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Overview:

The Commodity Futures Trading Commission (CFTC) is the federal government’s watchdog for overseeing the trading of futures for oil, precious metals, grains, currencies, and other commodities. It also regulates trading in derivatives linked to stock indexes and bonds. Established in 1974, the commission was set up to ensure the open and efficient operation of the futures exchange markets as well as to protect investors from fraud.

 

The CFTC came under increasing pressure from Congress in 2008 to investigate price manipulation in a number of markets. In May that year, it disclosed that it had conducted a six-month investigation after the prices of gold, copper, corn, wheat and gasoline set record highs. Commissioners were pressured to demand more information about investors to determine whether they were skirting market limits on speculation and artificially driving up global food prices. Although there has been debate over the idea of a merger of the CFTC with the Securities and Exchange Commission as part of a larger overhaul of market regulation by the federal government, this has not come to pass.

 

In 2010, in response to the nation’s financial crisis, the Dodd-Frank Act was signed into law to bring comprehensive regulation to the marketplace. The commission is currently creating dozens of new rules as part of its policing of the $600 trillion derivatives industry. Republicans in Congress, suggesting that the regulations may hurt economic growth, have introduced legislation to require a cost-benefit analysis and delay implementation of the regulations until December 2012.

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History:

During the 1880s, the first bills were introduced in Congress to regulate, ban, or tax futures trading in the US. Over the next 40 years, approximately 200 such bills were introduced.

 

Congress adopted the Future Trading Act in 1921 to provide for the regulation of futures trading in grain (corn, wheat, oats, rye, etc.). The Secretary of Agriculture was empowered to designate exchanges that met certain requirements enumerated in the act as “contract markets” in grain futures. The Future Trading Act also imposed a prohibitive tax of 20 cents per bushel on all options trades and on grain futures trades not executed on a designated contract market.

 

The following year, the US Supreme Court declared the Future Trading Act unconstitutional in Hill v. Wallace. The Future Trading Act imposed a prohibitive tax the primary purpose of which was to force boards of trade to submit to federal regulation rather than citing the interstate commerce clause of the constitution to establish federal jurisdiction. The Supreme Court ruled that this use of Congress’ taxing power was unconstitutional. To rectify this concern, Congress adopted the Grain Futures Act in 1922. The provisions of the Grain Futures Act included the requirements for designation as a contract market, which was similar to those of the Future Trading Act. But unlike the first act, the Grain Futures Act was based on the interstate commerce clause and banned off-contract-market futures trading rather than taxing it.

 

In follow-up to the legislation, the Grain Futures Administration was formed as an agency of the Department of Agriculture (USDA) to administer the new law. Also created was the Grain Futures Commission, which consisted of the Secretary of Agriculture, the Secretary of Commerce, and the US Attorney General. The authority to suspend or revoke a contract market designation was vested in this new commission. Opponents of the Grain Futures Act challenged it in court, but this time the Supreme Court upheld the law.

 

In 1923 the Grain Futures Administration implemented a large trader reporting system, under which each clearing member was required to report on a daily basis the market positions of each trader exceeding a specified size. This large trader reporting system remains an integral part of the CFTC’s oversight scheme to this day. Twice, however, the Secretary of Agriculture temporarily suspended large trader reporting requirements, in response to complaints that the requirements were depressing grain prices. The Grain Futures Administration found this to be untrue, and the secretary agreed to reinstate the requirements. 

 

On June 15, 1936, the Commodity Exchange Act was enacted, replacing the Grain Futures Act and extending federal regulation to a list of enumerated commodities that included cotton, rice, mill feeds, butter, eggs, and Irish potatoes, as well as grains. The Grain Futures Commission became the Commodity Exchange Commission and continued to consist of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General. The Commodity Exchange Act granted the Commodity Exchange Commission the authority to establish federal speculative position limits, but not the authority to require exchanges to set their own speculative position limits. The Commodity Exchange Act also required futures commission merchants to segregate customer funds that were deposited for purposes of margin, prohibited fictitious and fraudulent transactions such as wash sales and accommodation trades, and banned all commodity option trading. The option ban remained in effect until 1981.

 

In 1936, the Commodity Exchange Administration was formed within the USDA to succeed the Grain Futures Administration and to administer the Commodity Exchange Act.

 

On April 7, 1938, the Commodity Exchange Act was amended to add wool tops (a type of processed wool ready to be manufactured into textiles) to the list of regulated commodities. Also in 1938 the Commodity Exchange Commission promulgated the first federal speculative position limits for futures contracts in grains (then defined as wheat, corn, oats, barley, flaxseed, grain sorghums, and rye).

 

In 1940 the Commodity Exchange Commission established a federal speculative position limit for cotton futures contracts. Also, the Commodity Exchange Act was amended to add fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, and soybean meal to the list of regulated commodities.

 

The Commodity Exchange Administration was merged in 1942 with other agencies to form the Agricultural Marketing Administration (the organization is now known as the Commodity Exchange Branch of the Agricultural Marketing Administration).

 

During the 1950s several changes were made to the Commodity Exchange Act. Wool (as opposed to wool tops) and onions were added to the list of regulated commodities. In addition, the Commodity Exchange Authority was given the authority to issue investigative subpoenas prior to filing a formal administrative proceeding and to set the level of registration and renewal fees for futures commission merchants and other registrants. Prior to this, these fees were fixed legislatively at $10.

 

On August 28, 1958, the Onion Futures Act banned futures trading in onions, but did not amend the Commodity Exchange Act. Onions remained on the list of regulated commodities until 1974 (the Onion Futures Act remains in effect to this day).

 

In December 1963, the Great Salad Oil Swindle surfaced. Anthony (Tino) DeAngelis, owner of the Allied Crude Vegetable Oil Refining Corp., was indicted for, among other things, creating phony warehouse receipts for non-existent soybean oil (through a variety of methods including filling storage tanks with water and covering the water with a thin layer of soybean oil on top) and using those receipts as loan collateral to finance heavy trading of soybean, soybean oil, and cottonseed oil futures (including a 1962 attempt to corner the soybean market). The scandal caused 16 firms (including two Wall Street brokerage houses and a subsidiary of American Express) to go bankrupt and led to calls for increased regulation of the commodity futures markets. DeAngelis was convicted in 1965 and served seven years in prison.

 

On February 19, 1968, the first major commodities legislation was adopted since 1936, when the Commodity Exchange Act was amended to add livestock and livestock products (e.g., live cattle, pork bellies) to the list of regulated commodities and to institute minimum net financial requirements for futures commission merchants. The 1968 amendments also enhanced the enforcement provisions of the act in various ways, including enhanced reporting requirements, increases in criminal penalties for manipulation and other violations of the act, and a provision allowing for the suspension of contract market designation of any board of trade that failed to enforce its own rules. That same year, the Commodity Exchange Act was amended to add orange juice to the list of regulated commodities.

 

In 1973 grain and soybean futures prices skyrocketed, thanks in part to excessive speculation and manipulation. Congress began to consider revising the federal regulatory scheme for commodities, and in 1974, Congress passed the Commodity Futures Trading Commission Act. The bill overhauled the Commodity Exchange Act and created the Commodity Futures Trading Commission (CFTC), an independent agency with powers greater than those of its predecessor agency, the Commodity Exchange Authority. For example, while the Commodity Exchange Authority only regulated agricultural commodities enumerated in the Commodity Exchange Act, the 1974 act granted the CFTC exclusive jurisdiction over futures trading in all commodities.

 

On July 18, 1975, the CFTC authorized exchanges to continue trading futures contracts on a number of commodities previously unregulated under the Commodity Exchange Act. This action brought under federal regulation all commodities for which a futures contract was actively traded.

 

On April 28, 1977, the CFTC asked the U.S. District Court in Chicago to order seven members of the Hunt family of Dallas, and a related company, to liquidate positions that exceeded the three million bushel speculative position limit for soybean futures on the Chicago Board of Trade. That same year, the CFTC approved the first futures contract on long-term U.S. government debt—the Chicago Board of Trade U.S. Treasury bond futures contract—and the commission declared a market emergency in the December coffee “C” futures contract on the New York Coffee and Sugar Exchange (which merged with the New York Cocoa Exchange to form the Coffee Sugar and Cocoa Exchange in 1979 and later became part of the New York Board of Trade). This was one of several emergencies in coffee futures during the late 1970s.

 

The CFTC took emergency action in 1979 to prohibit further trading in the Chicago Board of Trade March wheat futures contract—the first time the commission ordered a market closed in the interest of preventing a price manipulation. Opponents of this action challenged the CFTC’s authority in court, but lost. The U.S. Court of Appeals for the Seventh Circuit affirmed the CFTC’s authority to act during market emergencies.

