Thursday 16 June 2011

Commodity Exchange Act

Commodity Exchange Act (ch. 545, 49 Stat. 1491, enacted June 15, 1936) is a federal act passed in 1936 by the U.S. Government (replacing the Grain Futures Act of 1922).

The Act provides federal regulation of all commodities and futures trading activities and requires all futures and Commodity Tips options to be traded on organized exchanges. The Commodity Futures Trading Commission (CFTC) was created in 1974 as a result of the Commodity Exchange Act, which in 1982 created the National Futures Association (NFA).
The Commodity Exchange Act (CEA) regulates the trading of commodity futures in the United States. Passed in 1936, it has been amended several times since then. The CEA establishes the statutory framework under which the CFTC operates. Under this Act, the CFTC has authority to establish regulations that are published in title 17 of the Code of Federal Regulations.

What Objectives and Functions Does It Serve

The Commodity Exchange Act of 1936 includes the following functions and main objectives:
1.It prohibits the manipulation of prices of the commodities subjected in the futures contract.
2.It provides that regulated commodities subjected to futures trading should only be traded on licensed contract market, thus protecting both the buyer and seller against illegal traders and fraudulent dealers.
3.Brokerage firms handling clients were required to register at the U.S. federal government. This way, the buyers and sellers are ensured that they are dealing with legal brokers and agencies.
4.The Commodity Exchange Authority is an independent body under the Department of Agriculture; therefore, its independence eradicates any government official's ulterior interest to control or influence levels of margin in the futures trading industry.
5.The act also provides the government the authority to control the size of speculative positions by individual traders.
The Commodity Exchange Act also intends to prevent commodity options trading to regulated and standardized commodities since such instruments can be highly speculative.

It is proven by history that a lot of methods were made to protect those who venture in futures trading, but some fraudulent trade transactions still happen despite of the sanctions, regulations, and securities being implemented by the government. To avoid illegal trades and swindlers, only deal with registered brokers and do your futures trading only on recognized and legal markets.

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