Commodity Futures Trading Commission (CFTC) history

The regulatory body overseeing the FUTURES MARKETS. Created by Congress in 1974, the commission is an independent agency whose fivemember body operates in a manner similar to that of the Securities and Exchange Commission (SEC) by regulating the activities on futures exchanges as well as overseeing operating procedures in the futures industry. Members of the commission are appointed by the president for five-year terms.

The futures markets have been under federal REGULATION since the 1930s. In 1922, Congress passed the Grain Futures Act, putting the commodities exchanges under the authority of the Department of Agriculture. The law loosely regulated the trading of contracts but did little to curb trading practices on the exchanges. As a result, the Commodity Exchange Act was passed in 1936 regulating the exchanges themselves for the first time. The law was intended to be similar to the Securities Exchange Act passed in 1934 regulating stock exchanges.

Until the 1960s, the markets added contracts on new commodities in moderate fashion, but the late 1960s and early 1970s witnessed an explosion in the types of contracts and commodities available. The old regulatory legislation was designed to control only grain futures, so any new contracts had no effective regulation. Precious metals trading began in the late 1960s and was often marred by trading irregularities, since the contracts were not regulated. Inflation and the rapid internationalization of the financial markets in the late 1960s and early 1970s underlined the need for hedging instruments that investors could employ to offset risk. Contracts were added in interest rate futures, other financial futures, and a wider array of commodities as well as options on futures, a long-standing problem for the futures exchanges. These new products extended beyond the scope of the original regulation, and the CFTC was formed to cope with the expanding markets.

The CFTC was given additional powers, especially with over-the-counter derivatives futures, in the Commodities Futures Modernization Act passed in 1999. Areas of dispute with the SEC over futures on equities especially were made more flexible, and jurisdictional disputes over options were remedied. The jurisdiction of the Commodity Futures Trading Commission itself needed to be clarified for fear that if the markets were not well-regulated and clear to participants, then business could move overseas and domestic investors would be susceptible to fraud in unregulated overseas markets.

See also CHICAGO BOARD OF TRADE.

Further reading

• Geisst, Charles R. Wheels of Fortune: The History of Speculation from Scandal to Respectability. New York: John Wiley & Sons, 2002.