 

On January 6, 1980, the commission again took emergency action, this time ordering the suspension of futures trading for two days for wheat, corn, oats, soybean meal, and soybean oil on four exchanges after President Jimmy Carter announced an embargo on the sale of certain agricultural goods to the Soviet Union that included substantial amounts of grain. That same year, however, the CFTC decided not to use its emergency powers to order a suspension of trading in silver futures as prices plummeted.

 

On February 16, 1982, the CFTC approved the first futures contract based on a stock index, the Value Line Index Average traded on the Kansas City Board of Trade.

 

The CFTC approved amendments in August 1984 to the Chicago Mercantile Exchange rules that allowed it to establish a trading link with the Singapore International Monetary Exchange, the first trading and clearing link between a domestic and a foreign exchange.

 

In 1985 the CFTC approved the first option on a physical commodity—Amex Commodity Corporation’s physical gold bullion option contract. It also reported that Nelson Bunker Hunt, William Herbert Hunt, and other individuals and firms manipulated and attempted to manipulate silver prices in 1979 and 1980. Also in 1985, Volume Investors, Inc., a clearing member at COMEX, defaulted on a margin call on options on gold futures. The default affected the funds of 100 customers, mostly local traders, and caused the commission to consider numerous changes to its rules. Ultimately, improved surveillance, early warning, and margining procedures were developed.

 

On July 23, 1987, the CFTC adopted rules to permit the offer and sale of foreign futures and options in the U.S. and to apply the same customer protection rules to the offer and sale of foreign futures and options as to the offer and sale of domestic futures and options. The following year the CFTC approved the offer and sale of the first foreign option contracts in the U.S., options that were traded on the SIMEX (Singapore), the SFE (Australia), and the MX (Montreal) exchanges.

 

In 1989 a two-year FBI undercover investigation of the Chicago trading pits prompted the CFTC to adopt a number of actions. The commission also approved rules proposed by the Chicago Mercantile Exchange for the basic Globex system, the first international electronic trading system, which began trading in June 1992.

 

In 1990 the CFTC and the Commission des Opérations de Bourse (COB) of France signed two agreements that provided a structure for information sharing between financial regulatory authorities in different countries. The commission also moved toward closer worldwide cooperation among regulatory authorities by adopting 10 general principles intended to assist regulators and developers of screen-based trading systems (as opposed to the traditional market floor-based system).

 

On October 28, 1992, President George H. W. Bush signed the Futures Trading Practices Act of 1992, expanding the CFTC’s regulatory authority. The act granted the commission the authority to exempt over-the-counter (OTC) derivative and other transactions from CFTC regulation and provided for registration of local traders. The next year, the commission used its new authority to exempt certain swap agreements and hybrid instruments from regulation under the Commodity Exchange Act. It also adopted rules requiring the registration of floor brokers and ethics training for all individual registrants and permitting the suspension of registrants charged with felonies.

 

On January 10, 1994, the CFTC filed an administrative complaint against two former Chicago Board of Trade (CBOT) members, Anthony Catalfo and Darrell Zimmerman, alleging that they had engaged in a scheme to manipulate Treasury bond futures and put options on the CBOT. An administrative law judge issued a default order against both men finding that they had committed the violations.

 

Representatives of regulatory bodies from 16 countries, responsible for supervising the world’s leading futures exchanges, issued a declaration at a May 1995 meeting in Windsor, England, hosted by the UK Securities Investment Board (SIB) and the CFTC. The Windsor Declaration outlined steps to strengthen the supervision of the international futures markets. The CFTC also adopted revisions to rules governing disclosure by commodity pool operators and commodity trading advisors.

 

On July 10, 1996, CFTC imposed a $600,000 civil monetary penalty against Fenchurch Capital Management Inc. of Chicago for market manipulation and cornering of the cheapest-to-deliver note deliverable against the Chicago Board of Trade 10-year Treasury note futures contract.

 

In 1997 the Supreme Court ruled in Dunn v. CFTC that foreign currency options are “transactions in foreign currency” for purposes of the Treasury Amendment exclusion to the Commodity Exchange Act, eliminating the CFTC’s jurisdiction over such transactions.

 

On May 11, 1998, the CFTC entered into a settlement with Sumitomo Corporation to resolve allegations of manipulating the copper market in 1995 and 1996 that included a civil monetary penalty of $150 million.

 

Just before leaving office, President Clinton signed into law the Commodity Futures Modernization Act of 2000 that overhauled the Commodity Exchange Act to create a “flexible structure” for the regulation of futures and options trading, clarified commission jurisdiction over certain retail foreign currency transactions, and repealed the 18-year-old ban on the trading of single stock futures. Legislation in 2000 also eliminated CFTC’s oversight of energy commodities traded by large companies outside of the regulated exchanges: the so-called Enron loophole (pdf).

 

On August 21, 2001, the CFTC ordered Avista Energy, Inc. to pay $2.1 million to settle charges of manipulating electricity futures. Several former Avista employees (who each subsequently settled with the CFTC) and a New York Mercantile Exchange (NYMEX) floor broker (who was found liable in September 2004) were also charged with participating in the manipulative scheme.

 

The CFTC in January 2002 issued a new rule concerning the multilateral clearing activities of NOS Clearing ASA, a Norwegian clearinghouse, in connection with transactions entered into on the International Maritime Exchange. This was the first time the CFTC used its authority to determine that supervision by a foreign financial regulator of a multilateral clearing organization for over-the-counter (OTC) derivative instruments satisfied appropriate standards. Also in 2002, the CFTC restructured its staff organization, shifting the functions previously performed by the Division of Trading and Markets and the Division of Economic Analysis to two new divisions and one new office: the Division of Market Oversight, the Division of Clearing and Intermediary Oversight, and the Office of the Chief Economist.

 

Toward the end of 2002, Dynegy Marketing and Trade and West Coast Power LLC paid $5 million to settle CFTC charges of attempted manipulation and false reporting of prices. The following year, the commission charged the bankrupt Enron Corporation and former Enron vice president Kenneth Rice with manipulating prices in the natural gas market. Enron also was charged with operating an illegal, undesignated futures exchange and offering illegal lumber futures contracts through Enron Online, its Internet trading platform. Enron settled in May 2004 and Rice settled in July 2004.

 

In January 2006, the CFTC settled with two subsidiaries of Royal Dutch Shell over charges of engaging in prearranged trades on the NYMEX on five occasions between November 2003 and March 2004. The settlement involved a $200,000 civil penalty for the company and a $100,000 civil penalty for one of its traders.

 

On October 25, 2007, BP Products North America, Inc. (BP) agreed to pay a total of $303 million in sanctions to settle charges of manipulation and attempted manipulation in the propane market. In 2008 the CFTC established a new Energy Markets Advisory Committee to provide a public forum to examine issues related to the energy markets and the CFTC’s role in these markets under the Commodity Exchange Act.

 

Also in 2008, the work of the commission began to come under greater scrutiny by Congress as prices of oil and certain foods skyrocketed, leading some observers to wonder if regulators were failing to prevent adverse speculation in various markets. In March 2008, then-Secretary of the Treasury Henry Paulson even recommended merging the CFTC with the Securities and Exchange Commission as part of an ambitious overhaul of government regulation of financial markets.

 

In response to complaints from farmers and lawmakers that speculators had inflated food prices, the CFTC announced in June 2008 that it would require investors and index funds to disclose more information about their holdings in agricultural markets. The commission also said it would grant fewer exemptions to speculative-position limits related to agricultural index trading and would provide more detail on trader holdings.

 

That same month the commission also announced it was establishing a task force to study the role of speculators and index traders in oil markets to determine the cause of ballooning petroleum prices. It also hosted an international manipulation enforcement conference focused on global trading in the energy markets

 

In July the commission charged Optiver Holding BV, two of its subsidiaries, and three employees, with manipulation and attempted manipulation of futures contracts during March 2007. The following month it formed the Retail Foreign Currency Fraud Enforcement Task Force, charged with investigating and litigating fraud in the off-exchange retail foreign currency market.

 

On February 4, 2009, the CFTC announced the launch, on a six-month trial basis, of a new monthly report, This Month in Futures Markets. The following month it approved final rules to increase its oversight of exempt commercial markets. The new regulatory authority was acted on for the first time on July 27 when it issued an order finding a natural gas contract performed an important price discovery function.

 

On October 16, the CFTC issued a joint report with the SEC that includes 20 recommendations for improvement of enforcement, oversight and operations. They held their first meeting on May 24, 2010.

 

On June 14, the CFTC approved its first futures contract based on motion picture receipts, but determined that such contracts will be banned in the future, based on provisions in the Dodd-Frank Act, signed on July 21 by President Obama.

 

History of the CFTC (CFTC)

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What it Does:

The Commodity Futures Trading Commission (CFTC) is an independent federal agency that regulates commodity futures and option markets in the United States. Commodity futures markets play a key role in establishing worldwide prices for wheat, corn, soybeans, and other foodstuffs, as well as energy products like crude oil and natural gas. As the overseer of such markets, CFTC is supposed to assure their economic performance by encouraging competition and efficiency and protecting against fraud, manipulation, and abusive trading practices.

