must be traded only on the CFTC-designated commodity exchanges, whereas there are many stocks not traded on securities exchanges). Contract markets

3. Prevention of Manipulation.

are required by the Act to provide for the prevention of manipulation, and the CFTC can severely punish contract markets and their managements for failing to fulfill this and other statutory duties. CEAct, Sections 5a (8), 5b, 5(d), 6(a), 6(b), 6(c), 6b and 6c. [The SEC has no specific authority to proceed against securities exchange officials.]

[A summary comparison of CFTC and SEC
market protection powers follows].

Chapter 12

SELF REGULATION AND THE PUBLIC INTEREST

As recent events in silver demonstate, self-regulation is also a vital and viable force in the futures industry. The Chicago Board of Trade, for example, has not hesitated to use its market regulation powers to protect the integrity of its marketplace.

Self-regulation is, of course, a key element in the regulatory scheme of the Commodity Exchange Act. In this regard, however, the Act reflects and is intended to perfect mechanisms which had developed long before the advent of federal regulation. The Board of Trade, for example, was incorporated in 1859 as a "body politic and corporate" to "inculcate principles of justice and equity in trade."

By 1875, the Board of Trade had a highly organized and fairly sophisticated self-regulatory program, complete with rules governing business conduct as well as commercial standards and machinery for their enforcement.

Considering the fact that most other American industries have never evolved a formal self-regulatory system, what prompted the Chicago Board of Trade and other exchanges to do 80? Those who could provide a reliable answer to that question have long since departed this world. Our best guess is that at least two factors helped to bring about a self-regulatory structure among the exchanges.

First, these were centralized markets where most participants operated in close proximity. This made it easier

to organize a common code of behavior and also to enforce it. Second, these were markets extremely sensitive to the ebb and flow of public confidence.

It was only "good business" to weed

out those members of the industry whose activities threatened public confidence in the markets:

The founders of most exchanges were men of
acknowledged leadership in their communities.
They recognized that it was simply "good busi-
ness" to discourage sharp practices which could
undermine the vital public confidence in the
exchanges. Therefore, as long as 100 years
before the first Federal legislation in the
area, the exchanges, which then dealt only with
cash commodities, had some sort of self-regula-
tory system complete with codes of conduct,

surveillance programs, and disciplinary powers.1/

Over the intervening years, the Board of Trade has developed a detailed system of regulation, codified in a rulebook of several hundred pages. Now operating under the pervasive oversight jurisdiction of the CFTC, the Board of Trade's regulatory system assures, far more efficiently and effectively than any direct federal system, that futures trading on the Board of Trade is conducted in a fair and competitive manner and in the public interest.2/

For example, the Board of Trade maintains (at no taxpayer cost) a comprehensive system for the protection of customers of Board of Trade members. This system, which is in

1/

2/

H. Rep. No. 93-975, 93d Cong., 2d Sess. 45 (1974). See
Johnson, "Self-Regulation: A Primer on the Perils," 16
Admin. L. Rev. 387, 388 (1975). See also Lurie, "Com-
modities Exchanges As Self-Regulating Organizations in the
Late 19th Century," 28 Rutgers L. Rev. 1107 (1975).

See Chapter 9 for a detailed discussion of the operation of the Board of Trade's self-regulatory system.