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102-431: CFTC may refer to: Commodity Futures Trading Commission , an American federal agency that regulates U.S. derivatives markets Confédération Française des Travailleurs Chrétiens ( French Confederation of Christian Workers ), a major French confederation of trade unions Commonwealth Fund for Technical Cooperation, a Commonwealth of Nations programme Topics referred to by

204-453: A "lame duck" session, Treasury Secretary Summers "urged" Congress to move forward with legislation on OTC derivatives based on the "extraordinary bipartisan consensus this year on these very complex issues.". When Congress returned into session for two days in mid-November, the sponsor of H.R. 4541, Representative Thomas Ewing (R-IL), described Senator Gramm as the "one man" blocking Senate passage of H.R. 4541. Senator Richard G. Lugar (R-IN),

306-483: A Derivatives Policy Group through which six large securities firms conducting the great majority of securities firm OTC derivatives activities reported to the CFTC and SEC about their activities and adopted voluntary principles similar to those applicable to banks. Insurance companies, which represented a much smaller part of the market, remained outside any federal oversight of their OTC derivatives activities. In 1997 and 1998

408-495: A conflict developed between the CFTC and the SEC over an SEC proposal to ease its broker-dealer regulations for securities firm affiliates that engaged in OTC derivatives activities. The SEC proposed relaxed net capital and other rules (known as "Broker-Dealer Lite") for OTC derivatives dealers. The CFTC objected that some activities that would be authorized by this proposal were not permitted under

510-474: A credit default swap on a "non-exempt security" (i.e. an equity security or a "non-exempt" debt obligation that qualified as a "security"). As before 1992, the application of such state laws to a credit default swap (or any other swap) would depend upon a court finding the swap was a gambling, "bucket shop", or otherwise illegal transaction. As described in Section 1.2.1 above, legal uncertainty for security-based swaps

612-421: A farmer might set today the price at which the farmer would deliver to a grain elevator or other buyer a certain number of bushels of wheat to be harvested next summer. By the early 1980s a market in interest rate and currency "swaps" had emerged in which banks and their customers would typically agree to exchange interest or currency amounts based on one party paying a fixed interest rate amount (or an amount in

714-471: A full study of the issue by the entire PWG. CFTC Chair Mrs.Brooksley Born replied that the CFTC had exclusive authority over "futures" under the CEA and could not allow the other PWG members to dictate the CFTC's authority under that statute. She pointed out the "concept release" did not propose, nor presuppose the need for, any change in the regulatory treatment of OTC derivatives. She noted, however, that changes in

816-579: A hedge fund it managed. The near collapse was widely attributed to OTC derivatives transactions. At an October 1, 1998, hearing before the House Banking Committee, Chairperson Born received compliments from some members of the Committee for having raised important issues in the May "concept release." The hearing, however, focused on issues with regulatory oversight of the banks and security firms that had given

918-595: A major role in the 2008 financial crisis and the subsequent 2008–2012 global recession . The Commodity Futures Modernization Act (CFMA) of 2000 is a landmark piece of legislation in the United States that significantly altered the regulation of financial markets . Signed into law on December 21, 2000, the CFMA had several major impacts on the trading of derivatives, futures , and other financial instruments. Key Provisions:Deregulation of Over-the-Counter (OTC) Derivatives: One of

1020-627: A manner similar to the "regulatory relief" ultimately provided for an "exempt board of trade" under the CFMA. In her testimony to the Senate Agriculture Committee and in several subsequent speeches during the first half of 1997, Chairperson Born argued OTC derivatives did not create the same "concentration of financial risk " as exchange-traded futures and did not perform the "unique price discovery" function of exchange traded contracts. She argued these differences justified different regulatory treatment. Chairperson Born's 1997 testimony on

1122-411: A specified currency) and the other paying a floating interest rate amount (or an amount in a different currency). These transactions were similar to "forward delivery" contracts under which "commercial users" of a commodity contracted for future deliveries of that commodity at an agreed upon price. Based on the similarities between swaps and "forward delivery" contracts, the swap market grew rapidly in

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1224-557: A statement that "the conferees strongly urge" the PWG to study OTC derivatives transactions of hedge funds and others. Although Chairperson Born had explained at the October 1, 1998, House Banking Committee hearing that the CFTC's supervisory authority over the LTCM fund as a " commodity pool operator " was limited to monitoring its exchange trading activities, the CFTC's possession of financial statements for

1326-429: A vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and foreign stock indices. Congress created the CFTC in 1974 as an independent federal regulatory agency. The Commodity Futures Trading Commission Act of 1974 (P.L. 93-463) created the CFTC to replace the U.S. Department of Agriculture 's Commodity Exchange Authority . The Act made extensive changes to

