Courts Split on Forex
Currently, the
United States Courts of Appeals in the Second and Fourth Circuits
are split as to whether the Commodity Futures Trading Commission
("CFTC") has jurisdiction under the Commodity Exchange
Act, as amended ("CEA") to regulate off-exchange options
involving foreign currencies. A brief history of the CEA illustrates
why this problem has arisen.
In 1921, Congress enacted the Futures
Trading Act to regulate boards of trade on which futures trading
occurred, primarily to prevent price manipulation. A year after
its passage, however, the Futures Trading Act was declared unconstitutional
as an improper exercise of the taxing power. Congress then passed
the Grain Futures Act of 1922 under its authority granted by
the Commerce Clause. Over the years, numerous amendments were
enacted and the statutory framework established by the Grain
Futures Act developed into the Commodity Exchange Act. The CEA
established a comprehensive system for regulating futures contracts
and options. Its basic tenet is that no person shall enter into,
or offer to enter into, a transaction involving the sale of a
"commodity for future delivery," unless it is conducted
on or through a board of trade designated and regulated by the
CFTC as an exchange.
In Salomon Forex v. Tauber, (1993)
("Forex") and Commodity Futures Trading Commission
v. Dunn (1995) ("Dunn"), the Fourth and Second Circuits,
respectively, were faced with deciding whether off-exchange futures
and options contracts involving foreign currencies are regulated
by the CEA. In both cases, the analysis focuses on the Treasury
Amendment of 1974 which circumscribes some of the authority granted
to the CFTC by the CEA. The Treasury Amendment reads in relevant
part as follows:
Nothing in this chapter [of the
CEA] shall be deemed to
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| To Our Clients and Friends:
We touch upon several important
topics in this issue of GlobalNote. The definitional conflict
of what is and what is not a "future" for purposes
of the CFTC's jurisdictional reach with respect to off exchange
foreign currency transactions is now the subject of a conflict
in the Circuit Courts. We look at the two leading cases.
In another article we note that
often in drafting disclosure documents and other offering materials
issuers may consider softening the cautionary language to enhance
marketability of the deal. We note, in the context of the "Bespeak
Caution" principles, the danger in doing so and show the
benefit of having made a full and fair disclosure.
Lastly a new SEC rule shows the
continued importance of the legendary "Chinese Wall"
in separating research and trading departments.
We hope you enjoy this GlobalNote.
Please call with your comments or for further information.
Sincerely,
Michael G. Tannenbaum
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