Regulators of the Futures Market

by Mathew Durham

There are several regulators of the futures market that every trader or investor should know about. These non-commercial organizations protect the rights of market participants and help it to exist and grow.

Commodity Futures Trading Commission (CFTC)
CFTC was founded by the Legislative Authority of the USA the Congress in 1974. CFTC is an independent organization the regulator of the USA futures and options market. This organization has a purpose to strengthen the efficiency and provide futures markets with protection, to protect futures trading participants from abuse, manipulations and immorality, to provide a proper clearing process of the clients transactions.

NFA - National Futures Association
US National Futures Association is a non-commercial organization, it is a regulator of futures and forex industry. The history of this organization begins in 1982. The main goal is the protection of rights of traders and investors.

Any organization that provides its clients with access to the futures and interbank forex markets should be a CFTC (Commodity Futures Trading Commission) and NFA member. The main function of the US National Futures Association is a tight control over CFTC regulations and federal laws obedience NFA also has its own regulations intended to protect investors and traders from fraud, and provide them with ethic treatment.

Recently the requirements to the organizations that provide brokerage services have become stricter. Now the authorized capital of the brokerage company should be not less than 20 millon US Dollars. Every trader or investor who opens an account in a company member of the NFA can be sure he will get ethical treatment, and the protection of his rights and interests.

Every trader has a right to call for a NFA`s help and protection. This fact conduced to organization of civilized futures and forex markets in the whole world. It decreased the number of abuse and fraud facts and helped to make a great progress in brokerage services development.

The ways NFA fight against fraud and abuse from the broker`s side:

  • The fight against brokers-swindlers. In 1993 NFA adopted new regulations (including the regulations of Advertising and Marketing) in order to minimize dishonest manipulating brokerage services. New regulations require the storage of the telephone calls recorded on a magnetic tape, the maintenance of increased capital minimums and the submission of all advertising materials for NFA approval. The implementation of these rules decreased the number of forex and futures industry abuse.
  • Intensive supervision. The NFA has a right to refuse, cancel, limit or pause a member status of any company or private individual. The NFA performs regular financial audits, documents and statements revisions of all members in irder to provide accurate compliance of all the legislative requirements of CFTC and NFA regulations.
  • The NFA has a right to apply disciplinary actions against any company or private individual that violates NFA rules. Disciplinary actions can differ in strictness from a warning letter for small violations to formal action. A disciplinary action caused by a suit can be in the form of exclusion or membership suspension for a particular period of time, prohibition to contact any NFA member, reprimand, severe reprimand and a penalty of $250,000 for every violation.

In case of court actions NFA collaborates with CFTC, FBI and other law-enforcement agencies.

Article Tags: Futures Trading, Futures Contracts, Spot Trades

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