Regulation of the Commodity Futures Markets:
What Needs To Be Done
CED-78-110: Published: May 17, 1978. Publicly Released: May 17, 1978.
- Full Report:
The Commodity Futures Trading Commission Act of 1974 provided comprehensive regulation of all commodities, goods, and services traded on the futures markets. Futures trading is the buying and selling of standardized contracts for the future delivery of specified grades and amounts of commodities. Ten commodity exchanges provide organized central markets where trading can take place through open outcry and competitive bidding. The 1974 act authorized the Commodity Futures Trading Commission (CFTC) to operate through fiscal year 1978, and legislation must be enacted reauthorizing the Commission to operate beyond that date.
The CFTC has been slow in developing a formalized planning process and, as a result, its regulatory posture has been overly ad hoc and reactive instead of anticipatory and preventive. The Commission's performance has been adversely affected by organizational and management problems, including: lack of strong management experience in executive positions, management weaknesses in the Executive Director's office due to organizational instability and jurisdictional disputes, a high rate of staff turnover, failure to develop professional cadres and managers from within the organization, and lack of a broad representation of views on advisory committees. The initial market designation reviews were not comprehensive enough to assure that only contract markets meeting statutory and CFTC requirements were designated. While the Commission's rule enforcement review program has produced some positive results, more remains to be done.
Matter for Congressional Consideration
Comments: Please call 202/512-6100 for additional information.
Matter: The Congress should reauthorize CFTC for 4 years, and should amend the authorizing legislation to have the Securities and Exchange Commission regulate all futures contracts on securities. The CFTC should: promptly follow up on all unresolved and outstanding issues pertaining to the 1975 initial market designations, clarify and enforce market designation guidelines, and establish a program to monitor how well the exchanges are carrying out their continuing responsibilities to ensure that contract terms and conditions reflect market conditions. The Chairman of the CFTC should: constitute a task force to study the feasibility, costs, and benefits of a system for precise time sequencing of all trades; and develop and analyze evidence to determine whether dual trading is necessary for trading liquidity. To protect the trading public from unfit and unqualified individuals and firms, the Chairman should: fingerprint the registration applicants and submit prints to the FBI for checks, review the fitness of registrants on a continuing basis, and establish and enforce qualification and proficiency standards for registrants.