What is the Commodity Exchange Act (CEA)
The Commodity Exchange Act (CEA) provides federal regulation of all futures trading activities. It is designed to prevent and remove obstructions on the interstate commerce in commodities by regulating transactions on commodity futures exchanges. The CEA looks to limit, or abolish, short selling and eliminate the possibility of market manipulation.
BREAKING DOWN Commodity Exchange Act (CEA)
The Commodity Exchange Act (CEA) gives the Commodity Futures Trading Commission (CFTC) the authority to establish regulations as published in Chapter I Title 17, of the Code of Federal Regulations. Passed by the US government in 1936, the CEA essentially replaced the Grain Futures Act of 1922. Notably, the CEA established the statutory framework under which the CFTC operates.
The CFTC’s goals include:
- The promotion of a competitive and efficient futures markets
- Protection of investors against market manipulation
- The policing of abusive and fraudulent trade practices
Without such regulation and regulators, market participants are subject to fraud and, in turn, will lose faith in the country’s capital markets, which is detrimental to investors, consumers, and society. The goal of capital markets is to efficiently allocate funds to the most meritorious systems of production and productive economic activities.
The CFTC has five committees, each headed by a commissioner, who is appointed by the president and approved by the Senate. These five committees focus on agriculture, global markets, energy and environmental markets, technology, and cooperation between the CFTC and the Securities Exchange Commission. The committees represent the interests of specific industries, traders, futures exchanges, commodities exchanges, consumers, and the environment.
Crypto-Currency Challenges for the Commodity Exchange Act
Financial technology, such as cloud computing, algorithmic trading, distributed ledgers and artificial intelligence pose new challenges for the CFTC in the contemporary digital age. Virtual or digital currencies, which function as a medium of exchange, nominal money, or their ability to be exchanged for goods or services, are another challenge. The crypto-currency Bitcoin had a futures contract launched in late 2017 which trades with the CME Group.
Notably, virtual currencies have been determined to be commodities under the CEA. However, there are limitations to its regulatory oversight over commodity cash markets. The CFTC has general anti-fraud and manipulation enforcement authority over crypto-currencies cash markets as a commodity in interstate commerce.
These technologies have the potential for significant or even transformational impact on CFTC-regulated markets and the agency itself. The CFTC plans to play an active role in the oversight of this emerging innovation.