The Commodity Futures Trading Commission
The CFTC, created by Congress in 1974, is an independent federal agency charged with overseeing the commodity futures markets.
A "commodity future" refers to the future price of a specific product, such as agricultural goods, energy or valuable metals. The futures market is where the commodity futures are traded.
Tradable futures can also describe future prices for interest rates, foreign currencies, and stock market indices, however, the actual regulation of currencies and stocks does not fall within the CFTC's jurisdiction.
Many businesses use the futures market in order to protect high-risk investments or to secure stable prices in uncertain markets.
For instance, a farmer will trade his agricultural products on the futures market in order to lock in prices for their crops sometime in the future. Electricity suppliers also use the futures market to purchase electricity at an established price to reduce their potential losses in a volatile energy market. Often, the commodities futures market serves as a benchmark for prices of these goods.
In addition to serving as insurance on prices, the "futures market" can also be used for speculation for buying and selling at profitable prices.
Many economists rely on futures markets as a lead indicator in predicting foreign exchange rates, inflation, and economic performance.
The commission is led by five commissioners appointed by the president for five-year terms and is authorized to oversee contract obligation, resolve disputes between commodity merchants, and ensure that traders accurately report their profits and cash assets.
In the case of Enron, however, CFTC head James Newsome said the commission was unaware of the company's low cash reserves until it was too late to protect Enron's employees, shareholders, and business partners. Newsome also said Enron and other commodity traders execute electronic transactions faster than the CFTC can track.
Congress is currently considering if the CFTC needs greater authority to safeguard against future financial deception and to prevent market manipulation. Under some proposals, the CFTC would have greater access and control over energy markets and how companies, like Enron, buy and sell energy prices.
-- By Liz Harper, Online NewsHour (Posted June 2002)