The Roles of Regulators: U.S. Industry Regulators Spend Their Days Keeping an Eye on the Market, Enforcing Rules, Punishing Rule-Breakers, Keeping You, the Trader, Informed with Online Educational Tools and Services, and Giving You a Voice. Are You Aware of How to Take Advantage of All of This?

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It's well-know that there are several risks in trading commodities. As a trader, you have enough to worry about without having to be concerned with some shady seam artist or unregistered bucket shop running off with your money before you can even trade it. Luckily, you have several groups looking out for you.

The Commodity Futures Trading Commission (CFTC), the National Futures Association (NFA) and the Securities and Exchange Commission (SEC) are U.S. trading industry regulators you should be familiar with--not only in terms of what they do, but also to understand what they offer you as an individual retail trader. While it's their job to help keep the market safe and fair, it's your job to do your part in educating and protecting yourself.


The CFTC is the federal agency that regulates commodity futures and option markets in the United States. It has sole regulatory jurisdiction over all futures wading except for security futures products, which it jointly regulates with the SEC. The agency aims to prevent manipulation, abusive trade practices and fraud. Through oversight and regulation, the CFTC enables the markets to operate efficiently--providing a mechanism for price discovery and a means of offsetting price risk.

The CFTC reviews the terms and conditions of proposed futures and option contracts to certify the contract complies with regulatory requirements.

It also conducts daily market surveillance and can, in an emergency, order an exchange to take specific action to restore orderliness in any futures contract that is being waded. The passing of the Commodities Futures Modernization Act in 2000 created a more flexible structure on futures regulation. The law "also gave the CFTC authority over retail foreign exchange trading, which is currently a focus of new roles and lawsuits.

The NFA, a self-regulatory organization approved by the CFTC, handles registrations of companies and individuals who handle customer funds or give wading advice. The CFTC requires registrations to disclose market risks and past performance information to prospective customers, and by requiring that customer funds be kept in accounts separate (segregated funds) from those maintained by the firm for its own use.

The NFA has several procedures to screen all firms and individuals wishing to do business with the public on any U.S. futures exchange. Certain futures firms, such as commodity trading advisors and brokers, are required to become NFA members. The NFA audits and monitors its members to ensure financial and sales practice role compliance. It has adopted roles covering a wide variety of areas like advertising telephone solicitations, risk disclosure, discretionary trading, disclosure of fees, minimum capital requirements and proficiency testing. New rules for off-exchange currency trading were recently passed by the NFA and approved by the CFTC.

The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets. The SEC is concerned primarily with promoting disclosure of important information, enforcing the securities laws and protecting investors who interact with these various organizations and individuals. The SEC also oversees other key participants in the securities world, including stock exchanges, broker-dealers, investment advisors, mutual funds and public utility holding companies.

The SEC operates under the belief that all investors, whether large institutions or private individuals, should have access to basic facts about an investment prior to making it. To achieve this, the SEC requires public companies to disclose meaningful financial information to the public, which provides a common pool of knowledge for investors to use to judge for themselves if a company's securities are a good investment.


One of the main resources available on the CFTC Web site (www. …