying the role of hedge funds and traders who swap contracts outside of regulated exchanges like the New York Mercantile Exchange." [5] “My firm belief is that we must aggressively use all existing authorities to ensure market integrity,” said Gary Gensler, chairman of the commission, in a statement. He said regulators would also examine whether to impose federal “speculative limits” on futures contracts for energy products." [6]

In January 2010, the CFTC announced harder limits on energy futures contracts held by commodity traders. "The Commodity Futures Trading Commission, the top futures market regulator, said the limits would be similar to those governing agricultural markets and would apply to futures contracts for crude oil, natural gas, heating oil and gasoline. The rules are intended to prevent a few traders from distorting prices by dominating a single market, the agency said." [7]

This April 2010, Congress is considering a financial reform bill overhaul which includes reforms on derivatives, which President Obama cites as the lead cause of the financial crisis. [8] "Senator Blanche Lincoln, an Arkansas Democrat facing a tough re-election challenge who is also the committee chairwoman, will be at the forefront of a legislative fight over derivatives by virtue of her leadership of the farm panel, which deals with traditional farm issues as well as commodity futures regulation. Mrs. Lincoln’s legislation would require nearly all derivatives trading to occur on a public exchange, for greater pricing transparency, and for trades to be processed through a third party to guarantee against defaults, two measures the Obama administration also favors." [9] The article in the New York Times goes on to further explain why reform in derivatives is especially necessary: "Derivatives have been at the center of much of the discussion about financial reform this week. The complex securities contracts, which contributed to the collapse or near failure of many financial services companies and banks when the housing market imploded, are generally exempt from securities or commodities laws or regulation." [10] President Obama had threatened to veto the bill if the provisions on derivatives are not included prior to passage. "The bill also requires most derivatives to be traded on an exchange and for companies that sell derivatives to investors or corporations to be regulated by either the Commodity Futures Trading Commission or the Securities and Exchange Commission. The Commodity Futures Trading Commission would also be required to set up a whistle-blower fund and use it to reward people who provided information about derivatives fraud." [11]

Financial crisis

The CFTC's failure to regulate over-the-counter derivatives was one of many historical topics discussed in media coverage of the causes of the financial crisis that struck the global economy in 2008. In May 1998, the CFTC, then chaired by Brooksley Born, issued a request for comments on a potential role for the CFTC in regulating derivatives trades.[12] Clinton administration economic advisors, including Federal Reserve chairman Alan Greenspan and Treasury Secretary Robert Rubin, opposed the idea of CFTC regulation, and the proposal was squelched.[13]

Contact details

Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Phoen: 202-418-5000
Fax: 202-418-5521
TTY: 202-418-5514
Email: questions AT cftc.gov
Website: http://www.cftc.gov/

Articles and resources

Related SourceWatch articles

References

  1. 1.0 1.1 "About the CFTC," accessed October 23, 2009.
  2. Nytimes Topic"Commodity Futures Trading Commission,","New York Times," July 7, 2009
  3. Id.
  4. Id.
  5. Edmund L. Andrews"U.S. Ponders New Curbs on Speculators,","New York Times," July 7, 2009.
  6. Id.
  7. Jan Mouawad,"CFTC Imposes More Limits on Speculative Trading,","New York Times, January 14, 2010.
  8. Edward Wyatt,"Obama Vows Veto If Derivatives Not Reined In,", "New York Times," April 17, 2010.
  9. Id.
  10. Id.
  11. Id.
  12. "CFTC Issues Concept Release Concerning Over-the-Counter Derivatives Market," CFTC Release: #4142-98, May 7, 1998.
  13. Rick Schmitt, "Profit and Loss," Stanford Magazine, March 2009; Peter S. Goodman, "The Reckoning: Taking Hard New Look at a Greenspan Legacy," The New York Times, October 8, 2008.

External resources

External articles