The Commodity Exchange Act:

Issues Related to the Commodity Futures Trading Commission's Reauthorization

GGD-99-74: Published: May 5, 1999. Publicly Released: May 5, 1999.

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Pursuant to a congressional request, GAO provided information on issues related to the Commodity Futures Trading Commission's (CFTC) reauthorization, focusing on issues related to derivatives that are traded on-exchange as well as those that are privately negotiated off-exchange, or over-the-counter (OTC).

GAO noted that: (1) agreement exists on the basic objectives of financial market regulation--to protect financial system integrity, market integrity and efficiency, and customers; (2) however, the most appropriate means of meeting these objectives has been subject to debate by Congress, federal regulators, and market participants as the markets have grown, new products have been introduced, and competition has increased; (3) as reflected in appendices I through VIII of this report, the debate has encompassed questions about the appropriate U.S. regulatory structure for exchange and OTC derivative contracts, markets, and market participants; (4) the appendices address the following eight topics: (a) CFTC exemptive authority for OTC derivatives; (b) regulatory reform efforts for exchange-traded derivatives; (c) the Shad-Johnson Jurisdictional Accord; (d) the Treasury Amendment; (e) the forward exclusion; (f) agricultural trade options; (g) electronic trading systems; and (h) international regulatory coordination; (5) generally, each appendix discusses the issues related to the topic; captures the views of interested parties, including those expressed at the roundtable discussion; and closes with public policy questions related to the topic; (6) in the context of CFTC's reauthorization, at least two significant questions surface from a discussion of these topics: (a) what types of derivative transactions and market participants should be covered by or excluded from CFTC regulation under the Commodity Exchange Act (CEA); and (b) how should the various types of transactions and market participants covered by CEA be regulated; (7) reaching agreement among interested parties--OTC and exchange-traded market participants, federal financial regulators, and Congress--on actions needed to address these questions has proven difficult; and (8) recognizing that in an increasingly global and competitive marketplace the cost of not reaching agreement could be high, congressional and industry leaders have begun discussions that could lead to a consensus.

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