For Release: May 23, 2008
CFTC Applauds Enactment of Agency Reauthorization Legislation
Includes Increased Authority to Bring More Transparency to Energy Trading and to Combat Fraud in Foreign Currency Trading
Washington, DC — Congress recently enacted legislation that reauthorizes the Commodity Futures Trading Commission (CFTC) and gives the agency additional regulatory and enforcement tools necessary to continue to effectively oversee the dynamic futures industry, particularly transactions in energy products and foreign currency. The legislation is Title XIII of the Farm Bill conference report.
CFTC Acting Chairman Walt Lukken, and Commissioners Michael Dunn, Jill Sommers and Bart Chilton made the following joint statement about the legislation:
“We applaud and thank Congress for its efforts in completing this critical legislation. The CFTC provisions included in the Farm Bill represent years of hard work and bipartisan efforts to find the right balance of enhancing market oversight, transparency and enforcement while promoting market innovation and competition. This legislation is an important accomplishment to ensure proper protections of the markets, its participants and the public.”
Highlights of major provisions included in the CFTC legislation:
- Reflects the CFTC’s recommendation to Congress last October on the need for additional tools to oversee trading on Exempt Commercial Markets.
- Provides the agency with essential oversight over contracts trading on Exempt Commercial Markets (ECMs) – a type of electronic trading facility offering (among other things) energy derivatives products. Under prior law, ECMs were not subject to full CFTC regulatory authority. The new legislation outlines criteria for when an ECM contract should be considered a significant price discovery contract (SPDC) and gives the CFTC the authority to:
- Require large trader position reporting for SPDCs
- Require an ECM to adopt position limits or accountability levels for SPDCs
- Require an ECM to exercise self-regulatory responsibility over SPDCs in order to prevent manipulation (among other things)
- Exercise emergency authority regarding SPDC transactions
- Enhances agency authority over off-exchange retail foreign currency fraud by:
- Clarifying that the CFTC’s anti-fraud authority applies to certain retail off-exchange foreign currency transactions (also known as the “Zelener” fix)
- Creating a new registration category for retail foreign exchange dealers and requiring registration for those who solicit orders, exercise discretionary trading authority, and operate commodity pools with respect to off-exchange retail foreign currency transactions
- Imposing minimum capital requirements for futures commission merchants and retail foreign exchange dealers that act as counterparties in such transactions.
- Increases civil penalties for manipulation and certain other violations of the Commodity Exchange Act to $1 million per violation
- Reauthorizes the CFTC through 2013
- Implementation of SPDC provisions:
- As outlined in the bill, the agency will propose a rule regarding the standards for SPDCs within 180 days of enactment and will implement a final rule within 270 days. The CFTC will identify significant price discovery contracts within 180 days after the final rule is in effect.
R. David Gary
Last Updated: May 23, 2008