CFTC 101: What is the CFTC and what does it do?
The Commodity Futures Trading Commission (CFTC) is an independent regulatory agency that oversees the commodity futures and options markets. The CFTC was created in 1974 by the Commodity Futures Trading Commission Act, which also authorized it to oversee futures trading. The CFTC’s role is to protect market users from unfair practices and make sure that everyone trading in futures markets plays by the same rules. It accomplishes this by enforcing regulations on market participants, monitoring their activities and requiring them to report their activities on a regular basis. The primary objectives of the Commodity Futures Trading Commission are to monitor markets for manipulations, insider trading, and other manipulations; identify irregularities or practices that are detrimental to investors; and prevent market manipulation, price distortion, or disruptions.
Understanding the CFTC and its role
The CFTC is responsible for ensuring that the commodities futures markets are fair and transparent, and that traders are protected from fraud and manipulation.
A commodity futures is a standardized contract between two parties to buy or sell a specific commodity at a specified price on a specified date in the future. Futures contracts are traded on exchanges, and they are regulated by the CFTC.
The CFTC protects traders by setting rules for how futures contracts can be traded, and by monitoring trading activity to make sure that these rules are followed. The CFTC also investigates complaints from traders who believe they have been cheated or treated unfairly.
In addition to its role in regulating futures markets, the CFTC also regulates certain aspects of the swaps market. A swap is a type of derivative contract in which two parties agree to exchange one asset for another asset, or stream of payments, at a later date. The CFTC has authority over swaps that are traded on exchanges, as well as those that are traded “over the counter” (OTC).
The CFTC also provides educational resources for investors and market participants. These resources include publications, webinars, and events designed to help people understand the futures markets and how to participate in them safely.
What does the CFTC do?
The CFTC has many responsibilities and regulatory powers. As an independent regulatory agency, it is responsible for overseeing the commodity futures and options markets. The CFTC is charged with promoting honest and efficient markets and providing market transparency, protecting the public through effective enforcement and regulatory oversight of the financial marketplace, and safeguarding the economy. The Commodity Futures Trading Commission is responsible for: - Monitoring the markets for manipulations, insider trading, and other manipulations - Identifying irregularities or practices that are detrimental to investors - Preventing market manipulation, price distortion, or disruptions - Enforcing regulations on market participants, monitoring their activities and requiring them to report their activities on a regular basis.
There have been many examples of fraud involving commodity futures. Some common types of fraud include:
Ponzi schemes
Promising investors unrealistic returns
Misrepresenting the risks involved in trading commodity futures
Selling commodities that don't exist
Commodity pool operators who misappropriate funds
Manipulating prices through false or misleading trades
Who does the CFTC regulate?
The CFTC regulates futures and options markets, clearing organizations, commodity trading advisors, commodity pool operators, and swap dealers. The CFTC also regulates security-based swaps. The CFTC does not regulate the commodities themselves. The CFTC is responsible for regulating the following types of businesses: - Futures commission merchants - Brokers that are involved in the trading of futures contracts.
The CFTC also oversees:
The commodity trading advisors (CTAs) employed by futures commission merchants.
Clearing organizations
Businesses that provide clearing and settlement services for futures and options contracts.
Swap dealers
Companies that provide swaps to other businesses (and in some cases, directly to individuals).
Security-based swap dealers
Companies that provide security-based swaps to other businesses (and in some cases, directly to individuals).
Pool operators
Companies that enter into commodity pools and trade futures contracts that are bought by the pool or their investors.
The CFTC Whistleblower Program
The CFTC has a whistleblower program that rewards individuals for providing information about violations of federal commodity laws or regulations that result in monetary benefits. In other words, the CFTC rewards whistleblowers who report fraud or violations in the commodities markets. The CFTC whistleblower program is intended to encourage whistleblowers to report violations of the Commodity Exchange Act and Commodity Futures Trading Commission rules. The CFTC whistleblower program was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Any person, including a company insider, who provides information that leads to a successful enforcement action may obtain a monetary reward. The amount recovered by the CFTC as a result of the whistleblower's information must exceed $1 million. If the whistleblower qualifies for the award, they can receive a minimum of 10% of the recovered amount and a maximum of 30%. The amount of the award will depend on the significance of the information provided and the novelty and difficulty of the techniques used in acquiring the information.
The Bottom Line
The CFTC, created by the Commodity Futures Trading Commission Act, is responsible for overseeing the commodity futures and options markets. The CFTC’s roles and responsibilities include monitoring the markets for manipulations, insider trading, and other manipulations; identifying irregularities or practices that are detrimental to investors; and preventing market manipulation, price distortion, or disruptions. The CFTC has a whistleblower program that rewards individuals for providing information about violations of federal commodity laws or regulations that result in monetary benefits.