1428-486: Is $ 35 M less than the request for the previous year, and would fund "100 less employees than we need" per Chilton, who called the budget "woefully insufficient" for CFTC's more than 40-fold increased purview. In February 2014, Commissioner Scott D. O'Malia dissented from the FY 2014 spending plan saying that it did not allocate enough funding to new technology investments, but allocated too much to swap dealer oversight, duplicating

1530-483: Is confirmed, but not beyond the expiration of the next session of Congress subsequent to the expiration their term. The President, with the consent of the United States Senate , designates one of the commissioners to serve as chairman. No more than three commissioners at any one time may be from the same political party. The current CFTC commissioners as of September 21, 2024: President Biden has nominated

1632-533: Is different from Wikidata All article disambiguation pages All disambiguation pages Commodity Futures Trading Commission The Commodity Futures Trading Commission ( CFTC ) is an independent agency of the US government created in 1974 that regulates the U.S. derivatives markets, which includes futures , swaps , and certain kinds of options . The Commodity Exchange Act (CEA), 7 U.S.C.   § 1 et seq. , prohibits fraudulent conduct in

1734-591: The $ 268 million appropriated for FY2019. Chairman Tarbert commented that this "fully matched" the CFTC's request, the first time that had happened in "nearly a decade. " Commodity Futures Modernization Act of 2000 The Commodity Futures Trading Commission (CFTC) had desired to have "functional regulation" of the market, but the CFMA rejected this approach. Instead, the CFTC continued to do "entity-based supervision of OTC derivatives dealers". The CFMA's handling of OTC derivatives, such as credit default swaps , has become controversial, as these derivatives played

1836-536: The London Metal Exchange . In 1998 CFTC chairperson Brooksley E. Born lobbied Congress and the President to give the CFTC oversight of 'off-exchange markets' for over-the-counter (OTC) derivatives in addition to its existing oversight of exchange-traded derivatives, but her warnings were opposed by other regulators. Two actions by the CFTC in 1998 led some market participants to express concerns that

1938-576: The " Close the Enron Loophole Act " was enacted into law to regulate more extensively "energy trading facilities." On August 11, 2009, the Treasury Department sent Congress draft legislation to implement its proposal to amend the CFMA and other laws to provide "comprehensive regulation of all over-the counter derivatives." This proposal was revised in the House and, in that revised form, passed by

2040-551: The "compromise language" by incorporating H.R. 5660 (the "CFMA") into H.R. 4577, which was titled "Consolidated Appropriations Act for FY 2001". The House passed the Conference Report and, therefore, H.R. 4577 in a vote of 292–60. Over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN), the Senate passed the Conference Report, and therefore H.R. 4577, by "unanimous consent". The Chairs and Ranking members of each of

2142-672: The "historic agreement" as eliminating "the major obstacles to forming a consensus bill." At the same time, Senator Phil Gramm (R-TX), the Chair of the Senate Banking Committee, was quoted as insisting that any bill brought to the Senate Floor would need to be expanded to include prohibitions on SEC regulation of the swaps market. Democratic members of Congress later described a period in late September through early October during which they were excluded from negotiations over reconciling

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2244-452: The "policy statement" be privately negotiated transactions between sophisticated parties covering (or "hedging") risks arising from their business (including investment and financing) activities. The new "swaps exemption" dropped the "hedging" requirement. It continued to require the swap be entered into by "sophisticated parties" (i.e., "eligible swap participants") in private transactions. Although OTC derivatives were subject to criticism in

2346-528: The "professional markets" legislation to disagreements concerning equity derivatives between the Chicago Board of Trade and the OTC derivatives dealers, on the one side, and the Chicago Mercantile Exchange and other futures exchanges, on the other. Second, after the 1998 CFTC "concept release" controversy arose, Long-Term Capital Management (LTCM) became headline news with the near collapse of

2448-543: The 1974 law change, the CEA continued to require that all "future delivery" contracts in commodities covered by the law be executed on a regulated exchange. This meant any "future delivery" contract entered into by parties off a regulated exchange would be illegal and unenforceable. The term "future delivery" was not defined in the CEA. Its meaning evolved through CFTC actions and court rulings. Not all derivative contracts are "future delivery" contracts. The CEA always excluded "forward delivery" contracts under which, for example,

2550-486: The 1982 Shad-Johnson Accord , which prohibited futures on "non-exempt securities", the FTPA prohibited the CFTC from granting an exemption from that prohibition. This would later lead to concerns about the "legal certainty" of swaps and other OTC derivatives related to "securities." Similar to the existing statutory exclusion for "forward delivery" contracts, the 1989 "policy statement" on swaps had required that swaps covered by

2652-577: The 1982 Shad-Johnson Accord that had prohibited single stock and narrow stock index futures and replaced that with a joint CFTC and SEC regulated "security futures" system. Title III established a framework for SEC regulation of "security-based swaps". The PWG Report had not addressed this issue. Title IV established a framework for CFTC regulation of "bank products". This included coverage of deposit based "hybrid instruments", but went further. The PWG Report had not dealt with these issues beyond how Title IV overlapped with Title I. The CFMA did not provide

