The CFTC and its predecessor agencies were established to protect market users and the public from fraud, manipulation and other abusive practices in the commodity futures and options markets. The CFTC also is charged with fostering open, competitive and financially sound commodity futures and option markets.
Congress established the CFTC as an independent agency in 1974, after its predecessor operated within the Department of Agriculture. Its mandate was renewed and/or expanded in 1978, 1982, 1986, 1992, 1995, 2000, 2008 and 2010. The CFTC’s short- and long-term goals include significant rule-writing and regulation of the swaps marketplace to implement the Dodd-Frank Act.
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. It established a comprehensive regulatory structure to oversee the volatile futures trading complex.
The CFTC was established to ensure the economic utility of the futures markets by encouraging competitiveness and efficiency, protecting market participants against fraud, manipulation and other abusive trading practices and ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk. The CFTC will spend the next year bringing similar protections to the swaps marketplace through implementing the provisions of the Dodd-Frank Act.
The Farm Bill reauthorized the CFTC and made several amendments to the CEA to: 1) clarify the CFTC’s jurisdiction over retail financial contracts based on foreign currencies; 2) make the CFTC’s anti-fraud authority applicable to certain off-exchange contracts or swaps; 3) increase civil monetary and criminal penalties for violations of the CEA; 4) permit cross-margining of accounts in security futures and options; and 5) establish CFTC regulation over certain exchange-like trading facilities that are currently exempt from most regulation.
During FY 2010, the CFTC fulfilled its statutory obligations under the Farm Bill to regulate certain derivatives, including energy derivatives traded on ECMs. If a contract that is traded on one of these facilities is found to perform a significant price discovery function, the contract and the facility are subject to heightened regulation and required to comply with key core principles that also apply to the trading of futures contracts. For example, the Commission found that the highest-volume natural gas contract on ICE—among others—performs a significant price discovery function. ICE is now regulated for this contract in accordance with the core principles laid out in the Farm Bill.
As directed by both the Farm Bill and the Dodd-Frank Act, the CFTC adopted new regulations with respect to off-exchange retail forex transactions in FY 2010. The rules establish standards to promote fair dealings, require honest and meaningful risk and performance disclosure and impose dealer capital requirements.
In September 2009, the Commission began publishing a weekly disaggregated COT report for physical commodity markets. The agency built upon those transparency efforts in July 2010, when it began publishing the Traders in Financial Futures (TFF). The TFF report—for the first time—breaks out dealers, asset managers, leveraged funds and others in the financial futures markets.
Also in September 2009, the CFTC began publishing index investment data in the physical commodity markets on a quarterly basis. The data includes information on index investors’ dealings in the cash markets and other derivatives, including swaps. In August, the Commission began releasing the data on a monthly basis.