The Commodity Futures Trading Commission (CFTC) is an independent government agency aimed to better protect the futures market from fraud or manipulation. It is responsible for recording and monitoring the trading of futures contracts on United States futures exchanges. The CFTC has the authority to fine, suspend, or sue the company or individual in a federal court in cases of misconduct, fraud, or if a rule breaking occurs. The CFTC first started on October 23rd, 1974, when congress passed the Commodity Futures Trading Commission Act of 1974. Beforehand, there was only the Commodity Exchange Authority that only regulates the agricultural commodities, but as the types of commodity contracts traded increased over now time, a need for a more comprehensive regulatory system was required. The CFTC was designed such that it would have the power to regulate all kinds of futures contracts. Common cases handled by Commission that violate CFTC rules include investment managers not disclosing all the risks related to trading in the futures market, misleading performance data, and fraud.
The CFTC main purpose is to regulate the futures market. It mainly regulates these exchanges:
- Chicago Board Options Exchange
- Chicago Board of Trade
- Chicago Mercantile Exchange
- U.S. Futures Exchange
- Kansas City Board of Trade
- Minneapolis Grain Exchange
- New York Mercantile Exchange
- New York Board of Trade
To regulate these exchanges, the CFTC is utilizes 6 major divisions, which includes: Division of Clearing and Intermediary Oversight, Division of Market Oversight, Division of Enforcement, Office of Chief Economist, Office of the General Counsel, and the Office of the Executive Director.
- Division of Clearing and Intermediary Oversight – The functions of the Division of Clearing and Intermediary Oversight include oversight of derivatives clearing organizations, financial integrity of registrants, customer fund protection, stock-index margin, registration and fitness of intermediaries, sales practice reviews, National Futures Association activities related to intermediaries, and foreign market access by intermediaries.
- Division of Market Oversight – The Division of Market Oversight has regulatory responsibility for initial recognition and continuing oversight of trade execution facilities, including new registered futures exchanges and derivatives transaction execution facilities. The regulatory functions of the Division include, among other things, market surveillance, trade practice reviews and investigations, rule enforcement reviews, review of product-related and market-related rule amendments, and associated product and market-related studies.
- Division of Enforcement – The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and CFTC regulations. Violations may involve commodity futures or option trading on domestic commodity exchanges, or the improper marketing of commodity investments. The Division may, at the direction of the Commission, file complaints before the agency’s administrative law judges or in the U.S. District Courts. Alleged criminal violations of the Commodity Exchange Act or violations of other Federal laws which involve commodity futures trading may be referred to the Justice Department for prosecution. The Division also provides expert help and technical assistance with case development and trials to U.S. Attorneys’ Offices, other Federal and state regulators, and international authorities.
- Office of Chief Economist – The Office of the Chief Economist is an independent office with responsibility for providing expert economic advice to the Commission. Its functions include policy analysis, economic research, expert testimony, education, and training.
- Office of the General Counsel – The Office of the General Counsel (OGC) is the Commission’s legal advisor. OGC staff represents the Commission in appellate litigation and certain trial-level cases, including bankruptcy proceedings which involve futures industry professionals. As the Commission’s legal advisor, OGC reviews all substantive regulatory, legislative, and administrative matters presented to it and advises the Commission on the application and interpretation of the Commodity Exchange Act and other administrative statutes. OGC also assists the Commission in performing its adjudicatory functions.
- Office of the Executive Director – The Office of the Executive Director (OED) formulates and implements the management and administrative policies and functions of the agency. OED staff formulate the agency’s budget, supervise the allocation and use of agency resources, promote management controls and financial integrity, and develop and maintain the agency’s automated information systems. The Office of Proceedings, which is under the administrative direction of OED, provides an inexpensive and expeditious forum for handling customer complaints against people or firms registered with NFA through its reparations program. The Office of Proceedings also hears and decides enforcement cases brought by the Commission.
- CFTC Rules and Regulations – A detailed rules and regulation of the CFTC regulation can be found here: http://www.cftc.gov/lawandregulation/index.htm
- History – An extensive archive of CFTC’s history since its inception and before it was formed when it was known as the Commodity Exchange Authority.
- Economic Analysis – The CFTC monitors a large and diverse array of markets, including new energy products, new types of “event-related” markets, such as corporate actions, derivatives on economic statistics, derivatives on credit events, derivatives on weather and derivatives on exchange-traded commodity funds.
- Market Reports – The CFTC also publishes market reports, which are critical information relating to the commodity futures markets. One of the reports, for example, is the “Commitments of Traders” report. It provides a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.
- Press Releases – The CFTC keeps the industry informed of events of the Commission. It contains an extensive repository of historical announcements by the CFTC. http://www.cftc.gov/newsroom/index.htm
National Futures Association (NFA)
National Futures Association (NFA) is the industrywide, self-regulatory organization for the U.S. futures industry. NFA strives every day to safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities. The NFA oversees and protects investors from fraudulent commodities and futures activities. The NFA also provides mediation and arbitration for resolving consumer complaints. NFA is headquartered in Chicago, IL, along with the Chicago Mercantile Exchange (CME), and also maintains an office in New York City.
- In 1974, the United States Congress established a federal regulatory agency called the Commodity Futures Trading Commission (CFTC). Under the Commodity Exchange Act, this legislation by Congress, gave jurisdiction over commodity and futures trading, and allowed the futures industry to create a national self-regulatory organization, which in 1982 would create the National Futures Association (NFA).
- In 1998 the NFA created online access to the Background Affiliation Status Information Center (BASIC). BASIC, provides current and historical registration information, disciplinary actions of all current and former CFTC registrants.