2754-586: The 1990s and bills were introduced in Congress to regulate aspects of the market, the 1993 exemptions remained in place. Bank regulators issued guidelines and requirements for bank OTC derivatives activities that responded to many of the concerns raised by Congress, the General Accounting Office (GAO), and others. Securities firms agreed with the Securities and Exchange Commission (SEC) and CFTC to establish

2856-461: The CEA to OTC derivatives. By finding (1) the sophisticated parties participating in the OTC derivatives markets did not require CEA protections, (2) the activities of most OTC derivatives dealers were already subject to direct or indirect federal oversight, (3) manipulation of financial markets through financial OTC derivatives had not occurred and was highly unlikely, and (4) the OTC derivatives market performed no significant "price discovery" function,

2958-510: The CEA were required to be traded on regulated exchanges such as the Chicago Board of Trade . The Commodity Futures Trading Commission Act of 1974 created the CFTC as the new regulator of commodity exchanges. It also expanded the scope of the CEA to cover the previously listed agricultural products and "all other goods and articles, except onions, and all services, rights, and interests in which contracts for future delivery are presently or in

3060-400: The CEA's existing preemption of state gambling and other laws that could render a CFTC exempted transaction illegal. It made that preemption applicable to all exempted or excluded transactions. Title I also created a new system under which three different types of exchanges could be established based on the types of commodities and participants on such exchanges. Title II of the CFMA repealed

3162-400: The CEA. The CFTC also issued a "concept release" requesting comments on whether the OTC derivatives market was properly regulated under the existing CEA exemptions and on whether market developments required regulatory changes. The CFTC's actions were widely viewed as a response to the SEC's Broker-Dealer Lite proposal and, at least by Professor John C. Coffee , as perhaps an attempt to force

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3264-586: The CEA. The CFTC issued the forward transactions "statutory interpretation" in response to a court ruling that a "Brent" (i.e., North Sea) oil "forward delivery" contract was, in fact, a "future delivery" contract, which could cause it to be illegal and unenforceable under the CEA. This, along with a court ruling in the United Kingdom that swaps entered into by a local UK government unit were illegal, elevated concerns with "legal certainty." Second, in response to this concern about "legal certainty", Congress (through

3366-426: The CFMA was enacted into law two months later. After the House passed H.R. 4541, press reports indicated Sen. Gramm was blocking Senate action based on his continued insistence that the bill be expanded to prevent the SEC from regulating swaps, and the desire to broaden the protections against CFTC regulation for "bank products". Nevertheless, with Congress adjourned for the 2000 elections, but scheduled to return for

3468-524: The CFMA's treatment of those instruments has become controversial. Title I of the CFMA broadly excludes from the CEA financial derivatives, including specifically any index or measure tied to a "credit risk or measure". In 2000, Title I's exclusion of financial derivatives from the CEA was not controversial in Congress. Instead, it was widely hailed for bringing "legal certainty" to this "important market" permitting "the United States to retain its leadership in

3570-606: The CFMA, federal banking regulators imposed capital and other requirements on banks that entered into OTC derivatives . The U.S. Securities and Exchange Commission (SEC) and CFTC had limited "risk assessment" authority over OTC derivatives dealers affiliated with securities or commodities brokers and also jointly administered a voluntary program under which the largest securities and commodities firms reported additional information about derivative activities, management controls, risk and capital management, and counterparty exposure policies that were similar to, but more limited than,

3672-676: The CFTC (Commodity Futures and Trading Commission) Inspector General from 1990 until 2023. On May 3, 2023, the Wall Street Journal Reports that Mr. Lavik was suspended by the CFTC as the Inspector General after an oversight body alleging "Substantial Misconduct". Complaints of misconduct go back as far as late 2018. Allegations include: Unlike the other four main financial regulators, the CFTC does not have self-funding. A transaction fee has been "requested" for several years but Congress has not taken any legislative action. During

3774-524: The CFTC has expanded its efforts to civilly prosecute fraud and misappropriation in the digital asset markets. Based in Washington, D.C., the CFTC maintains regional offices in Chicago, New York and Kansas City, Missouri. The Commission consists of five Commissioners appointed by the President of the United States to serve staggered five-year terms. The commissioners may continue to serve until their successor

3876-484: The CFTC might modify the "Swap Exemption" and attempt to impose new regulations on the swaps market. First, in a February 1998 comment letter addressing the SEC's "broker-dealer lite" proposal, the CFTC stated that the SEC's proposal would create the potential for conflict with the Commodity Exchange Act (CEA) to the extent that certain OTC derivative instruments fall within the ambit of the CEA and are subject to

