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To protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that
are subject to the Commodity Exchange Act, and to foster open, competitive, and financially sound markets.
The Commission administers the CEA, 7 U.S.C. section 1, et seq. The 1974 Act brought under Federal regulation futures trading in all goods, articles, services, rights and interests; commodity options trading; leverage trading in gold and silver bullion and coins; and otherwise strengthened the regulation of the commodity futures trading industry.
On July 21, 2010, President Obama signed the Dodd-Frank Act. The Dodd-Frank Act amended the CEA to establish a comprehensive new regulatory framework to include swaps, as well as enhanced authorities over historically regulated entities. The Dodd-Frank Act was enacted to:
The U.S. swaps and futures markets are estimated at $281 trillion and $25 trillion, respectively. By any measure, the markets under CFTC's regulatory purview are large and economically significant. Given the enormity of these markets and the critical role they play in empowering legitimate, prudential, and non-speculative hedging strategies, it is essential to protect the financial stability of the nation to ensure that these markets are transparent, open and competitive.
Estimated notional value of the U.S. markets:
The first derivatives—called futures—began trading at the time of the Civil War, when grain merchants came together and created this new marketplace. When the Commission was founded in 1974, the vast majority of derivatives trading consisted of futures trading in agricultural sector products. These contracts gave farmers, ranchers, distributors, and end-users of products ranging from corn to cattle an efficient and effective set of tools to hedge against price risk.
Over the years, however, the derivatives industry has become increasingly diversified. The agriculture sector continues to use the futures markets as actively as ever to effectively lock in prices for crops and livestock months before they enter the marketplace. However, highly complex financial contracts based on interest rates, foreign currencies, Treasury bonds, securities indexes and other products have far outgrown agricultural contracts in trading volume. Over a 32-year span, on-exchange commodity futures and option trading activity in the agricultural sector decreased 54 percent, while the financial sector commodity futures and option contracts increased 53 percent:1
Fundamental changes in technology, products and platforms of U.S. futures trading have increased the Commission's need for sophisticated technology, specialized skills and additional resources to keep pace. In the futures industry, exchanges, in particular have under gone a decade-long transition from geographically–defined trading pits to electronic platforms with global reach. From 2000 to 2012, electronic trading grew from approximately nine percent of volume to 84 percent on all U.S. designated contract markets (DCMs). Over the same time period, the number of actively-traded futures and options contracts listed on U.S. exchanges increased more than eight-fold, from approximately 266 contracts in 2000 to approximately 2,313 contracts in 2012. Total DCM futures and options trading volume rose from approximately 580 million contracts in 2000 to approximately 3.12 billion in 2012, an increase of 439 percent.
|Notional Value of Futures/Options Marketsa||$12 Trillion||$25 Trillion||+108%|
|Notional Value of Swaps Marketb||$40.5 Trillion||$281 Trillion2||+594%|
|Number of Futures and Options Contracts Tradeda||266||2,313||+769%|
|Total Futures and Options Contract Volumec||580 Million||3.12 Billion||+439%|
|Volume of Electronic Trading on all U.S. DCMsd||9%||84%||+75%|
|Customer Funds Held in Futures Commission Merchants (FCM) Accountse||$56.7 Billion||$184.2 Billion||+225%|
a. CFTC Integrated Surveillance System (back to text)
b. Office of the Comptroller of the Currency (back to text)
c. Futures Industry Association (back to text)
d. CFTC Trade Surveillance System (back to text)
e. 1-FR Reports filed by FCMs and posted at: http://www.cftc.gov/MarketReports/FinancialDataforFCMs/index.htm (back to text)
The Commission's regulatory scope encompasses trading entities, clearing entities, and data repositories and the sole registered futures association, NFA. For the overwhelming number of market participants, the Commission's role is as a second-line regulator, where the agency relies on the designated self-regulatory organizations (DSROs) to perform critical regulatory responsibilities. The Commission's direct regulatory activities in registration, product reviews, and examinations are primarily focused on the DCMs, DCOs, Swap Data Repositories (SDRs), NFA, and soon, Swap Execution Facilities (SEFs). The Commission also conducts limited scope direct examinations of intermediary trading entities, as resources are available. While the DSRO's are obligated to conduct surveillance and enforcement activities for entities under their purview, the Commission conducts surveillance and enforcement activities across all market participants.
|Number of Registered Entities/Registrants||As of September 30, 2012|
|Designated Contract Markets (DCMs)||16|
|Swap Execution Facilities (SEFs)||0|
|Foreign Boards of Trade (FBOTs)||21|
|Associated Persons (APs)||51,068|
|Commodity Pool Operators (CPOs)||1,172|
|Commodity Trading Advisors (CTAs)||2,470|
|Floor Brokers (FBs)||5,650|
|Floor Traders (FTs)||1,102|
|Futures Commission Merchants (FCMs)||128|
|Retail Foreign Exchange Dealers (RFEDs)||14|
|Introducing Brokers (IBs)||1,354|
|Swap Dealers (SDs)||0|
|Major Swap Participants (MSPs)||0|
|Designated Clearing Organizations (DCOs)||17|
|Systemically Important DCOs (SIDCOs)||2|
|Swap Data Repositories3 (SDRs)||3|
"The Wall Street Reform Bill will—for the first time—bring comprehensive regulation to the swaps marketplace. Swap dealers will be subject to robust oversight. Standardized derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties. The Commission looks forward to implementing the Dodd-Frank Bill to lower risk, promote transparency and protect the American public."
– CFTC Chairman Gary Gensler
In July 2010, the U.S. Congress addressed the economic risks of swaps when it passed the Dodd-Frank Act. Though the CFTC and its predecessor agencies have regulated derivatives since the 1920s, its jurisdiction was limited to futures. Now, the Commission, along with the Securities and Exchange Commission (SEC), is tasked with bringing its regulatory expertise to the swaps marketplace. These products, which have not previously been regulated in the United States, were at the center of the 2008 financial crises. The historical Dodd-Frank Act authorizes the CFTC to:
1 A timeline of significant dates in the history of futures regulation before the creation of the CFTC and significant dates in CFTC history from 1974 to the present is located at: http://www.cftc.gov/About/HistoryoftheCFTC/index.htm. (back to text)
2 As of 2nd quarter of 2012. (back to text)
3 Number of SDR registrants are those entities with provisional registration status. (back to text)
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