 

The Commission consists of five commissioners who are appointed by the President and confirmed by the Senate. They serve staggered five-year terms. The President designates one of the commissioners to serve as chairman, with approval by the Senate. No more than three commissioners at any one time may be from the same political party.

 

CFTC Divisions and Offices

The Division of Clearing and Intermediary Oversight oversees market intermediaries, including derivatives clearing organizations, financial integrity of registrants, customer fund protection, stock index margin, sales practice reviews, foreign market access by intermediaries, and National Futures Association activities related to intermediaries.

 

The Division of Market Oversight seeks to prevent abusive trading activity, oversees trade execution facilities, and performs market surveillance, market compliance, and market and product review functions.

 

The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations. Violations may involve commodity futures or option trading on U.S. futures exchanges or the improper marketing and sales of commodity futures products to the general public.

 

The CFTC utilizes four offices to monitors markets and market participants. These offices consist of CFTC headquarters in Washington D.C., and offices in Chicago, Kansas City, and New York, where futures exchanges are located.

 

The Office of the Chief Economist provides economic support and advice to the commission, conducts research on policy issues facing the agency, and provides education and training for commission staff.

 

The Office of the General Counsel functions as the commission’s legal adviser, represents it in appellate litigation and certain trial-level cases, including bankruptcy proceedings involving futures industry professionals, and advises the commission on the application and interpretation of the Commodity Exchange Act and other administrative statutes.

 

The Office of the Executive Director formulates and implements the management and administrative functions of the CFTC, including the commission’s budget.

 

The Offices of the Chairman include the Office of External Affairs, which acts as CFTC’s liaison with news media, producer and market user groups, educational and academic groups, and the general public; the Office of International Affairs which coordinates CFTC’s global regulatory efforts and assists the commission in the formulation of international policy; the Office of the Inspector General, which performs audits of CFTC programs and operations and reviews legislation and regulations; and the Office of the Secretariat, which coordinates production of policy documents and responds to requests filed under the Freedom of Information Act.

 

Advisory Committees

CFTC’s advisory committees provide input and make recommendations on a variety of regulatory and market issues that affect US markets. The committees include the Agricultural Advisory Committee, the Global Markets Advisory Committee, the Energy Markets Advisory Committee, and the Technology Advisory Committee.

From the Web Site of the Commodity Futures Trading Commission

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Where Does the Money Go:

According to USAspending.gov, the Commodity Futures Trading Commission (CFTC) spent $115.3 million on contractors from 2008 to 2011. Contractors engaging in 1,467 business transactions with CFTC provided goods and services such as office space rentals ($11.25 million), ADP systems development services ($38.8 million), ADP devices ($10.7 million), and automated information system design ($7.7 million).

 

The top 5 contractors were:

 

Northrop Grumman

  $17,307,296 

Digicon Corporation

  $13,926,399

The Blackstone Group

    $9,359,448 

Lockheed Martin

    $7,725,000

Dell Inc.

    $7,254,306

 

CFTC: President’s Budget and Performance Plan FY 2013 (pdf)

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Controversies:

Commissioner Claims Manipulation in Silver Market

A member of Commodity Futures Trading Commission (CFTC) pressured his fellow regulators in October 2010 to go after those manipulating the price of silver. Commissioner Bart Chilton said market participants had repeatedly made “fraudulent efforts to persuade and deviously control” silver prices. Chilton did not disclose any names of those allegedly behind the illegal scheme. Up to that point, the CFTC had spent two years investigating the silver market, without taking action against anyone. Silver prices then were soaring, trading at nearly $24 an ounce.

Wall Street Journal Discovers Silver-Rigging Controversy (by Susan Pulliam and Carolyn Cui, Wall Street Journal)

 

 

CFTC’s Assessment of Oil Market Angers Lawmakers

The CFTC’s then-chairman, Walter Lukken, told Congress in September 2008 that market speculators probably were not responsible for recent increases in the price of oil, contrary to the assertions of some experts and members of Congress. Although the value of oil contracts on U.S. markets soared in 2008, Lukken said that was because prices surged. At the same time, the number of contracts held by investors who expected prices to increase (known as net long positions) fell 11% from December 31 to June 30.

 

Lukken’s testimony before the House Agriculture Committee flew in the face of assertions by members of Congress and many oil experts who blamed speculators (a combination of pension funds, financial firms, hedge funds and others buying commodities as investments rather than for commercial use) for much of the spike in commodities prices earlier in the year. “By not properly policing the oil markets, the CFTC is turning a blind eye to artificial volatility,” said Sen. Maria Cantwell (D-Washington). “They may be the only group in America that believes all is well in the oil markets.”

 

A report released by hedge fund Masters Capital Management said financial speculators drove up oil prices and then, after prices peaked July 11, “began a mass stampede for the exits.” They pulled about $39 billion out of crude oil markets, Masters said, leading to a sell-off of 127 million barrels of oil futures.

Speculators Did Not Raise Oil Prices, Regulator Says (by Steven Mufson, Washington Post)

 

CFTC Not Watching Influential Investment Pools

In August 2008 Democrats on Capitol Hill complained about the CFTC’s failure to properly monitor sovereign wealth funds, the massive investment pools run by foreign governments that are now among the biggest speculators in the trading of oil and other vital goods, such as corn and cotton, in the United States. Some lawmakers said the unregulated activity of sovereign wealth funds and other speculators, such as hedge funds, contributed to the dramatic swing in oil prices in 2008.

 

The CFTC responded by claiming its monitoring showed that the sovereign wealth funds were not a significant factor in commodity trading. Others pointed out that CFTC was not detecting the growing influence of foreign funds because they invested through Wall Street brokers known as “swap dealers,” who often operate on unregulated markets.

 

Several Democrats said the Republican-led CFTC simply refused to use its authority to clamp down on such unregulated activity because it didn’t want to hurt the influential Wall Street firms it favors. “It took prodding from Congress to persuade the CFTC to finally request information from swap dealers about the participation of sovereign wealth funds in the commodity markets,” said Rep. John D. Dingell (D-Michigan), former chairman of the Committee on Energy and Commerce. “The regulatory body in charge of policing our futures markets has been remarkably incurious about the role sovereign wealth funds play in commodity markets.”

Sovereign Funds Become Big Speculators (by David Cho, Washington Post)

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Suggested Reforms:

GAO Recommends Changes in Energy Markets Oversight by CFTC

In October 2007 the Government Accountability Office (GAO) issued a report that recommended to Congress further exploring the scope of the CFTC’s authority over energy derivatives trading, in particular for trading in exempt commercial markets. The GAO also recommended that CFTC improve the usefulness of the information it provides to the public, better document its monitoring activities, and develop more outcome-oriented performance measures for its enforcement program.

Commodity Futures Trading Commission: Trends in Energy Derivatives Markets Raise Questions about CFTC’s Oversight (Government Accountability Office) (pdf)

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Debate:

Will Dodd-Frank Help or Hurt the Economy?

One of the most controversial legislative achievements to take place during President Barack Obama’s first term in office was the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Supporters hailed the new law as the strongest financial reforms since the Great Depression, while opponents labeled it a threat to both short- and long-term economic growth.

Will It Hurt or Help Your Business? (by Ron Box, AICPA.org)

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Department of the Treasury)

'A Major Transformation': The Pros and Cons of the Dodd-Frank Act (Knowledge @ Wharton)

 

Pro

Advocates, including many Democrats and consumer advocates, say Dodd-Frank was essential to come about following the financial crisis. The system was broken, allowing investments firms to take excessive risks for the sake of short-term profits and ignoring long-term consequences. The new law will force financial institutions to be more transparent and improve government oversight of markets. It also creates a framework for the government to monitor and respond to risk across the system, including the requirement to impose tougher standards on large, interconnected financial firms (those considered “too-big-to-fail”), and the authority to wind down these firms if they pose a risk to the system without forcing taxpayers to foot the bill. Furthermore, Dodd-Frank provides for the regulation of over-the-counter derivatives markets for the first time, and it establishes a single agency dedicated to protecting consumers.

Dodd-Frank Helps Address Risks To Financial System (by Neal Wolin, Politico)

Dodd-Frank Defense, Swap-Rule Delay, Basel: Compliance (by Carla Main, Bloomberg)

 

Con

Republican lawmakers and large banks are united in their hatred of Dodd-Frank. JPMorgan’s top executive has warned the oversized reform law could have a negative impact on banks ability to make credit available to businesses and consumers. Opponents also worry that when it comes time to develop the regulations required by Dodd-Frank, agencies will fail to appreciate new innovations in finance, resulting in the choking off of new economic growth. This development would mean fewer new jobs for Americans and fewer opportunities to succeed. Also, the creation of a new consumer protection agency is unnecessary and will only increase the already burdensome interference of government red tape on entrepreneurs.