3978-677: The CFTC or SEC the broader "risk assessment" authority over affiliates of futures commission merchants or broker-dealers that the PWG Report had recommended. H.R. 4541 was introduced in the House of Representatives on May 25, 2000, as the Commodities Futures Modernization Act of 2000. Three separate House Committees held hearings on the bill. Each Committee reported out a different amended version of H.R. 4541 by September 6, 2000. Another Commodity Futures Modernization Act of 2000

4080-483: The CFTC oversees 'designated contract markets' (DCMs) or exchanges , swap execution facilities (SEFs), derivatives clearing organizations , swap data repositories (SDRs), swap dealers, futures commission merchants , commodity pool operators and other intermediaries. The CFTC coordinates its work with foreign regulators, such as its UK counterpart, the Financial Conduct Authority , which supervises

4182-695: The CFTC to develop a joint regulatory regime for single-stock futures , the products of which began trading in November 2002. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act expanded the CFTC's regulatory authority into the swaps markets . The swaps markets currently have a notional value of more than $ 400 trillion. The CFTC oversees the derivatives markets by encouraging their competitiveness and efficiency, ensuring their integrity, protecting market participants against manipulation, abusive trading practices, fraud, and ensuring

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4284-410: The CFTC to grant broad "deregulation" of existing exchange trading to reflect differences in (A) the susceptibility of commodities to price manipulation and (B) the "sophistication" and financial strength of the parties permitted to trade on the exchange; and (7) permission for single stock and narrow index stock futures on terms to be agreed between the CFTC and SEC. In 1998 the CFTC had disagreed with

4386-601: The Commodity Exchange Act (CEA) of 1936, which itself amended the original Grain Futures Act of 1922. (7 U.S.C. 1 et seq.). In 1975, the first members were selected, and John T. O'Hara became its first chairman. The CFTC's mandate was renewed and expanded in December 2000 when Congress passed the Commodity Futures Modernization Act of 2000 , which instructed the Securities and Exchange Commission (SEC) and

4488-823: The Division include, among other things, rule enforcement reviews, reviews of new products and product- and market-related rule amendments, and associated product and market-related studies. The Division was previously responsible for market and trade practice surveillance. Formerly known as the Division of Swap Dealer and Intermediary Oversight, the Market Participants Division (MPD) primarily oversees derivatives market intermediaries, including commodity pool operators, commodity trading advisors, futures commission merchants, introducing brokers, major swap participants, retail foreign exchange dealers, and swap dealers, as well as designated self-regulatory organizations. MPD conducts

4590-533: The FTPA had preempted those state laws for financial derivatives covered by the CFTC's "swaps exemption." As described in Section 1.1.2 above, however, a "gap" in the CFTC's powers prohibited it from exempting futures on "non-exempt securities". This "loophole" (which was intended to preserve the Shad-Johnson Accord's prohibition on single stock futures) meant that, before the CFMA, the CEA's preemption of state gaming and "bucket shop" laws would not have protected

4692-609: The Futures Trading Practices Act of 1992 (FTPA)) gave the CFTC authority to exempt transactions from the exchange trading requirement and other provisions of the CEA. The CFTC used that authority (as Congress contemplated or "instructed") to exempt the same three categories of transactions for which it had previously issued policy statements or statutory interpretations. The FTPA also provided that such CFTC exemptions preempted any state law that would otherwise make such transactions illegal as gambling or otherwise. To preserve

4794-458: The House on December 11, 2009, as part of H.R. 4173 ( Dodd–Frank Wall Street Reform and Consumer Protection Act ). Separate, but similar, proposed legislation was introduced in the Senate and is still awaiting Senate action at the time of the House action. The PWG Report was directed at ending controversy over how swaps and other OTC derivatives related to the CEA. A derivative is a financial contract or instrument that "derives" its value from

4896-436: The LTCM fund high leverage through both loans and OTC derivative transactions. The 1999 GAO Report that analyzed the LTCM experience criticized federal regulators for not coordinating their oversight of LTCM's activities with banks and securities firms. The Report also recommended "consideration of" legislation to grant the SEC and CFTC consolidated supervision authority for securities and commodities firms in order to supervise

4998-466: The OTC derivatives activities of those consolidated entities in a manner similar to the Federal Reserve's authority over bank holding companies. The GAO Report did not consider, and did not recommend, CFTC regulation of OTC derivatives. An effect of the LTCM experience was that the conference committee report adopting the six-month moratorium on CFTC action affecting OTC derivative regulation included

5100-457: The OTC derivatives market and the regulated exchange-traded futures market. Price information could be broadly disseminated through "electronic trading facilities." The PWG Report also emphasized the desire to "maintain U.S. leadership in these rapidly developing markets" by discouraging the movement of such transactions "offshore". In the 1998 Congressional hearings concerning the CFTC "concept release" Representative James A. Leach (R-IA) had tied

