Regulation of International Transactions Under the Commodity Exchange Act
31 Pages Posted: 3 Nov 2010 Last revised: 12 Nov 2010
Date Written: November 1, 1979
In recent years there has been increasing governmental interest in foreign commercial participation in commodity futures contracts, traded on United States contract markets, and in other related transactions. This interest has been aroused because deceptive and manipulative practices in trading futures contracts can be employed as effectively by foreign participants as by domestic participants, and such acts may directly affect the United States economy. As principal objective of the Commodity Exchange Act (CEA) is to preclude such practices, and the Commodity Futures Trading Commission (CFTC), the agency which presently administers the CEA, has issued regulations designed to assure strict federal control of trading in commodity futures contracts. It is no always clear, however and to what extent the CEA and CFTC regulations apply to international transactions.
Shortly after its creation, the CFTC established several advisory committees to recommend appropriate policies in a number of areas. One of these advisory committees concluded that futures markets possess much of their current utility because they are, in effect, world markets, and that the price discovery processes of futures trading can only be carried out in a worldwide context. This committee also expressed the view that, while foreign trading entities should have the broadest possible access to United States markets, nevertheless foreign traders must be bound by the same rules as domestic traders in terms of reporting positions, the requirement for orderly markets, and in all other aspects.
The CFTC’s current view on foreign trader policy is that there should be parity of treatment between foreign and domestic traders. The theoretical notion of parity creates problems in application. The CFTC Commissioner has questioned whether parity treatment requires foreign traders to maintain records in the United States, or whether it means that they should be permitted to maintain the required records in their domiciles or places of incorporation. This parity of treatment concept, while not universally applied, has been adopted by the CFTC as a basis for determining appropriate regulatory requirements for international transactions. This Article examines the scope of the CFTC regulation of foreign involvement in commodity trading affecting the United States.
Keywords: Commodity Exchange Act (CEA), Commodity Futures Trading Commission (CFTC), international transactions, commodity futures contracts, foreign trading, regulation, abuse, reporting, antifraud provisions, commodity options, arbitration, advisers, parity of treatment
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