What is the CFTC regulation? – Definition & explanation

Many people have joined binary options trading to invest their money, and others to look for opportunities to make more money. It is happening in most countries worldwide, including the United States. 

Many trading brokers have started to take advantage of traders. There are also trading brokers that have come up and used fraudulent means to profit from unknowing traders. It is why countries have regulatory authorities to limit the activities of brokers. 

The US has the CFTC, which is a regulatory institution for securities and investments. 

What is the Commodities Futures Trading Commission (CFTC) regulation?

It is a government organization in charge of regulating the derivatives markets in the US. It allows the financial market to remain safe and traders have a fair environment trading. Derivative markets regulated by CFTC include futures, swaps, and options. 

 It works by ensuring they regulate trading brokers offering derivatives. It also regulates market participants dealing in derivatives and any third-party operators within the United States. 

History of CFTC:

The CFTC was created in 1974 when congress passed the CFTC act. In 1975, the first members were selected, and its first chairman. It has been in the market for 100 years, with the first account in 1920 when it regulated trading futures in agricultural commodities. 

In 1936, the Commodities Exchange Act gave the CFTC the guidelines for operating. After this, it grew just as trading assets expanded and started regulating forex, swaps, stocks, indices, and commodities

It changed with the years to what it is now, but it was first called the CFTC in 1974. It included regulation of single stock futures in 2000 when it worked with the Securities and Exchange Commission to cover these markets in the US. 

How does CFTC work?

It has five commissioners that serve for five years before a new appointment from the president, followed by approval by the senate. Each member stands for different industries such as futures, commodities, environmentalists, and consumers. 

It has 13 divisions that serve to implement the task of regulating various industries. The top five of these include the division of:

  • Data 
  • Market oversight
  • Clearing and risk
  • Enforcement 
  • Market participants 

What does CFTC regulate?

It regulates the derivative markets traded within the US which include

  • OTC markets or Over the Counter Markets
  • Options
  • Commodities
  • Futures
  • Swaps 

It does this through the registration and licensing of contract markets, Options brokers, Swap offering institutions, and other intermediaries dealing with derivatives.

Tasks mandated to the CFTC 

As per the divisions, their tasks include:

  • To ensure that all transactions carried out in the financial industry are secure. 
  • They are in charge of derivatives clearing operations like regulations, registrations, and ensuring the guidelines followed by the market according to the commodities exchange acts. 
  • They ensure that they clear, examine and examine risk exposure from local derivatives in the US and overseas. 
  • Examine alerts from outside or inside or inside attacking operating systems threatening the integrity of clearance operations.  
  • CFTC monitors traders, dealers, investors, and businesses registered under them. 
  • They ensure that market participants provide services 
  • according to the industry standards and offer guidance about the rules they require to follow as per CFTC. 
  • They also create awareness among traders about the derivatives markets and what they have to follow when trading. 
  • They devise changes and present policies to accommodate the changes in the derivatives markets. They also ensure that the changes implemented are relevant. 
  • They review new derivatives before they are introduced in the market to ensure the public is safe from any scams. 
  • It identifies information about changes in derivatives markets and compiles it with existing data to allow the committee to keep up with changes and create more regulating policies if necessary. 
  • They consult with market participants and the committee to create fair laws regarding derivatives in the financial markets. 
  • They ensure that the derivatives markets are transparent and integrity applies in the various financial markets and the confidentiality of traders/investors’ data. 
  • They investigate claims of manipulation, underperforming trading software, transactional issues, trading malpractices, and violations of rules and guidelines. 
  • Those market participants found guilty of these malpractices face prosecution, and their services get banned in the country or punishments as per the commodities exchange act. 
  • It ensures that the derivatives traded to comply with the derivatives clearance regulations by monitoring and assessing once a year. 
  • It ensures that the derivative markets traded in the US are stable through reports and data processing of live prices and market conditions. 
  • Advantages of regulation from CFTC 
  • It is a tier-one regulatory institution that makes the broker or facility with a license from CFTC has reliability in the trading industry. 
  • It allows traders or market participants to get industry standard services and products from strict guidelines. 
  • It reduces cases of scams and manipulative practices within the US derivatives markets. Providing a conducive and fair environment for trading. 
  • It offers civil education about the derivatives market ensuring traders have the knowledge they deserve when trading derivatives markets. 
  • It regulates the derivatives markets and reduces the exposure to risks by banning certain trading practices. 

Conclusion 

CFTC is a regulatory commission with the mandate to ensure that the derivatives markets are fair and that integrity gets implemented for all market participants. Although it has strict rules and guidelines to follow, they have made the US futures and Options markets the safest. 

It, therefore, calls for other regulatory institutions to follow the same steps to ensure that they get rid of several scams still existing in the market. CFTC has been in the industry for some time, showing it is credible. 

It is a leading regulatory institution in the US, and traders should ensure that the options or derivatives dealer is regulated to be safe. 

Is CFTC a government institution?

It is an independent institution of the United States government. It has the function to regulate the derivatives markets within the jurisdiction of the United States government. 

Who funds the CFTC?

It receives funding from the US government to perform its functions. The government issues funding for regulatory bodies every year. 

About the author

Percival Knight
I am an experienced Binary Options trader for more than 10 years. Mainly, I trade 60 second-trades at a very high hit rate.

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