In the judgment of the cme, the commodity futures modernization act of 2000, or the cfma, represents successful landmark legislation. The act removed the ban trading of futures contracts based on single. Two of those growing instruments were financial derivatives and creditdefault swaps. Ron paul voted against the commodity futures modernization. May 22, 2019 a commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future. The commodity futures modernization act, as adopted, is a significant step forward for u. Mar 20, 2009 2000 commodities act paved way for problems melissa block talks with michael hirsh, senior editor at newsweek talks about how the commodity futures modernization act of 2000 was passed to keep.
Some otcs derivatives transactions were kept outside of the jurisdiction of the cftc. Mar 02, 2009 the only two concrete examples i have seen are the gradual repeal of glasssteagall throughout the 1990s and the commodity futures modernization act in 2000. What is the commodity futures modernization act cfma. Commodity futures modernization act of 2000 the full wiki. The act removed the ban trading of futures contracts based on single stocks and narrowly based stock indices in the u. The commodity futures modernization act of 2000 stroock. To his credit, weisberg candidly admits that he cant. What does commodity futures modernization act mean.
On december 21, 2000, president clinton signed into law the commodity futures modernization act of 2000 cfma, 1 which overhauls the commodity exchange act cea and amends securities, banking and bankruptcy laws to update the regulatory structure and to clarify the legal status of derivative products. If you had to pick a single government move that did more than any other to muck things up, it was probably this bill, passed by a republican congress and signed into law by lameduck president bill clinton in december 2000. The legislation reauthorizes the commodity exchange act, repeals the ban on single stock futures, and provides legal. Instead, trading activity in these contracts must follow general. Commodity futures contracts financial definition of. But banning them from even looking sent a pretty clear anythinggoes message to otc derivatives markets. This term refers to a group of institutional investors that own commodities futures. The commodity futures modernization act brought the united states into a global market of the single stock futures that included great britain, spain, south africa, india, and other countries. Federal legislation enacted in 2000 that overhauled certain regulatory schemes and expelled the shadjohnson jurisdictional accord, which prevented singlestock futures in 1982. Mar 11, 2020 the commodity futures modernization act was passed by congress and signed into law by president bill clinton in december 2000. This act may be cited as the commodity futures act and referred to as chapter c152 of the continuing consolidation of the statutes of. At the time, the economy was booming, stocks soared, and new instruments of trading were found to make more money while evading the oversight of regulatory bodies. Commodity futures modernization act credit default insurance. Commodity futures modernization act of 2000 wikipedia.
Administration of the grain futures trading act established by the secretary of agriculture, august 21, 1921, to execute departmental responsibilities under the grain futures trading act 42 stat. The three main areas of commodities are food, energy, and metals. Sep 08, 2005 testimony of patrick parkinson deputy director, division of research and statistics commodity futures modernization act of 2000 before the committee on banking, housing, and urban affairs, u. Hillary clinton attacked bernie sanders for voting for a bill. Testimony of patrick parkinson deputy director, division of research and statistics commodity futures modernization act of 2000 before the committee on banking, housing, and urban affairs, u. Chapter 16 futures contracts trading in futures contracts adds a time dimension to commodity markets. Jan 18, 2016 leading the charge in congress were sens. However, ncoil continues to believe that cdswhich are most often defined as insurance against negative credit eventsshould be regulated as insurance. On august 10, 2001, the commodity futures trading commission the cftc finalized rules implementing the new regulatory framework for futures trading facilities established by amendments to the commodity exchange act cea enacted as the commodity futures modernization act of 2000 the cfma. The commodity futures modernization act of 2000 cfma, which was signed into law on december 21, 2000, lifts the 18year ban on singlestock futures and narrowbased security indices security futures products.
Modernization act of 2000, as a landmark in futures regulation. Our futures markets are stronger and more vibrant today as the direct result of congresss enactment of the cfma, and equally important, the cftcs judicious and deliberate implementation of those reforms. Urging support for the commodity futures modernization act. Before the committee on agriculture, nutrition, and forestry and committee on banking, housing, and urban affairs united states senate june 21, 2000. Government interventions, not laissez faire, caused the financial crisis. The most popular food futures are for meat, wheat, and sugar. Commodity futures modernization act of 2000 the cfma has received criticism for the socalled enron loophole, 7 u. The saga of the commodity futures modernization act begins in 1998. Commodity futures modernization act of 2000 us law. Commodity futures modernization act credit default. What is commodity futures modernization act of 2000.
Commodity modernization act provides legal certainty. This legislation would provide legal certainty that overthecounter otc derivatives transactions will continue to be enforceable in accordance with their terms. This important new law creates a flexible structure for regulation of futures trading, codifies an agreement between the commodity futures trading commission cftc and the securities and exchange commission to repeal the 18year old. The commodity futures modernization act of 2000 cfma, pub. The commodity futures modernization act allows oil to be traded on unregulated markets. Congress passes commodity futures modernization act, cftc. Order code rl30434 report for congress received through the crs web the commodity futures modernization act of 2000. The commodity futures modernization act and single stock futures the financial information forum fif was founded in 1996 to address the issues of its component groups exchanges, brokerdealers, futures commission merchants fcm and vendors. On december 21, 2000, the commodity futures modernization act cfma became law and amended the commodity exchange act cea. While the spot price for the specific lumber commodity traded by the futures contract is not available from any source, the settle price on the date of maturity of a commodity futures contracts is expected to converge to the spot price of the commodity as some futures contracts result in physical delivery. On august 10, 2001, the commodity futures trading commission the cftc finalized rules implementing the new regulatory framework for futures trading facilities established by amendments to the commodity exchange act cea enacted as the commodity futures modernization act. Before the committee on banking, housing, and urban affairs, u.
