DANGER DANGER....CFTC ALERT WILL AFFECT EVERYONE
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Commodity Futures Trading Commission
Office of External Affairs
Three Lafayette Centre
1155 21st
Street, NW
Washington, DC 20581
202.418.5080
CFTC Emergency Authority Background
June 26, 2008
The CFTC currently has emergency authority powers, as granted by Congress and
found in Section 8a(9) of the Commodity Exchange Act (CEA).
These powers are based on Commission judgment and allow the Commission to take
action to “maintain or restore orderly trading.”
In the CEA, the term “emergency” means, in addition to threatened or actual market
manipulations and corners, any act of the United States or a foreign government
affecting a commodity or “any other major market disturbance which prevents the
market from accurately reflecting the forces of supply and demand for such commodity.”
The Commission has exercised its emergency powers in response to extreme events,
such as manipulation or a specific disturbance that caused a sudden shock to the
markets.
The CFTC has never exercised emergency powers based on price trends that have
developed over months or years.
Since the agency’s creation in 1976, it has used its emergency authority four times.
• November 1976 Maine Potatoes Traded on NYMEX: This involved a threat of
manipulation in an expiring contract. In November 1976, the Commission
declared an emergency and ordered the exchange to impose 100% margins on
all accounts and to limit trading in this contract to liquidation only.
• December 1977 Coffee Traded on New York Coffee and Sugar Exchange: This
again involved a threat of manipulation in an expiring contract. In November
1977, the Commission, in conjunction with the exchange, declared an emergency
and ordered a phased liquidation of all positions subject to a prescribed
schedule.
• March 1979 Wheat Traded on CBOT: This again involved a threat of
manipulation in an expiring contract. In early 1979, the Commission declared a
market emergency and ordered a 1-day suspension of trading so the exchange CFTC
could take further regulatory action. Subsequently, based on its belief that an
emergency continued to exist, the Commission ordered the exchange to suspend
all further trading in the contract and to settle any contracts remaining after the
delivery period expired at the last prevailing settlement price for that contract.
• January 1980 Soviet Grain Embargo: In January 1980, when President Carter
imposed the Soviet grain embargo after the USSR invaded Afghanistan, the
Commission declared an emergency and suspended trading for 2 days in futures
for wheat, corn, oats, soybeans, soybean meal and soybean oil that were traded
on 4 different exchanges. The Commission acted because, in its view, the
sudden shock to the market and uncertainties concerning unannounced USDA
plans to compensate those affected by the embargo would render the markets
temporarily incapable of accurately reflecting the forces of supply and demand.
The 2-day suspension gave the markets time to consider the USDA support
programs in light of the embargo action.
The exercise of emergency action by the CFTC is subject to review in the U.S. Courts of
Appeals based upon the information before the Commission at the time of the
emergency action.
The designated contract markets (regulated futures exchanges) also have similar
emergency authority by statute, as outlined in CEA Section 5(d)(6). |
