The U.S. Commodity Futures Trading Commission (CFTC) is an important entity to be aware of if you trade futures, options, or swaps. This agency regulates all action on exchanges and in OTC trades. Unlike some other similar organizations, such as FINRA, CFTC actions commonly can be enacted against any operator, not just registered brokers, which means that anyone in this industry must carefully comply with any guidance. If you are unsure of CFTC compliance requirements, it may help to speak with a securities lawyer from the Priori network.
Basics of the CFTC
The CFTC is the governmental agency that regulates the futures and options markets for derivatives related to commodities and other products that are subject to the Commodity Exchange Act, as well as those related to financial instruments, such as foreign currencies, U.S. and foreign government securities, U.S. and foreign stock indices, and even Bitcoin. Under the the 2010 Dodd-Frank Act, the CFTC was also given authority over the swaps markets related to such derivatives.
The mission of the CFTC is to foster open, transparent, competitive, and financially sound markets, while avoiding systemic risk and protecting traders from fraud, manipulation, and abusive practices. Essentially, CFTC regulations govern what is allowed when trading in these markets and how transparency can be ensured on these riskier markets.
What the CFTC Does?
The CFTC oversees designated contract markets, swap execution facilities, derivatives clearing organizations, swap data repositories, swap dealers, futures commission merchants, commodity pool operators and other intermediaries and makes all rules governing their operations. In related operations, the CFTC watches exchanges and derivatives markets for derivations from the actual forces of supply and demand to curtail disruptive and fraudulent activity. The CFTC also registers and regulates intermediaries and futures industry self-regulatory organizations, such as derivatives exchanges and the National Futures Association.
CFTC regulations mainly operate to stop the reckless use of manipulative schemes that make these markets volatile and to ensure risk does not unnecessarily pass any imposed limits. The CFTC has the power to correct problems in the market caused by violators of safeguards and to right imbalances by removing actors causing them.
CFTC Enforcement and Compliance
The CFTC has power to enact penalties for violations of the Commodity Exchange Act and CFTC regulations. These sanctions, such as fines, bans, and even criminal penalties, can be carried out against not only registered firms and traders, but also anyone operating in covered markets in a manner that disrupts trade. Some of the most common reasons that the CFTC pursues enforcement actions include improperly marketing futures and options contracts to retail investors, perpetrating Ponzi schemes, using manipulative or deceptive commodities schemes, pooling commodities fraudulently, and conducting disruptive trading practices.
If your company conducts any business that falls under the jurisdiction of the CFTC, it is vital to be in full compliance. This means that you must register where applicable, follow all trading practice rules, and take care not to disrupt trade through collusion or deception. If you are not sure if your safeguards against such practices are sufficient, it may help to discuss CFTC compliance with a securities lawyer.
What is a CFTC no-action letter?
If you are not sure whether an action would be prohibited under CFTC regulations, you can ask for agency guidance. In the event that the agency does not find fault, they will issue a no-action letter. This letter allows you to carry out the desired action without worrying whether or not it will trigger an enforcement action.