Introduced in house 12142000 commodity futures modernization act of 2000 title i. The commodity futures modernization act and single stock. Signed into law by president clinton on december 21, 2000, the commodity futures modernization act of 2000 the cfma transforms the regulatory framework covering exchangetraded futures, overthecounter derivatives, and futures options. As amended by the cfma, in order for a dcm to list. This section contained consequential amendments to the securities act which are now included in that act. Commodity futures modernization act definition and meaning. The enron loophole exempts most overthecounter energy trades and trading on electronic energy commodity markets from government regulation. Pdf pdf provides a complete and accurate display of this text. Ewing introduced his commodity futures modernization act. Apr 01, 2009 the saga of the commodity futures modernization act begins in 1998. During consideration of the modernization act in 2000, 5. The loophole was drafted by enron lobbyists working with senator phil gramm 1 seeking a deregulated atmosphere for their new experiment. Aug 20, 2019 commodities futures are agreements to buy or sell a raw material at a specific date in the future at a particular price.
Anticipating that single stock futures will begin trading in the u. Be it enacted by the senate and house of representatives of the. The cfma embodies more than three years of congressional negotiation, during which time uncertainty. Commodity futures are agreements to buy or sell oil, food, or other raw materials at a future date at a particular price.
It is a violation of nfa compliance rule 24 for an nfa member fcm or ib to solicit or accept orders, carry accounts, or otherwise act as a brokerdealer for security futures products unless the member is properly registered either as a full brokerdealer under section 15b1 or as a notice registered brokerdealer under section 15b11 of. Did deregulated derivatives cause the financial crisis. Commodity futures trading commission regulations implementing. The cfma provides greater legal certainty for overthe.
At its top level, it divides the world of legislation into fifty topicallyorganized titles, and each title is further subdivided into any number of logical subtopics. The commodity futures modernization act was passed by congress and signed into law by president bill clinton in december 2000. Media in category commodity futures modernization act of 2000 this category contains only the following file. May 28, 2018 commodity futures modernization act cfma. I have just modified 2 external links on commodity futures modernization act of 2000. The united states code is meant to be an organized, logical compilation of the laws.
Urging support for the commodity futures modernization act of. Chairman lugar, chairman gramm, and members of the committees. The commodity futures modernization act of 2000 cfma is united states federal legislation that ensured financial products known as overthecounter otc derivatives unregulated, accelerating the collapses of major financial companies. The cfma removed a longstanding ban2 on trading futures on single securities and narrowbased security indexes3 in the united states. Commodity futures modernization amends the commodity exchange act to authorize appropriations for authorities and activities under such act.
By separating these dates, buyers and sellers achieve an important and. The south african market has traditionally been the largest of the single stock futures marketplaces. This has allowed speculation investment without intent to use oil to drive up oil prices to where they are today. The detrimental piece of legislation that allowed wall street to run wild was the commodity futures modernization act, which allowed all derivatives to be unregulated and expressly forbade the cftc commodity futures trading commission from regulating it. A member fcm, for which nfa is dsro, rfed, or ib that may file a request for relief from certain provisions of cftc regulations 1. Commodity futures contract definition investopedia. The commodity futures modernization act of 2000 cfma is united states federal legislation that clarified most overthecounter derivatives otc derivatives transactions between sophisticated parties would not be regulated as futures under the commodity exchange act cea or as securities under the federal securities laws. Testimony, parkinsoncommodity futures modernization. Theres no guarantee that regulators would have sniffed out the dangers in time. A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future. To reauthorize and amend the commodity exchange act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and overthecounter derivatives, and for other purposes.
Second, under certain conditions, the act allows trading of futures contracts based on single stocks and narrowlybased stock indices, with oversight being shared. Records of the commodity futures trading commission cftc. Unlike other futures contracts, however, the cfma provides that security futures products are securities as well as futures. The commodity futures modernization act of 2000 cfma is united states federal legislation that ensured financial products known as overthecounter otc. In this title, the term hybrid instrument means an identified banking product not excluded by section 403 of this act, offered by a bank, having one or more payments. To his credit, weisberg candidly admits that he cant point to a smoking gun. It was signed into law on december 21, 2000 by president bill clinton. At that time, congress had enacted legislation to expand the scope of what was defined. It was an attempt to solve a dispute between the securities exchange commission sec and the commodities futures trading commission cftc that arose in the early 1980s. Commodity futures modernization act of 2000 finance and. The commodity futures modernization act and single stock futures. This important new law creates a flexible structure. The law allows sophisticated parties to trade the contracts without scrutiny under the commodity exchange act of 1936. Testimony, parkinsoncommodity futures modernization act.
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