Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets, Third Edition

The regulators and regulations

The first level of regulation is the Exchange. If you recall from earlier in this chapter, the Exchange does not take positions in the market. Instead, it has the responsibility of ensuring that the market is fair and orderly. The Exchange does this by setting and enforcing rules regarding margin deposits, trading procedures, delivery procedures, and membership qualifications. Members who violate the rules can be fined and expelled. A sophisticated, intricate system of safeguards virtually guarantees against counterparty credit risk and default. Although an individual member may default, the party on the other side of the transaction always gets paid. This statement cannot be made for over-the-counter, or non-Exchange, ...