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What Is The Nature Of CFTC?
The Commodity Futures Trading Commission is an agency of the U.S. government which was founded in 1974. Its primary job is the regulation of the futures and options market of the United States. It is the arm of the government that enforces the Commodities Exchange Act which prohibits unlawful practices in the country’s futures trading market. It is different from the SEC, which looks at things like reverse mergers, etc.
What Is CFTC’s Fundamental Mission?
CFTC’s fundamental mission, as given in its website, is to foster open, financially sound, competitive and transparent markets. It wants to protect market consumers and users as well as their money, and also the public from fraud, abusive practices and manipulation with regards to derivatives and similar related products which are under the rules and regulations prescribed by the Commodity Exchange Act. CFTC endeavors to fulfill this primary mission by doing the best it could to prevent systemic risk.
The CFTC is continuously transforming its operations since the financial crisis that affected the U.S. and the rest of the world in 2008. It has been initiating stricter regulations to improve the transparency of the swaps market worth $400 trillion. In order to accomplish its fundamental mission, CFTC has been implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act since 2010.
What Are The Responsibilities Of CFTC?
The CFTC carries several responsibilities on its shoulder as it tries to accomplish its mandate. These include the promotion of the market’s integrity. In this particular responsibility, CFTC controls and oversees the derivatives market to minimize the abuses and if possible to totally eliminate them. There are various individuals and organizations that CFTC supervises in the performance of its responsibilities. They include derivative clearing organizations, swap dealers, swap execution facilities, designated contract markets, futures commission traders, commodity pool operators and other entities and groups.
How Important Is CFTC?
The mission and responsibilities of the CFTC show how important this agency is in running the economy of the United States. This agency regulates a vital financial sector of the U.S. economy. It is critical to the method by which investors, financial institutions and commercial enterprises are managing their risks in the country. All U.S. economy stakeholders including farmers, producers, ranchers, business enterprises, municipalities and manufacturers and other sectors of the U.S. economy are utilizing the market to determine a rate or a price. The CFTC enables all the U.S. stakeholders to concentrate on the things that they do best like generating goods or services, creating jobs or innovating. This agency will always try its best to empower hedgers and market participants to enter the market with complete confidence.
CFTC’s History In A Nutshell
The contracts for futures of the country’s agricultural commodities have been continuously traded for more than 150 years. The responsibility of overseeing and regulating this sector of the country’s economy has always been given to and assumed by the federal government. The Grain Futures Act of 1922 was the first law in the United States that was enforced to regulate the activities of the futures and commodities market. This law was superseded by the Commodity Exchange Act when it was passed in 1936.
Coming down to our time, CFTC’s mandate was renewed and even increased in December 2000 when the Commodity Futures Modernization Act was passed by the U.S. Congress. The CFMA mandated the CFTC along with the SEC to form a joint regulating body to take charge of the single-stock futures products which in November 2002 have already started trading. Starting in 2003, the values of swaps have significantly risen since they were introduced in the closing months of 1970. The agency’s clout further increased in 2010 when the Dodd-Frank Act was passed. This Act gave CFTC the authority to supervise the swaps market and gave the agency the license to prohibit the reckless implementation of manipulative strategies that negates the need to assess the real intent of the accused to manipulate prices and the creation of artificial or false prices.