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1 1 (February 3, 2003)

handle is hein.crs/crsmthaazyy0001 and id is 1 raw text is: Order Code RS20560 Updated February 3, 2003 CRS Report for Congress Received through the CRS Web The Commodity Futures Modernization Act (P.L. 106-554) Mark Jickling Specialist in Public Finance Government and Finance Division Summary The last act of the 106th Congress was to pass an omnibus bill that included the Commodity Futures Modernization Act (H.R. 5660; P.L. 106-554), the most significant amendments to the regulation of derivatives trading in 25 years. Derivative financial instruments are those that gain or lose value as some underlying rate, price, or other economic variable changes. Derivatives traders can speculate on future trends in financial assets (such as stocks or currencies) or commodities (oil, metals, pork bellies) without actually owning the underlying items. Derivatives may be employed to reduce financial risk or in risky speculation on future prices and rates. These contracts do not fit in the jurisdictional boxes of financial regulation, and inter-agency quarrels have occurred over the years. The 106'h Congress approved an overhaul of derivatives regulation which codified the unregulated status of certain derivatives, permitted the exemption of other currently-regulated contracts from oversight by the Commodity Futures Trading Commission (CFTC), and permitted the trading of a new kind of contract: a futures contract/security hybrid based on the stocks of individual corporation. This report will not be updated further. Developments in derivatives regulation will be tracked in CRS Report RS21401. The Commodity Futures Modernization Act of 2000 (CFMA) enacted the most sweeping amendments to derivatives law since the creation of the Commodity Futures Trading Commission (CFTC) in 1974. Provisions included major changes in the Commodity Exchange Act (CEA) regarding the regulation of exchange-traded futures contracts, over-the-counter (OTC) derivatives, and security futures, contracts based on individual stocks (which were previously prohibited). The CFMA's provisions generally followed the recommendations contained in a November 1999 report by the President's Working Group on Financial Markets, which Congressional Research Service ** The Library of Congress