CFTC

The Commodity Futures Trading Commission or CFTC was founded to regulate the commodities futures market. The Commission is made up of five commissioners appointed by the President of the United States to serve staggered five-year terms.

The current members of the Commission are J. Christopher Giancarlo, the acting chairman who was sworn in on June 16th, 2014, and Sharon Y. Bowen, sworn in on June 3rd, 2014.  There are currently three vacancies on the Commission. Commissioners from the same political party are limited to three at any one time.

Background

The CFTC was created by the U.S. Congress in 1974 and was made effective on April 15th, 1975. The organization replaced the U.S. Department of Agriculture’s Commodity Exchange Authority in regulating commodity futures and options markets in the United States.

The CFTC’s mandate for regulation was expanded in late 2000, when Congress passed the Commodity Futures Modernization Act of 2000. The act instructed the U.S. Securities and Exchange Commission or SEC and the CFTC to form a joint regulatory regime for the single stock futures market, which began trading in November of 2002.

By 2003, the value of the swap market had increased exponentially since swaps were introduced in the late 1970s. This led to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which expanded the CFTC’s authority in the swap markets and in the retail forex market. That legislation required forex brokers to register with the CFTC and become members of the National Futures Association.

In August of 2010, the CFTC published their final rules for retail forex transactions. The rules require the registration of counterparties offering retail forex currency contracts as either retail foreign exchange dealers or RFEDs — a new category of registrant — or as futures commission merchants or FCMs.

In addition, anyone that solicits orders, operates trading pools or exercises discretionary trading authority with respect to retail foreign exchange trading must register as either introducing brokers, commodity pool operators, commodity trading advisors or associated persons of such entities.

To ensure the integrity of companies dealing in the forex market, the financial requirements for FCMs and RFEDs is for them to maintain net capital of $20 million plus five percent of the amount by which liabilities on retail forex customer’s positions exceed $10 million. In addition, the amount of leverage permitted on U.S. forex accounts was set at 50: 1, which is significantly lower than most forex brokers outside the United States.

Because of the strict CFTC guidelines, many of the largest retail online forex brokers will not accept customers residing in the United States.

Location and Jurisdiction

The CFTC’s main office is in Washington D.C. in the United States, with regional offices situated in Chicago, IL, New York, NY and Kansas City, Missouri. The commission’s official website is located at: www.cftc.gov. The jurisdiction of the CFTC is within the United States of America.

Responsibilities

The main responsibility of the CFTC is to assure the integrity and efficiency of the futures markets in the United States. Their goal is to foster an open, competitive, transparent, and financially sound financial markets.

They also wish to avoid systemic risk, so the Commission seeks to protect market users, their funds, consumers, and the general public from fraud, abusive practices and manipulation with respect to derivatives and any other products governed under the Commodity Exchange Act or CEA.

CFTC in the News

In early February of 2017, the CFTC fined Forex Capital Markets, its parent company of FXCM Holding LLC and partners William Ahdout and Dror Niv, the sum of $7 million to settle charges that it had defrauded retail forex customers by making false and misleading solicitations. Here is the link to the Commission’s order:

http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfforexcapitalorder020617.pdf

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.