5202-486: The OTC derivatives market had made that market more similar to futures markets. Congress passed a law preventing the CFTC from changing its treatment of OTC derivatives through March 1999. CFTC Chair Born lost control of the issue at the CFTC when three of her four fellow Commissioners announced they supported the legislation and would temporarily not vote to take any action concerning OTC derivatives. CFTC Chair Born resigned effective June 1999. Her successor, William Rainer,

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5304-409: The PWG concluded "there is no compelling evidence of problems involving bilateral swap agreements that would warrant regulation under the CEA." By essentially adopting the views of the other members of the PWG concerning the scope and application of the CEA, the CFTC permitted a "remarkable" agreement "on a redrawing of the regulatory lines." The PWG Report encouraged the growth in similarities between

5406-492: The SEC to withdraw the proposal. The CFTC expressed dismay over the Broker-Dealer Lite proposal and the manner in which it was issued, but also noted it was 18 months into a "comprehensive regulatory reform effort." The same day the CFTC issued its "concept release" Treasury Secretary Robert Rubin , Federal Reserve Board Chair Alan Greenspan , and SEC Chair Arthur Levitt (who, along with CFTC Chair Brooksley Born , were

5508-424: The Treasury Department announced agreement had been reached the night before and urged Congress to enact into law the agreed upon language. The "compromise language" was introduced in the House on December 14, 2000, as H.R. 5660. The same language was introduced in the Senate on December 15, 2000 as S. 3283. The Senate and House conference that was called to reconcile differences in H.R. 4577 appropriations adopted

5610-422: The United States during the 1980s. Nevertheless, as a 2006 Congressional Research Service report explained in describing the status of OTC derivatives in the 1980s: "if a court had ruled that a swap was in fact an illegal, off-exchange futures contract, trillions of dollars in outstanding swaps could have been invalidated. This might have caused chaos in financial markets, as swaps users would suddenly be exposed to

5712-555: The activities through London -based affiliates. The CFMA continued an existing 1992 preemption of state laws enacted in the Futures Trading Practices Act of 1992 which prevented the law from treating eligible OTC derivatives transactions as gambling or otherwise illegal. It also extended that preemption to security-based derivatives that had previously been excluded from the CEA and its preemption of state law. The CFMA, as enacted by President Clinton , went beyond

5814-798: 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. The Division of Market Oversight (DMO) has regulatory responsibility for initial recognition and continuing oversight of trade execution facilities, including new registered futures exchanges, swap execution facilities, and swap data repositories. The regulatory functions of

5916-525: The agreement of the other members of the PWG; (4) continuation of the preemption of state laws that might otherwise make any "excluded" or "exempted" transactions illegal as gambling or otherwise; (5) as previously recommended by the PWG in its report on hedge funds, the expansion of SEC and CFTC "risk assessment" oversight of affiliates of securities firms and commodity firms engaged in OTC derivatives activities to ensure they did not endanger affiliated broker-dealers or futures commission merchants; (6) encouraging

6018-454: The bills because of the election year's short Congressional schedule. Sponsors had delayed introduction of the bills as they vainly awaited agreement between the CFTC and SEC on how to regulate the single stock futures contemplated by the PWG Report. That issue dominated the hearings. On September 14, 2000, the SEC and CFTC announced they had agreed on a joint regulation approach for "security futures." Senior Treasury Department officials hailed

6120-406: The clearing of futures, options on futures, and swaps by DCOs, assesses DCO compliance with Commission regulations, and conducts risk assessment and surveillance. DCR also makes recommendations on DCO applications and eligibility, rule submissions, and which types of swaps should be cleared. As of 2019, Clark Hutchison serves as Director of the Division of Clearing and Risk. Roy Lavik served as

6222-457: The control of the CFTC, although it had recommended the continuation of those regulatory exemptions. Title I also resolved the issue of "hybrid instruments" by defining when such an instrument would be considered a "security" subject to security laws and excluded from the CEA even though it had a "commodity component". Equivalent treatment of bank products was provided in Title IV. Title I retained

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6324-424: The controversy to "systemic risk" by arguing the movement of transactions to jurisdictions outside the United States would replace U.S. regulation with laxer foreign supervision. It can be argued that the PWG Report recommendations and the CFMA as enacted did not change the "regulation" of OTC derivatives because there was no existing regulation under the CEA or securities laws. The change to the CEA, however, would be

6426-405: The difference between exchange and OTC markets was consistent with her first speech as CFTC Chair on October 24, 1996, in which she stated her belief that regulation of the OTC derivatives market should be limited to fraud and manipulation. While her 1997 testimony opposed the Senate bill's provision to codify in law the existing CFTC regulatory exemptions for OTC derivatives, she also stated the CFTC

