Commodity Futures Trading Commission
The Commodity Futures Trading Commission, or CFTC, regulates commodity trading in the US and is sanctioned by the Commodity Exchange Act.
CFTC and Position Limits
In July 2009 the CFTC announced some initiatives targeting concerns about the impact of “speculative” trading on commodities. These include a series of hearings in July and August to be announced considering:
- Position Limits in all commodities: whether CFTC should set speculative limits on “all commodities of finite supply”, esp. energy commodities (the CFTC can impose position limits wherever it finds “speculation that causes unwarranted price changes” but currently sets limits only on certain agricultural futures – elsewhere, limits are set by exchanges)
- Hedge Exemption: whether hedge exemptions should apply to dealers who use the futures markets “to hedge purely financial risks rather than risks arising from the actual use of a commodity”.
- Participant/Market Scope: whether position limits should be applied “across all markets and participants, including index traders and managers of exchange-traded funds”.
The CFTC’s “special call” authority for information on positions held by swap dealers and index traders continues. CFTC will report on this information quarterly.
Volatility in energy markets is also attracting attention internationally. Gordon Brown and Nicolas Sarkozy have called for international regulators to consider improving transparency and supervision of the oil futures markets “in order to reduce damaging speculation”.
Brokerage Activities outside the US
In 1989, the CFTC issued a series of orders pursuant to CFTC Rule 30.10 authorizing certain firms located in the UK to conduct brokerage activities for US customers on certain non-US exchanges without having to register with the Commission as a futures commission merchant or otherwise comply with certain other requirements set forth in Parts 1 and 30 of the Commission’s rules.
The UK Rule 30.10 Orders applied to brokerage activities on or subject to the rules of Recognized Investment Exchanges (‘RIES’) in the UK or any non-US exchange designated by the SIB as an investment exchange (referred to as Designated Investment Exchanges or ‘DIEs’) undertaken by firms authorized to conduct investment business in the UK from a location in the UK.
In 1997, the Commission clarified the procedures set forth in prior Rule 30.10 Orders applicable to the treatment of customer funds. Specifically, the Commission interpreted Rule 30.7 to require each FCM and Rule 30.10 firm to: (a) obtain and retain in its files an acknowledgment from the depository maintaining customer funds or property that the depositor was informed that such money or property was held on behalf of foreign futures and foreign options customer funds in accordance with Rule 30.7; and (b) take appropriate action (i.e., set aside funds in a ‘‘mirror’’ account) in the event that it became aware that foreign futures and foreign options customer funds were not being held in the appropriate manner. With respect to the UK, the Commission clarified the procedures with which FSA members should comply when dealing on behalf of US customers on a DIE.