What is the Commodity Futures Trading Commission (CFTC)?

The Commodity Futures Trading Commission (CFTC) is a federal government agency that regulates the commodity futures markets. The responsibilities of the CFTC include overseeing options and futures contracts on agricultural products, metals, foreign exchange, and the exchanges on which they are traded.

Definition and Example of the Commodity Futures Trading Commission

In 1974, the federal government established the Commodity Futures Trading Commission as an independent regulatory agency to oversee trading in options and futures contracts. The commission consists of five commissioners appointed by the U.S. president for staggered five-year terms; no more than three of them can belong to the same political party at the same time. This structure helps reduce political interference in oversight.

The CFTC oversees two main categories of commodity futures markets: designated contract markets and alternative trading systems.

The commission monitors options, futures, and swaps in several different ways, including:

• Requiring the submission of various reports from firms in these markets, and for new options and futures products, to create transparency in the industry.
• Regulating alternative clearing organizations that ensure the execution and settlement of contracts.
• Maintaining data repositories for swap markets, to ensure records of transactions are available to mitigate fraud.
• Monitoring the market for signs of insider trading and market manipulation, as well as ensuring that speculative activity does not reach unsafe levels.
• Implementing anti-money laundering procedures and monitoring for suspected money laundering through commodity futures markets.

Historically, futures markets have helped farmers and ranchers manage price risks. The CFTC’s predecessor was part of the U.S. Department of Agriculture, and the agency continues to work closely with food producers to maintain stability in those markets.

What Does This Mean for Individual Investors?

The work of the Commodity Futures Trading Commission helps give individual investors confidence in the commodities market. Even small traders know that exchanges are regulated, that there are practices in place to ensure that the counterparty in a contract pays, and that there is protection against market manipulation.

Traders who have concerns about certain firms or contracts can file complaints with the CFTC. The commission often issues penalties against bad actors, helping to protect the trading public. Not only do firms in the options and futures space need to register with the CFTC, but the CFTC also maintains a list of non-U.S. firms that may appear to be under its regulation but are not. By checking this list, investors may be able to avoid fraud or other issues.

CFTC vs. SEC

The CFTC is an independent federal agency that regulates commodity options, futures, and swaps. Meanwhile, the Securities and Exchange Commission (SEC) regulates individual stock options and futures in conjunction with the CFTC, as well as stock and bond markets separately.

The CFTC maintains data related to commodity options and futures contracts, along with swap contracts. The SEC maintains reports for all public companies.

The CFTC’s budget for fiscal year 2021 is about $355 million, while the SEC’s budget for fiscal year 2021 is about $3 billion.

Notable Events

With options and futures on cryptocurrencies becoming available, the CFTC has been conducting research and providing information to traders in the cryptocurrency space. The agency is evolving with the market, so if you are trading cryptocurrencies, you may see more news regarding trading regulations from the CFTC.

Takeaways

The Commodity Futures Trading Commission oversees U.S. exchanges and commodity options and futures. The CFTC is an independent federal agency. Investors with complaints about the options and futures markets can bring their concerns to the CFTC.

Sources:

• Commodity
• Futures Trading Commission. “The Commission.”
• Commodity Futures Trading Commission. “Chairman & Commissioners.”
• Commodity Futures Trading Commission. “Trading Organizations.”
• Commodity Futures Trading Commission. “Dodd-Frank Act.”
• Commodity Futures Trading Commission. “Industry Filings.”
• Commodity Futures Trading Commission. “Clearing Organizations.”
• Commodity Futures Trading Commission. “Data Repositories.”
• Commodity Futures Trading Commission. “Market Surveillance.”
• Commodity Futures Trading Commission. “Anti-Money Laundering.”
• Commodity Futures Trading Commission. “Protecting America’s Farmers and Ranchers.”

Source: https://www.thebalancemoney.com/what-is-the-commodity-futures-trading-commission-cftc-5220077