Unhappy Anniversary: GOP Reining in Dodd-Frank’s Job-Crushing Red Tape (House Speaker John Boehner)

Newt Discusses Repeal Dodd-Frank Interview (Newt Gingrich)

Reform Reading: JPMorgan's Jamie Dimon Complains Dodd-Frank is Hurting Economy (iWatch News)

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Former Directors:

Walter Lukken

A native of Richmond, Indiana, Walter Lukken was appointed acting chairman by the Commodity Futures Trading Commission on June 27, 2007 and remained in that position until 2009.

 

Lukken received his BS degree with honors from the Kelley School of Business at Indiana University and his JD degree from Lewis and Clark Law School in Portland, Oregon. He is a member of the Illinois Bar.

 

Beginning in 1993, Lukken worked for five years as a legislative assistant to Sen. Richard Lugar (R-Indiana) and, from 1997 through 2001, as counsel for the Senate Agriculture Committee under Lugar. He specialized in futures and derivatives markets and was involved in the development, drafting and passage of the Commodity Futures Modernization Act of 2000 that allowed Enron to engage in online trading without oversight.

 

Lukken served as chairman of the CFTC’s Energy Markets Advisory Committee. He also served as chairman of the CFTC’s Global Markets Advisory Committee (GMAC) from October 2003 through January 2008.

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President Bush nominated Lukken in September 2007 to serve as chairman of the CFTC. But Sen. Maria Cantwell (D-Washington) blocked Lukken’s ascension as chairman. She and several Democratic colleagues also asked the CFTC’s inspector general to investigate the agency’s handling of a crude-oil report that dismissed speculation as a cause of the mid-2008 spike in oil prices.

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Comments

Victoria Murphy 5 years ago
How did the closed door meetings with energy giants such as Enron during the George W. Bush administration affect the CFTC, and ultimately the people of the US

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Founded: 1974
Annual Budget: $308 million (FY 2013 Request)
Employees: 1,015 (FY 2013 Estimate)
Official Website: http://www.cftc.gov
Commodity Futures Trading Commission
Giancarlo, J. Christopher
Chairman

J. Christopher “Chris” Giancarlo, who has served on the Commodities Futures Trading Commission (CFTC) as a Republican member since 2014, has been serving as acting chairman of the board since January 20, 2017, and has been nominated for the post on a permanent basis. Established in 1974, the mission of the CFTC is to oversee the trading of futures for oil, precious metals, grains, currencies, and other commodities, and to regulate trading in derivatives linked to stock indexes and bonds.

 

Giancarlo was born in Jersey City, New Jersey, on May 12, 1959, and grew up in northern New Jersey. His father, Hector, was a physician and developer of assisted living and nursing facilities for seniors. Giancarlo attended Skidmore College in Saratoga Springs, New York, where he earned a B.A. in government in 1981. While there, he developed an interest in Dracula and began collecting Dracula-related items. Years later, he donated some of his collection back to Skidmore. In honor of one of his professors, Phyllis Roth, who died in 2012, Giancarlo and his wife, Regina, created the Phyllis A. Roth Vampire Literature College in Skidmore’s Scribner Library. Giancarlo earned a J.D. from Vanderbilt’s law school in 1985.

 

Giancarlo’s first job out of law school was as an associate for the law firm of Mudge, Rose, Guthrie and Alexander. The firm’s alumni include Republican stalwarts Richard Nixon, Scooter Libby and Pat Buchanan. He was there just a short time though; the following year he joined Curtis, Mallet-Prevost, Colt and Mosle and worked in that firm’s London office.

 

In early 1992, Giancarlo briefly served as director of business affairs at Ourtown Television in Saratoga Springs. However, he left shortly thereafter to form his own law firm, Giancarlo and Gleiberman. Giancarlo in 1997 left his firm to become a partner at Brown Raysman Millstein Felder and Steiner, where he practiced corporate and securities law.

 

Giancarlo moved into the trading world in 2000 as executive vice president and counsel for Fenics Software, which made derivatives trading programs. The following year, GFI Group, a company that provides brokerage services to institutional customers, bought Fenics, and Giancarlo was made executive vice president of GFI.  GFI is known as an “inter-dealer broker,” acting as an intermediary in the bond and derivative markets, of which Giancarlo is now in charge of regulating. While still at GFI in 2011, Giancarlo testified to the House Financial Services Committee urging a go-slow approach to regulating derivatives trading. He remained at GFI until being appointed to the CFTC in 2013. He was also chairman of the Wholesale Markets Brokers Association Americas, which represents the largest inter-dealer brokerage firms.

 

His nomination to a five-year term was confirmed June 2, 2014. In 2015, Giancarlo wrote a paper criticizing some of the CFTC’s reforms. His nomination to chair CFTC was warmly greeted by the investment industry, which is hoping for less regulation.

 

Giancarlo and his wife, Regina, have three children, Emma, Luke and Henry. Giancarlo plays banjo and guitar and in fact his banjo playing was featured on “Grand Reveal,” a 2013 album by British recording artist Mike Marlin.

-Steve Straehley

 

To Learn More:

Official Biography

CFTC: A New Direction Forward—Remarks of Acting Chairman J. Christopher Giancarlo before the 42nd Annual International Futures Industry Conference

Senate Confirms Christopher Giancarlo ’81 as CFTC Commissioner (Skidmore College)

Statement of J. Christopher Giancarlo Before the United States Senate Committee on Agriculture, Nutrition and Forestry

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Massad, Tim
Previous Chairman

On November 12, 2013, President Barack Obama nominated Timothy G. Massad to be chairman of the Commodity Futures Trading Commission. That panel oversees the trade of derivatives, the complex financial instruments that some say helped intensify the 2008 financial crisis.

 

Massad was born July 30, 1956, in New Orleans, one of three children. His father, Alexander Hamilton Massad, was an executive for Mobil, eventually rising to become an executive vice president and a member of Mobil’s board of directors from 1977 to 1986. He was also a director of the Ingersoll Rand Corporation from 1982 to 1996.

 

In 1968, Tim’s parents moved to Connecticut and in 1974 he graduated from Darien High School.

 

Harvard was Massad’s next stop. While there, he was politically active and became a member of a committee supporting a boycott of textile maker J.P. Stevens over its labor practices. Massad graduated with a bachelor’s in social studies in 1978. After graduation, Massad went to Washington to work for consumer activist Ralph Nader. Massad began to believe those in the fight against corporate influence knew little of that world, so he returned to Harvard to study law. Massad helped organize a student protest of Harvard Law’s grading policy and rules on professors’ outside activities. He received his J.D. from that school in 1984.

 

That same year, he helped organize the New York Citizens' Utility Board, which advocated on behalf of utility customers.

 

After his graduation from Harvard Law, Massad joined the law firm of Cravath, Swaine & Moore, where he would spend the next 25 years, becoming a partner in 1991. His emphasis was in securities law, and he often worked overseas, serving in Hong Kong (1998-2002) and London and leading the firm’s India practice in 2007.  Massad also represented UNICEF and Covenant House as pro-bono clients. In 1988, he took a leave from the firm to manage Michael Dukakis’ Connecticut presidential campaign.

 

Massad dipped his toe into government work in 2008, when a friend, Damon Silvers, was on a Congressional committee reviewing the bank bailout. Massad was asked to help write reports on the Troubled Asset Relief Program (TARP), which he agreed to do. In May 2009, Massad left Cravath and joined TARP as chief counsel, a position he held for 16 months.

 

By the end of 2010, Massad was acting assistant secretary of the Treasury for Financial Stability, which gave him supervision over TARP. He was confirmed as assistant secretary on June 30, 2011. In that post, he started to wind down the program, selling assets the federal government had taken in exchange for funding banks and other financial institutions during the 2008 crisis. Despite its unpopularity with many Americans, the program made money for taxpayers under Massad’s stewardship.

 

Massad and his wife, Charlotte Hart, have two children, Emil and Jayne. Massad enjoys French cooking and early in his legal career was a volunteer apprentice at the Bouley restaurant in Manhattan. He also held baking contests while at the Treasury Department.

 

Before he joined the Obama administration, Massad was a heavy contributor to Democratic election campaigns. He gave $35,400 to Obama in 2008, $69,500 to the Democratic National Committee between 1996 and 2008, and $11,500 to the Democratic Senatorial Campaign Committee. He also contributed to the campaigns of John Kerry, Chuck Schumer, Hillary Clinton, Al Franken and Bill Clinton.

