As the origin of modern futures trading, the United States is the country with the highest variety and activity of futures trading in the world. Trading American futures and options products has become the development trend of domestic futures industry. However, in the United States, where regulation is very strict, the habit of valuing transactions over compliance may cause very heavy legal costs.
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Therefore, from the perspective of American futures industry practitioners, the author introduces the structural framework of American futures industry, and focuses on the supervision of American futures industry, hoping to give some reference help to individuals and institutional investors interested in American futures.
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Understand the importance of supervision
Before introducing the US futures industry and regulatory system, let's look at the importance of understanding compliance and regulation-
On February 6, 20 17, one of the largest foreign exchange dealers in the world, FXCM was ordered to withdraw from the NFA membership and was permanently revoked.
On the same day, the Commodity Futures Trading Commission (CFTC) announced that FXCM and its two founding partners, DrorNiv and WilliamAhdout, were fined $7 million to settle their charges of defrauding retail foreign exchange customers. At the same time, FXCM agreed to cancel its registration in CFTC and promised never to re-register. As a result, one of the largest foreign exchange dealers in the world, FXCM, was officially expelled from the American market.
Three days ago, CFTC fined Royal Bank of Scotland $85 million for trying to manipulate the benchmark swap rate of ISDAFIX in the United States.
Looking back on the past 20 16, the number of cases handled by the US futures industry and the amount of fines reached a new high.
The results of the annual punishment in fiscal year 20 16 announced by the Commodity Futures Trading Commission (CFTC) show that in fiscal year 20 16, CFTC prosecuted more than 100, and 68 cases were brought back to China, and civil fines of more than $748 million and recovery and offshore instructions of $543 million were obtained, so CFTC 20/kloc.
There are countless cases investigated, audited and arbitrated by the Futures Association (NFA). Imperfect compliance and neglect of supervision will bring heavy legal risks and costs to enterprises.
From this point of view, it is particularly important to understand the supervision of the US futures industry. What is CFTC? What is NFA? What is their supervisory function and what is the difference? The author will answer them in the third part of the article.
First of all, the author first introduces the overall framework of the American futures industry.
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Market structure of American futures industry
The author divides the organizational structure and regulatory relationship of American futures industry into three parts-
From top to bottom, they are industry regulators, exchanges and clearing institutions, and major participants in the futures market. The organizational structure framework is roughly:
The blue line indicates participants who need to register as NFA members and CFTC members.
The red line indicates participants who only need to register as CFTC members.
The green line represents the participants regulated by the exchange.
Next, the author will introduce the functions of each member in the American futures market structure from bottom to top, and finally focus on the industry regulatory agencies and their functions.
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Major players in the US futures market
The main participants in the futures market include futures intermediaries and service agencies, including futures commission brokers, recommendation brokers, floor brokers and futures salesmen;
And futures investors, including futures investment consultants and commodity fund managers, institutional investors and individual investors. Among them, except the floor broker who only needs to register in CFTC, other participants need to register in CFTC and NFA at the same time.
Participant relationship diagram of American futures market
The above picture describes the participant relationship diagram of the US futures market-
Among them, futures salesmen, as the most basic participants in the futures market, are employed by other futures market participants and are responsible for attracting customers and selling;
An introduction broker can sign an introduction broker agreement with a futures commission merchant, a commodity trading consultant and a commodity fund manager to introduce customers to them;
Commodity trading consultants choose futures commission merchants to carry out order execution and clearing business;
Commodity fund managers raise funds to establish a pool of funds, manage funds, work closely with commodity trading consultants, or choose cooperative futures commission agents for services.
& gt& gt& gt& gt Introduce brokers, floor brokers and futures salesmen.
(1) Associated Person (AP)
AP seeks orders, customers or customer funds on behalf of futures commission broker (FCM), referral broker (IB), commodity trading consultant (CTA) or commodity fund manager (CPO), and can be any salesperson.
(2) Introduce brokers
Introduction Brokers (IB) are similar to domestic futures intermediaries. They are in direct contact with customers and pay attention to customer relations. Solicit or accept customers' instructions on futures contracts or futures contracts, and trade commodity futures options.
