The Commodity Futures Trading Commission (CFTC) is an independent U.S. government agency established in 1974 to regulate the U.S. derivatives markets, including futures, swaps, and certain options.
The Commodity Exchange Act (CEA) prohibits fraud in trading these derivatives. The CFTC’s mission is to ensure the integrity and stability of the U.S. derivatives markets through effective regulation. Following the 2007–08 financial crisis and the Dodd–Frank Act of 2010, the CFTC has worked to increase transparency and regulation in the swaps market, which is valued at over $400 trillion.
History
Futures contracts for agricultural commodities have been traded in the U.S. for over 150 years and have been federally regulated since the 1920s. The Grain Futures Act of 1922 and later the Commodity Exchange Act of 1936 set the framework for this regulation.
In the 1970s, trading expanded beyond traditional commodities to include a wide range of financial instruments. The CFTC was created in 1974 to replace the Commodity Exchange Authority of the U.S. Department of Agriculture, following changes to the Commodity Exchange Act.
The Commodity Futures Modernization Act of 2000 renewed and expanded the CFTC’s mandate, including oversight of single-stock futures. The Dodd–Frank Act of 2010 further broadened the CFTC’s authority into the swaps markets.
Related Post:
• U.S. Securities and Exchange Commission
• Commodity Futures Trading Commission
Regulated Markets
The CFTC oversees the derivatives markets to ensure competitiveness, integrity, and protection against manipulation and fraud. It generally does not regulate individual firms’ safety, except for swap dealers and major swap participants, for whom it sets capital standards.
The CFTC monitors designated contract markets, swap execution facilities, derivatives clearing organizations, and other intermediaries, coordinating with international regulators.
Over-the-Counter Derivatives
In 1998, CFTC chairperson Brooksley E. Born advocated for the CFTC to oversee over-the-counter (OTC) derivatives markets but faced opposition from other regulators. Concerns about potential new regulations led to legislative restrictions on the CFTC’s authority over swaps until March 1999. Born resigned shortly after the legislation was enacted.
Regulating Digital Currencies
In 2014, the CFTC considered regulating Bitcoin and later declared it a commodity under the CEA. In 2019, it also classified ether as a commodity. The CFTC has since focused on addressing risks and prosecuting fraud in digital asset markets.
Organization
The CFTC is based in Washington, D.C., with regional offices in Chicago, New York, and Kansas City. It consists of five Commissioners appointed by the U.S. President to serve five-year terms. The President, with Senate approval, designates one Commissioner as chairman. No more than three Commissioners may be from the same political party.
Current Commissioners
- Rostin Behnam (Chair) – Democratic, since September 6, 2017
- Kristin N. Johnson – Democratic, since March 30, 2022
- Christy Goldsmith Romero – Democratic, since March 30, 2022
- Summer Mersinger – Republican, since March 31, 2022
- Caroline Pham – Republican, since April 14, 2022
Major Operating Units
- Division of Enforcement: Investigates and prosecutes violations of the CEA and CFTC regulations.
- Division of Market Oversight: Manages the recognition and oversight of trade execution facilities and reviews market rules.
- Market Participants Division: Oversees derivatives market intermediaries and ensures compliance with regulations.
- Division of Clearing and Risk: Monitors the clearing process and assesses risk within derivatives markets.
List of Past Commissioners
A comprehensive list of past commissioners includes figures such as Dan M. Berkovitz, Brian D. Quintenz, and Gary Gensler, among others.
Notable Events
Roy Lavik served as the CFTC Inspector General until 2023 when he was suspended following allegations of misconduct.
Funding/Budget
The CFTC does not have self-funding and relies on Congressional appropriations. Budget increases and decreases have impacted its ability to effectively oversee the markets, with recent funding securing $284 million for FY2020.
Conclusion
The Commodity Futures Trading Commission (CFTC) is a key U.S. regulatory body responsible for overseeing the derivatives markets, including futures, swaps, and options. Established in 1974, the CFTC aims to ensure market integrity, prevent fraud, and protect participants. Its responsibilities have expanded significantly over the years, particularly with the introduction of the Dodd–Frank Act, which broadened its authority to include swaps markets.
The CFTC operates with a focus on maintaining market transparency and stability, working with both domestic and international regulators. Despite facing challenges, including budget constraints and evolving market dynamics, the CFTC continues to adapt and refine its regulatory framework to meet the needs of the modern financial landscape.
