Grain Futures Act of 1922

What Is the Grain Futures Act of 1922?

The Grain Futures Act of 1922 is a federal statute that was passed in 1922 by the U.S government. The Act laid out another restriction: all grain futures are required to be traded on regulated futures exchanges. The Act likewise required exchanges to disclose more data while additionally restricting the amount of market manipulation.

The U.S. government laid out an agency inside the U.S. Department of Agriculture to manage the Grain Futures Act.

Understanding the Grain Futures Act of 1922

As per the language of the original statute, the Grain Futures Act was "for the prevention and removal of hindrances and weights upon interstate commerce in grain by directing transactions on grain future exchanges, and for different purposes." The Grain Futures Act of 1922 was the ancestor of subsequent legislation that fundamentally molded how agricultural commodities are traded.

History of the Grain Futures Act

During the 1920s and 1930s, the federal government started to all the more intensely regulate commodities. Because of the Grain Futures Act, the U.S. government got the right to access already inaccessible data about the markets. This data was distributed and subject to a top to bottom analysis that regulators, Congress, and participants in the futures market could access.

The catalyst for passing the Grain Futures Act was fraud in the commodity markets. In the late nineteenth century, an early type of commodity fraud called "bucket shops" appeared. At a bucket shop, individuals could make wagers on current prices for commodities. In any case, these wagers were not formalized in contracts on any exchanges. All things considered, the foundations operating as bucket shops would place the wagers on their own books and offset all wagers they received with their own resources. As anyone might expect, these bucket shops couldn't necessarily follow through with their bets, as numerous that made effective wagers found when they came to collect their rewards.

Albeit the Chicago Board of Trade (CBOT) endeavored to mediate in the bucket shops' operations by cutting off access to their market citations, bucket shops kept on flourishing because of contending exchanges that stepped in and began giving their own market citations. At the state-level, there was likewise regulation put in place that attempted to regulate bucket shops. At the point when obviously neither of these methodologies would attempt to abridge the fraudulent bucket shops, the U.S. Congress enacted the Grain Futures Act.

The Grain Futures Act was presented in the United States Congress only fourteen days after the U.S. High Court declared the Futures Trading Act of 1921 unlawful. While the Grain Futures Act remembered comparable rules to those found for the Future Trading Act — including the necessities for assignment as a contract market — the Grain Futures Act contrasted from the Future Trading Act since it restricted off-contract-market futures trading instead of taxing it.

The Grain Futures Act likewise made the Grain Futures Commission. This commission was contained the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General. These designees been able to suspend or deny a contract market assignment.

The Commodity Exchange Act (CEA)

In the end, the Grain Futures Act of 1922 turned out to be very challenging to authorize in light of the fact that disciplinary action was taken against the actual exchange as opposed to individual traders. This flaw was amended in 1936 when the Commodity Exchange Act (CEA) was passed.

The Commodity Exchange Act forestalled and eliminated impediments on interstate commerce in commodities by managing transactions on commodity futures exchanges. It laid out the statutory system under which the Commodity Futures Trading Commission (CFTC) works. The CFTC was laid out in 1974. In 1982, the CFTC made the National Futures Association (NFA).

Without such regulations like the Grain Futures Act of 1922 and the subsequent legislation it prompted, market participants could be subjected to fraud and, thusly, lose faith in the country's capital markets. This could make capital markets ineffectual at proficiently distributing financial resources to the most meriting means of production and useful economic activities to the impairment of investors, consumers, and society.

Features

• The Act likewise required exchanges to unveil more data while additionally restricting the amount of market manipulation.
• The Grain Futures Act of 1922 was the ancestor of subsequent legislation that essentially formed how agricultural commodities are traded.
• The Grain Futures Act of 1922 is a federal statute that was passed by the U.S government and laid out that all grain futures are required to be traded on regulated futures exchanges.