Excluded Commodities

Excluded Commodities - Corfu Island, Ionian Sea, Greece
Excluded Commodities

The Commodity Exchange Act (CEA) defines excluded commodities as instruments that are not manipulable or influenceable by any party and thus are excluded from CEA regulation. They include any financial instrument such as an interest or exchange rate, currency, security, credit risk or measure.

Apart from that, excluded commodities also include any other rate that is only based on commodities without cash markets. Also part of the definition of excluded commodities is an occurrence or contingency with a relevant consequence, but without the control of any party involved in the contract.

Usually, the CEA regulates the trading of commodities to protect investors against fraud and to deter market manipulation. In 1999, The U.S. President’s Working Group on Financial Markets (PWG) concluded that commodity trading should be subject to CEA regulation only if it is necessary to ensure the achievement of public policy objectives.

Accordingly, amendments regarding a more flexible structure for the regulation of futures and option trading have been established in the course of the Commodity Futures Modernization Act 2000.

Since excluded commodities are usually large in scale, they are not considered to be susceptible to manipulation or influence of any interested party. Apart from that, professional counterparties are able to protect themselves against fraud.

Thus, excluded commodities were excluded from regulation under some further conditions: eligible contract participants have to enter into the contract, the transaction has to be accomplished on an electronic trading facility, and trading must be on a principal-to-principal basis. As a result of these amendments, a broad range of over-the-counter derivative transactions are excluded from CEA regulation.