6528-399: The elimination of existing criteria for distinguishing OTC derivatives from "futures". Title I of the CFMA adopted recommendations of the PWG Report by broadly excluding from the CEA transactions in financial derivatives (i.e. "excluded commodities") between "eligible contract participants." The definition of "eligible contract participant" covered the same types of "sophisticated" parties as

6630-471: The entire PWG should study the OTC derivatives market and the issues raised in the CFTC's "concept release." The PWG Report recommended: (1) the codification into the CEA, as an "exclusion", of existing regulatory exemptions for OTC financial derivatives, revised to permit electronic trading between "eligible swaps participants" (acting as "principals") and to even allow standardized (i.e. "fungible") contracts subject to "regulated" clearing; (2) continuation of

6732-572: The exclusive statutory authority of the CFTC. In May 1998 the CFTC issued a 'concept release' requesting comment on whether regulation of OTC derivatives markets was appropriate and, if so, what form such regulation should take. Legislation enacted in 1999 at the request of the US Treasury , the Federal Reserve Board , and the SEC limited the CFTC's rulemaking authority with respect to swaps and hybrid instruments until March 30, 1999, and froze

6834-530: The existing "swaps exemption" in its definition of "eligible swap participants", but was broader, particularly by adding permission for individuals with assets of $ 5 million rather than $ 10 million, if the transaction related to managing asset or liability "risk". The PWG had recommended "considering" an increase in this threshold to $ 25 million, not a reduction for actual hedging. Such "eligible contract participants" could enter into transactions on or off "electronic trading facilities" without being subject to any of

6936-399: The existing CFTC authority to exempt other non-agricultural commodities (such as energy products) from provisions of the CEA; (3) continuation of existing exemptions for "hybrid instruments" expanded to cover the Shad-Johnson Accord (thereby exempting from the CEA any hybrid that could be viewed as a future on a "non-exempt security"), and a prohibition on the CFTC changing the exemption without

7038-420: The failure of Long-Term Capital Management and the subsequent bailout as being indicative what she had been trying to prevent. In March 2014 the CFTC acknowledged it was considering the regulation of Bitcoin. The CFTC has since taken the position that Bitcoin is a commodity under the CEA. In October 2019, former CFTC Chairman Heath Tarbert, now Chief Legal Officer of Citadel Securities , declared that ether

7140-427: The financial integrity of the clearing process . The CFTC generally does not directly regulate the safety and soundness of individual firms, with the exception of newly regulated swap dealers and major swap participants, for whom it sets capital standards pursuant to Dodd–Frank. Through oversight, the CFTC enables the derivatives markets to serve the function of price discovery and offsetting price risk. As of 2014

7242-466: The financial markets", as recommended by the PWG Report. The CFMA's treatment of credit default swaps has received the most attention for two issues. First, former New York Insurance Superintendent Eric Dinallo has argued credit default swaps should have been regulated as insurance and that the CFMA removed a valuable legal tool by preempting state " bucket shop " and gaming laws that could have been used to attack credit default swaps as illegal. In 1992,

7344-484: The five Congressional Committees that considered H.R. 4541 or S. 2697 supported, or entered into the Congressional Record statements in support of, the CFMA. The PWG issued letters expressing the unanimous support of each of its four members for the CFMA. H.R. 4577, including H.R. 5660, was signed into law, as CFMA, on December 21, 2000. With the 2008 emergence of widespread concerns about credit default swaps ,

7446-436: The following to fill a seat on the commission. They await Senate confirmation. The Division of Enforcement (DOE) 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

7548-545: The fund received negative news coverage in November 1998 based on the fact the CFTC was the only federal regulator to receive such reports directly from LTCM and had not shared the information with other members of the PWG. When the LTCM matter was investigated at a December 16, 1998, Senate Agriculture Committee hearing, the three CFTC Commissioners that had supported the Congressional moratorium, as described in Section 1.2.1 above, reiterated their support and their position that

7650-426: The future dealt in." Existing non-exchange traded financial "commodity" derivatives markets (mostly " interbank " markets) in foreign currencies, government securities, and other specified instruments were excluded from the CEA through the " Treasury Amendment ", to the extent transactions in such markets remained off a "board of trade." The expanded CEA, however, did not generally exclude financial derivatives. After

7752-446: The government shut down in October 2013, SEC and Federal Reserve stayed open, but "futures and most swaps markets were left with essentially no cop on the beat". In 2007, the CFTC's budget was $ 98 million and it had 437 full-time equivalent employees (FTEs). After 2008, funding increased by 80% to $ 205 million and 687 FTEs for fiscal year (FY) 2012, but was cut to $ 180.4 million and 682 FTEs for FY 2013. In 2013 CFTC's performance

