Number: RS20560
Title: The Commodity Futures Modernization Act (P.L. 106-554)
Authors: Mark Jickling, Government and Finance Division 
Abstract: The last act of the 106th Congress was to pass an omnibus bill that included the Commodity Futures Modernization Act (H.R. 5660; P.L. 106-554), the most significant amendments to the regulation of derivatives trading in 25 years. Derivative financial instruments are those that gain or lose value as some underlying rate, price, or other economic variable changes. Derivatives traders can speculate on future trends in financial assets (such as stocks or currencies) or commodities (oil, metals, pork bellies) without actually owning the underlying items. Derivatives may be employed to reduce financial risk or in risky speculation on future prices and rates. These contracts do not fit in the jurisdictional boxes of financial regulation, and inter-agency quarrels have occurred over the years. The 106th Congress approved an overhaul of derivatives regulation which codified the unregulated status of certain derivatives, permitted the exemption of other currently-regulated contracts from oversight by the Commodity Futures Trading Commission (CFTC), and permitted the trading of a new kind of contract: a futures contract/security hybrid based on the stocks of individual corporation.
Pages: 6
Date: February 3, 2003