Vanderbilt Law Review

First Page



The Commodity Exchange Act (CEA) makes it illegal to trade a contract for the purchase or sale of a commodity for future delivery-a"futures contract"-unless the contract is executed on a federally designated exchange. Despite its long history of trouble-free administration and operation, this central premise of futures regulation recently has been attacked as unworkable and undesirable. Some argue that the requirement discourages commercially useful off-exchange transactions. They claim that even if such transactions fall within the letter of the requirement, off-exchange transactions do not implicate the trading restriction's policy concerns. In contrast, others suggest that off-exchange

transactions threaten the safety and soundness of the international financial system, and violate the clear language of the CEA. The out-come of this debate will have a profound impact on risk management and the futures industry for years to come.The purpose of this Article is to review this longstanding and now controversial exchange-trading requirement-including its origins,scope, and current relevance.

Parts II and III of this Article examine the historical evolution of forward and futures contracts and present an overview of federal regulation of commodity futures from 1921 to the present. Part IV explores in detail the legislative history of the exchange-trading requirement. Particular emphasis is placed on the meaning of a narrow statutory exception to the requirement called the"forward contract exclusion." In Part V the "Treasury Amendment,"adopted in 1974, is reviewed and determined to be a clarification of the forward contract exclusion. Following an examination of the Commodity Futures Trading Commission's jurisdiction over futures trading in

Part VI, Part VII analyzes a proposal to carve out a "safe harbor" from the exchange-trading requirement for futures transactions by commercial institutions. That section concludes that the proposal finds no support in the language or legislative history of the CEA and ignores important congressional policy considerations. Overall, this Article finds that the CEA, as presently structured, appropriately determines what instruments must be traded on designated exchanges and accommodates all commercially useful transactions.'