What Is the Commodity Futures Trading Commission?
The Commodity Futures Trading Commission (CFTC) is an independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. The Commodity Futures Trading Commission regulates the commodity futures and options markets. Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices, and fraud.
Understanding the Commodity Futures Trading Commission
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 SEC. The committees are populated by individuals who represent the interests of specific industries, traders, futures exchanges, commodities exchanges, consumers and the environment.
The Commodity Exchange Act (CEA) regulates the trading of commodity futures in the United States. Passed in 1936 and amended several times since, the CEA establishes the statutory framework under which the CFTC operates. Under this Act, the CFTC has authority to establish regulations that are published in Title 17, Chapter I, of the Code of Federal Regulations (CFR).
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 crypto-currencies like Bitcoin, which had a Bitcoin futures contract launched in late 2017 that trades with the CME Group. The CFTC says that 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.