Oversight of Commodity Exchanges and International Exchanges - dummies

Oversight of Commodity Exchanges and International Exchanges

By Amine Bouchentouf

Commodity exchanges are under strict oversight, to protect all market participants and ensure transparency in the exchanges. These main regulatory organizations have oversight of commodity exchanges in the United States:

  • Commodity Futures Trading Commission (CFTC): The CFTC is a federal regulatory agency created by Congress in 1974. Its main purpose is to regulate the commodity markets and protect all market participants from fraud, manipulation, and abusive practices. Any exchange that conducts business with the public must be registered with the CFTC.

  • National Futures Association (NFA): The NFA is the industry’s self-regulatory body. It conducts audits, launches investigations to root out corrupt practices in the industry, and enforces the rules related to trading commodities on the various exchanges. It also regulates every firm or individual who conducts business with you as an investor — including floor traders and brokers, futures commission merchants, commodity trading advisors, commodity pool operators, and introducing brokers.

Commodity exchanges are responsible for setting global benchmark prices for some of the world’s most important commodities. As a result, the amount of liquidity they generate is enormous. For example, more than $1.5 trillion worth of contracts are traded in the commodity exchanges mentioned previously — each day!

Although the bulk of commodity trading is done in the United States — the largest consumer market of commodities — commodity exchanges are located in other countries. If you’re in the United States, you may want to consider investing in overseas exchanges for liquidity purposes.

For example, both the American CME/NYMEX and the British London Metal Exchange (LME) offer aluminum futures contracts. However, the aluminum contract in the LME is more liquid, so you may get a better price by buying aluminum contracts in London rather than Chicago

Exchange Name Country Commodities Traded
European Energy Exchange Germany Electricity
London Metal Exchange United Kingdom Aluminum, copper, lead, nickel, tin, zinc
Natural Gas Exchange Canada Natural gas
Tokyo Commodity Exchange Japan Aluminum, gold, palladium, platinum, silver, crude oil,
gasoline, kerosene, rubber