The United States Commodity Futures Trading Commission 1990-1999

By: Sarah Carlye

1990-The CFTC and the Commission des Operation de Bourse (COB) of France sign two agreements. These agreements provide the most comprehensive structure of information sharing and cooperation yet achieved between financial regulatory authorities in different countries. Ten general principles intended to assist regulators and developers of screen-based trading systems in addressing areas of common concern is adopted. The ten principles were drafted by a CFTC-chaired working group of the International Organization of Securities Commissions (IOSCO), which also adopt the principles.

1991- The CFTC works closely with the U.S. Department of Energy to make sure that futures markets have access to cash market information about crude oil production prior to and during the Persian Gulf War. They also work to ensure that the markets perform their price discovery and risk shifting functions in an orderly manner. The Commission reported to Congress that the sharp rises in energy prices were not caused by manipulation or excessive speculation. A year-long staff study “An Analysis of the Delivery-Point Provisions of the CBOT’s Corn, Wheat and Soybean Futures Contracts” was released.

1991-The CFTC and the Securities and Exchange Commission concurrently approve proposed rule changes by the Options Clearing Corporation (OCC) and the Chicago Mercantile Exchange intended to improve coordination in the clearance and settlement of futures and options. The rule permits clearing members to include intermarket futures and option positions held in certain non-proprietary accounts.

1992-The final rules which exempt commodity pool operators and commodity trading advisors of pools sold exclusively to certain highly accredited investors from specific disclosure, reporting, and record keeping requirements is approved. The CFTC implements initiatives to eliminate unnecessary paperwork and market reports from exchanges are now sent electronically to the Commission. President Bush signs the CFTC’s reauthorization legislation, the Futures Trading Practices Act of 1992 (FTPA). The Futures Trading Practices Act grants the Commission the authority to exempt over-the-counter (OTC) derivative and other transactions for CFTC regulation and provided for registration of local traders.

1993-The new exemptive authority granted in the Futures Trading Practices Act, is used to exempts certain swap agreements and hybrid instruments from regulation under the Commodity Exchange Act. Futures trading in New York is disrupted and the CFTC’s New York office is temporarily relocated because of a bomb placed by terrorists explodes in the basement of the World Trade Center. The CFTC adopts rules requiring the registration of floor brokers and ethics training for all individual registrants, as mandated by the Futures Trading Practices Act. Rules permitting the suspension of registrants, charged with felonies, are adopted under authority granted by the Futures Trading Practices Act. Under Futures Trading Practices Act exemptive authority, the CFTC exempts from regulation certain contracts for the deferred purchase or sale of specified energy products. The CFTC approves final rules prohibiting the practice of dual trading by floor brokers (unless an exemption is explicitly granted by the CFTC) in contract markets that trade in excess of a threshold level of 8,000 contracts a day. 46 new futures and option contracts are approved, it breaks the previous record fiscal year record. A report entitled “OTC Derivative Markets and Their Regulation,” the first of several required by the Futures Trading Practices Act, is released.

1994-The President’s Working Group on Financial Markets expands its charter to encompass new developments in financial markets. The CFTC files an administrative complaint against two former Chicago Board of Trade members alleging that the respondents engaged in a scheme to manipulate Treasury bond futures and put options on the CBOT. On September 26, 1994 a default order against both respondents finds that they committed the violations as alleged. Another report mandated by the Futures Trading Practices Act is released, “A Study of the Global Competitiveness of US Futures Markets.” The CFTC releases a report entitled, “The Live Cattle Futures Market, April to June 1994: Review of Market Fundamentals and Analysis of Large Trader Positions and Activity” with a follow-up report in September 1994. The CFTC approves final rules permitting registrants to provide to customers a “generic” risk disclosure statement that will satisfy risk disclosure requirements applicable to both domestic and foreign commodity futures and options transactions. Studies on audit trails, computerized trading, and penalties are released. The CFTC files and simultaneously settles, for a fine of $10 million, an administrative complaint against BT Securities, a subsidiary of Bankers Trust. This is coordinated with the Securities and Exchange Commission. Phase I of new risk assessment is approved

1995-President Clinton signs a bill reauthorizing the CFTC through the year 2000. A new Commitments of Traders report is introduced. Representatives of regulatory bodies from 16 countries, issue a Declaration at a meeting in Windsor, England hosted by the U.K. Securities Investment Board (SIB) and the CFTC. The Windsor Declaration outlines the steps the representatives propose to take to strengthen the supervision of the international futures markets. Comprehensive revisions to rules governing disclosure by commodity pool operators and commodity trading advisors, that are designed to increase the clarity and comprehension of disclosure to investors is adopted. The CFTC launches its Internet website,

