NCJ Number
47194
Journal
Boston University Law Review Volume: 58 Issue: 1 Dated: (JANUARY 1978) Pages: 1-43
Date Published
1978
Length
43 pages
Annotation
THE DIFFERENCES SEPARATING COMMODITY AND SECURITY TRADING ARE EXAMINED AND THE SCOPE OF EXISTING GOVERNMENT REGULATIONS REGARDING THE FUTURES MARKET IS EVALUATED.
Abstract
A COMMODITY IS AN ARTICLE OF TRADE OR COMMERCE, A TANGIBLE PRODUCT GENERALLY PRODUCED AND SOLD IN VOLUME. SPECULATORS ARE ATTRACTED TO THE FUTURES MARKET BY THE POSSIBILITY OF MAKING ENORMOUS PROFITS FROM RELATIVELY MODEST INITIAL INVESTMENTS. COMMODITY SPECULATORS DIFFER FROM SECURITIES TRADERS IN FOUR WAYS: SPECULATORS NEED NOT BUY AT THE FULL MARKET PRICE; COMMODITY INVESTORS LOOK ONLY FOR PRICE GAINS AND LOSSES, WHILE SECURITIES TRADERS MAY ALSO BE INTERESTED IN DIVIDENDS, OPTIONS, SPLITS AND PROXIES; THE SPECULATIVE NATURE OF FUTURES TRADING DEMANDS THAT TRADERS CHANGE POSITIONS RAPIDLY AND OFTEN; AND COMMODITY FUTURES ARE CONFINED BY REGULATION TO MAXIMUM DAILY PRICE FLUCTUATION LIMITS THAT ARE INTENDED TO MINIMIZE THE EFFECTS OF SENSATIONAL NEW DEVELOPMENTS. THE DIFFERENCE IN BROKER COMMISSION STRUCTURES ARE DISCUSSED, AS ARE THE NATURE OF AND ALTERNATIVES TO INDIVIDUAL FUTURES INVESTMENT. THE RECENT APPLICATION OF FEDERAL REGULATION TO THE TRADING OF COMMODITY FUTURES AND THE INVESTOR-PROTECTION NATURE OF THE COMMODITY FUTURES TRADING COMMISSION ARE DISCUSSED. PROBLEMS WITHIN THE COMMODITY FUTURES MARKET SUCH AS THE SUITABILITY DOCTRINE, BROKER CONTROL OF TRADING ACTIVITY, EXCESSIVE TRADING, CUSTOMER PROFITS AND LOSSES, UNAUTHORIZED TRADING, MANIPULATION, AND OTHER FRAUDULENT ACTIVITIES ARE DISCUSSED. THE FORUMS FOR BROKER-CUSTOMER DISPUTE RESOLUTION, CLAIMS ARBITRATION, REPARATIONS PROCEEDINGS, PRIVATE RIGHTS OF ACTION IN FEDERAL COURT, AND FORUM CONFLICTS ARE OVERVIEWED. IT IS CONCLUDED THAT THE INFLUX OF INEXPERIENCED TRADERS INTO THE FUTURES MARKET MAKES THE ADOPTION OF SUITABILITY RULES PARTICULARLY URGENT. ONLY THROUGH IMPROVING SELF-REGULATION WILL EXCHANGES AND THEIR MEMBERS AVOID A REGULATORY OVERLOAD AND EFFECT A WORKABLE BALANCE BETWEEN INDUSTRY NEEDS AND CUSTOMER PROTECTION. EXTENSIVE FOOTNOTES ARE PROVIDED.