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CFTC Defense Lawyers

by admin   Apr 23, 2018   Filed Under: Uncategorized
What is the CFTC?

In 1974, the US federal government created the Commodity Futures Trading Commission (CFTC) to oversee commodities, derivatives, futures and swap markets. Until that time, the Department of Agriculture had handled those markets since the 1920s.

Congress provided its initial duties and powers in the Commodity Futures Trading Commission Act. It works to ensure market integrity by enforcing the Commodity Exchange Act (CEA). Under the jurisdiction defined in the CEA, the Commission regulates the operation of:

  • commodity pool operators,
  • derivatives clearing organizations,
  • designated contract markets,
  • futures commission merchants,
  • swap data repositories,
  • swap dealers,
  • swap execution facilities.

The Commission’s mission goes beyond regulation to risk avoidance.

The CFTC Mission

The CFTC’s mission demands it to “foster open, transparent, competitive, and financially sound markets.” It undertakes projects and initiatives to reduce systemic risk in the commodities markets, and to protect investors’ from fraud, abusive practices and market manipulation.

CFTC History

The markets the CFTC handles began in the 1860s with the domestic products of corn, cotton and wheat. Originally regulated by the Department of Agriculture, 44 years ago the Commission took over. The commodities futures market, also called the designated contract markets, includes crude oil, heating oil, gasoline/petrol, energy, and mining and metals. It also regulates the financial products for those markets, including foreign currency, interest rates and stock indexes.

In 2008, Congress added to the CFTC’s regulatory powers in the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act moved the previously unregulated $400 trillion swaps market under the Commission.

CFTC Leadership and Divisions

Five commissioners comprise the leadership of the CFTC. Each receives a Presidential appointment and requires Senate confirmation. They serve staggered five-year terms. The President chooses one Commissioner as Chairman. The leadership consists of a bipartisan mix. A single political party may have only three Commissioners at a time.

The CFTC has four divisions:

  • Clearing and Risk (DCR),
  • Enforcement (DOE),
  • Market Oversight (DMO),
  • Swap Dealer and Intermediary Oversight (DSIO).

The Division of Clearing and Risk handles activity by derivatives clearing organizations (DCOs) and market other clearing process participants, such as swap participants and futures commission merchants. It monitors futures clearing and options, plus swaps by DCOs. It conducts compliance enforcement, risk assessment and surveillance. The DCR recommends approval or denial of:

  • DCO applications,
  • DCO eligibility,
  • rules,
  • the types of swaps cleared.

The Division of Enforcement investigates suspected violations of CFTC regulations and the CEA. Frequently investigated violations include:

  • fraud,
  • manipulation of the commodity derivatives market,
  • manipulation of the swaps market,
  • manipulation or abuse of market participants and/or the general public.

The Enforcement division also prosecutes the alleged violations.

The duty of ensuring transparency and open, fair trading falls to the Division of Market Oversight (DMO). It conducts application review for:

  • designated contract markets,
  • foreign trade boards,
  • swap data repositories,
  • swap execution facilities.

It also conducts compliance checks of trading platforms and swap data repositories. The checks focus on regulatory compliance and system safeguards. It studies new trade products and conducts organizational rules reviews. Its analysis influences Commission policymaking. It crafts and implements Commission regulations.

The Division of Swap Dealer and Intermediary Oversight handles futures-related self-regulatory organizations (SROs) and intermediaries from their registration to compliance. This includes oversight of the National Futures Association (NFA) and US derivatives exchanges. It crafts and enforces regulations regarding:

  • business conduct,
  • capital adequacy,
  • margin requirements for swap dealers and participants,
  • registration.

If you trade in commodities, whether gold, pork bellies or energy, or you invest in fiat currencies via FOREX, the CFTC oversees the market. Congress provided it with rule making, oversight, enforcement and prosecutorial authority.