Commodity Law



Commodities are marketable items produced to satisfy economic wants or needs. In investing, the term can apply to either goods or services, but in strictest terms it refers strictly to goods. More specifically, it describes a class of goods for which there is a demand without qualitative differentiation across the market, such as brand identity.

Fungability

Fungability is how much a market treats a commodity's instances as equivalent (or nearly equivalent) without regard to who produced them. For example, it is rarely possible to differentiate between petroleum from one field or another, or copper from one mine versus any other. Consumers are as likely to use the petroleum or copper from one place as any other place. Common examples of fungable commodities include iron ore, aluminum, copper, gold, silver, palladium, platinum, crude oil, coal, salt, tea, coffee, sugar, soy, wheat, and many others.

Items like electronics, on the other hand, have many characteristics that consumers can use to differentiate between them, such as brand, user interface, features, and perceived quality. Consumers are much more likely to differentiate between these products based on their preferences. As a result, these products are not fungable commodities.

Typically, fungable commodities have prices determined as a function of the market as a whole, not based on the value of a brand or other characteristic unique to the individual example of the commodity. This makes it possible to invest in the futures of these commodities rather than in the individual companies that produce them.

Types of Commodities

Commodities are often distinguished as either “soft” commodities that are grown (such as wheat, soybeans, and oranges), and “hard” commodities that are mined (like iron, copper, and gold). Energy commodities are another category that include electricity, gas, coal, and oil, and are distinguished from hard and soft commodities because they must be consumed as soon as they are produced.

Commoditization

Commodification (also called “commoditization”) occurs as a goods or services lose their differentiation across the market. For example, multivitamins, which once used to be largely distinguishable, have in recent years become virtually interchangeable to consumers. Commoditization is not an either/or proposition, but rather, occurs on a spectrum. Very few refined or manufactured products ever reach a state of being completely fungable (i.e., indistinguishable from one another to consumers in the marketplace), but the closer they get to fungability the more commoditized they become.

For more information on the commodities market, please review the materials below. Additionally, should you require legal assistance regarding a commodity transaction or other dispute, please visit our Law Firms page to find an attorney near you.

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Commodities Law - US

  • ABA - Enforcement Trends in Securities and Commodities Actions 2010

    Senior representatives from the Department of Justice, Securities and Exchange Commission, Commodities Futures Trading Commission, Financial Industry Regulatory Authority, and the business community will discuss enforcement priorities for the coming year in securities and commodities investigations and enforcement actions.

  • CFTC Division of Enforcement - Commodity Exchange Act

    The CFTC's Division of Enforcement investigates and prosecutes alleged violations of the Commodity Exchange Act and Commission regulations. The Commission relies on the public as an important source of information in carrying out its regulatory and enforcement responsibilities. You may contact us to report suspicious activities or transactions which may involve the trading of commodity futures contracts or commodity options.

  • Commodities - Definition

    A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. It is fungible, i.e. the same no matter who produces it. Examples are petroleum, notebook paper, milk or copper The price of copper is universal, and fluctuates daily based on global supply and demand. Stereo systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface, the perceived quality etc. And, the more valuable a stereo is perceived to be, the more it will cost.

  • Commodity Exchange Act (CEA)

    An act passed in 1936 by the U.S. Government that provides federal regulation of all futures trading activities. This act replaced the Grain Futures Act of 1922.

  • Commodity Futures Modernization Act of 2000

    Federal legislation enacted in 2000 that overhauled certain regulatory schemes and expelled the Shad-Johnson jurisdictional accord, which prevented single-stock futures in 1982. Another major part of the act was that it prevented the new financial products called swaps from being regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

  • Commodity Futures Trading Commission (CFTC)

    Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000.

Organizations Related to Commodities Law

  • Financial Industry Regulatory Authority (FINRA)

    The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 4,700 brokerage firms, about 167,000 branch offices and approximately 635,000 registered securities representatives.

  • Futures Industry Association (FIA)

    The principal objectives of the FIA are to: # Represent industry views before Congress # Seek regulatory relief for exchanges and intermediaries in the U.S. and abroad # Promote global futures business regardless of location # Assure that the financial integrity of the markets, clearinghouses, and clearing members is always considered # Educate and inform market participants, the press, regulators, and legislative bodies.

  • Investopedia - Commodities

    Investing Topics is a quick and easy way to find the Investopedia content you are looking for – below you can find the featured topics of the day, the most popular and most recent topics as well as a topic cloud. Simply, click any topic you are interested in and you will be taken to the homepage for that topic which will show you content related to that topic.

