1.1.2. Regulation of the Futures Market
None of these changes came without controversy. By the 1870s, farmers were accusing railroad and elevator operators of fraud and price manipulation, and they called for regulating elevator and railroad rates. In 1877 the Supreme Court declared that grain elevator operations were in the public interest and could be regulated by the states. Not until 1922 did the federal government become involved, with the passage of the Grain Futures Act. It required futures trading to be conducted on an exchange for specified grains, such as corn, wheat, oats, and barley. It required the licensing of boards of trade and directed the boards to prevent price manipulation and the cornering of the grain markets by board members. The Act excluded forward contracts sold off the exchange from regulation.
The Commodity Exchange Act of 1936 extended federal regulation to several commodities besides grain, including cotton, butter, and rice. It imposed federal regulation not only on the boards of trade, but on the brokers who traded on the floors of the exchanges, particularly those who brokered trades for customers. It created a Commodity Exchange Commission to investigate trading practices and to establish position limits on speculative trading to help prevent large price swings.
Regulation was further strengthened with the Commodity Futures Trading Commission Act of 1974. This Act replaced the Commodities Exchange Commission with an independent regulatory authority, the Commodity Futures Trading Commission (CFTC). The CFTC was given jurisdiction over futures contracts on all goods, which now included non-agricultural commodities like silver, gold, and petroleum, and services such as options. The CFTC was given broad powers to oversee and approve new contracts and to impose civil penalties for violations of conduct. If the CFTC was to see an emergency in the markets, it could shut the market down or take any action to restore orderly t