Law 743 - Seminar on Regulation of Derivatives, Spring 2008
Current issues in laws and regulations affecting derivatives trading, primarily financial
futures and options markets. Topics include the jurisdiction of the Commodity Futures
Trading Commission, analysis of securities and commodities statutes and regulations,
registration and regulation of commodity market participants, administrative and
injunctive enforcement powers involving violations of the Commodity Exchange Act,
developments in self-regulation, and foreign market access.
Class 1: Defining futures and other derivative instruments; history of Commodity
Exchange Act and agricultural futures trading; creation of futures exchanges in the United States;
Commodity Exchange Authority under United States Department of Agriculture; 1974
development of Commodity Futures Trading Commission; advent of financial futures trading in
the United States; overview of the current domestic derivatives marketplace; role of National
Futures Association; cash and forward markets; federal interest in regulation of risk management
markets; exclusive jurisdiction of CFTC; Congressional oversight of securities and derivatives
Commodity Exchange Act, Sections 2 – 4, 7 U.S.C. §2, §5, §6 (Commodity Exchange
Act, 7 U.S.C. §§ 1 – 25 (2003)).
Commodity Futures Modernization Act of 2000, Pub. L. No. 106-554, 114 Stat. 2763
(December 21, 2000) Sections 101, 110 – 112, 113.
2008 Farm Bill, P.L. 110-246, H.R. 6124, 112 Stat. 2189 (June 18, 2008), Title 13.
Class 2: Current issues relating to definition of futures contract and scope of CFTC
jurisdiction; distinguishing futures from forwards, OTC products; elements of futures contracts;
examples of risk management transactions; margin and leverage in commodities markets;
considerations affecting the application of the Commodity Exchange Act to swaps, hybrids, and
other derivatives products.
Commodity Exchange Act, Sections 2 – 4.
Commodity Futures Modernization Act, Section 102.
In re Stovall, [1977-1980 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶20,941 (CFTC
CFTC v. Co Petro Marketing Group, Inc., 680 F.2d 573 (9th Cir. 1982).
President’s Working Group on Financial Markets, Report on OTC Derivatives,
November 1999, pp. 24 – 28, 30 – 32.
Class 3: Analysis of futures v. forwards in energy markets; discussion of swaps policy
statement and statutory interpretation concerning forward transactions.
Transnor (Bermuda) Ltd. v. BP North American Petroleum, 738 F.Supp. 1472 (S.D.N.Y.
CFTC Statutory Interpretation Concerning Forward Transactions, 55 Fed. Reg. 39188,
September 25, 1990.
CFTC Policy Statement Concerning Swap Transactions, 54 Fed. Reg. 30694, July 21,
Class 4: Futures Trading Practices Act of 1992 and promulgation of statutory exemptive
authority; administrative exemptions under the Commodity Exchange Act; discussion of forward
and futures in grain markets.
Reading/ Source Materials:
In the Matter of Grain Land Cooperative, [2003-2004 Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶29,636, (CFTC 2003).
Class 5: Analysis of CFTC jurisdiction over foreign currency transactions; former
“Treasury Amendment” issues and current jurisdiction regarding foreign currency derivative
CFTC v. Frankwell Bullion Ltd., et al., 99 F.3d 299 (9th Cir. 1996).
Commodity Futures Trading Commission v. Zelener, 387 F.3d 624 (7th Cir.
2004)(petition for rehearing and rehearing en banc, denied).
Class 6: Regulation of futures commission merchants, introducing brokers, and other
commodity professionals; registration requirements; minimum capital requirements, segregation
of customer funds; disclosure; reporting; recordkeeping, account supervision.
Commodity Exchange Act, Section 4d.
Batra v. E.F. Hutton & Co., [1987-90 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶
23,937 (CFTC 1987).
In the Matter of Interstate Securities Corp., [1990-1992 Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶25,295 (1992).
Class 7: Regulation of commodity trading advisers, commodity pool operators, “hedge
funds” and dual regulation by the CFTC and SEC.
