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57 Suffolk U. L. Rev. 43 (2024)
Why Regulate Commodities?

handle is hein.journals/sufflr57 and id is 57 raw text is: Why Regulate Commodities? Gary E. Kalbaugh* ABSTRACT This Article examines the federal regulatory regime for commodities and the theories and purpose to their regulation. At the onset of federal commodities regulation in 1922, only futures on specified agri- cultural commodities were regulated. Today, the federally-defined term commodity could mean nearly any good, article, or service in the world, and the implications go well beyond futures to products such as options, swaps, and even spot market transactions. Before 1974, commodity was defined such that the only federally-regulated commodities were those specifically enumerated by statute. The revised 1974 federal commodity definition, due to its open-ended nature, has been interpreted as potentially including every good, article, and service imaginable. That interpretation combined with a prohibition on trading futures other than on a federally-regulated futures exchange has dramatic implications. I propose that the current, potentially unlimited, definition of commodity is, in some regulatory contexts, inimical to the original goals of federal commodity regulation and serves to undermine them. Its vagueness does a double disservice. Activities that are legitimate and arguably unregulated are suppressed and disincentivized due to the uncertainty that they will be treated as regulated, exposing the participants civilly or criminally. Additionally, some activities that perhaps ought to be regulated are not clearly sub- ject to the federal commodity regulatory regime-most fungible digital assets arguably fall into this latter category. As a remedy, this Article advocates a new, distinct approach using three definitions of commodity. First, in the context of some of the federally-regulated commodities activities, such as futures trading on an organized and regulated facility, the existing open-ended definition should be retained. Second, in the context of spot transactions, the federal anti-manipulation authority should be explicitly limited to cate- gories of commodities that are currently the subject of futures trading in the United States or for where there is a nexus to organized markets already regulated by the Commodity Futures Trading Commission (CFTC). These categories could be regularly updated just as they were for the fifty-two years before 1974. Relatedly, and as a technical matter, to determine which non-financial forward transactions are exempt from being deemed swaps, the requirement that such forwards be commodity or security forwards' should be removed. Third, this Article suggests a narrower definition of commodity in the context of off-exchange options over which the CFTC has jurisdiction to clearly exclude ordinary commercial trans- actions such as a real estate option. Special Professor of Law, Maurice A. Deane School of Law at Hofstra University. The author thanks Lead Articles Editor, Anne McNamara, Editor-in-Chief, Sara Levien, and their team at the Suffolk University Law Review for their editorial acumen, diligence, and attentiveness. The author also thanks the Biddle Law Library at the University of Pennsylvania for its support and, particularly, Genevieve Tung and Amanda Runyon. 1. See 7 U.S.C. § la(47)(B)(ii) (listing exceptions to swap definition).

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