7854-584: The market. Bank regulators and the SEC already monitored and regulated bank and broker-dealer OTC Derivatives activities. The dissenting PWG members explained that any effort to regulate those activities through the CEA would only lead to the activities moving outside the United States. In the 1980s banks had used offshore branches to book transactions potentially covered by the CEA. Securities firms were still using London and other foreign offices to book at least securities related derivatives transactions. Any change in regulation of OTC derivatives should only occur after

7956-513: The members of the PWG) issued a letter asking Congress to prevent the CFTC from changing its existing treatment of OTC derivatives. They argued that, by calling into question whether swaps and other OTC derivatives were "futures", the CFTC was calling into question the legality of security related OTC derivatives for which the CFTC could not grant exemptions (as described in Section 1.1.2 above) and, more broadly, undermining an "implicit agreement" not to raise

8058-507: The most significant features of the CFMA was that it removed the regulatory oversight of over-the-counter (OTC) derivatives, such as credit default swaps (CDS). Prior to this, derivatives had been subject to varying degrees of regulation. The CFMA clarified that these contracts were exempt from oversight by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). Before and after

8160-534: The multitrillion-dollar swaps market. Futures contracts for agricultural commodities have been traded in the U.S. for more than 150 years and have been under federal regulation since the 1920s. The Grain Futures Act of 1922 set the basic authority and was changed by the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.). Since the 1970s, trading in futures contracts has rapidly expanded beyond traditional physical and agricultural commodities into

8262-580: The other members of the PWG about the scope and purposes of the CEA. Whereas the CFTC saw broad purposes in protecting "fair access" to markets, "financial integrity", "price discovery and transparency", "fitness standards," and protection of "market participants from fraud and other abuses," other members of the PWG (particularly the Federal Reserve through Alan Greenspan) found the more limited purposes of (1) preventing price manipulation and (2) protecting retail investors. The PWG Report ended that disagreement by analyzing only four issues in deciding not to apply

8364-533: The over-the-counter derivative markets", by 2001 the collapse of Enron brought public attention to the CFMA's treatment of energy derivatives in the " Enron Loophole ". Following the Federal Reserve 's emergency loans to "rescue" American International Group (AIG) in September 2008, the CFMA has received even more widespread criticism for its treatment of credit default swaps and other OTC derivatives. In 2008

8466-635: The pre-existing legal status of swap agreements and hybrid instruments entered into in reliance on the 'Swap Exemption', the 'Hybrid Instrument Rule', the 'Swap Policy Statement, or the 'Hybrid Interpretation'. The text of that act read: "...the Commission may not propose or issue any rule or regulation, or issue any interpretation or policy statement, that restricts or regulates activity in a qualifying hybrid instrument or swap agreement". Shortly after Congress had passed this legislation prohibiting CFTC from regulating derivatives, Born resigned. She later commented

8568-481: The price or other characteristic of an underlying "thing" (or "commodity"). A farmer might enter into a "derivative contract" under which the farmer would sell from next summer's harvest a specified number of bushels of wheat at a specified price per bushel. If this contract were executed on a commodity exchange, it would be a " futures contract ". Before 1974, the CEA only applied to agricultural commodities. "Future delivery" contracts in agricultural commodities listed in

8670-447: The question of the CEA's coverage of swaps and other established OTC derivatives. In the ensuing Congressional hearings, the three members of the PWG dissenting from the CFTC's "unilateral" actions argued the CFTC was not the proper body, and the CEA was not the proper statute, to regulate OTC derivatives activities. Banks and securities firms dominated the OTC derivatives market. Their regulators needed to be involved in any regulation of

8772-511: The recommendations of a Presidential Working Group on Financial Markets (PWG) report titled "Over-the Counter Derivatives and the Commodity Exchange Act" (the " PWG Report "). President's Working Group on Financial Markets, November 1999: Although hailed by the PWG on the day of congressional passage as "important legislation" to allow "the United States to maintain its competitive position in

8874-456: The registration, compliance, and business conduct standards of intermediaries, swap dealers and major swap participants. The division also oversees the agency's customer education initiatives. The Division of Clearing and Risk (DCR) oversees derivatives clearing organizations (DCOs) and other market participants in the clearing process. These include futures commission merchants, swap dealers, major swap participants, and large traders. DCR monitors

8976-541: The regulatory oversight applicable to futures. The only exception was that the transactions would be subject to the rules for the new "Derivative Clearing Organizations" authorized by the CFMA, if the transaction used such a clearing facility. The CFMA did not require that standardized transaction use a clearing facility. It only authorized their existence, subject to regulatory oversight. The PWG Report had recommended permitting "standardized" contracts, so long as they were subject to regulated clearing. Title I's extended most of

9078-430: The requirements for banks. Banks and securities firms were the dominant dealers in the market, with commercial bank dealers holding by far the largest share. To the extent insurance company affiliates acted as dealers of OTC derivatives rather than as counterparties to transactions with banks or security firm affiliates, they had no such federal "safety and soundness" regulation of those activities and typically conducted

