The Commodity Futures Modernization Act of 2000 (CFMA) is a United States federal law that ensures that over-the-counter (OTC) derivatives remained unregulated.

The Commodity Futures Modernization Act (CFMA) of 2000 is a landmark piece of legislation in the United States that significantly altered the regulation of financial markets.

[7] President's Working Group on Financial Markets, November 1999: Although hailed by the PWG on the day of congressional passage as "important legislation" to allow "the United States to maintain its competitive position in the over-the-counter derivative markets", by 2001 the collapse of Enron brought public attention to the CFMA's treatment of energy derivatives in the "Enron Loophole".

Following the Federal Reserve's emergency loans to "rescue" American International Group (AIG) in September 2008, the CFMA has received even more widespread criticism for its treatment of credit default swaps and other OTC derivatives.

"[10][b] On August 11, 2009, the Treasury Department sent Congress draft legislation to implement its proposal to amend the CFMA and other laws to provide "comprehensive regulation of all over-the counter derivatives."

"[15] To eliminate this risk, the CFTC and the Congress acted to give "legal certainty" to swaps and, more generally, to the OTC derivatives market activities of "sophisticated parties."

First, the CFTC issued "policy statements" and "statutory interpretations" that swaps, "hybrid instruments" (i.e., securities or deposits with a derivative component), and certain "forward transactions" were not covered by the CEA.

The CFTC used that authority (as Congress contemplated or "instructed") to exempt the same three categories of transactions for which it had previously issued policy statements or statutory interpretations.

[19] Although OTC derivatives were subject to criticism in the 1990s and bills were introduced in Congress to regulate aspects of the market, the 1993 exemptions remained in place.

The CFTC expressed dismay over the Broker-Dealer Lite proposal and the manner in which it was issued, but also noted it was 18 months into a "comprehensive regulatory reform effort."

In her testimony to the Senate Agriculture Committee and in several subsequent speeches during the first half of 1997, Chairperson Born argued OTC derivatives did not create the same "concentration of financial risk" as exchange-traded futures and did not perform the "unique price discovery" function of exchange traded contracts.

The hearing, however, focused on issues with regulatory oversight of the banks and security firms that had given the LTCM fund high leverage through both loans and OTC derivative transactions.

"[33] The PWG Report recommended: (1) the codification into the CEA, as an "exclusion", of existing regulatory exemptions for OTC financial derivatives, revised to permit electronic trading between "eligible swaps participants" (acting as "principals") and to even allow standardized (i.e. "fungible") contracts subject to "regulated" clearing; (2) continuation of the existing CFTC authority to exempt other non-agricultural commodities (such as energy products) from provisions of the CEA; (3) continuation of existing exemptions for "hybrid instruments" expanded to cover the Shad-Johnson Accord (thereby exempting from the CEA any hybrid that could be viewed as a future on a "non-exempt security"), and a prohibition on the CFTC changing the exemption without the agreement of the other members of the PWG; (4) continuation of the preemption of state laws that might otherwise make any "excluded" or "exempted" transactions illegal as gambling or otherwise; (5) as previously recommended by the PWG in its report on hedge funds, the expansion of SEC and CFTC "risk assessment" oversight of affiliates of securities firms and commodity firms engaged in OTC derivatives activities to ensure they did not endanger affiliated broker-dealers or futures commission merchants; (6) encouraging the CFTC to grant broad "deregulation" of existing exchange trading to reflect differences in (A) the susceptibility of commodities to price manipulation and (B) the "sophistication" and financial strength of the parties permitted to trade on the exchange; and (7) permission for single stock and narrow index stock futures on terms to be agreed between the CFTC and SEC.

By essentially adopting the views of the other members of the PWG concerning the scope and application of the CEA, the CFTC permitted a "remarkable" agreement "on a redrawing of the regulatory lines.

"[37] The PWG Report also emphasized the desire to "maintain U.S. leadership in these rapidly developing markets" by discouraging the movement of such transactions "offshore".

In the 1998 Congressional hearings concerning the CFTC "concept release" Representative James A. Leach (R-IA) had tied the controversy to "systemic risk" by arguing the movement of transactions to jurisdictions outside the United States would replace U.S. regulation with laxer foreign supervision.

[40] Such "eligible contract participants" could enter into transactions on or off "electronic trading facilities" without being subject to any of the regulatory oversight applicable to futures.

[48] The CFMA did not provide the CFTC or SEC the broader "risk assessment" authority over affiliates of futures commission merchants or broker-dealers that the PWG Report had recommended.

Sponsors had delayed introduction of the bills as they vainly awaited agreement between the CFTC and SEC on how to regulate the single stock futures contemplated by the PWG Report.

Senior Treasury Department officials hailed the "historic agreement" as eliminating "the major obstacles to forming a consensus bill.

[55] Democratic members of Congress later described a period in late September through early October during which they were excluded from negotiations over reconciling the three committee versions of H.R.

[64] On December 14, however, the Treasury Department announced agreement had been reached the night before and urged Congress to enact into law the agreed upon language.

In granting the SEC authority over "security-related swaps", the CFMA specifically prohibited applying any "prophylactic" anti-fraud or anti-manipulation measures.

4541 as passed by the House, the portion of Section 2(h) dealing with the exempt commercial market had been deleted from S. 2697 when the Senate Agriculture Committee reported out an amended version of that bill.

[82] In 2008 Congress enacted into law over President Bush's veto an Omnibus Farm Bill that contained the "Close the Enron Loophole Act."

It excludes from even the fraud and manipulation provisions of the CEA any "individually negotiated" transaction in a non-agricultural commodity between "eligible contract participants" not executed on a "trading facility".

[86] In June 2013, film producer Charles Ferguson interviewed Bill Clinton who said he and Larry Summers couldn't change Alan Greenspan's mind and Congress then passed the Act with a veto-proof supermajority.

In fact, Ferguson wrote, the Clinton Administration and Larry Summers lobbied for the Act and joined Robert Rubin in both privately and publicly attacking advocates of regulation.

"[88] To accomplish this "comprehensive regulation", the proposed legislation would repeal many of the provisions of the CFMA, including all of the exclusions and exemptions that have been identified as the "Enron Loophole".

4173, the so-called Wall Street Reform and Consumer Protection Act of 2009, which included a revised version of the Treasury Department's proposed legislation that would repeal the same provisions of the CFMA noted above.