April 15, 2025 marks the 50th anniversary of the first Commission of the Commodity Futures Trading Commission. Next year we also celebrate the 90th anniversary of the Commodity Exchange Act, the statute governing the regulation of the derivatives markets and administered by the CFTC.
Despite their ages, both the agency and the CEA have held up remarkably well and remain uniquely positioned to keep pace with our ever-changing markets.
We have experienced a great deal of growth and innovation in the listed derivatives markets the last several years. Existing futures exchanges have ventured beyond the traditional asset classes of equities, fixed income and commodities into new products like carbon offsets, event contracts and cryptocurrencies. And new futures exchanges have formed and registered with the CFTC to offer futures contracts on these innovative products.
President Trump has promised, and Congress plans to deliver, legislation to oversee the unregulated cash cryptocurrency market in the U.S. this year. I anticipate the CFTC will play a significant role in the oversight of this burgeoning marketplace.
Thanks to the statute’s flexibility and outcomes-based framework, our markets have adapted and integrated these innovative products.
A look back
In 1974, Congress passed the Commodity Futures Trading Commission Act, which replaced the U.S. Department of Agriculture’s Commodity Exchange Authority with the Commodity Futures Trading Commission.
This began a multi-decade era of innovative reforms. Fast forward 50 years and, largely speaking, the tools and flexibility provided to the CFTC to oversee these dynamic markets has provided a regulatory landscape that saw US volumes hit 6.8 billion contracts traded in 2024, a fourth consecutive record year for US exchange traded derivatives.
Throughout my 30-year career involved with the CFTC, I have had a unique vantage point to observe the evolution, benefits and limitations of the CEA. The growth and innovation we see today would not be possible without this landmark statute.
To understand the DNA of the CFTC, you must begin with its unique mission laid out in the Act.
That mission sets out a clear vision for the agency to uphold market integrity and prevent and mitigate fraud and abuse, while simultaneously supporting fair competition and responsible innovation. This balance of both protecting the marketplace while nurturing innovation and competition is just as important as the specifics of the statute.
Unlike other agencies with multiple mandates, the CFTC’s strength lies with its focus and understanding of markets and how they operate. This helps the agency consider a “smart” regulatory approach to protecting the markets and its participants.
The Commodity Exchange Act
The origins of the Commodity Exchange Act date back to the Grain Futures Act of 1922. While U.S. futures exchanges had existed since the mid-nineteenth century, the Grain Futures Act provided the first step toward modernizing the regulatory structure of our markets.
It gave the newly created Grain Futures Administration the authority to license and regulate boards of trade for the first time. It also defined “commodities” for the first time, providing regulators with the scope of their authority that remains in place today.
In the wake of the Great Depression, Congress revamped the Act in 1936. Along with its new name, the Commodity Exchange Act, Congress added safeguards around protecting customers and stamping out fraud and abuse.
While many reforms and revisions of the Act have come and gone over the last century, five specific authorities make this statute unique among other legal frameworks and fundamental to the success of the modern derivatives markets.
My top five
1. Exclusive Jurisdiction: The Commodity Futures Trading Commission Act of 1974 provided the new agency with a powerful one-two punch: an expansive definition of “commodity” and exclusive jurisdiction over futures contracts.
The broadened definition of commodity provided the flexibility needed to list financial futures contracts on assets other than agricultural products. With the US having dropped the gold standard in 1971, futures exchanges needed this adjustment to list futures contracts on financial assets like foreign currencies and bonds.
In hindsight, the Congressional rationale of this legislative approach made sense. As a newly formed agency that regulated contracts derived from underlying cash products, the CFTC needed a way to carve out jurisdiction in a clear manner.
The new Act solved this dilemma by giving the CFTC exclusive jurisdiction over futures trading as well as preemption over state laws, thus clearing the field of both federal and state authorities and allowing the CFTC to exercise its jurisdiction without overlapping oversight.
Over the years, other federal regulators have challenged the CFTC’s exclusive jurisdiction and Congress has narrowed it some. Even still, exclusive jurisdiction remains one of the most powerful and unique tools for the agency. And it prevents market participants from facing conflicting and competing regulatory regimes, a highly attractive feature for new and innovative products.
2. Principles-based Regulation: The use of core principles in regulation is unique to the CFTC. Principles-based regulations provide market participants – like exchanges and clearinghouses – with over-arching objectives of regulations while providing them discretion in how they meet these goals. This dovetails with the CFTC’s mission of both protecting the marketplace while nurturing its development.
