The United States Commodity Futures Trading Commission

By: Sarah Carlye

The United States Futures Commodity Trading Commission, also known as the CFTC, was created in 1974 with the mandate to regulate commodity futures and option markets in the United States. The CFTC is an independent agency.

When the CFTC was originated, the largest portion of futures trading took place in agricultural. As commodity futures trading changes so does the CFTC. Its mandate has been renewed and expanded to be able to serve a large variety of highly complex financial futures contracts.

The United States Commodity Futures Trading Commission has the following mission and responsibilities:

* Encourages competitiveness and efficiency
* Protection of market participants against fraud, manipulation, and abusive trading practices
* Ensures the financial integrity of the clearing process
* Effective oversight
* Enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.
* Foster open, competitive, and financially sound futures and option markets

Before there was a Commodities Futures Trading Commission, commodities were traded in the United States. Commodity trading has been occurring for more than 150 years with its beginnings rooted in agriculture. Though federal regulations began in the 1920’s, as far back as the 1800’s bills were introduced to congress to regulate, ban, or tax futures trading in the United States.

Some important events in futures trading before the CFTC was created in 1974:

1920-The first of seven volumes of the report on grain trade is released. (The final volume is released 6 years later).

1921-The Future Trading Act is enacted. It regulates futures trading on grains like corn, wheat, rye, and oats and imposes a tax.

1922-The Future Trading Act is determined to be unconstitutional because of the use of Congress’ taxing power. The Commodity Exchange Act is enacted. The Grains Futures Administration is formed.

1923-The Future Trading Act is determined to be constitutional. A large trader reporting system is implemented.

1927-The Secretary of Agriculture temporarily suspends large trading reporting until it is determined (later same year) that it did not discourage bullish speculation.

1932-The Secretary of Agriculture temporarily suspends large trading reporting until it is determined (mid 1933) that it did not depress the price of grain

1936-The Commodity Exchange Act is enacted, replacing the Grains Futures Act. It extends regulations to other commodities like eggs, cotton, rice, and Irish potatoes. The Grain Futures Commission becomes the Commodity Exchange Commission. Commodity option trading is banned. It stays in effect until 1981. The Commodity Exchange Administration is formed within the USDA. It succeeds the Grain Futures Administration and administers the Commodity Exchange Act.

1938-The Commodity Exchange Act is modified to include wool tops. The Commodity Exchange Commission declares the first Federal speculative position limits for futures contracts in grains.

1940-The Commodity Exchange Commission establishes a Federal speculative position limit for cotton futures contracts. Commodity Exchange Act is amended to add fats and oils, cottonseed meal, cottonseed, peanuts, soybeans, and soybean meal to the list of regulated commodities.

1942-The Commodity Exchange Administration merges with other agencies and forms the Agricultural Marketing Administration. (Currently known as the Commodity Exchange Branch of the Agricultural Marketing Administration.) The Agricultural Marketing Administration merges with the Food Distribution Administration and the Commodity Exchange Branch is renamed the Compliance Branch.

1943-The Food Distribution Administration consolidates with three other agencies to form the Administration of Food Production, which is later renamed the War Food Administration.

1947-Administering the Commodity Exchange Act responsibility is transferred to the Commodity Exchange Authority (an agency of USDA). The Commodity Exchange Act amended to enable the Secretary of Agriculture to submit to Congress and make public the names, addresses, and market positions of large traders.

1954-The Commodity Exchange Act is amended to add wool, not just wool tops, to the list of regulated commodities.

1955-The Commodity Exchange Act is amended to grant the Commodity Exchange Authority the authority to issue investigative subpoenas before filing a formal administrative proceeding. The Commodity Exchange Act is amended to add onions to the list of regulated commodities and to allow the Commodity Exchange Authority to set the level of registration and renewal fees for futures commission merchants and other registrants.

1956-The Commodity Exchange Authority issues a complaint charging Vincent W. Kosuga, Sam S. Siegel, and National Produce Distributors with manipulating and/or attempting to manipulate three onion futures contract months. On June 3, 1960, a USDA Judicial Officer found that the respondents performed the attempted stabilization and successful downward manipulation, but did not find sufficient evidence for the upward manipulation. After the issuance of the complaint, Congress held hearings to consider banning onion futures trading. The Commodity Exchange Act is amended to allow for the exemption from speculative position limits of anticipatory hedges and on the same day, the Bank Holding Company Act of 1956 makes some technical amendments to the Commodity Exchange Act.

1958-The Onion Futures Act bans futures trading in onions, but does not amend the Commodity Exchange Act. Onions remain on the list of regulated commodities until 1974.

1963-In the Great Salad Oil Swindle, Anthony (Tino) DeAngelis, owner of the Allied Crude Vegetable Oil Refining Corp., is indicted for, among other things, creating phony warehouse receipts for non-existent soybean oil and using those receipts as loan collateral to finance heavy trading of soybean, soybean oil, and cottonseed oil futures The scandal causes 16 firms (including two Wall Street brokerage houses and a subsidiary of American Express) to go bankrupt and leads to calls for increased regulation of the commodity futures markets. DeAngelis is convicted in 1965 and sentenced to ten years in prison.

1964-The Senate passes a bill to ban futures trading in potatoes, but it does not become law.

1968-In the first major commodities legislation since 1936, the Commodity Exchange Act is amended to, among other things, add livestock and livestock products to the list of regulated commodities and institute minimum net financial requirements for futures commission merchants. The amendments also improved the enforcement provisions of the Act in various ways, including enhanced reporting requirements, increases in criminal penalties for manipulation and other violations of the Act, and a provision allowing for the suspension of contract market designation of any board of trade that fails to enforce its own rules. The Commodity Exchange Act is amended to add orange juice to the list of regulated commodities.

1973-Grain and soybean futures prices reach record highs. This is blamed in part on excessive speculation and there are allegations of manipulation. Congress begins to consider revising the Federal regulatory scheme for commodities.

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