IB needs to sign an IBAgreement with FCM or CPO to reach a cooperation agreement.
IB only charges the introduction fee or the commission share of the futures commission agent, and cannot accept the customer deposit.
(3) floor brokers
FB refers to individuals who trade commodity contracts on commodity exchanges. He is independent of the exchange and authorized by the exchange to execute any kind of commodity futures contract or option contract instructions on behalf of customers on the commodity exchange.
& gt& gt& gt& gt futures commission merchant
What is FCM?
In China, FutureCommissionMerchant (FCM) refers to a futures company. According to the definition of the Futures Association (NFA), FCM refers to an individual or organization that solicits or accepts orders for commodity futures, options, over-the-counter retail foreign exchange and swaps according to the rules of exchange futures contracts, and accepts them as trading margins.
What is the function of FCM?
order processing
To represent the interests of non-exchange members, issue trading orders on behalf of customers, provide detailed trading records and transmit market information.
profit control
Collect and manage customer performance bond and manage customer position.
risk management
Real-time risk control of customers' trading products, positions and funds.
Clearing and delivery
Settlement transactions also represent customers for physical delivery.
Technology and customer service
Responsible for solving various problems in the process of customer transactions.
& gt& gt& gt& gt Futures Investment Consultant
What is CTA?
CommodityTradingAdvisor (CTA) is a hot investment in China.
They are experts in futures investment. On the one hand, they can directly or indirectly provide other investors with advice on futures and options trading. On the other hand, trading operations can be carried out.
Certified tax agents should strictly follow the regulatory requirements of the Futures Association (NFA), strictly disclose risks to investors, and regularly report the performance of custody accounts to the regulatory authorities for inspection and publication.
What is the main function of CTA?
-directly accept the entrustment of individual customers, put the interests of customers first, and make trading decisions on behalf of customers.
-Providing customers with services such as analysis reports, suggestions or software platforms, and collecting performance commissions and management fees through these services.
& gt& gt& gt& gt commodity fund manager
What is CPO?
In China, commodity fund managers (CPOs) are mostly done by fund companies or asset management departments of some financial institutions.
They are individuals or organizations that operate and manage the fund pool by raising funds. It is the main manager, designer and operational decision-maker of the fund, and is responsible for selecting the issuance mode, main members and investment direction of the fund.
FOF Securities Investment Fund is selected and established by registered capital operation institutions in China, and it is very popular in China at present. CPO should strictly follow the regulatory requirements of the Futures Association (NFA), strictly disclose risks to investors, and regularly report the performance of management accounts to the regulatory authorities and release them to investors.
What are the functions of CPO?
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Exchanges and clearing houses
> > > > > exchange
Establishment and supervision of exchanges
Futures exchanges, also known as DesignatedContractMarkets, are institutions that provide places, facilities, related services and trading rules for futures trading. CFTC will designate an exchange as a trading place for specific commodities.
_ Note: CFTC may designate multiple exchanges as contract markets for specific commodities.
CFTC's market supervision department supervises the exchange and conducts annual implementation review. In addition, the Exchange can exercise its supervisory duties on its members as a designated self-regulatory body (DSRO).
Major contract markets and trading products
In the United States, the main futures trading markets are CMEGroup (composed of Chicago Mercantile Exchange (CME), Chicago Mercantile Exchange (CBOT), New York Mercantile Exchange (NYMEX) and New York Mercantile Exchange) and American Intercontinental Exchange (ICE) (including Intercontinental Exchange (ICE) and NYSE Euronext).
Chicago Mercantile Exchange (CME): It mainly trades foreign exchange futures, stock index futures and short-term interest rate futures.
Chicago Mercantile Exchange (CBOT): mainly deals in agricultural futures, long-term interest rate futures and some index futures, such as real estate index;
The New York Mercantile Exchange (NYMEX): mainly deals in energy futures and metal futures.
The New York Mercantile Exchange: A branch of NYMEX, which mainly deals in precious metal futures.
Intercontinental Exchange (ICE): mainly deals in energy futures, soft commodity futures and US dollar index.
Functions of the exchange
As the service and supervision institution of futures trading, the futures exchange itself does not participate in futures trading.
