Wow. Just ... wow. This is the law as of 1999, before the 2000 federal change that made this stuff legal and forbade the states from re-enacting their laws forbidding gambling on the markets. It had a long history.

And it all went away, and now almost 8 years later, the same shit happened as happened in previous centuries repeatedly.

Who could have known?

Duke Law Journal: Lynn A. Stout, Why The Law Hates Speculators: Regulation And Private Ordering In The Market For OTC Derivatives, 48 Duke L. J. 701 (1999)

Duke Law Journal: Lynn A. Stout, Why The Law Hates Speculators: Regulation And Private Ordering In The Market For OTC Derivatives, 48 Duke L. J. 701 (1999)

----excerpt follows-------

B. Codifying the Common Law: Antibucketshop Statutes and the Commodity Exchange Act

Modern legislation has largely replicated, and in important ways strengthened, the common law rule against difference contracts. Codification of the rule first began in the late nineteenth and early twentieth centuries, when a large number of state legislatures passed "antibucketshop" laws declaring contracts for the sale of goods illegal unless settled by delivery.77 Like the common law, many of these statutes contained exclusions for organized futures trading78 and for indemnity agreements where one of the parties could prove a hedging purpose.79 Unlike the common law, many went beyond merely declaring difference contracts to be unenforceable by providing for criminal sanctions.80

Antibucketshop laws remain on the books in many states.81 Their influence has waned, however, as the federal government has extended its own authority in the area.82 Congress first entered the field in 1921 with the Future Trading Act, reenacted in 1936 as the Commodity Exchange Act (CEA).83 The original CEA applied only to fu- [*pg 722] tures and options trading in cotton, grain, and a limited group of other agricultural commodities.84 In 1974, however, Congress significantly expanded the federal sphere of influence by extending the CEA to "all other goods and articles," including all "services, rights, and interests,"85 and creating a five-member Commodity Futures Trading Commission (CFTC) charged with enforcing the statute.86 As a result, federal regulators now play a leading role in curbing speculative trading.

To understand this point, it is essential to recognize that one of Congress's primary goals in enacting the CEA was to curb speculation in those goods and services that fall within the CEA's purview. As originally enacted, section 5 of the CEA provided that "[e]xcessive speculation in any commodity under contracts of sale . . . for future delivery . . . is an undue and unnecessary burden on interstate commerce . . . ."87 Thus the centerpiece of the CEA is an "exchange trading requirement" that reincarnates, in a modified statutory form, the common law rule requiring contracts of sale for future delivery to be settled by actual delivery.

The CEA resembles the common law because it prohibits all contracts of sale for future delivery that are not made on, and subject to the rules of, an organized exchange.88 This prohibition does not apply, however, to contracts that are intended to be settled by delivering the underlying good or service.89 The net result is that trading in futures and options that are not intended to be settled by delivery is [*pg 723] legally permissible only within the safe harbor of a regulated exchange. Off-exchange "difference contracts" are not just unenforceable, but illegal under federal law.90

The CEA's exchange trading requirement -- sometimes dubbed a "ban on off-exchange futures" -- thus plays a critical role in curbing speculative activity in the United States economy. While an extensive list of contracts are approved for trading on the designated futures exchanges, for each commodity for which a contract is listed there are tens of thousands of goods and services not listed.91 Would-be speculators hoping to take a position in the markets for miniskirts, mittens, Monets, mandarin oranges, management consultants, or Montana real estate will find that neither these nor most other goods and services have contracts listed for trading on a designated exchange. To speculate in these markets one must resign oneself to spot trading, with all its expense and inconvenience.

Indeed, the CEA in many respects keeps speculators on an even shorter leash than the common law did. Like many antibucketshop statutes, the CEA goes beyond the common law rule of civil unenforceability to provide for criminal penalties for off-exchange trading in contracts not settled by delivery.92 (The significance of this sanction is discussed further in Section IV.E.) Equally important, the CEA empowers the CFTC to act as a gatekeeper to the exchanges and to decide which contracts will be accepted for trading. Any exchange seeking to offer a new type of future or option for trading accordingly must first demonstrate to the CFTC that the contract is not "contrary to the public interest";93 the CFTC has interpreted this dictate to require a showing that the contract serves some economic purpose beyond mere speculation.94 Within the sanctuary of the exchanges, the CFTC imposes other restrictions to deter speculative transactions. For example, the CFTC can seek to discourage speculative trading by imposing "position limits" that restrict the size of the position an in- [*pg 724] dividual trader can take in any particular contract, as well as "trading limits" that restrict the size of particular transactions.95

The net result is that federal legislation largely replicates, and in many respects strengthens, the common law's restrictions on speculation through difference agreements. Although modern observers often overlook the CEA's antispeculation function, federal commodities law plays a fundamental role in channeling our nation's entrepreneurial energy away from speculative trading. Part IV returns to consider in greater detail the implications of this role for the CFTC's claim of jurisdiction over the market for financial derivatives.