CFTC v. Savage, 611 F.2d 270 (9th Cir 1979).
Commodity Trend Service v. CFTC, 233 F. 3d 981 (7th Cir. 2000).
Commodity Exchange Act, Sections 4 – 6.
Class 8: The regulated exchange marketplace; role of self-regulatory organizations;
designation of contract markets; duties and liabilities of exchanges; designation of exchanges,
clearing organizations; emergency actions; introduction to domestic regulatory and self-
regulatory structure; Commodity Futures Modernization Act and “tiered” approach to regulatory
oversight of designated contract markets, derivatives transactions execution facilities, exempt
boards of trade, and exempt transaction execution facilities.
Sam Wong and Son v. New York Mercantile Exchange, 735 F.2d 653 (2d Cir. 1984).
Zimmerman et al., v. CBOT et al., 360 F.3d 612 (7th Cir. 2004).
Class 9: Fraud and other claims against commodity professionals under the Commodity
Exchange Act; fraudulent solicitation, misallocation, churning, frontrunning; trade practice
issues, wash sales, fictitious trades, non-competitive and prearranged trades; private rights of
Commodity Exchange Act, Sections 4b, 4o, 22.
Hammond v. Smith Barney [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH)
¶24,617 (CFTC 1990).
Monieson v. Commodity Futures Trading Commission, 996 F.2d 852 (7th Cir. 1993).
Classes 10 - 11: Market manipulation; theories of manipulation in risk management markets.
In re Indiana Farm Bureau Cooperative Association, [1982 – 1984 Transfer Binder]
Comm. Fut. L. Rep. (CCH) ¶21,796 (CFTC 1982).
In the Matter of Cox, [1986 – 1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) (CFTC
Strobl v. New York Mercantile Exchange, 768 F.2d 22 (2d. Cir. 1984), cert. denied, 474
U.S. 1006 (1985).
Complaint and settlement in CFTC v. Enron Corp, and Hunter Shively, US District Court
for the Southern District of Texas, Houston Division, Docket No. H-03-909.
Classes 12 – 13: Security futures products; legal and political issues surrounding negotiation of
Commodity Futures Modernization Act of 2000; development of joint regulatory program for
security futures products by the CFTC and SEC; jurisdictional issues between CFTC and SEC,
1975 – 2000; Ginnie Mae case and jurisdiction of securities and derivatives trading; 1982
jurisdictional accord; Dow Jones Cases; European-exercise of options on stock index futures,
and resulting jurisdictional issues between the SEC and CFTC; rise of over-the-counter trading;
technological advances in trading; need for legal certainty and regulatory reform in derivative
financial markets; President’s Working Group Report of 1999.
Board of Trade of the City of Chicago v. SEC, 677 F. 2d 1173 (7th Cir. 1982) (vacated as
moot 459 U.S. 1026 (1982).
Board of Trade of the City of Chicago v. SEC, 187 F. 3d 713 (7th Cir. 1999).
Commodity Exchange Act, Section 2a(1)(B).
Chicago Mercantile Exchange Rulebook, “Options on Standard and Poor’s 500 Stock
Price Index Futures,” Chapter 351A. (hand-out)
President’s Working Group on Financial Markets Report on Over-the-Counter
Derivatives, November 1999, pp. 32, 33.
Commodity Futures Modernization Act of 2000, Sections 201 – 253.
CFTC/SEC Market Capitalization/Average Daily Trading Volume joint rulemaking, 66
FR 34864 (August 21, 2001).
Classes 14 – 15: Foreign market access issues in derivative products; historical differences in
foreign market access in capital formation and risk management markets; congressional
mandates regarding foreign rulemaking governing offer and sale of foreign narrow- and broad-
based security index products; current regulations affecting offer and sale of “grandfathered”
products; current SEC and CFTC proposals regarding foreign market access.
Commodity Futures Modernization Act, Sections 101, 206, 251.
CFTC release on access to foreign automated boards of trade, 64 FR 32829 (June 18,