What Is the Commodity Futures Trading Commission?

The Commodity Futures Trading Commission (CFTC) is an independent federal agency that regulates commodity futures and options markets in the United States. Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices, and fraud. The Commodity Futures Trading Commission Act established the CFTC in 1974.

Key Takeaways

  • The Commodity Futures Trading Commission was established in 1974 at time when most futures trading took place in the agricultural sector.
  • The commission's job is to regulate commodity futures and options markets in the United States.
  • Over the years, the role of regulating the futures and options markets has become more complex, especially with the advent of fintech and digital currencies such as Bitcoin.

Understanding the Commodity Futures Trading Commission

The CFTC consists of five commissioners who are appointed by the president and approved by the Senate. Commissioners serve five-year staggered terms. The president designates one of these commissioners as the chair, and no more than three commissioners at any one time can come from the same political party. 

These five commissioners serve on committees focused on agriculture, energy and environmental markets, global markets, market risk, and technology. A committee that focuses on cooperation between the CFTC and Securities and Exchange Commission (SEC) is inactive. Members of the committees represent specific industries, traders, futures exchanges, commodities exchanges, consumers, and environmental groups.

The Commodity Exchange Act regulates the trading of commodity futures in the U.S. Passed in 1936 and amended several times since, the act establishes the statutory framework under which the CFTC operates. Under the act, the CFTC has authority to establish regulations that are published in Title 17, Chapter I, of the Code of Federal Regulations.

New Challenges for the CFTC

The CFTC is moving away from its historic role as regulator of traditional commodity products-related futures and options contracts to face new challenges in the digital age of the 21st century. A new challenge facing the CFTC is in relation to new financial technology (fintech) products and cryptocurrencies such as Bitcoin, which had a Bitcoin futures contract launched in December 2017 that trades with the CME Group.

Fintech is driving innovation in financial markets across the globe. New technologies are wide-ranging in scope, from cloud computing and algorithmic trading to distributed ledgers to artificial intelligence and machine learning to network cartography and many others. 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.

The CFTC plays an important role in regulating financial markets. Without such regulation and regulators, market participants could be subjected to fraud by unscrupulous individuals and, in turn, lose faith in our capital markets. This could make capital markets ineffective at efficiently allocating financial resources to the most deserving means of production and productive economic activities to the detriment of investors, consumers and society. Time will show if the agency is up to the new challenges it faces.