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1 (January 17, 2017)

handle is hein.crs/crsuntaajbb0001 and id is 1 raw text is: Order Code RS22028 Updated January 17, 2007 O CRS Report for Congress CFTC Reauthorization Mark Jickling Specialist in Public Finance Government and Finance Division Summary Authorization for the Commodity Futures Trading Commission (CFTC), a sunset agency established in 1974, expired on September 30, 2005. In the past, Congress has used the reauthorization process to consider amendments to the Commodity Exchange Act (CEA), which provides the basis for federal regulation of commodity futures trading. The last reauthorization resulted in the enactment of the Commodity Futures Modernization Act of 2000 (CFMA), the most significant amendments to the CEA since the CFTC was created in 1974. Both chambers considered reauthorization bills in the 109'h Congress, but none was enacted. The Senate Agriculture Committee approved S. 1566, a CFTC reauthorization bill offered by Chairman Chambliss, on July 21, 2005. The House passed H.R. 4473 by voice vote on December 14, 2005. The 110th Congress is expected to take up reauthorization. This report provides summaries of current reauthorization issues, including (1) regulation of energy derivatives markets, where some blame excessive price volatility on a lack of effective regulation, (2) the legality of futures-like contracts based on foreign currency prices offered to retail investors, and (3) the market in security futures, or futures contracts based on single stocks, which were authorized by the CFMA, but trade in much lower volumes than their proponents expected. This report will be updated as developments warrant. Futures contracts like other financial derivatives such as options or swaps gain or lose value as the price of some underlying commodity rises or falls. They allow traders to invest in corn, gold, or T-bills without actually owning the underlying commodities themselves. Futures can be used to avoid, or hedge, price risk. That is, farmers, utilities, airlines, banks, and many other businesses can use derivatives to protect themselves against unfavorable changes in commodity prices, interest rates, or other variables. Most futures trading, however, is done by speculators who profit if their forecasts of price trends are correct. (The futures exchanges are associations of professional speculators.) There are two benefits to speculation: liquidity and price discovery. Speculators provide liquidity because they are willing to assume the risks that hedgers wish to avoid. Speculation provides an efficient price discovery mechanism Congressional Research Service The Library of Congress Prepared for Members and Committees of Congress