Grain Futures Act of 1922

The Grain Futures Act of 1922 is a federal statute passed in 1922 by the U.S Government that established the restriction that all grain futures need to be traded on regulated futures exchanges. The act also required exchanges to make more information public and limit the amount of market manipulation.

The Grain Futures Act of 1922 is the predecessor of subsequent legislation that significantly shaped the way agricultural commodities are traded. In the 1920s and 1930s the federal government began regulating commodities.

The genesis of the Grain Futures Act of 1922 began when the Futures Trading Act of 1921 was declared unconstitutional in 1921. The Grain Futures Act included rules similar to those found in the Future Trading Act, including requirements for that it be designated as a contract market. However, the Grain Futures Act differed from the Future Trading Act because it banned off-contract-market futures trading rather than taxing it. The U.S. government established an agency within the U.S. Department of Agriculture to administer the Grain Futures Act.

The Grain Futures Act also created the Grain Futures Commission. This commission comprised the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General who had the ability to suspend or revoke a contract market designation.

Eventually, the Grain Futures Act of 1922 became extremely difficult to enforce because disciplinary action was taken against the exchange itself rather than individual traders. This flaw was amended in 1936, creating the Commodity Exchange Act (CEA). This new act prevented and removed obstructions on interstate commerce in commodities by regulating transactions on commodity futures exchanges. It established the statutory framework under which the Commodity Futures Trading Commission (CFTC) operates. The CFTC was established in 1972.

Without such regulations like the Grain Futures Act of 1922 and the subsequent legislation it led to, market participants could be subjected to fraud and, in turn, lose faith in the country’s capital markets. This could make capital markets ineffective at efficiently allocating financial resources to the most deserving means of production and productive economic activities to the detriment of investors, consumers and society.