1996-The CFTC’s Division of Trading and Markets issues a no-action letter to permit the Deutsche Terminborse (DTB) (predecessor to Eurex) to install and utilize DTB computer terminals in the U.S. in connection with the purchase and sale of certain futures and options contracts. This is the staff’s first consideration of a request to place computer terminals of an off-shore exchange in the U.S. The requirement for case-by-case approval of the offer and sale of foreign option contracts in the U.S. is eliminated, subject to existing restrictions for options on foreign stock index futures and foreign sovereign debt futures. The CFTC announces that it is one of 14 international futures regulators that are the founding signatories of a Declaration on Cooperation and Supervision of International Futures Exchanges and Clearing Organizations. An order from the CFTC imposes a $600,000 civil monetary penalty against Fenchurch Capital Management Inc. of Chicago, because of charges of market manipulation and cornering of the cheapest-to-deliver note deliverable against the Chicago Board of Trade ten-year Treasury note futures contract. A record 92 new futures and option contracts are approved. The Chicago Board of Trade is notified that the delivery terms of its corn and soybean futures contracts do not satisfy the statutory objectives of Section 5a(a)(10) of the Commodity Exchange Act and gives the CBOT 75 days to respond.

1997-The U.S. Supreme Court rules that foreign currency options are ”transactions in foreign currency” for purposes of the Treasury Amendment exclusion to the Commodity Exchange Act, and, thus, that the CFTC has no jurisdiction over such transactions, in Dunn v. CFTC. The Commodity Futures Modernization Act of 2000 will endeavor to clarify CFTC jurisdiction over retail transactions in foreign currency futures and options. Final rules for fast-track approval of new contracts and contract amendments are approved. These rules provide for approval of many new contracts within ten days and further provide that rule amendments and certain new contracts are to be approved within 45 days instead of 365 days to act on applications for new contracts and 180 days to act on proposed rule amendments. The CFTC orders the Chicago Board of Trade to change the delivery specifications for its corn and soybean futures contracts pursuant to Section 5a(a)(10) of the Commodity Exchange Act. The Commission notes that the CBOT can propose alternate specifications that meet the requirements of the Act. The Securities and Exchange Commission vetoes the Chicago Board of Trade’s proposed futures and futures options on the Dow Jones Transportation Average and the Dow Jones Utilities Average. It the only time the SEC exercised its veto power under the Accord (a court decision subsequently overturns the SEC veto and the CFTC approves the contracts on October 27, 1999).

1998-The CFTC adopts amendments to its risk disclosure rules to eliminate requirements that futures commission merchants and introducing brokers provide institutional investors and certain other sophisticated market participants with standardized risk disclosure statements and maintains requirements for such risk disclosure statements for retail customers. A “concept release” seeking public comments to assist it in reexamining its approach to the over-the-counter (OTC) derivatives market is issued. Congress passes legislation (part of an October 1998 appropriations bill) temporarily preventing the CFTC from taking further action. Congress eventually creates legal certainty for OTC derivatives in the Commodity Futures Modernization Act of 2000. The Chicago Board of Trade’s new corn and soybean futures contracts is approved, with delivery specifications that supersede those ordered by the CFTC on November 7, 1997. A settlement with Sumitomo Corporation to resolve allegations of manipulating the copper market in 1995 and 1996 that includes a civil monetary penalty of $150 million is entered into by the CFTC. Futures-style margining of commodity options traded on regulated futures exchanges is permitted.

1999-For the first time, an order exempting certain cleared swap agreements from most provisions of the Commodity Exchange Act and Commission regulations is approved. The order applies to certain swap agreements submitted for clearing through SwapClear (developed by the London Clearing House Limited). The Chicago Board of Trade, Chicago Mercantile Exchange, and New York Mercantile Exchange petition the CFTC pursuant to Section 4(c) of the Commodity Exchange Act for exemptive relief from certain statutory requirements in three areas:

1. The contract market designation procedures for new contract submissions
2. The contract market rule review procedures
3. The pertinent provisions of the Act that would otherwise prevent the immediate adoption and implementation of trading rules and procedures for a contract listed by a contract market that are comparable to those of a competing foreign exchange.

The Commodity Futures Modernization Act of 2000 eventually addresses the CFTC requests public comment on this petition and the concerns raised in this petition. “The Global Competitiveness of US Futures Markets Revisited,” updates a 1994 CFTC study, using the same methodology as the earlier study. The Working Group issues a report unanimously calling for legislation creating greater legal certainty for over-the-counter (OTC) derivatives. Final rules that permit futures exchanges to list new contracts for trading pursuant to exchange certification, without prior Commission approval, are approved. These rules addresses one of the requests in the June 25, 1999 petition for exemptive relief of the Chicago Board of Trade, Chicago Mercantile Exchange, and New York Mercantile Exchange.

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