-Steve Straehley

 

To Learn More:

Tim Massad: Washington's Most Powerful Money Manager? (by Luke Mullins, Washingtonian)

Tim Massad (Washington Post)

Official Biography

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Overview:

The Commodity Futures Trading Commission (CFTC) is the federal government’s watchdog for overseeing the trading of futures for oil, precious metals, grains, currencies, and other commodities. It also regulates trading in derivatives linked to stock indexes and bonds. Established in 1974, the commission was set up to ensure the open and efficient operation of the futures exchange markets as well as to protect investors from fraud.

 

The CFTC came under increasing pressure from Congress in 2008 to investigate price manipulation in a number of markets. In May that year, it disclosed that it had conducted a six-month investigation after the prices of gold, copper, corn, wheat and gasoline set record highs. Commissioners were pressured to demand more information about investors to determine whether they were skirting market limits on speculation and artificially driving up global food prices. Although there has been debate over the idea of a merger of the CFTC with the Securities and Exchange Commission as part of a larger overhaul of market regulation by the federal government, this has not come to pass.

 

In 2010, in response to the nation’s financial crisis, the Dodd-Frank Act was signed into law to bring comprehensive regulation to the marketplace. The commission is currently creating dozens of new rules as part of its policing of the $600 trillion derivatives industry. Republicans in Congress, suggesting that the regulations may hurt economic growth, have introduced legislation to require a cost-benefit analysis and delay implementation of the regulations until December 2012.

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History:

During the 1880s, the first bills were introduced in Congress to regulate, ban, or tax futures trading in the US. Over the next 40 years, approximately 200 such bills were introduced.

 

Congress adopted the Future Trading Act in 1921 to provide for the regulation of futures trading in grain (corn, wheat, oats, rye, etc.). The Secretary of Agriculture was empowered to designate exchanges that met certain requirements enumerated in the act as “contract markets” in grain futures. The Future Trading Act also imposed a prohibitive tax of 20 cents per bushel on all options trades and on grain futures trades not executed on a designated contract market.

 

The following year, the US Supreme Court declared the Future Trading Act unconstitutional in Hill v. Wallace. The Future Trading Act imposed a prohibitive tax the primary purpose of which was to force boards of trade to submit to federal regulation rather than citing the interstate commerce clause of the constitution to establish federal jurisdiction. The Supreme Court ruled that this use of Congress’ taxing power was unconstitutional. To rectify this concern, Congress adopted the Grain Futures Act in 1922. The provisions of the Grain Futures Act included the requirements for designation as a contract market, which was similar to those of the Future Trading Act. But unlike the first act, the Grain Futures Act was based on the interstate commerce clause and banned off-contract-market futures trading rather than taxing it.

 

In follow-up to the legislation, the Grain Futures Administration was formed as an agency of the Department of Agriculture (USDA) to administer the new law. Also created was the Grain Futures Commission, which consisted of the Secretary of Agriculture, the Secretary of Commerce, and the US Attorney General. The authority to suspend or revoke a contract market designation was vested in this new commission. Opponents of the Grain Futures Act challenged it in court, but this time the Supreme Court upheld the law.

 

In 1923 the Grain Futures Administration implemented a large trader reporting system, under which each clearing member was required to report on a daily basis the market positions of each trader exceeding a specified size. This large trader reporting system remains an integral part of the CFTC’s oversight scheme to this day. Twice, however, the Secretary of Agriculture temporarily suspended large trader reporting requirements, in response to complaints that the requirements were depressing grain prices. The Grain Futures Administration found this to be untrue, and the secretary agreed to reinstate the requirements. 

 

On June 15, 1936, the Commodity Exchange Act was enacted, replacing the Grain Futures Act and extending federal regulation to a list of enumerated commodities that included cotton, rice, mill feeds, butter, eggs, and Irish potatoes, as well as grains. The Grain Futures Commission became the Commodity Exchange Commission and continued to consist of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General. The Commodity Exchange Act granted the Commodity Exchange Commission the authority to establish federal speculative position limits, but not the authority to require exchanges to set their own speculative position limits. The Commodity Exchange Act also required futures commission merchants to segregate customer funds that were deposited for purposes of margin, prohibited fictitious and fraudulent transactions such as wash sales and accommodation trades, and banned all commodity option trading. The option ban remained in effect until 1981.

 

In 1936, the Commodity Exchange Administration was formed within the USDA to succeed the Grain Futures Administration and to administer the Commodity Exchange Act.

 

On April 7, 1938, the Commodity Exchange Act was amended to add wool tops (a type of processed wool ready to be manufactured into textiles) to the list of regulated commodities. Also in 1938 the Commodity Exchange Commission promulgated the first federal speculative position limits for futures contracts in grains (then defined as wheat, corn, oats, barley, flaxseed, grain sorghums, and rye).

 

In 1940 the Commodity Exchange Commission established a federal speculative position limit for cotton futures contracts. Also, the Commodity Exchange Act was amended to add fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, and soybean meal to the list of regulated commodities.

 

The Commodity Exchange Administration was merged in 1942 with other agencies to form the Agricultural Marketing Administration (the organization is now known as the Commodity Exchange Branch of the Agricultural Marketing Administration).

 

During the 1950s several changes were made to the Commodity Exchange Act. Wool (as opposed to wool tops) and onions were added to the list of regulated commodities. In addition, the Commodity Exchange Authority was given the authority to issue investigative subpoenas prior to filing a formal administrative proceeding and to set the level of registration and renewal fees for futures commission merchants and other registrants. Prior to this, these fees were fixed legislatively at $10.

 

On August 28, 1958, the Onion Futures Act banned futures trading in onions, but did not amend the Commodity Exchange Act. Onions remained on the list of regulated commodities until 1974 (the Onion Futures Act remains in effect to this day).

 

In December 1963, the Great Salad Oil Swindle surfaced. Anthony (Tino) DeAngelis, owner of the Allied Crude Vegetable Oil Refining Corp., was indicted for, among other things, creating phony warehouse receipts for non-existent soybean oil (through a variety of methods including filling storage tanks with water and covering the water with a thin layer of soybean oil on top) and using those receipts as loan collateral to finance heavy trading of soybean, soybean oil, and cottonseed oil futures (including a 1962 attempt to corner the soybean market). The scandal caused 16 firms (including two Wall Street brokerage houses and a subsidiary of American Express) to go bankrupt and led to calls for increased regulation of the commodity futures markets. DeAngelis was convicted in 1965 and served seven years in prison.

 

On February 19, 1968, the first major commodities legislation was adopted since 1936, when the Commodity Exchange Act was amended to add livestock and livestock products (e.g., live cattle, pork bellies) to the list of regulated commodities and to institute minimum net financial requirements for futures commission merchants. The 1968 amendments also enhanced the enforcement provisions of the act in various ways, including enhanced reporting requirements, increases in criminal penalties for manipulation and other violations of the act, and a provision allowing for the suspension of contract market designation of any board of trade that failed to enforce its own rules. That same year, the Commodity Exchange Act was amended to add orange juice to the list of regulated commodities.

 

In 1973 grain and soybean futures prices skyrocketed, thanks in part to excessive speculation and manipulation. Congress began to consider revising the federal regulatory scheme for commodities, and in 1974, Congress passed the Commodity Futures Trading Commission Act. The bill overhauled the Commodity Exchange Act and created the Commodity Futures Trading Commission (CFTC), an independent agency with powers greater than those of its predecessor agency, the Commodity Exchange Authority. For example, while the Commodity Exchange Authority only regulated agricultural commodities enumerated in the Commodity Exchange Act, the 1974 act granted the CFTC exclusive jurisdiction over futures trading in all commodities.

 

On July 18, 1975, the CFTC authorized exchanges to continue trading futures contracts on a number of commodities previously unregulated under the Commodity Exchange Act. This action brought under federal regulation all commodities for which a futures contract was actively traded.

 

On April 28, 1977, the CFTC asked the U.S. District Court in Chicago to order seven members of the Hunt family of Dallas, and a related company, to liquidate positions that exceeded the three million bushel speculative position limit for soybean futures on the Chicago Board of Trade. That same year, the CFTC approved the first futures contract on long-term U.S. government debt—the Chicago Board of Trade U.S. Treasury bond futures contract—and the commission declared a market emergency in the December coffee “C” futures contract on the New York Coffee and Sugar Exchange (which merged with the New York Cocoa Exchange to form the Coffee Sugar and Cocoa Exchange in 1979 and later became part of the New York Board of Trade). This was one of several emergencies in coffee futures during the late 1970s.

 

The CFTC took emergency action in 1979 to prohibit further trading in the Chicago Board of Trade March wheat futures contract—the first time the commission ordered a market closed in the interest of preventing a price manipulation. Opponents of this action challenged the CFTC’s authority in court, but lost. The U.S. Court of Appeals for the Seventh Circuit affirmed the CFTC’s authority to act during market emergencies.

