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There has been a great deal of change in regulation of all financial markets over past years. Legislation, written and rewritten, voted into law and repealed since the Great Depression has been a dynamic landscape in the United States.
The Security Exchange Act of 1934 created the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Act of 1974 created the Commodity Futures Trading Commission (CFTC).
The Glass-Steagall Act of 1933 separated commercial and investment banking after the Great Depression. However, in 1999 Congress repealed the separation provisions of Glass-Steagall. In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act changed the regulatory landscape once again because of a financial crisis that began in late 2007.
In the world of commodities, in the United States, the CFTC regulates markets. The powers of this regulator expanded as a direct result of Dodd-Frank legislation. The CFTC is an agency whose mission is to "protect market users and the public from fraud, manipulation, abusive practices and systemic risk related to derivatives that are subject to the Commodity Exchange Act, and to foster open, competitive markets". Other governmental bodies in the US get involved in regulation from time to time. The Senate Banking Committee and House Committee on Financial Services are the watchdogs of the Senate and House of Representatives. Allegations of abuse in any financial market generally lead to an investigation and often-Congressional hearings if the abuse is on a grand enough scale.
At the inception of an investigation, the Federal Bureau of Investigation (FBI) usually also becomes involved. If criminal activity is uncovered, the US Justice Department gets in on the act to prosecute alleged crimes.
As the chief market regulator of commodity markets in the US, the CFTC has four divisions. The Division of Clearing and Risk oversees derivative clearing organizations (DCOs). DCOs include futures commission merchants, swap dealers, major swap participants and large traders. The Enforcement Division investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations. The Market Oversight Division fosters derivative markets that accurately reflect the forces of supply and demand and are free of disruptive activity. Finally, the Swap Dealer and Intermediary Oversight Division oversees the registration and compliance of intermediaries and futures industry self-regulatory organizations (SROs) including the National Futures Association (NFA) and US derivative exchanges (futures exchanges). Under Dodd- Frank, this division also is responsible for developing and monitoring compliance with regulations addressing registration, business conduct standards, capital adequacy and margin requirements for swap dealers and major swap participants.
Management of the CFTC consists of five commissioners appointed by the President, with advice and consent of the Senate, to serve staggered five-year terms. The President with the consent of the Senate designates one of the commissioners to serves as Chairman. No more than three commissioners at any one time may be from the same political party to insure that politics remain outside of the regulatory process as much as possible. Generally, Republican appointees tend to favor less regulation of markets while Democratic Party appointees tend to favor a stricter regulatory environment.
Finally, the National Futures Association (NFA) is a self-regulatory organization for the US derivative industry, including on-exchange traded futures, retail off-exchange foreign currency and over-the-counter derivatives. The NFA develops and enforces rules, provides programs and offers services that safeguard market integrity, protect investors and assists members in meeting their regulatory responsibilities. The NFA has been in existence since 1982. Membership in the NFA is mandatory for all conducting business with the public on US futures exchanges and in the retail foreign exchange marketplace as well as for swap dealers and major swap participants. The NFA administers licensing exams for professionals in the industry. The NFA counts over 4,100 member firms and over 57,000 associates amongst its membership. The NFA is a non-profit, independent regulatory agency that operates in no markets. It is not a trade association and operates at no cost to taxpayers. Agency funding comes only from membership dues and assessment fees. The NFA works closely with the CFTC to regulate commodity markets in the US. Both agencies also work with foreign regulatory bodies around the globe as commodity markets are international markets. Both agencies offer a tremendous amount of free information on their respective websites.
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