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What is the Commodity Futures Trading Commission?

Brenda Scott
Brenda Scott

In business, a commodity is something physical which can be sold or purchased, such as corn, wheat, cattle or gold. This is different from stock, which is a non-tangible ownership interest in a company. Commodities are frequently sold using futures contracts; written agreements to either buy or sell a commodity at a specific future date for a set price. Commodity futures are sold on an exchange similar to the stock exchange. The Commodity Futures Trading Commission (CFTC) is a regulatory agency created by the United States government to keep tabs on the futures market in the US.

The first American futures contracts were created in the nineteenth century and covered agricultural products. In the 1920s, the government authorized the Department of Agriculture to begin governmental oversight of all future contracts for agriculture commodities. Over time futures began to be used for a number of products, and each developed its own market. Finally, Congress passed the Commodity Exchange Act of 1974 which combined the oversight of all commodity markets under the Commodity Futures Trading Commission.

Man climbing a rope
Man climbing a rope

The Commodity Futures Trading Commission is charged with protecting investors and the general public from fraud and market manipulation in the US. It is governed by five individuals who are appointed by the President and confirmed by the Senate. They serve five-year terms which are staggered in such a way as to maintain continuity and experience. In order to preserve a non-partisan viewpoint in the commission’s oversight function, the law requires that a maximum of only three sitting commissioners can belong to the same political party at one time. While the Commodity Futures Trading Commission is based in Washington DC, it also has offices in New York, Chicago and Kansas City.

There are only five commissioners, yet the Commodity Futures Trading Commission is actually a large organization. It includes five advisory committees, each chaired by a commissioner, which cover specific areas of agriculture, global markets, technology, energy and environmental markets, and one that works in tandem with the Security Exchange Commission (SEC). Investigating complaints and monitoring compliance requires attorneys, auditors, economists and investigators with futures trading experience. Like any other large entity, the organization also utilizes people trained in management and various business support positions.

In order to accomplish its mission of guarding against fraud and manipulation, the Commodity and Futures Trading Commission has significant regulatory and enforcement authority. For example, the Commission can limit the amount of futures contracts that an investor or investment group can hold in any one commodity and can request the U.S. District courts to order groups or individuals to liquidate holdings which exceed those regulatory limits. On several occasions, the Commodity and Futures Trading Commission has suspended commodity option trading in the US for short periods of time when evidence of market manipulation or fraud surfaced. While the Commission is an independent body, it does not act in isolation, but is required to cooperate and communicate with other regulatory bodies such as the Federal Reserve Board, the Security and Exchange Commission and the U. S. Treasury Department.

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