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What is the Commodities Exchange Act?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 August 2016
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The Commodities Exchange Act is a federal law that was approved and enacted by the government of the United States of America on 15 June 1936. Replacing the Grains Futures Act of 1922, the Commodities Exchange Act created a standard and a network of overseeing the regulation of any futures trading and commodity regulation with the country. Part of this standard was to require any and all trades of futures options and commodities to occur on a recognized and legally functioning exchange.

By setting a standard in place for the trading of futures and commodities within the United States, the Commodities Exchange Act accomplished several important tasks. First, the Act helped to stabilize the overall picture for investments and investors, which was still very shaky after the stock market crash of 1929. Some of the provisions contained within the statutes of the Act were specifically geared toward qualifying potential investors and thus avoiding some of the factors that led to the earlier crash.

Second, the Commodities Exchange Act helped to regulate the avenues that could be utilized for trading commodities. By ensuring that trades made through exchanges that functioned within the guidelines set by the federal government, it became possible to reduce the amount of illegal trading that was taking place at the time. The provisions within the Act were broad enough to allow the government to investigate any suspicious activity and often protect the best interests of legitimate investors.

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Lastly, the Commodities Exchange Act laid the groundwork for creating a solid infrastructure at the federal level to administer the provisions found within the Act. While various organizations within the government worked together to enforce the provisions, the Commodity Futures Trading Commission was established in 1974 to centralize those efforts. The CFTC continues to administer the Commodities Exchange Act today. To aid in the process, the CFTC created the National Futures Association in 1982. Between the efforts of the two entities, all futures options and contracts are traded on organized commodity exchanges and are subject to review for compliance with the standards set by the Commodities Exchange Act.

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