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For futures traders, when they hold contracts over a certain value, they pass the reporting level. People below the reporting level, also known as the reporting limit, are not required to submit reports about their trading activities. People above the level must submit daily reports to the Commodity Futures Trading Commission (CTFC) to alert the Commission to their trades and other aspects of their business activities. The reporting level is designed as a safeguard to enable regulation of activities on futures markets.
When a trader exceeds the reporting level, that trader is said to be a “large trader.” Large traders must submit information about the size of any positions they are holding, the ownership, and the number of delivery months. This information is used by the CTFC to monitor activities in futures trading and to identify any areas of concern. Unusual activity can be indicative of a trend that may require regulation. Large traders in general are subject to regulation, as their actions can destabilize the market or cause confusion among less experienced investors.
The CTFC was created in 1974 to act as a regulatory authority for traders working with futures. Futures are obligations contracts requiring people to purchase a set amount of a commodity. The reporting level for futures is based on the community involved. Some commodities have higher thresholds than others, reflecting the variability of trading and the point at which regulators feel it is necessary to start tracking trades more closely.
In some cases, the trader's firm will issue the required daily reports. Firms handling multiple large traders have mechanisms in place for quickly and easily filing CTFC-compliant reports. In other instances, traders file those reports directly. In settings where a trader believes that the firm should be handling the reports, the trader is still responsible for confirming that they are filed.
People who trade in futures and do not comply with CTFC regulations can be penalized. There is a potential to be fined, barred from trading for a set period of time, or stripped of trading qualifications. Requirements for regulatory compliance periodically change and most traders keep up with the requirements in trade journals and formal announcements issued by the CTFC. People who trade multiple types of financial products must be well versed in requirements for all of them. One advantage to working for a firm, instead of independently, is that the firm handles most compliance issues and has attorneys available to assist traders with questions and concerns about regulatory compliance.