The History of FOREX Regulation

In the beginning of retail FOREX, regulations, other than fraud statutes, were essentially nonexistent. This was also true of the commodity futures markets up to the mid-1970s. The regulatory path of retail FOREX is following a remarkably similar path to that of commodity futures in the 1970s and 1980s.

The Commodity Futures Trading Commission (CFTC)

In 1974, Congress created the Commodity Futures Trading Commission as the independent agency with the mandate to regulate commodity futures and options markets in the United States.
The agency is chartered to protect market participants against manipulation, abusive trade practices, and fraud. The CFTC was created to take over responsibilities from the Department of Agriculture when commodity trading began to become a popular alternative investment. It was originally mandated as sunshine legislation. But as every school child knows, laws once on the books seldom go away. Through effective oversight and regulation, the CFTC enables the markets to better serve their important function in the nation's economy, providing a mechanism for price discovery and a means of offsetting price risk. The CFTC also seeks to protect customers by requiring: 1) that registrants disclose market risks and past performance to prospective customers (in the case of money managers and advisors); 2) that customer funds be kept in accounts separate (segregated funds) from their own use; and 3) that customer accounts be adjusted to reflect the current market value of their investments at the close of each trading day (clearing). Futures accounts are technically safer than securities accounts because brokers must show a zero-zero balance sheet at the end of each trading session. Tip: The regulatory path of retail FOREX is closely following the path of commodity futures in the 1970s and 1980sâ
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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