Regulator CFTC

CFTC – Commodity Futures Trading Commission. Was found in 1974 (started working in 1975), is an independent governmental agency, belongs to the most reputable organizations in the world among brokers, who work with currency, futures and options

There are many regulators in the USA, who have good reputation among world economic society. Because of the development of the American market in the USA  there are state regulators with a common or specific functionality, and also non-profit self-regulatory organizations with the same set of functions and powers. The CFTC refers to the state, highly specialized structures. However, despite its specialization, CFTC license has the same level with American NFA and the British FCA.

CFTC objectives:

• Protection of economical integrity of U.S. futures markets;
• Development of methods and measures to enhance the efficiency of economic interaction of participants in futures markets;
• increase of the level of confidence in the markets, ensuring business integrity by fighting against money laundering (although this point declare almost all financial regulators);
• support of efficiency, transparency of the clearing processes.

Basic requirements of CFTC to potential clients:

• the license is obligatory for all brokers or private persons, who conduct activities on any of the futures exchanges of the USA;
• obtaining a license is possible only after the registration at NFA;
• the right to conclude the agreements with customers regarding brokerage services have only FCM-brokers (about a two-tier system brokers in the USA we already wrote). They (the brokers of the first level) are eligible for accumulation of customer funds that is not allowed for brokers of second level;
• customer accounts must be placed by FCM-broker at trusted (accredited) banks in segregated accounts (accounts that are separate from accounts of the broker);
• requirements for minimum net capital for the FCM-broker excluding receivables is 4% of the amount of client money placed in segregated accounts (possibly an indicator was changed in 2016);

On the one hand, the net capital of the broker would have to serve as a safety package, on the other hand, the approximation of this indicator to 6% is a cause for day-to-day control over the activities of the broker.

• to make timely adjustments to balance, the counting of the money of clients should be conducted at the end of each day. And this is just an example of the methods used to prevent manipulation and fraud;
• information about the balances on customers’ accounts should be sent to the investors (customers) every day, including in the absence of activity (if there is no movement at the account, then the report is monthly);
• broker is obliged to provide information about the risks (quite a common item, but the CFTC may introduce a potential client with the results of the broker for the previous year);
• all members of the Commission hold an examination for license validation in a fixed intervals, which is performed together with training.

Such instruments of influence are used: fines, and specific tools – the suspension or revocation of the privileges of stock exchange’s account. This is an interesting indication that the CFTC is working closely with the exchanges, and not only the violation the rules of the license, but the standards of exchange leads to the imposition of sanctions by the regulator.

On September 17, 2015 CFTC officially decided that cryptocurrency (any) is a commodity, like oil or wheat. Consequently, any trading activity in derivatives (such as futures and options) with the underlying asset “cryptocurrency” should be registered in the CFTC. It finally determined the status of cryptocurrency (which some equated to money, someone – to the asset) and put an end to uncontrolled speculation. The reason why the regulator took control over cryptocurrency – bankruptcy of the third largest exchange of digital currencies MtGox, due to speculation on the course, and hacking into database.

Regulator’s structure is divided into several departments:

• Risk calculation department. Employees of the department collect analytical materials from exchange markets and after the analysis, predict future scenarios. Based on scenarios they work out the methods to minimize possible risks, as well as constructive suggestions, which determine the development of markets by the most positive variants;
• department of risk control. If the first department can be referred to planning, then the practical control over the actions of brokers and commercial enterprises monitor employees of this department;
• Rights protection department. It works for the benefit of investors, by addressing the customers’ complaints against brokers;
• Economic Department. Employees are engaged in global economic planning of the financial markets;
• executive department. The work of the department is aimed at the general co-ordination of all structures of the regulator.

CFTC is a part of a single management structure of the exchange and the US OTC market, controlling one of the sectors of trading.

Official CFTC website: http://www.cftc.gov