Ultimately, principles-based regulation helps the agency achieve its balanced mission of smart regulation.
I participated in writing the Commodity Futures Modernization Act that first enacted principles-based regulations in 2000.
Core principles include such directives as requiring exchanges to only list contracts not readily subject to manipulation and ensuring exchanges have the capacity and responsibility to prevent manipulation, price distortion and disruptions through market surveillance, compliance and enforcement practices. They also require exchanges and clearinghouses to affirmatively and continuously have systems and controls around risk management and avoiding conflicts of interest.
Why are core principles important? One word: flexibility.
The Act states that exchanges, central counterparties and swap execution facilities shall have “reasonable discretion in establishing the manner in which the [regulated entity] complies with the core principles.” It provides the CFTC with the ability to issue guidance and rules on how a regulated entity complies with the core principles while providing flexibility for entities to take a different approach if they can prove they will still meet the core principles.
For new and innovative entrants, like crypto exchanges, event markets and DeFi, this is an extremely attractive regulatory framework that allows for new models and approaches to develop organically. For this reason, it remains high on my top five list.
3. Large Trader Reports: How often does a provision of law enacted 100 years ago remain relevant? The CFTC’s large trader report stands out in this respect. First implemented on June 22, 1923, it remains the envy of global regulators.
It requires companies with sizeable trades in the futures markets to provide the government with their daily positions.
In 1936, Congress also gave the agency the ability to implement speculative limits on market participants. This combination of tools gave the CFTC the information and regulatory framework needed to develop its market surveillance program. They allow the commission to anticipate where markets may experience disruption, manipulation or squeezes. Importantly, this requirement extends to all traders, even those not registered with the agency, thus extending the CFTC’s jurisdictional reach to activity-based regulation in addition to its entity-based regulation.
Now published weekly, the Commitment of Traders Report aggregates and anonymizes the data for the public’s benefit.
This 100-year-old authority remains one of the most powerful tools in preventing market abuse and manipulation.
4. CFTC 4(c) Exemptive Authority: In 1992, Congress granted the CFTC new exemptive authority, allowing the agency to push certain products or activities potentially within the CFTC’s jurisdiction out of its oversight if the Commission deemed it in the public interest.
Entitled “public interest exemptions,” the 4(c) section includes language charging the CFTC to use this exemptive authority to promote “responsible economic or financial innovation and fair competition.”
The 4(c) exemptive authority also allows the agency to push out products without determining whether they fall under its exclusive jurisdiction. This nuance has allowed the agency to clarify its jurisdictional lines without causing legal uncertainty in having to declare something within its powers in the first place.
As markets evolve and innovate, CFTC’s 4(c) authority is an important tool to allow the agency to keep pace with market and product developments. While Congress has limited this authority over the years, it remains a unique and flexible tool for the agency.
5. Self-Certification: The final authority in my top five list remains a valuable tool for the marketplace: the self-certification of products and rules by exchanges and clearinghouses.
Before the CFMA permitted self-certification, exchanges and clearinghouses required regulatory approval of all new products and rules, often taking months or years.
This delay, especially for new products, had real-life competitive consequences for U.S. exchanges. Market participants look for the deepest liquidity of buyers and sellers in the “winner take all” environment of futures markets. As a result, they tend to gather at one exchange.
If an exchange does not make it to the market first, it risks losing out to others. With this control, it places the burden on the exchange to demonstrate it continues to meet the Act’s principles. As a result, exchanges certified 324 new futures products in 2024.
At the same time, the CFTC retains some abilities to deny or delay the certification of certain novel products or rules. This provides the agency flexibility where new rules or products might raise broader risk or market issues in the trading and clearing ecosystem.
Looking ahead
As we celebrate 50 years of the CFTC, I hope you agree that my “Top Five” list of the Commodity Exchange Act withstands the test of time. These features are fundamental to the success of derivatives markets, in large part because they transcend the short-termism so endemically problematic in other areas of public policy.
As technology challenges our thinking of how markets should be regulated, regulators will need a variety of tools to tackle issues. Even today, we see legislative efforts in Washington to reimagine and expand the authority of the CFTC in the fast-moving area of digital assets.
Given all the opportunities and headwinds, I remain confident that the Commodity Exchange Act and the statutory authority of the CFTC will endure. Thanks to the flexibility and foresight of some thoughtful policymakers over the last century, the CFTC has the tools it needs to oversee our markets in the years and decades to come.
Happy 50th Anniversary, CFTC!
