Outside the Box: Congress should reinvigorate the CFTC so it can regulate shadowy financial markets

by | Jan 27, 2023 | Stock Market

The Commodity Futures Trading Commission, or CFTC, is the federal regulatory agency that is charged with regulating derivatives, the complex financial products that helped cause the 2007-08 financial crisis and subsequent recession. Despite its importance in ensuring the stability of the nation’s financial system, the CFTC’s authorization lapsed in 2013. After a decade and several failed attempts, Congress should reauthorize the CFTC this year, perhaps as part of the farm bill.

The CFTC has consistently been at the forefront of identifying and working to address market changes—such as the use of financial derivatives, algorithmic trading, and cryptocurrencies — but has often been blocked by restrictive statutes, political opposition, and limited funding. Reauthorization is an opportunity for Congress to take stock of the CFTC’s mission and markets and give the CFTC new authorities to address developing concerns.OTC markets have ballooned Much has changed since the CFTC’s authorizing statute, the Commodity Exchange Act, was updated by the Dodd-Frank financial reform law in 2010. The derivatives markets have ballooned between 2010 and 2022: open interest in exchange-traded futures and options nearly doubled; the over-the-counter (OTC) foreign-exchange market more than doubled; the OTC interest-rate market nearly tripled; and, since the agency gained authority to regulate cleared swaps, they have become a more than $350 trillion market. …

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