 

On January 6, 1980, the commission again took emergency action, this time ordering the suspension of futures trading for two days for wheat, corn, oats, soybean meal, and soybean oil on four exchanges after President Jimmy Carter announced an embargo on the sale of certain agricultural goods to the Soviet Union that included substantial amounts of grain. That same year, however, the CFTC decided not to use its emergency powers to order a suspension of trading in silver futures as prices plummeted.

 

On February 16, 1982, the CFTC approved the first futures contract based on a stock index, the Value Line Index Average traded on the Kansas City Board of Trade.

 

The CFTC approved amendments in August 1984 to the Chicago Mercantile Exchange rules that allowed it to establish a trading link with the Singapore International Monetary Exchange, the first trading and clearing link between a domestic and a foreign exchange.

 

In 1985 the CFTC approved the first option on a physical commodity—Amex Commodity Corporation’s physical gold bullion option contract. It also reported that Nelson Bunker Hunt, William Herbert Hunt, and other individuals and firms manipulated and attempted to manipulate silver prices in 1979 and 1980. Also in 1985, Volume Investors, Inc., a clearing member at COMEX, defaulted on a margin call on options on gold futures. The default affected the funds of 100 customers, mostly local traders, and caused the commission to consider numerous changes to its rules. Ultimately, improved surveillance, early warning, and margining procedures were developed.

 

On July 23, 1987, the CFTC adopted rules to permit the offer and sale of foreign futures and options in the U.S. and to apply the same customer protection rules to the offer and sale of foreign futures and options as to the offer and sale of domestic futures and options. The following year the CFTC approved the offer and sale of the first foreign option contracts in the U.S., options that were traded on the SIMEX (Singapore), the SFE (Australia), and the MX (Montreal) exchanges.

 

In 1989 a two-year FBI undercover investigation of the Chicago trading pits prompted the CFTC to adopt a number of actions. The commission also approved rules proposed by the Chicago Mercantile Exchange for the basic Globex system, the first international electronic trading system, which began trading in June 1992.

 

In 1990 the CFTC and the Commission des Opérations de Bourse (COB) of France signed two agreements that provided a structure for information sharing between financial regulatory authorities in different countries. The commission also moved toward closer worldwide cooperation among regulatory authorities by adopting 10 general principles intended to assist regulators and developers of screen-based trading systems (as opposed to the traditional market floor-based system).

 

On October 28, 1992, President George H. W. Bush signed the Futures Trading Practices Act of 1992, expanding the CFTC’s regulatory authority. The act granted the commission the authority to exempt over-the-counter (OTC) derivative and other transactions from CFTC regulation and provided for registration of local traders. The next year, the commission used its new authority to exempt certain swap agreements and hybrid instruments from regulation under the Commodity Exchange Act. It also adopted rules requiring the registration of floor brokers and ethics training for all individual registrants and permitting the suspension of registrants charged with felonies.

 

On January 10, 1994, the CFTC filed an administrative complaint against two former Chicago Board of Trade (CBOT) members, Anthony Catalfo and Darrell Zimmerman, alleging that they had engaged in a scheme to manipulate Treasury bond futures and put options on the CBOT. An administrative law judge issued a default order against both men finding that they had committed the violations.

 

Representatives of regulatory bodies from 16 countries, responsible for supervising the world’s leading futures exchanges, issued a declaration at a May 1995 meeting in Windsor, England, hosted by the UK Securities Investment Board (SIB) and the CFTC. The Windsor Declaration outlined steps to strengthen the supervision of the international futures markets. The CFTC also adopted revisions to rules governing disclosure by commodity pool operators and commodity trading advisors.

 

On July 10, 1996, CFTC imposed a $600,000 civil monetary penalty against Fenchurch Capital Management Inc. of Chicago for market manipulation and cornering of the cheapest-to-deliver note deliverable against the Chicago Board of Trade 10-year Treasury note futures contract.

 

In 1997 the Supreme Court ruled in Dunn v. CFTC that foreign currency options are “transactions in foreign currency” for purposes of the Treasury Amendment exclusion to the Commodity Exchange Act, eliminating the CFTC’s jurisdiction over such transactions.

 

On May 11, 1998, the CFTC entered into a settlement with Sumitomo Corporation to resolve allegations of manipulating the copper market in 1995 and 1996 that included a civil monetary penalty of $150 million.

 

Just before leaving office, President Clinton signed into law the Commodity Futures Modernization Act of 2000 that overhauled the Commodity Exchange Act to create a “flexible structure” for the regulation of futures and options trading, clarified commission jurisdiction over certain retail foreign currency transactions, and repealed the 18-year-old ban on the trading of single stock futures. Legislation in 2000 also eliminated CFTC’s oversight of energy commodities traded by large companies outside of the regulated exchanges: the so-called Enron loophole (pdf).

 

On August 21, 2001, the CFTC ordered Avista Energy, Inc. to pay $2.1 million to settle charges of manipulating electricity futures. Several former Avista employees (who each subsequently settled with the CFTC) and a New York Mercantile Exchange (NYMEX) floor broker (who was found liable in September 2004) were also charged with participating in the manipulative scheme.

 

The CFTC in January 2002 issued a new rule concerning the multilateral clearing activities of NOS Clearing ASA, a Norwegian clearinghouse, in connection with transactions entered into on the International Maritime Exchange. This was the first time the CFTC used its authority to determine that supervision by a foreign financial regulator of a multilateral clearing organization for over-the-counter (OTC) derivative instruments satisfied appropriate standards. Also in 2002, the CFTC restructured its staff organization, shifting the functions previously performed by the Division of Trading and Markets and the Division of Economic Analysis to two new divisions and one new office: the Division of Market Oversight, the Division of Clearing and Intermediary Oversight, and the Office of the Chief Economist.

 

Toward the end of 2002, Dynegy Marketing and Trade and West Coast Power LLC paid $5 million to settle CFTC charges of attempted manipulation and false reporting of prices. The following year, the commission charged the bankrupt Enron Corporation and former Enron vice president Kenneth Rice with manipulating prices in the natural gas market. Enron also was charged with operating an illegal, undesignated futures exchange and offering illegal lumber futures contracts through Enron Online, its Internet trading platform. Enron settled in May 2004 and Rice settled in July 2004.

 

In January 2006, the CFTC settled with two subsidiaries of Royal Dutch Shell over charges of engaging in prearranged trades on the NYMEX on five occasions between November 2003 and March 2004. The settlement involved a $200,000 civil penalty for the company and a $100,000 civil penalty for one of its traders.

 

On October 25, 2007, BP Products North America, Inc. (BP) agreed to pay a total of $303 million in sanctions to settle charges of manipulation and attempted manipulation in the propane market. In 2008 the CFTC established a new Energy Markets Advisory Committee to provide a public forum to examine issues related to the energy markets and the CFTC’s role in these markets under the Commodity Exchange Act.

 

Also in 2008, the work of the commission began to come under greater scrutiny by Congress as prices of oil and certain foods skyrocketed, leading some observers to wonder if regulators were failing to prevent adverse speculation in various markets. In March 2008, then-Secretary of the Treasury Henry Paulson even recommended merging the CFTC with the Securities and Exchange Commission as part of an ambitious overhaul of government regulation of financial markets.

 

In response to complaints from farmers and lawmakers that speculators had inflated food prices, the CFTC announced in June 2008 that it would require investors and index funds to disclose more information about their holdings in agricultural markets. The commission also said it would grant fewer exemptions to speculative-position limits related to agricultural index trading and would provide more detail on trader holdings.

 

That same month the commission also announced it was establishing a task force to study the role of speculators and index traders in oil markets to determine the cause of ballooning petroleum prices. It also hosted an international manipulation enforcement conference focused on global trading in the energy markets

 

In July the commission charged Optiver Holding BV, two of its subsidiaries, and three employees, with manipulation and attempted manipulation of futures contracts during March 2007. The following month it formed the Retail Foreign Currency Fraud Enforcement Task Force, charged with investigating and litigating fraud in the off-exchange retail foreign currency market.

 

On February 4, 2009, the CFTC announced the launch, on a six-month trial basis, of a new monthly report, This Month in Futures Markets. The following month it approved final rules to increase its oversight of exempt commercial markets. The new regulatory authority was acted on for the first time on July 27 when it issued an order finding a natural gas contract performed an important price discovery function.

 

On October 16, the CFTC issued a joint report with the SEC that includes 20 recommendations for improvement of enforcement, oversight and operations. They held their first meeting on May 24, 2010.

 

On June 14, the CFTC approved its first futures contract based on motion picture receipts, but determined that such contracts will be banned in the future, based on provisions in the Dodd-Frank Act, signed on July 21 by President Obama.

 

History of the CFTC (CFTC)

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What it Does:

The Commodity Futures Trading Commission (CFTC) is an independent federal agency that regulates commodity futures and option markets in the United States. Commodity futures markets play a key role in establishing worldwide prices for wheat, corn, soybeans, and other foodstuffs, as well as energy products like crude oil and natural gas. As the overseer of such markets, CFTC is supposed to assure their economic performance by encouraging competition and efficiency and protecting against fraud, manipulation, and abusive trading practices.

