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1 (October 20, 2005)

handle is hein.crs/crsuntaabyq0001 and id is 1 raw text is: Order Code RS22028 Updated October 20, 2005 CRS Report for Congress Received through the CRS Web CFTC Reauthorization in 2005 Mark Jickling Specialist in Public Finance Government and Finance Division Summary Authorization for the Commodity Futures Trading Commission (CFTC), a sunset agency established in 1974, expired on September 30, 2005. In the past, Congress has used the reauthorization process to consider amendments to the Commodity Exchange Act (CEA), which provides the basis for federal regulation of commodity futures trading. The last reauthorization resulted in the enactment of the Commodity Futures Modernization Act of 2000 (CFMA), the most significant amendments to the CEA since the CFTC was created in 1974. Both House and Senate Agriculture Committees held reauthorization hearings in March 2005. The Senate Banking Committee held a hearing on September 8, 2005. The Senate Agriculture Committee approved S. 1566, a CFTC reauthorization bill offered by Chairman Chambliss, on July 21, 2005. This report provides brief summaries of the issues in the 2005 reauthorization legislation, including (1) the market in security futures, or futures contracts based on single stocks, which were authorized by the CFMA, but trade in much lower volumes than their proponents had hoped, (2) regulation of energy derivatives markets, where some see excessive price volatility and a lack of effective regulation, and (3) the legality of futures-like contracts based on foreign currency prices offered to retail investors. This report will be updated as developments warrant. Futures contracts -like other financial derivatives such as options or swaps - gain or lose value as the price of some underlying commodity rises or falls. They can be used to avoid, or hedge, price risk. That is, farmers, utilities, airlines, banks, and many other businesses can use derivatives to protect themselves against unfavorable changes in commodity prices, interest rates, or other variables. Most futures trading, however, is done by speculators who profit if their forecasts of price trends are correct. (The futures exchanges are associations of professional speculators.) There are two public benefits to speculation: speculators provide liquidity that enables hedgers to take positions quickly and at low cost and to unwind those positions at any time. Speculative trading also provides a very effective price discovery mechanism: futures prices adjust immediately to new information and serve as the basis for many physical (or spot market) transactions in oil, agricultural, and other markets. Congressional Research Service + The Library of Congress

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