According to the provisions of the Commodity Exchange Law of the United States, the exchange shall formulate and implement relevant rules, stipulate the transaction execution facilities and operation methods provided by the exchange, and ensure the financial integrity of the transactions reached by the contract market facilities. The functions of the futures exchange are mainly divided into six parts:
(1) Trading places, facilities and services.
(2) Design the contract and arrange the contract list.
(3) Formulating and implementing the futures market system and trading rules.
(4) Organizing and supervising futures trading and monitoring market risks.
(5) release market information
(6) Designate and supervise the delivery warehouse
& gt& gt& gt& gt clearing house
The clearing house is an institution independent of the exchange, but it assists the operation of the exchange in function. Responsible for the unified settlement, margin management and settlement risk control of futures trading on the exchange.
Its main functions are central counterparties, profit and loss of settlement transactions and market risk control. Before providing confidence, the clearing institution needs to pass the audit of CFTC, register as a derivative clearing organization (DCO) and accept its supervision.
Central counterpart
The clearing institution is the guarantor of the buyers and sellers of futures contracts. It is the counterparty of both buyers and sellers, that is to say, both buyers and sellers trade with clearing houses, not individuals.
take for example
For contracts with exactly the same conditions, investor A buys 5 contracts and investor B sells 5 contracts. For investor a, the clearing house is its counterparty, and the clearing house sells five contracts to it; For investor B, the clearing house is also its counterparty, and the clearing house buys five contracts from it; A and B don't know each other and don't trade.
Settlement transaction profit and loss
After the end of each trading day, the clearing institution will quote the settlement price of the traded products and calculate the profit and loss of the members. All settlement and delivery are handled through the clearing house.
Market risk control
Clearing institutions control market risks by dynamically monitoring and settling the deposits of their clearing members. When the member's margin level is lower than the maintenance margin, the settlement institution will issue a notice to the member. If the member fails to supplement the corresponding additional margin within the specified time, the clearing institution has the right to carry out a series of operations including compulsory liquidation of the member's position.
Clearing institutions control market risks by monitoring and managing members' deposits, thus ensuring the stability of the futures market.
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American futures industry regulator
In the supervision system of American futures market, the self-discipline management of industries and exchanges is as important as the administrative supervision of Commodity Futures Trading Commission (CFTC). CFTC is responsible for supervising the futures industry in the United States, and the Futures Association (NFA) and the exchange should ensure that market participants operate in compliance.
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Commodity Futures Trading Commission (CFTC)
CFTC is a federal government agency of the United States, which was established by the Commodity Futures Trading Commission (CFTC) on 1974. The five members of CFTC are appointed by the President of the United States and approved by Congress for a five-year term. CFTC is the highest management and supervision institution of the American futures market, which governs all futures trading activities. Its goal is to ensure the normal operation of the US futures and options market. The organizational structure of CFTC is as follows:
CFTC's supervision of the market mainly includes the following aspects:
(1). Identify possible market manipulation and start processing procedures.
On the one hand, CFTC imposes legal constraints on its registered members' morality and behavior, identifies their operational compliance through auditing or other relevant procedures, and investigates and handles violations to maintain market stability. On the other hand, according to the reports of futures industry associations and exchanges, all kinds of fraudulent acts are prohibited, and all kinds of futures trading information are announced to the public to ensure information disclosure.
for instance
① 65438+65438 In 2007 +65438 09 10 +09, CFTC imposed a fine of $25 million on Citigroup's fraudulent transactions in the US Treasury futures market and its failure to supervise related acts.
Spoofingtrading: placing orders repeatedly and placing a large number of work orders in a short period of time, thus causing significant changes in the volume of buying and selling orders in a short period of time, confusing traders and pushing prices to change in their own direction. Finally, cancel the order and make a profit.
② 65438+On February 3rd, 2007, CFTC fined Royal Bank of Scotland $85 million for trying to manipulate the benchmark swap rate of ISDAFIX in the United States.
(2). Speculative position limit (position limit)
CFTC sets speculative position limits for different trading products according to specific factors such as risk and liquidity to prevent market manipulation and excessive speculation.
