Commodity Futures Trading Commission
The CFTC Mission:
The Commodity Futures Trading Commission (CFTC) was created by Congress in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency protects market participants against manipulation, abusive trade practices and fraud. Through effective oversight and regulation, the CFTC enables the markets to serve better their important functions in the nation's economy—providing a mechanism for price discovery and a means of offsetting price risk.What is a Futures Contract?
A futures contract is an agreement to buy or sell in the future a specific quantity of a commodity at a specific price. Most futures contracts contemplate that actual delivery of the commodity can take place to fulfill the contract. However, some futures contracts require cash settlement in lieu of delivery, and most contracts are liquidated before the delivery date. An option on a commodity futures contract gives the buyer of the option the right to convert the option into a futures contract. Futures and options must be executed on the floor of a commodity exchange—with very limited exceptions—and through persons and firms who are registered with the CFTC.Who Uses Futures and Options Markets?
Most of the participants in the futures and option markets are commercial or institutional users of the commodities they trade. These users, most of whom are called "hedgers," want the value of their assets to increase and also want to limit, if possible, any loss in value. Hedgers may use the commodity markets to take a position which will reduce the risk of financial loss in their assets due to a change in price. Other participants are "speculators" who hope to profit from changes in the price of the futures or option contract.History of Futures Trading in the U.S.
Futures contracts for agricultural commodities have been traded in the U.S. for more than 100 years and have been under Federal regulation since the 1920s. In the last 20 years, futures trading has expanded rapidly into many new markets, beyond the domain of traditional physical and agricultural commodities. Futures and options are now offered on many energy commodities such as crude oil, gasoline heating, oil, and natural gas, as well as on a vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and foreign stock indices. In addition, in recent years, new futures contracts have been offered in non-traditional commodity areas such as electricity, seafood, dairy products, crop yields, and weather derivatives.CFTC's Responsibilities to the Markets and Their Users
Contract Review and Market Surveillance:
To ensure the financial and market integrity of the nation's futures markets, the CFTC reviews the terms and conditions of proposed futures and option contracts. Before an exchange lists a new futures or option contract for trading, it must certify that the contract complies with the requirements of the Commodity Exchange Act (CEA) and the Commission’s regulations, including the requirement that the contract terms reflect commercial trading practices and that the contract not be readily susceptible to manipulation. The Commission conducts daily market surveillance and can, in an emergency, order an exchange to take specific action or to restore orderliness in any futures contract that is being traded.Regulation of Futures Professionals:
Companies and individuals who handle customer funds or give trading advice must apply for registration through the National Futures Association (NFA), a self-regulatory organization approved by the Commission. The CFTC also seeks to protect customers by requiring registrants to disclose market risks and past performance information to prospective customers, by requiring that customer funds be kept in accounts separate from those maintained by the firm for its own use, and by requiring customer accounts to be adjusted to reflect the current market value at the close of trading each day. In addition, the CFTC monitors registrant supervision systems, and internal controls and sales practice compliance programs.Commodity exchanges complement Federal regulation with rules of their own—rules covering clearance of trades, trade orders and records, position limits, price limits, disciplinary actions, floor trading practices, and standards of business conduct. A new or amended exchange rule may be implemented upon certification by the exchange that the new or amended rule complies with the CEA and Commission regulations. The CFTC may also direct an exchange to change its rules or practices if found to be in violation. The NFA performs similar functions for non-exchange member firms. The CFTC also regularly audits each exchange’s and the NFA’s compliance program.
How the CFTC is Organized
Commissioners
The Commission consists of five Commissioners, appointed by the President with the advice and consent of the Senate to serve staggered five-year terms. The Commission develops and implements agency policy and direction. One of the Commissioners is designated by the President to serve as Chair. The Chair's staff has direct responsibility for providing information about the Commission to the public and interacting with other governmental agencies and the Congress, and for the preparation and dissemination of Commission documents. The Chair's staff also ensures that the Commission is responsive to requests filed under the Freedom of Information Act. The Chair's staff includes the Office of the Inspector General, which conducts audits of CFTC programs and operations, and the Office of International Affairs, which is the focal point for the Commission's global regulatory coordination efforts.Major policy decisions and Commission actions, such as adoption of agency rules and regulations and the authorization of enforcement actions, must be approved by a majority vote of the Commissioners. Most Commission meetings are open to the public. Information on Commission meetings can be obtained from the Commission's Office of External Affairs or the CFTC's website at http://www.cftc.gov/.
The CFTC monitors markets and market participants closely by maintaining, in addition to its headquarters office in Washington, offices in cities that have futures exchanges—New York, Chicago, Kansas City, and Minneapolis. For enforcement purposes, the Commission also maintains an office in Los Angeles.
Operating Units
Under the CFTC restructuring announced on February 1, 2002, to facilitate the implementation of the Commodity Futures Modernization Act of 2000, the Commission now has six major operating units: the Division of Clearing and Intermediary Oversight, the Division of Market Oversight, the Division of Enforcement, the Office of the Chief Economist, the Office of the General Counsel, and the Office of the Executive Director.Division of Clearing and Intermediary Oversight
The functions of the new Division of Clearing and Intermediary Oversight include oversight of derivatives clearing organizations, financial integrity of registrants, customer fund protection, stock-index margin, registration and fitness of intermediaries, sales practice reviews, National Futures Association activities related to intermediaries, and foreign market access by intermediaries.Division of Market Oversight
The new Division of Market Oversight has regulatory responsibility for initial recognition and continuing oversight of trade execution facilities, including new registered futures exchanges and derivatives transaction execution facilities. The regulatory functions of the new Division include, among other things, market surveillance, trade practice reviews and investigations, rule enforcement reviews, review of product-related and market-related rule amendments, and associated product and market-related studies.Division of Enforcement
The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and CFTC regulations. Violations may involve commodity futures or option trading on domestic commodity exchanges, or the improper marketing of commodity investments. The Division may, at the direction of the Commission, file complaints before the agency's administrative law judges or in the U.S. District Courts. Alleged criminal violations of the Commodity Exchange Act or violations of other Federal laws which involve commodity futures trading may be referred to the Justice Department for prosecution. The Division also provides expert help and technical assistance with case development and trials to U.S. Attorneys Offices, other Federal and state regulators, and international authorities.Office of Chief Economist
The Office of the Chief Economist is an independent office with responsibility for providing expert economic advice to the Commission. Its functions include policy analysis, economic research, expert testimony, education, and training.Office of the General Counsel
The Office of the General Counsel (OGC) is the Commission's legal advisor. OGC staff represent the Commission in appellate litigation and certain trial-level cases, including bankruptcy proceedings which involve futures industry professionals. As its legal advisor, OGC reviews all substantive regulatory, legislative, and administrative matters presented to the Commission and advises the Commission on the application and interpretation of the Commodity Exchange Act and other administrative statutes. OGC also assists the Commission in performing its adjudicatory functions.Office of the Executive Director
The Office of the Executive Director (OED) formulates and implements the management and administrative policies and functions of the agency. OED staff formulate the agency's budget, supervise the allocation and use of agency resources, promote management controls and financial integrity, and develop and maintain the agency's automated information systems. The Office of Proceedings, which is under the administrative direction of OED, provides an inexpensive and expeditious forum for handling customer complaints against people or firms registered with NFA through its reparations program. The Office of Proceedings also hears and decides enforcement cases brought by the Commission.Updated September 26, 2002