When futures traders exceed a certain value, they pass the reporting level and must submit daily reports to the Commodity Futures Trading Commission. Large traders must provide information on their positions, ownership, and delivery months. Non-compliance can result in penalties, and companies often handle compliance issues.
For futures traders, when they have contracts above a certain value, they pass the reporting level. People below the reporting level, also known as the reporting threshold, are not required to submit reports on their business activities. Persons above the tier are required to submit daily reports to the Commodity Futures Trading Commission (CTFC) to alert the Commission to their operations and other aspects of their trading activities. The reporting level is designed as a safeguard to allow regulation of activities in the futures markets.
When a trader exceeds the reporting level, that trader is said to be a “big trader”. Large traders are required to submit information on the size of the positions they hold, ownership, and the number of delivery months. This information is used by the CTFC to monitor futures trading activities and identify any areas of concern. Unusual activity may be indicative of a trend that may require regulation. Large traders are generally subject to regulation, as their actions can destabilize the market or cause confusion among less experienced investors.
The CTFC was created in 1974 to act as a regulatory authority for futures traders. Futures are obligation contracts that require people to buy a fixed amount of a commodity. The reporting level for futures is based on the community involved. Some products have higher thresholds than others, reflecting the variability of trade and the point at which regulators feel it is necessary to start tracking trades more closely.
In some cases, the merchant’s company will issue the required daily reports. Companies that handle multiple large merchants have mechanisms in place to quickly and easily submit CTFC-compliant reports. In other cases, merchants file those reports directly. In environments where a merchant believes reports should be handled by the company, the merchant is still responsible for confirming that they are filed.
People who trade futures and do not comply with CTFC regulations can be penalized. There is the potential to be fined, banned from trading for a set period of time, or stripped of trading qualifications. Regulatory compliance requirements change periodically and most merchants keep up with the requirements of trade publications and formal notices issued by the CTFC. People who trade various types of financial products should be well aware of the requirements for all of them. One advantage of working for a company, rather than independently, is that the company handles most compliance issues and has attorneys available to help merchants with compliance questions and concerns.
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