Commodity Exchange Act (CEA)

What Is The Commodity Exchange Act (CEA)?

The term Commodity Exchange Act (CEA) alludes to a law that regulates commodities and futures trading activities. The Act, which passed in 1936, laid out the Commodity Futures Trading Commission (CFTC). It was intended to prevent and eliminate blocks on the interstate commerce in commodities by directing transactions on commodity futures exchanges. The CEA hopes to limit, or cancel, short selling and dispense with the possibility of market manipulation.

Understanding the Commodity Exchange Act (CEA)

   The Commodity Exchange Act (CEA) gives the Commodity Futures Trading Commission the authority to lay out regulations as distributed in Chapter I Title 17, of the Code of Federal Regulations. The CEA basically supplanted the [Grain Futures Act of 1922](/grainfuturesact) when it was passed in 1936. The prior law couldn't close down the purported bucket shops that became betting parlors at speculation on commodity costs. The CEA likewise tended to Depression-time worries about speculation in the [commodities markets](/commodity-market) and their part in the collapse in prices of key yields, like cotton, wheat, and corn.

The CEA laid out the statutory system under which the CFTC works. The CFTC's goals include:

• The promotion of competitive and efficient futures markets
• Protection of investors against market manipulation
• The policing of abusive and fraudulent trade practices

The CEA exists since market participants would be dependent upon fraud on the off chance that the regulation didn't exist. Without it, there would be a loss of faith in the country's capital markets to the impairment of investors and the economy. The goal of capital markets is, all things considered, to distribute funds to the most praiseworthy systems of production and useful economic activities efficiently.

The CFTC has five advisory committees, a selected by the each headed by a commissioner president and approved by the Senate. These five committees center around agriculture, global markets, energy and environmental markets, technology, and market risk. Every committee addresses the interests of specific industries, traders, futures exchanges, commodities exchanges, consumers, and the environment.

Digital currencies, which have been defined as commodities, are giving another test to trading regulators.

Special Considerations

The law that laid out the CFTC has been refreshed several times since it was made, most strikingly in the wake of the 2007-2008 financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act afforded the CFTC control over the swaps market, which already unregulated. Swaps are a type of derivatives contract — a tweaked contract that is traded between private gatherings rather than on an exchange.

Credit default swaps were especially viewed as a key troublemaker of the global financial crisis. Investors in mortgage debt protected themselves from default risk by going into swaps. They paid normal premiums to other investors, who in return faced the risk challenges default of the debt, giving a sort of insurance from risk. At the point when the U.S. housing market collapsed, the merchants of the swaps were given the shaft.

The CFTC presently regulates this market, forcing the sort of limitations that were at that point in force in other futures markets. These incorporate requiring the swaps market to trade on regulated exchanges or "trade execution offices" and forcing margin requirements to bring down the risk of these investments.

Digital money Challenges for the Commodity Exchange Act

[Financial technology](/fintech, for example, cloud computing, algorithmic trading, distributed ledgers, and artificial knowledge present new difficulties for the CFTC. Virtual or digital currencies, what function as a medium of exchange or nominal money to be exchanged for goods and services, are another test. The derivatives exchange marketplace CME Group sent off a Bitcoin futures contract in late 2017.

Virtual currencies, like Bitcoin, are considered commodities under the CEA. Nonetheless, there are limitations to its regulatory oversight over commodity cash markets. The CFTC has general enforcement authority to combat fraud and manipulation in the cryptographic money cash markets.

These new innovations have the potential for a huge or even groundbreaking impact on CFTC-regulated markets and the agency itself. The CFTC plans to play an active job in the oversight of this emerging innovation.

Features

• The Commodity Exchange Act regulates commodities and futures trading in the U.S.
• It is mostly responsible for agriculture, global markets, energy and environmental markets, and technology.
• The CFTC was given extra oversight of the over-the-counter swaps market after the global financial crisis.
• The Act laid out the Commodity Futures Trading Commission (CFTC) to oversee commodity exchanges.