How did the Commodity Futures Modernization Act come about?
In the early 1970s, there were overlapping duties concerning regulation and the sale of futures on single stocks, among others. In the early 1980s, Congress took action to prohibit the sale of single stock futures, a sort of derivative security, in order to get the conflict worked out. A bill to lift the prohibition on single stock sales was introduced by Rep. Thomas W. Ewing on December 14, 2000. By December 21, 2000, the Commodities Futures Modernization Act was passed. The passage restored more flexible and less obtrusive regulations for commodities and futures markets. Most important, the act prohibited the SEC and the CFTC from regulating certain new financial products, such as credit default swaps. An “Enron Loophole” in the act also enabled energy traders to trade in unregulated markets. Unfortunately, credit default swaps and the “Enron Loophole” have emerged as key factors in the recent financial crisis.
