The Commodity Futures Trading Commission is an independent agency of the U.S. federal government that regulates the futures, options, derivatives and swaps markets. The agency was created by the Commodity Futures Trading Commission Act of 1974, which was signed into law by President Gerald Ford in October of that year.
The act creating the CFTC gave it more power than its predecessor agency, the Commodity Exchange Authority, which was part of the Department of Agriculture and only regulated agricultural commodities. The CFTC was given exclusive jurisdiction over futures trading in all commodities.
The CFTC's Mission
According to its mission statement, the CFTC's job is to "foster open, transparent, competitive, and financially sound markets. By working to avoid systemic risk, the Commission aims to protect market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products."
The agency oversees a wide variety of markets and trading in commodities along with the people and companies who deal in them. Besides agricultural commodities, the CFTC regulates futures markets in metals, energy products and financial products such as interest rates, stock indexes and foreign currencies.
Following the 2008 global financial crisis, the CFTC's role took on added significance because the crisis "was caused in part by the unregulated swaps market." The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the debacle, granted the CFTC oversight of the US$400 trillion swaps market, "which is about twelve times the size of the futures market."
The CFTC is headed by five commissioners, and each is appointed by the president following confirmation by the senate.
Commissioners serve staggered five-year terms, meaning they are all not appointed at the same time nor do their terms expire at the same time. No more than three commissioners may be from the same political party at any one time.
One of the commissioners is designated by the president as chairman. As of September 2018, the chairman is J. Christopher "Chris" Giancarlo, who was appointed by President Donald J. Trump. He was previously a commissioner nominated by President Barack Obama.
The CFTC consists of four divisions:
- The Division of Clearing and Risk oversees derivatives clearing institutions and other market participants involved in the clearing process.
- The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and commission regulations, including fraud, manipulation and other abuses.
- The Division of Market Oversight oversees derivatives platforms and swap data repositories. It also reviews new applications for contract markets and evaluates new products to make sure they are not vulnerable to manipulation.
- The Division of Swap Dealer and Intermediary Oversight oversees intermediaries and futures industry self-regulatory groups, including U.S. derivatives exchanges and the National Futures Association.
As of September 2018, the agency is still feeling its way on how to handle the trading of futures in cryptocurrencies, as its jurisdiction over the various parts of this new market is still unclear.
According to a "Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets" published on 4 January 2018, the CFTC noted that "U.S. law does not provide for direct, comprehensive federal oversight of underlying Bitcoin or virtual currency spot markets. As a result, U.S. regulation of virtual currencies has evolved into a multifaceted, multi-regulatory approach."
However, the CFTC "has an important role to play." In 2014, the agency declared "virtual currencies" to be a commodity that falls under its oversight authority.
In December 2017, the CFTC approved the applications by CME Group and Cboe Global Markets to start trading Bitcoin futures. The Wall Street Journal called the announcement "a potentially huge step in the evolution of the digital currency, making trading Bitcoin easier for Wall Street banks and small investors alike."
However, Giancarlo warned investors to "take note that the relatively nascent underlying cash markets and exchanges for Bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority."
In February 2018, the CFTC and the Securities and Exchange Commission asked the Senate Banking Committee to expand federal oversight of Bitcoin and other cryptocurrency trading.((Retrieved 7 September 2018 https://www.wsj.com/articles/patchy-bitcoin-oversight-poses-hazards-for-investors-regulators-say-1517913001)
The Commodity Futures Trading Commission (CFTC) is an independent agency of the U.S. federal government that regulates the futures, options, derivatives and swaps markets.
The agency regulates futures markets in a variety of commodities, including agricultural commodities metals, energy products and financial products such as interest rates, stock indexes and foreign currencies. It also regulates Bitcoin as a commodity.
Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…