 

The Commission consists of five commissioners who are appointed by the President and confirmed by the Senate. They serve staggered five-year terms. The President designates one of the commissioners to serve as chairman, with approval by the Senate. No more than three commissioners at any one time may be from the same political party.

 

CFTC Divisions and Offices

The Division of Clearing and Intermediary Oversight oversees market intermediaries, including derivatives clearing organizations, financial integrity of registrants, customer fund protection, stock index margin, sales practice reviews, foreign market access by intermediaries, and National Futures Association activities related to intermediaries.

 

The Division of Market Oversight seeks to prevent abusive trading activity, oversees trade execution facilities, and performs market surveillance, market compliance, and market and product review functions.

 

The Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations. Violations may involve commodity futures or option trading on U.S. futures exchanges or the improper marketing and sales of commodity futures products to the general public.

 

The CFTC utilizes four offices to monitors markets and market participants. These offices consist of CFTC headquarters in Washington D.C., and offices in Chicago, Kansas City, and New York, where futures exchanges are located.

 

The Office of the Chief Economist provides economic support and advice to the commission, conducts research on policy issues facing the agency, and provides education and training for commission staff.

 

The Office of the General Counsel functions as the commission’s legal adviser, represents it in appellate litigation and certain trial-level cases, including bankruptcy proceedings involving futures industry professionals, and advises the commission on the application and interpretation of the Commodity Exchange Act and other administrative statutes.

 

The Office of the Executive Director formulates and implements the management and administrative functions of the CFTC, including the commission’s budget.

 

The Offices of the Chairman include the Office of External Affairs, which acts as CFTC’s liaison with news media, producer and market user groups, educational and academic groups, and the general public; the Office of International Affairs which coordinates CFTC’s global regulatory efforts and assists the commission in the formulation of international policy; the Office of the Inspector General, which performs audits of CFTC programs and operations and reviews legislation and regulations; and the Office of the Secretariat, which coordinates production of policy documents and responds to requests filed under the Freedom of Information Act.

 

Advisory Committees

CFTC’s advisory committees provide input and make recommendations on a variety of regulatory and market issues that affect US markets. The committees include the Agricultural Advisory Committee, the Global Markets Advisory Committee, the Energy Markets Advisory Committee, and the Technology Advisory Committee.

From the Web Site of the Commodity Futures Trading Commission

Career Opportunities

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Committees

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Law and Regulation

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Where Does the Money Go:

According to USAspending.gov, the Commodity Futures Trading Commission (CFTC) spent $115.3 million on contractors from 2008 to 2011. Contractors engaging in 1,467 business transactions with CFTC provided goods and services such as office space rentals ($11.25 million), ADP systems development services ($38.8 million), ADP devices ($10.7 million), and automated information system design ($7.7 million).

 

The top 5 contractors were:

 

Northrop Grumman

  $17,307,296 

Digicon Corporation

  $13,926,399

The Blackstone Group

    $9,359,448 

Lockheed Martin

    $7,725,000

Dell Inc.

    $7,254,306

 

CFTC: President’s Budget and Performance Plan FY 2013 (pdf)

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Controversies:

Commissioner Claims Manipulation in Silver Market

A member of Commodity Futures Trading Commission (CFTC) pressured his fellow regulators in October 2010 to go after those manipulating the price of silver. Commissioner Bart Chilton said market participants had repeatedly made “fraudulent efforts to persuade and deviously control” silver prices. Chilton did not disclose any names of those allegedly behind the illegal scheme. Up to that point, the CFTC had spent two years investigating the silver market, without taking action against anyone. Silver prices then were soaring, trading at nearly $24 an ounce.

Wall Street Journal Discovers Silver-Rigging Controversy (by Susan Pulliam and Carolyn Cui, Wall Street Journal)

 

 

CFTC’s Assessment of Oil Market Angers Lawmakers

The CFTC’s then-chairman, Walter Lukken, told Congress in September 2008 that market speculators probably were not responsible for recent increases in the price of oil, contrary to the assertions of some experts and members of Congress. Although the value of oil contracts on U.S. markets soared in 2008, Lukken said that was because prices surged. At the same time, the number of contracts held by investors who expected prices to increase (known as net long positions) fell 11% from December 31 to June 30.

 

Lukken’s testimony before the House Agriculture Committee flew in the face of assertions by members of Congress and many oil experts who blamed speculators (a combination of pension funds, financial firms, hedge funds and others buying commodities as investments rather than for commercial use) for much of the spike in commodities prices earlier in the year. “By not properly policing the oil markets, the CFTC is turning a blind eye to artificial volatility,” said Sen. Maria Cantwell (D-Washington). “They may be the only group in America that believes all is well in the oil markets.”

 

A report released by hedge fund Masters Capital Management said financial speculators drove up oil prices and then, after prices peaked July 11, “began a mass stampede for the exits.” They pulled about $39 billion out of crude oil markets, Masters said, leading to a sell-off of 127 million barrels of oil futures.

Speculators Did Not Raise Oil Prices, Regulator Says (by Steven Mufson, Washington Post)

 

CFTC Not Watching Influential Investment Pools

In August 2008 Democrats on Capitol Hill complained about the CFTC’s failure to properly monitor sovereign wealth funds, the massive investment pools run by foreign governments that are now among the biggest speculators in the trading of oil and other vital goods, such as corn and cotton, in the United States. Some lawmakers said the unregulated activity of sovereign wealth funds and other speculators, such as hedge funds, contributed to the dramatic swing in oil prices in 2008.

 

The CFTC responded by claiming its monitoring showed that the sovereign wealth funds were not a significant factor in commodity trading. Others pointed out that CFTC was not detecting the growing influence of foreign funds because they invested through Wall Street brokers known as “swap dealers,” who often operate on unregulated markets.

 

Several Democrats said the Republican-led CFTC simply refused to use its authority to clamp down on such unregulated activity because it didn’t want to hurt the influential Wall Street firms it favors. “It took prodding from Congress to persuade the CFTC to finally request information from swap dealers about the participation of sovereign wealth funds in the commodity markets,” said Rep. John D. Dingell (D-Michigan), former chairman of the Committee on Energy and Commerce. “The regulatory body in charge of policing our futures markets has been remarkably incurious about the role sovereign wealth funds play in commodity markets.”

Sovereign Funds Become Big Speculators (by David Cho, Washington Post)

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Suggested Reforms:

GAO Recommends Changes in Energy Markets Oversight by CFTC

In October 2007 the Government Accountability Office (GAO) issued a report that recommended to Congress further exploring the scope of the CFTC’s authority over energy derivatives trading, in particular for trading in exempt commercial markets. The GAO also recommended that CFTC improve the usefulness of the information it provides to the public, better document its monitoring activities, and develop more outcome-oriented performance measures for its enforcement program.

Commodity Futures Trading Commission: Trends in Energy Derivatives Markets Raise Questions about CFTC’s Oversight (Government Accountability Office) (pdf)

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Debate:

Will Dodd-Frank Help or Hurt the Economy?

One of the most controversial legislative achievements to take place during President Barack Obama’s first term in office was the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Supporters hailed the new law as the strongest financial reforms since the Great Depression, while opponents labeled it a threat to both short- and long-term economic growth.

Will It Hurt or Help Your Business? (by Ron Box, AICPA.org)

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Department of the Treasury)

'A Major Transformation': The Pros and Cons of the Dodd-Frank Act (Knowledge @ Wharton)

 

Pro

Advocates, including many Democrats and consumer advocates, say Dodd-Frank was essential to come about following the financial crisis. The system was broken, allowing investments firms to take excessive risks for the sake of short-term profits and ignoring long-term consequences. The new law will force financial institutions to be more transparent and improve government oversight of markets. It also creates a framework for the government to monitor and respond to risk across the system, including the requirement to impose tougher standards on large, interconnected financial firms (those considered “too-big-to-fail”), and the authority to wind down these firms if they pose a risk to the system without forcing taxpayers to foot the bill. Furthermore, Dodd-Frank provides for the regulation of over-the-counter derivatives markets for the first time, and it establishes a single agency dedicated to protecting consumers.

Dodd-Frank Helps Address Risks To Financial System (by Neal Wolin, Politico)

Dodd-Frank Defense, Swap-Rule Delay, Basel: Compliance (by Carla Main, Bloomberg)

 

Con

Republican lawmakers and large banks are united in their hatred of Dodd-Frank. JPMorgan’s top executive has warned the oversized reform law could have a negative impact on banks ability to make credit available to businesses and consumers. Opponents also worry that when it comes time to develop the regulations required by Dodd-Frank, agencies will fail to appreciate new innovations in finance, resulting in the choking off of new economic growth. This development would mean fewer new jobs for Americans and fewer opportunities to succeed. Also, the creation of a new consumer protection agency is unnecessary and will only increase the already burdensome interference of government red tape on entrepreneurs.

