Before the committee on agriculture, nutrition, and forestry and committee on banking, housing, and urban affairs united states senate june 21, 2000. The three main areas of commodities are food, energy, and metals. Did deregulated derivatives cause the financial crisis. Commodity futures modernization act of 2000 finance and. The commodity futures modernization act of 2000 stroock. Anticipating that single stock futures will begin trading in the u. 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. The most popular food futures are for meat, wheat, and sugar. The cfma removed a longstanding ban2 on trading futures on single securities and narrowbased security indexes3 in the united states. Order code rl30434 report for congress received through the crs web the commodity futures modernization act of 2000. 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. Theres no guarantee that regulators would have sniffed out the dangers in time. By separating these dates, buyers and sellers achieve an important and. At that time, congress had enacted legislation to expand the scope of what was defined.
Instead, trading activity in these contracts must follow general. During consideration of the modernization act in 2000, 5. Be it enacted by the senate and house of representatives of the. Commodity futures modernization act credit default insurance. The commodity futures modernization act, as adopted, is a significant step forward for u. The enron loophole exempts most overthecounter energy trades and trading on electronic energy commodity markets from government regulation. 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. This act may be cited as the commodity futures act and referred to as chapter c152 of the continuing consolidation of the statutes of. 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. Modernization act of 2000, as a landmark in futures regulation. Commodity futures modernization act of 2000 us law. Ewing introduced his commodity futures modernization act. 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.
Ron paul voted against the commodity futures modernization. The commodity futures modernization act allows oil to be traded on unregulated markets. 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. Unlike other futures contracts, however, the cfma provides that security futures products are securities as well as futures. But banning them from even looking sent a pretty clear anythinggoes message to otc derivatives markets. Jan 18, 2016 leading the charge in congress were sens.
Commodity futures modernization act of 2000 the full wiki. 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. Chairman lugar, chairman gramm, and members of the committees. This has allowed speculation investment without intent to use oil to drive up oil prices to where they are today. What is commodity futures modernization act of 2000. This term refers to a group of institutional investors that own commodities futures. 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. 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. If you have any questions, or need the bot to ignore the links, or the page altogether, please visit this simple faq for additional information. To his credit, weisberg candidly admits that he cant. Commodity futures modernization act brought basic changes in the derivatives and commodities markets. 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.
The commodity futures modernization act of 2000 cfma, pub. This section contained consequential amendments to the securities act which are now included in that act. The south african market has traditionally been the largest of the single stock futures marketplaces. Media in category commodity futures modernization act of 2000 this category contains only the following file. Chapter 16 futures contracts trading in futures contracts adds a time dimension to commodity markets. Commodity modernization act provides legal certainty. Introduced in house 12142000 commodity futures modernization act of 2000 title i. The act removed the ban trading of futures contracts based on single stocks and narrowly based stock indices in the u. The law allows sophisticated parties to trade the contracts without scrutiny under the commodity exchange act of 1936. In the judgment of the cme, the commodity futures modernization act of 2000, or the cfma, represents successful landmark legislation. On december 21, 2000, the commodity futures modernization act cfma became law and amended the commodity exchange act cea. This important new law creates a flexible structure. Urging support for the commodity futures modernization act of.
Hillary clinton attacked bernie sanders for voting for a bill. 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. 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. Commodity futures trading commission regulations implementing. Congress passes commodity futures modernization act, cftc. 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. Urging support for the commodity futures modernization act. Commodity futures contracts financial definition of.
Commodity futures are agreements to buy or sell oil, food, or other raw materials at a future date at a particular price. This legislation would provide legal certainty that overthecounter otc derivatives transactions will continue to be enforceable in accordance with their terms. To his credit, weisberg candidly admits that he cant point to a smoking gun. The cfma embodies more than three years of congressional negotiation, during which time uncertainty. Commodity futures modernization act of 2000 wikipedia. Some otcs derivatives transactions were kept outside of the jurisdiction of the cftc. Commodity futures modernization act credit default. Commodity futures modernization act definition and meaning. For the purpose of this rule 1800, unless the subject matter or context otherwise requires, the. What does commodity futures modernization act mean. December 15, 2000 congress passes commodity futures modernization act cftc reauthorized for five years the commodity futures modernization act, as adopted, is a significant step forward for u. Before the committee on banking, housing, and urban affairs, u. It was signed into law on december 21, 2000 by president bill clinton. Testimony, parkinsoncommodity futures modernization.
As amended by the cfma, in order for a dcm to list. I have just modified 2 external links on commodity futures modernization act of 2000. Records of the commodity futures trading commission cftc. 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. 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. 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. The legislation reauthorizes the commodity exchange act, repeals the ban on single stock futures, and provides legal. The united states code is meant to be an organized, logical compilation of the laws. 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. 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. Hillary clinton attacked bernie sanders for voting for a.
The commodity futures modernization act of 2000 cfma is united states federal legislation that ensured financial products known as overthecounter otc. Commodity futures modernization amends the commodity exchange act to authorize appropriations for authorities and activities under such act. Testimony, parkinsoncommodity futures modernization act. 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. 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. 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.
Another major part of the act was that it prevented the new financial products called swaps from being regulated by the. The commodity futures modernization act and single stock. A futures contract separates the date of the agreement when a delivery price is specified from the date when delivery and payment actually occur. 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. Commodity futures contract definition investopedia. Mar 11, 2020 the commodity futures modernization act was passed by congress and signed into law by president bill clinton in december 2000.
S government that reaffirmed the authority of the commodity futures trading commission for five years as the regulatory. 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. 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. 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.
Second, under certain conditions, the act allows trading of futures contracts based on single stocks and narrowlybased stock indices, with oversight being shared. The commodity futures modernization act was passed by congress and signed into law by president bill clinton in december 2000. The loophole was drafted by enron lobbyists working with senator phil gramm 1 seeking a deregulated atmosphere for their new experiment. Pdf pdf provides a complete and accurate display of this text.
The saga of the commodity futures modernization act begins in 1998. Two of those growing instruments were financial derivatives and creditdefault swaps. Commodity futures modernization act of 2000 the cfma has received criticism for the socalled enron loophole, 7 u. May 28, 2018 commodity futures modernization act cfma. Federal legislation enacted in 2000 that overhauled certain regulatory schemes and expelled the shadjohnson jurisdictional accord, which prevented singlestock futures in 1982. However, ncoil continues to believe that cdswhich are most often defined as insurance against negative credit eventsshould be regulated as insurance. The commodity futures modernization act and single stock futures. 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. Apr 01, 2009 the saga of the commodity futures modernization act begins in 1998. The cfma provides greater legal certainty for overthe. 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. 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 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. The united states code is meant to be an organized, logical compilation of the laws passed by congress. Commodity futures markets executive summary since the passage of the commodity futures modernization act of 2000, new institutional noncommercial investors have entered the commodities futures market. The act removed the ban trading of futures contracts based on single. Government interventions, not laissez faire, caused the financial crisis.