  • New York Stock Exchange (NYSE)

    NYSE Euronext, the holding company created by the combination of NYSE Group, Inc. and Euronext N.V., was launched on April 4, 2007. As the world's leading and most liquid equities exchange group, NYSE Euronext powers the exchanging world and is comprised of equities and derivatives exchanges across the United States and Europe which trade cash equities, futures, options, fixed-income and exchange-traded products.

  • US Securities and Exchange Commission (SEC)

    The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, our investor protection mission is more compelling than ever.

Publications Related to Commodities Law

  • Academia of Economic Research - Commodity Vision

    Commodity Vision, Since its inception in July 2007, TAER (which was then known as MCX Academia of Economic Research, and was set up by Multi Commodity Exchange of India Limited - MCX) has been bringing out a quarterly journal, Commodity Vision, in fulfilment of its diverse mission objectives, and has been disseminating its in-house research findings.

  • Commodity Research Bureau

    Since 1934, Commodity Research Bureau (CRB) has been the world's leading commodities and futures research, data, and analysis firm. CRB delivers information on the futures markets to interested parties via a number of data products, email and print publications, fundamental services and B2B products. It also is home of the CRB Price Index, a global benchmark for measuring commodity price movement and developed by one of CRB's founders, Bill Jiler.

Articles on HG.org Related to Commodities Law

  • Foreign Inheritance Blocked by U.S. Tax Laws
    When inheriting a foreign estate, the individual needs to understand what laws pertain to the process so his or her inheritance does not face complications with the United States Internal Revenue Service agencies. It is recommended to contact a lawyer before attempting to import the foreign estate funds, assets or property.
  • What Is Repatriation Tax for Multi-Nationals?
    Taxation for multinationals may come through a foreign income tax of United States based corporations for these persons and companies with increases and an entire reform of the tax system. There is over $2 trillion in earnings by these business entities that has not been taxed previously, and these new laws may increase revenue to the entire country.
  • Voluntary Disclosure of Foreign Bank Accounts
    There are certain procedures necessary through the Internal Revenue Service when the owner of an estate has a foreign bank account called the Reports of Foreign Bank and Financial Accounts or FBAR. If the person with these accounts has not disclosed revenue, interest and income that has been placed in these accounts, he or she could face criminal charges.
  • Foreign Investors Face Tax Consequences in the U.S.
    When an investor from another country is working with the United States, he or she may face consequences with taxation based on what process he or she has followed. There are several ways that lead to negative impact, and this could include a failure to report income for investments outside the country when the foreign citizen resides in the United States.
  • False Claims Act Issues Involving Avoiding Customs Charges
    The False Claims Act is involved in several deals that involve the avoidance of Customs charges and attempting to bypass monetary payments and fees when filling in entry forms with the United States Customs and Border Protection agencies. When this occurs, severe penalties and fees may be issued against the company or organization involved.
  • Applying Chinese Law in American Courts
    Accounting for foreign laws is important for diplomats and citizens from other countries. Their actions may be subject to certain stipulations that are not considered in the United States even when they are prosecuted or remanded to the American court system.
  • Information for International Investors Doing Business in the United States: Consumer Protection
    Investments, business and foreign involvement has been cooperative in the past so that every party included is able to maximize profits. The absence of most restrictions that may be placed by other countries shows this to be the case, and any needed information is usually provided for these investment matters.
  • Amendments to the Foreign Investment Regulations in China
    Amendments to regulations are constantly occurring, but in China this affects the foreign investments for the country and those associated with investors. The amendment changed each investment from a case-by-case basis to a more open policy where only certain issues are placed on a list for refusal.
  • Expatriation Tax when Returning to Your Home Country
    When returning home from living or residing in another country, there are additional taxes that may apply to the person called the expatriation tax. This means that someone moving back to a country he or she lived in before moving away could be taxed for capital gains earned while not within the nation and then becomes a taxed resident once again.
  • What You Need to Know about Tax Savings in the British Virgin Islands
    The tax savings in the British Virgin Islands has been reported as a promotion for the financial sector and with this location as a tax haven. This means it is important to know what this means, how these stipulations apply and who is affected so that citizens and others are aware of what is necessary in the British Virgin Islands for tax savings.
  • All Banking and Finance Law Articles

    Articles written by attorneys and experts worldwide discussing legal aspects related to Banking and Finance including: asset protection, capital markets, corporate finance, financial planning, financial services law, investment law, offshore accounts, private equity, project finance, public finance, securities, trade investment and venture capital.




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