What Is the Grain Futures Act of 1922?
The Grain Futures Act of 1922 is a federal statute that was passed in 1922 by the use of the united statesgovernment. The Act established a brand spanking new restriction: all grain futures are required to be traded on regulated futures exchanges. The Act moreover required exchanges to make more information public while moreover limiting the quantity of market manipulation.
The U.S. govt established an corporate throughout the U.S. Department of Agriculture to control the Grain Futures Act.
Key Takeaways
- The Grain Futures Act of 1922 is a federal statute that was passed by the use of the united statesgovernment and established that every one grain futures are required to be traded on regulated futures exchanges.
- The Act moreover required exchanges to make more information public while moreover limiting the quantity of market manipulation.
- The Grain Futures Act of 1922 was the predecessor of subsequent regulation that significantly shaped the best way by which agricultural commodities are traded.
Understanding the Grain Futures Act of 1922
In step with the language of the original statute, the Grain Futures Act was “for the prevention and removal of obstructions and burdens upon interstate industry in grain by the use of regulating transactions on grain longer term exchanges, and for various purposes.” The Grain Futures Act of 1922 was the predecessor of subsequent regulation that significantly shaped the best way by which agricultural commodities are traded.
History of the Grain Futures Act
Throughout the Nineteen Twenties and 1930s, the federal government began to additional intently regulate commodities. Because of the Grain Futures Act, the U.S. govt obtained the precise to get admission to in the past unavailable information about the markets. This data was published and matter to an in-depth analysis that regulators, Congress, and members throughout the futures market would possibly get admission to.
The impetus for passing the Grain Futures Act was fraud throughout the commodity markets. Throughout the overdue 19th century, an early type of commodity fraud known as “bucket shops” appeared. At a bucket retailer, other folks would possibly make bets on provide prices for commodities. However, the ones bets were not formalized in contracts on any exchanges. Instead, the establishments operating as bucket shops would place the bets on their own books and offset all bets they received with their own belongings. Not unusually, the ones bucket shops would possibly not always make good on their wagers, as many that made a luck bets discovered after they were given right here to assemble their winnings.
Even supposing the Chicago Board of Industry (CBOT) attempted to interfere throughout the bucket shops’ operations by the use of cutting off get admission to to their market quotations, bucket shops continued to thrive on account of competing exchanges that stepped in and started providing their own market quotations. At the state-level, there was moreover regulation put in place that tried to regulate bucket shops. When it used to be clear that neither of the ones approaches would artwork to curtail the fraudulent bucket shops, the U.S. Congress enacted the Grain Futures Act.
The Grain Futures Act was introduced throughout the United States Congress merely two weeks after the U.S. Superb Court declared the Futures Purchasing and promoting Act of 1921 unconstitutional. While the Grain Futures Act built-in similar rules to those found out throughout the Long run Purchasing and promoting Act—along with the must haves for designation as a contract market—the Grain Futures Act differed from the Long run Purchasing and promoting Act because it banned off-contract-market futures purchasing and promoting relatively than taxing it.
The Grain Futures Act moreover created the Grain Futures Charge. This price was made out of the Secretary of Agriculture, the Secretary of Industry, and the Attorney Fundamental. The ones designees had the ability to suspend or revoke a contract market designation.
The Commodity Exchange Act (CEA)
One day, the Grain Futures Act of 1922 used to be extremely tough to put into effect because of disciplinary movement was taken in opposition to the industry itself relatively than individual patrons. This flaw was amended in 1936 when the Commodity Exchange Act (CEA) was passed.
The Commodity Exchange Act have shyed away from and removed obstructions on interstate industry in commodities by the use of regulating transactions on commodity futures exchanges. It established the statutory framework under which the Commodity Futures Purchasing and promoting Charge (CFTC) operates. The CFTC was established in 1974. In 1982, the CFTC created the National Futures Association (NFA).
Without such rules similar to the Grain Futures Act of 1922 and the following regulation it resulted in, market members might be subjected to fraud and, in turn, lose faith throughout the country’s capital markets. This is able to make capital markets needless at effectively allocating financial belongings to really essentially the most deserving manner of producing and productive monetary movements to the detriment of patrons, consumers, and society.