It is worth noting that the speculative position limit is only applicable to speculators, while BonafideHedger is not limited by the speculative position limit. In addition, the position limit refers to the net position of customers' products (including options with them as the subject matter) in all exchanges, not the total position.
for instance
On September 25th, 2002, CFTC fined a futures company in Shanghai and its chairman $654.38+500,000 yuan for violating the cotton and soybean futures positions.
This is the first time that CFTC has imposed fines on China enterprises since its establishment.
(3). Large family reporting system (LargeTraderReporting)
CFTC requires clearing members, futures commission brokers and foreign brokerage institutions to report their positions to it every day. Maintain comprehensive contact with futures trading institutions such as futures exchanges, dealers and clearing banks, understand futures trading information, especially large positions, ensure that the information is correct and transparent, and prevent large households from manipulating the market.
for instance
17171October17, CFTC reported violations to a large agricultural industrial company in China and was fined150,000 USD.
The main reason for the incident is that the company did not fill in the 304 form as required and the chain problems caused by it.
Through the excellent cases of two China investment institutions, we know that it is of great significance to be familiar with American regulatory requirements and avoid legal costs.
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Futures Industry Association (NFA)
(1). Establishment of NFA
The Futures Association (NFA) is a non-profit futures industry self-regulatory organization established in 1976 according to the provisions of the Commodity Futures Trading Commission Act of the United States. CFTC accepted NFA as a registered futures association in 198 1, and NFA officially started to operate in 1982. It is an American futures industry self-regulatory association, focusing on industry self-regulatory management and supervision of industry participants.
(2). The main responsibilities of NFA
As a self-regulatory agency designated by CFTC, NFA undertakes some administrative work authorized by CFTC. NFA focuses on the supervision and management of futures industry participants who engage in futures business with the public, and it does not supervise exchanges. The management functions of NFA include-
(1)NFA membership registration and review.
Futures commission broker (FCM), referral broker (IB), futures investment consultant (CTA), commodity fund manager (CPO) and their futures salesman (AP) must pass the NFA exam and become their registered members. Members can only do business with members.
(2) Formulating and implementing various rules and ethical standards.
The NFA formulates and implements various rules and ethical standards to supervise members' behaviors, oppose fraudulent, manipulative and other improper marketing and trading behaviors, and protect investors' interests. The NFA has formulated a detailed rulebook, including eight items: organizational terms, rules and regulations, compliance rules, arbitration regulations, membership arbitration rules, financial requirements, registration rules and explanations. The second part of the Compliance Rules, Code of Conduct for NFA Registered Members, lists in detail 49 compliance systems that registered members need to abide by, including various compliance requirements for AP, IB, FCM, CTA and CPO, so as to restrain the code of conduct of members.
(3) Establish arbitration and mediation system.
CFTC supervision is more about industry behavior and compliance supervision that has a significant impact on the market, while NFA shares more daily audit, supervision, adjustment and disputes for CFTC. The NFA has established an arbitration and mediation system to deal with disputes related to futures trading between customers and members, which greatly improves the administrative efficiency of the supervision system and maintains the stability of the futures market.
(3). The difference between NFA and CFTC
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Designated self-regulatory body (DSRO)
In addition to CFTC and NFA, other self-regulatory agencies in the American regulatory system cooperate with each other to jointly complete the regulatory function of the futures industry.
A futures commission merchant (FCM) is often a member of many exchanges and should be supervised by many exchanges. However, this will increase the operating burden of exchanges and futures exchanges. In order to solve this problem, it is stipulated that every futures commission merchant must be inspected by a designated self-regulatory organization (DSRO) in terms of investor protection and finance.
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abstract
There is a long way to go in Xiu Yuan, and I will go up and down.
I hope that by reading this article, you can have a better understanding of the overall framework of the US futures industry, especially the functions and roles of the US regulatory agencies CFTC and NFA.
In order to have a deeper understanding of the American futures industry and regulatory system, the author suggests that readers can further study the NFA rulebook, or take the American futures industry qualification (Series3) exam and the futures branch manager (Series30) exam to strengthen their study and understanding of American futures industry knowledge and compliance knowledge.
If readers want to systematically learn the knowledge and compliance knowledge of American futures industry, they can contact Chicago Investment Institute or the author.
Risk disclosure
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