The Commodity Futures Trading Commission (CFTC) is the body in charge of regulating the futures and options markets in the United States.
Thus, any company that wishes to operate in the futures market has the obligation to register with the Commodity Futures Trading Commission (CFTC).
Although futures contracts have been in operation in the United States since the 19th century, it was not until 1974 that the CFTC was created. Thus, the agency arose in the heat of the Commodity Futures Trading Commission Law, whose purpose was to regulate and supervise the futures market.
As for its objective, it aims to promote more competitive and efficient markets, while ensuring that all investors have the same rights.
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What is the Commodity Futures Trading Commission used for?
It should be noted that the Commodity Futures Trading Commission also performs supervisory functions to prevent fraud and abusive practices from occurring. Hence, the CFTC monitors the actions of traders, advisers and brokers.
In the event that, within the framework of its supervisory work, it detects that the legislation has been violated, the CFTC has powers to prosecute those who carry out fraud or disturb the proper functioning of the market.
The presence of intermediaries in the futures markets necessitates the protective action of the CFTC. For this reason, this body is in charge of investigating intermediaries to prevent investors from suffering fraud. Precisely, in the field of consumer protection, the Commission carries out dissemination work on the different investment products through educational content.
Beyond its supervisory work, the CFTC also carries out functions related to legislation. Along these lines, the Commission is in charge of advising Congress when establishing legislation on the operation of the futures and options markets.
Other areas of activity of the Commodity Futures Trading Commission are cooperation with other administrations and international organizations, the promotion of digital technology in the futures markets and the issuance of technical reports.
Structure of the Futures Trading Commission
A total of 5 commissioners are appointed by the President of the United States to serve for 5 years. However, the Commission is structured into several divisions.
- Compliance: It deals with surveillance and actions resulting from breaches of regulations.
- Market monitoring: Oversees the proper functioning and transparency of the markets.
- Legal: Advice on legal and judicial matters.
- Management: Internal management of the agency.
- Market participants: Monitoring of the actions of the different intermediaries. It also prepares and makes educational content available to investors.
- Data: Manage the information stored by the Commission.
- Compensation and risk: Oversight of clearing operations.
- Office of the Chief Economist: Research and advice on economic matters.
As part of its relationship with other administrations and international organizations we find various divisions. Thus, the Office of Public Affairs performs information functions in the United States, while the Office of International Affairs is related to supranational entities. At the US law level, the Office of Legislative and Government Affairs cooperates with Congress on legislation.
Other divisions address issues related to digitization and aspects related to inclusiveness.
How does the CFTC work?
As part of its daily activity, the CFTC guarantees that there is the necessary liquidity in the markets, promotes their digitization and is in charge of keeping the different products that appear on the market up to date.
Nor should we forget that the CFTC has played a key role in making the commodity market more attractive to foreign investment.
Regarding the prevention and action of fraud, its risk management system allows it to supervise the movements of intermediaries, without forgetting that it facilitates cooperation between markets by working hand in hand with other regulatory entities.
From the legislative point of view, although it is true that Congress is the competent body, the elaboration of the laws on the markets of basic products cannot be conceived without the participation of the CFTC.
In the event of irregularities, the CFTC may remove non-compliant participants from the registry. On the other hand, the CFTC also fights against the manipulation of the markets, even reaching prosecution procedures and implementing sanctions.