Commodity Exchange Act - Explained
What is the Commodity Exchange Act?
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Table of ContentsWhat is the Commodity Exchange Act?How Does the Commodity Exchange Act Work?Crypto-Currency Challenges for the Commodity Exchange Act
What is the Commodity Exchange Act?
The Commodity Exchange Act (CEA) is federal legislation in the United States that regulates the trading of commodity futures in the markets. This federal act was passed by the U.S government in 1936 to enable the trade of all futures options and commodities on organized exchanges. CEA regulates the trade of futures and commodities by ensuring that short selling and manipulation are eliminated from the markets.
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How Does the Commodity Exchange Act Work?
The enactment of the Commodity Exchange Act (CEA) in 1936 empowered the Commodity Futures Trading Commission (CFTC) to fully regulate the futures and commodities markets and rid it of corrupt practices. The regulations of the futures and commodities markets are contained in the inChapterI,Title 17 of the Code of Federal Regulations. With the passage of CEA, the Commodity Futures Trading Commission (CFTC) is expected to achieve the following goals;
- To remove limitations on intestate trading in commodities and future options.
- To enhance a healthy competition and efficiency of the futures and composites markets.
- To safeguard traders and investors from losses that might result from market manipulation.
Before the enactment of the Commodity Exchange Act (CEA), manipulations and fraudulent trade practices thrived in the futures markets. Investors often fall victims of this manipulation and fraud. In order to cleanse the futures and commodities markets from these heinous acts, CEA was passed in 1936. Aside from riding the market of fraudulent practices, CFTC was charged with the responsibility of making the markets efficient and productive. In order to achieve its goals, the CFTC comprises five committees with five area focus which are;
- Global markets,
- Energy and environmental markets,
- Technology, and
- Alliance between CFTC and the SEC.
Each of the committees is headed by a commissioner whose appointment and approval is by the president and the senate respectively.
Crypto-Currency Challenges for the Commodity Exchange Act
The CFTC was able to achieve its set goals in the futures of commodities markets seamlessly until the emergence of financial technology which created some problems for CEA. Given the evolution of crypto-currency, cloud computing, algorithm trading, and other digital innovations, the adequate regulation of the futures and commodities markets has remained a challenge for the CFTC. Virtual Currencies are categorized as commodities under the CEA, these currencies are traded or exchange via a digital platform that is somewhat difficult to control or regulate. The limit to the regulation of CFTC on crypto-currency created a significant challenge. However, the CFTC had developed an anti-fraud enforcement authority to regulate crypto-currency transactions in the commodities market.