Governing the Futures Markets

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Governing the Futures Markets

• Kyle Draeger

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Overview

• Brief history of the regulations governing the
  futures markets (U.S.A.)
• Description of roles and responsibilities of
• Commodity Futures Trading Commission (CFTC)
• National Futures Association (NFA)
• Self-Regulatory Organizations (SROs)

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Federal Legislation

• Anti-Gold Futures Act of 1864
• Banned the trading of gold futures to stop the
  paper money from trading at a discount to gold
• Grain Futures Act of 1922
• Created the Grain Futures Commission that
  reported futures trading on grain and
  investigated misleading information that impacted
  the price of grain
• Commodity Exchange Act of 1936
• Specified a variety of items as commodities and
  enacted rules to stabilize the pricing of
  commodities futures contracts

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Federal Legislation

• Commodity Futures Trading Commission Act of 1974
• Formation of the Commodity Futures Trading
  Commission to regulate commodity futures and
  options markets within the US
• Expanded the definition of commodity and futures
  contracts
• Allowed for the trading of futures on underlying
  assets such as financial instruments

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Federal Legislation

• Commodity Futures Modernization Act of 2000
• Renewed the CFTCs Federal mandate
• Lifted ban on single stock narrow based stock
  index futures (regulation by both SEC and CFTC)
• Modified the regulations to encourage innovation
  and competition and enacted new regulatory
  methods Result of the 1990s collapse of
  organizations that managed futures funds

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• Regulates the actions of futures commission
  merchants, salespeople, floor traders and
  brokers, commodity pool operators, commodity
  trading advisors and introducing brokers
• Senate Agriculture Committee provides oversight

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• Ensures that business intermediaries in the
  futures market are financially sound and
  registered
• Investigate, Enforce and Prosecute suspicious
  activities in the futures markets (macro-level)
• Oversees the National Futures Association

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Self-Regulatory Organizations

• The Commodity Exchange Act empowers futures
  exchanges to self-regulate
• Each exchange has a board that establishes and
  enforces rules (COI)
• Disciplinary board to enact sanctions on members
  that break the rules
• Report to CFTC

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National Futures Association

• CFTC rules allow for registration and oversight
  of self-regulatory associations of futures
  professionals
• The NFA does the same types of regulatory
  activities as the CFTC but focuses on individuals
  working in the futures industry (micro-level)

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