Legal and regulatory developments. The exchange-trading requirement of the commodity exchange act

✍ Scribed by Frederick L. White

• Publisher: John Wiley and Sons
• Year: 1987
• Tongue: English
• Weight: 124 KB
• Volume: 7
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990070111

✦ Synopsis

he core provision of the Commodity Exchange Act is Section 4(a). With one T possible exception-namely , the "Treasury Amendment" to the Act-it requires all commodity futures contracts to be traded on commodity exchanges. The exchange must be licensed by the Commodity Futures Trading Commission; the contract must be approved for trading by the Commission; and the trading must be conducted on the exchange floor, by open outcry, through a member of the exchange. There can be no over-the-counter market for futures contracts.

Because of the importance of the Section 4(a) exchange-trading requirement, the meaning of the term commodity futures contract and the scope of the Treasury Amendment are important issues. The two main sub-issues are: (1) whether a particular contract calling for the delivery of a commodity at a later time is a "forward contract" rather than a futures contract, and (2) whether the Treasury Amendment creates an exception to the exchange-trading requirement for financial institutions. The first issue has presented itself at various times since the 1920's. The second issue first arose in the last 10 years and is of particular current concern.