Commodity Futures Modernization Act (CFMA)
What is Commodity Futures Modernization Act (CFMA)?
The Commodity Futures Modernization Act (CFMA), endorsed into law on December 21, 2000, refreshed commodity trading laws particularly for non-actual products, for example, over-the-counter (OTC) derivatives.
Understanding Commodity Futures Modernization Act (CFMA)
The Commodity Futures Modernization Act exactly defined the difference between a commodity and security and stated that derivative transactions would never again have regulation as either a futures contracts or as a securities trade. A commodity is a fundamental decent utilized in the production of other goods or services which is variable with other goods of a similar type. A security is a debatable financial instrument that is compatible, holds some form of monetary value, and can be traded.
The CFMA additionally explained the obligations of two separate regulatory agencies, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), to kill overlapping jurisdictions between the two agencies and lay out specific enforcement activities for each.
Before the CFMA the difference among commodities and securities had not been exactly defined under old regulations. Prior regulations saw futures contracts and options on futures contracts under the jurisdiction of the CFTC except if they were otherwise exempt. Yet, stock options and other derivatives in view of the indices of interest rates, overall stock markets and specific bushels of stocks may be viewed as securities.
After the CFMA was enacted different financial contracts were exempt from prior laws. For instance, while regulatory oversight had previously applied to transactions in financial derivative products between two financial institutions, the CFMA decreases such monitoring for transactions in numerous nonphysical commodities when the two gatherings to the contract don't execute such an agreement on a trading exchange. In any case, regulators might in any case uphold different laws that restrict fraud and price manipulation.
Albeit the CFMA canceled previous boycotts of the trading of single-stock futures contracts, trades are subject to specific provisions that are implemented by both the CFTC and the SEC. The CFMA incorporates predefined procedures to indicate each commission's regulatory authority over these contracts.
Another provision of the CFMA is that it limits or wipes out the regulatory authority of the CFTC over transactions in specific financial instruments, for example, security warrants, mortgages, repurchase agreements and foreign currencies.
The law additionally characterizes the regulation of swap agreements. Swaps with a basis on the price, yield, value or volatility of a security or group of securities are not subject to specific rules for reporting transactions. Nonetheless, the SEC will keep on implementing laws that forbid fraud, price manipulation, and insider trading.
The CFMA additionally considered trading single stock futures, which had not been legal in the U.S. even however such contracts traded in other countries. These are futures contracts that function the same way as those for other commodities however are contracts that call for delivery of a predefined number of shares of a specific stock.
Features
- The CFMA additionally explained the obligations of two separate regulatory agencies, the CFTC and the SEC.
- The CFMA exactly defined the difference between a commodity and security and stated that derivative transactions would never again have regulation as either a futures contract or as a securities trade.
- The Commodity Futures Modernization Act (CFMA), endorsed into law on December 21, 2000, refreshed commodity trading laws particularly for non-actual products like OTC derivatives.