Unhappy Anniversary: GOP Reining in Dodd-Frank’s Job-Crushing Red Tape (House Speaker John Boehner)

Newt Discusses Repeal Dodd-Frank Interview (Newt Gingrich)

Reform Reading: JPMorgan's Jamie Dimon Complains Dodd-Frank is Hurting Economy (iWatch News)

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Former Directors:

Walter Lukken

A native of Richmond, Indiana, Walter Lukken was appointed acting chairman by the Commodity Futures Trading Commission on June 27, 2007 and remained in that position until 2009.

 

Lukken received his BS degree with honors from the Kelley School of Business at Indiana University and his JD degree from Lewis and Clark Law School in Portland, Oregon. He is a member of the Illinois Bar.

 

Beginning in 1993, Lukken worked for five years as a legislative assistant to Sen. Richard Lugar (R-Indiana) and, from 1997 through 2001, as counsel for the Senate Agriculture Committee under Lugar. He specialized in futures and derivatives markets and was involved in the development, drafting and passage of the Commodity Futures Modernization Act of 2000 that allowed Enron to engage in online trading without oversight.

 

Lukken served as chairman of the CFTC’s Energy Markets Advisory Committee. He also served as chairman of the CFTC’s Global Markets Advisory Committee (GMAC) from October 2003 through January 2008.

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President Bush nominated Lukken in September 2007 to serve as chairman of the CFTC. But Sen. Maria Cantwell (D-Washington) blocked Lukken’s ascension as chairman. She and several Democratic colleagues also asked the CFTC’s inspector general to investigate the agency’s handling of a crude-oil report that dismissed speculation as a cause of the mid-2008 spike in oil prices.

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Comments

Victoria Murphy 5 years ago
How did the closed door meetings with energy giants such as Enron during the George W. Bush administration affect the CFTC, and ultimately the people of the US

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Founded: 1974
Annual Budget: $308 million (FY 2013 Request)
Employees: 1,015 (FY 2013 Estimate)
Official Website: http://www.cftc.gov
Commodity Futures Trading Commission
Giancarlo, J. Christopher
Chairman

J. Christopher “Chris” Giancarlo, who has served on the Commodities Futures Trading Commission (CFTC) as a Republican member since 2014, has been serving as acting chairman of the board since January 20, 2017, and has been nominated for the post on a permanent basis. Established in 1974, the mission of the CFTC is to oversee the trading of futures for oil, precious metals, grains, currencies, and other commodities, and to regulate trading in derivatives linked to stock indexes and bonds.

 

Giancarlo was born in Jersey City, New Jersey, on May 12, 1959, and grew up in northern New Jersey. His father, Hector, was a physician and developer of assisted living and nursing facilities for seniors. Giancarlo attended Skidmore College in Saratoga Springs, New York, where he earned a B.A. in government in 1981. While there, he developed an interest in Dracula and began collecting Dracula-related items. Years later, he donated some of his collection back to Skidmore. In honor of one of his professors, Phyllis Roth, who died in 2012, Giancarlo and his wife, Regina, created the Phyllis A. Roth Vampire Literature College in Skidmore’s Scribner Library. Giancarlo earned a J.D. from Vanderbilt’s law school in 1985.

 

Giancarlo’s first job out of law school was as an associate for the law firm of Mudge, Rose, Guthrie and Alexander. The firm’s alumni include Republican stalwarts Richard Nixon, Scooter Libby and Pat Buchanan. He was there just a short time though; the following year he joined Curtis, Mallet-Prevost, Colt and Mosle and worked in that firm’s London office.

 

In early 1992, Giancarlo briefly served as director of business affairs at Ourtown Television in Saratoga Springs. However, he left shortly thereafter to form his own law firm, Giancarlo and Gleiberman. Giancarlo in 1997 left his firm to become a partner at Brown Raysman Millstein Felder and Steiner, where he practiced corporate and securities law.

 

Giancarlo moved into the trading world in 2000 as executive vice president and counsel for Fenics Software, which made derivatives trading programs. The following year, GFI Group, a company that provides brokerage services to institutional customers, bought Fenics, and Giancarlo was made executive vice president of GFI.  GFI is known as an “inter-dealer broker,” acting as an intermediary in the bond and derivative markets, of which Giancarlo is now in charge of regulating. While still at GFI in 2011, Giancarlo testified to the House Financial Services Committee urging a go-slow approach to regulating derivatives trading. He remained at GFI until being appointed to the CFTC in 2013. He was also chairman of the Wholesale Markets Brokers Association Americas, which represents the largest inter-dealer brokerage firms.

 

His nomination to a five-year term was confirmed June 2, 2014. In 2015, Giancarlo wrote a paper criticizing some of the CFTC’s reforms. His nomination to chair CFTC was warmly greeted by the investment industry, which is hoping for less regulation.

 

Giancarlo and his wife, Regina, have three children, Emma, Luke and Henry. Giancarlo plays banjo and guitar and in fact his banjo playing was featured on “Grand Reveal,” a 2013 album by British recording artist Mike Marlin.

-Steve Straehley

 

To Learn More:

Official Biography

CFTC: A New Direction Forward—Remarks of Acting Chairman J. Christopher Giancarlo before the 42nd Annual International Futures Industry Conference

Senate Confirms Christopher Giancarlo ’81 as CFTC Commissioner (Skidmore College)

Statement of J. Christopher Giancarlo Before the United States Senate Committee on Agriculture, Nutrition and Forestry

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Massad, Tim
Previous Chairman

On November 12, 2013, President Barack Obama nominated Timothy G. Massad to be chairman of the Commodity Futures Trading Commission. That panel oversees the trade of derivatives, the complex financial instruments that some say helped intensify the 2008 financial crisis.

 

Massad was born July 30, 1956, in New Orleans, one of three children. His father, Alexander Hamilton Massad, was an executive for Mobil, eventually rising to become an executive vice president and a member of Mobil’s board of directors from 1977 to 1986. He was also a director of the Ingersoll Rand Corporation from 1982 to 1996.

 

In 1968, Tim’s parents moved to Connecticut and in 1974 he graduated from Darien High School.

 

Harvard was Massad’s next stop. While there, he was politically active and became a member of a committee supporting a boycott of textile maker J.P. Stevens over its labor practices. Massad graduated with a bachelor’s in social studies in 1978. After graduation, Massad went to Washington to work for consumer activist Ralph Nader. Massad began to believe those in the fight against corporate influence knew little of that world, so he returned to Harvard to study law. Massad helped organize a student protest of Harvard Law’s grading policy and rules on professors’ outside activities. He received his J.D. from that school in 1984.

 

That same year, he helped organize the New York Citizens' Utility Board, which advocated on behalf of utility customers.

 

After his graduation from Harvard Law, Massad joined the law firm of Cravath, Swaine & Moore, where he would spend the next 25 years, becoming a partner in 1991. His emphasis was in securities law, and he often worked overseas, serving in Hong Kong (1998-2002) and London and leading the firm’s India practice in 2007.  Massad also represented UNICEF and Covenant House as pro-bono clients. In 1988, he took a leave from the firm to manage Michael Dukakis’ Connecticut presidential campaign.

 

Massad dipped his toe into government work in 2008, when a friend, Damon Silvers, was on a Congressional committee reviewing the bank bailout. Massad was asked to help write reports on the Troubled Asset Relief Program (TARP), which he agreed to do. In May 2009, Massad left Cravath and joined TARP as chief counsel, a position he held for 16 months.

 

By the end of 2010, Massad was acting assistant secretary of the Treasury for Financial Stability, which gave him supervision over TARP. He was confirmed as assistant secretary on June 30, 2011. In that post, he started to wind down the program, selling assets the federal government had taken in exchange for funding banks and other financial institutions during the 2008 crisis. Despite its unpopularity with many Americans, the program made money for taxpayers under Massad’s stewardship.

 

Massad and his wife, Charlotte Hart, have two children, Emil and Jayne. Massad enjoys French cooking and early in his legal career was a volunteer apprentice at the Bouley restaurant in Manhattan. He also held baking contests while at the Treasury Department.

 

Before he joined the Obama administration, Massad was a heavy contributor to Democratic election campaigns. He gave $35,400 to Obama in 2008, $69,500 to the Democratic National Committee between 1996 and 2008, and $11,500 to the Democratic Senatorial Campaign Committee. He also contributed to the campaigns of John Kerry, Chuck Schumer, Hillary Clinton, Al Franken and Bill Clinton.

-Steve Straehley

 

To Learn More:

Tim Massad: Washington's Most Powerful Money Manager? (by Luke Mullins, Washingtonian)

Tim Massad (Washington Post)

Official Biography

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