9180-455: The risks they had used derivatives to avoid." To eliminate this risk, the CFTC and the Congress acted to give "legal certainty" to swaps and, more generally, to the OTC derivatives market activities of "sophisticated parties." First, the CFTC issued "policy statements" and "statutory interpretations" that swaps, "hybrid instruments" (i.e., securities or deposits with a derivative component), and certain "forward transactions" were not covered by

9282-400: The same exclusions to non-financial commodities that were not agricultural. These "exempt commodities" were, in practice, mostly energy and metal commodities. As discussed in Section 4, these transactions were subject to the "anti-fraud" and "anti-manipulation" provisions of the CEA in some, but not all, circumstances. The PWG Report had recommended that exemptions for such transactions remain in

9384-405: The same term [REDACTED] This disambiguation page lists articles associated with the title CFTC . If an internal link led you here, you may wish to change the link to point directly to the intended article. Retrieved from " https://en.wikipedia.org/w/index.php?title=CFTC&oldid=1219124537 " Category : Disambiguation pages Hidden categories: Short description

9486-420: The sponsor of S. 2697, was reported to be considering forcing H.R. 4541 to the Senate Floor against Senator Gramm's objections. After Congress returned into session on December 4, 2000, there were reports Senator Gramm and the Treasury Department were exchanging proposed language to deal with the issues raised by Sen. Gramm, followed by a report those negotiations had reached an impasse. On December 14, however,

9588-492: The three committee versions of H.R. 4541, followed by involvement in reaching an acceptable compromise that left some Republicans unhappy with the final version of the bill and some Democrats upset over the "process", particularly the involvement of Sen. Gramm and House Republican leadership in the negotiations. Despite indications no agreement would be reached, on October 19, 2000, the White House announced its "strong support" for

9690-406: The trading of futures, swaps, and other derivatives. The stated mission of the CFTC is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. After the financial crisis of 2007–08 and since 2010 with the Dodd–Frank Wall Street Reform and Consumer Protection Act , the CFTC has been transitioning to bring more transparency and sound regulation to

9792-567: The version of H.R. 4541 scheduled to reach the House Floor that day. The House approved H.R. 4541 in a 377–4 vote. As so passed by the House, H.R. 4541 contained, in Title I, the language concerning OTC derivatives that became the source for Title I of the CFMA and, in Title II, the language regulating "security futures" that became the source for Title II of the CFMA. Titles III and IV would be added when

9894-446: The work of the self-regulatory National Futures Association . In March he dissented from the FY 2015 budget request stating CFTC "makes an unrealistic request for new staff and funding in this budget request without a firm understanding of its mission priorities, specific goals, and corresponding personnel and technology needs." In December 2019, the CFTC secured funding of $ 284 million for FY2020, an increase of nearly 6 percent from

9996-403: Was "watching" the OTC derivatives market with the PWG and had no plans to modify the existing CFTC exemptions for that market. The futures exchanges argued they needed permission to operate "professional markets" free of "regulatory burdens" in order to compete with foreign exchanges and the OTC derivatives market that catered to the same professionals. 1997 news reports attributed the failure of

10098-489: Was CFTC Chair when the PWG Report was issued in November 1999. While the dispute between the SEC and CFTC over OTC derivatives jurisdiction was at the core of pre-2008 narrations of the events leading to the CFMA, two other noteworthy background events occurred. First, in early 1997 CFTC Chairperson Born testified forcefully to Congress against a Senate bill that would have authorized futures exchanges to establish "professional markets" exempt from many regulatory requirements in

10200-525: Was also a commodity under the CEA. In 2015, the CFTC ruled that for purposes of trading, cryptocurrencies were legally classified as commodities. However, in view of market volatility and other factors, the CFTC noted several risks associated with trading virtual currencies. In 2017, the CFTC cited the US SEC's warning against digital token sales and initial coin offerings (ICOs) that can "improperly entice investors with promises of high returns". In recent years,

10302-460: Was introduced in the Senate on June 8, 2000, as S. 2697. A joint hearing of the Senate Agriculture and Banking Committees was held to consider that bill. The Senate Agriculture Committee reported out an amended version of S. 2697 on August 25, 2000. During the House and Senate committee hearings on these bills, Committee Chairs and Ranking Members described a tight legislative schedule for

10404-419: Was severely affected by limited resources and had to delay cases. The current, FY 2014 funding of $ 215 M did not keep up with CFTC's increasing swaps market oversight and regulation, equivalent to tens of trillions of dollars in formerly dark market trading, according to outgoing Commissioner Bart Chilton in his last speech. The Obama administration's latest budget proposal for FY 2015 requested $ 280 M , which

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