Commodity Trading Firms
What is a Commodity Trading Firm?
A commodity trading firm is similar to a stock trading firm in that it deals with the buying and selling of investments. Unlike stock traders, however, who work with shares of a company, commodity traders invest in actual physical objects such as gold, oil, cotton, wheat, and many other items. While some people in the commodities business buy and sell the physical objects themselves, most actually invest in contracts that represent the future price of a commodity.
Employees of commodity trading firms generally trade on major commodity exchanges like the New York Mercantile Exchange or the Chicago Mercantile Exchange.
How are Commodity Trading Firms Regulated?
The Commodity Futures Trading Commission (CFTC) regulates the trading of commodities, as outlined by the Commodity Exchange Act that was passed in 1936. The CFTC’s mission is to ensure a resilient and vibrant commodities market that operates with integrity. It aims to protect those who invest in the commodities market from fraud or other abusive practices and to establish a competitive and open market.
Commodity trading firms are bound by the rules of the Commodity Exchange Act and other pieces of legislation, and the CFTC investigates any potential wrongdoing. Such nefarious actions include all types of fraud and energy manipulation. When necessary, the CFTC collaborates with other relevant federal or local agencies.
What are the Communication Archiving Regulations for Commodity Trading Firms?
According to the CFTC’s Rule 1.31, commodity trading firms are required to keep hard copies of all electronic records including communications for five years and they must be easily accessible and able to be presented to the CFTC or Department of Justice if requested. In 2017, a new amendment was added to the rule allowing firms to store their records electronically, reducing costs and saving time.
This means that commodity trading firms must have a process in place that enables them to capture all electronic communications, regardless of on what platform they take place. They then need to be able to store the data so that it can be easily searched and provided to investigators when necessary.
Best Practices for Commodity Trading Firms to Ensure Compliance
The CFTC periodically evaluates commodity trading firms to make sure that they have appropriate compliance programs and processes set up. Following are elements that the CFTC looks for that trading firms should make sure they address:
For Prevention of Misconduct:
- Establish written policies and procedures that employees are expected to follow
- Provide periodic training to staff on compliance
- Ensure sufficient resources are allocated to implementing the compliance process
- Assign one person or team of people who are tasked with overseeing and reporting on compliance
For Detection of Misconduct:
- Implement automated surveillance and monitoring procedures to track all business-related communications
- Set up an internal reporting system for the handling of complaints
- Establish methods for detecting and following-up on unusual activity that could point to misconduct
For Remediation of Misconduct:
- Have a plan in place for taking appropriate disciplinary action if misconduct occurs
- Address any weaknesses in the compliance program that may have contributed to misconduct
How LeapXpert Can Help
Commodity trading firms can use LeapXpert’s business communication platform to easily and effectively monitor all employee-client conversations across all platforms. LeapXpert provides an all-in-one solution for all CFTC-regulated firms that integrates with existing messaging apps and business systems and enables employees to communicate with their clients while remaining fully compliant.