In 1987, the Commodity Futures Trading Commission (CFTC) began analyzing whether swaps were futures under the Commodity Exchange Act (CEA). If yes, over-the-counter (OTC) swaps would violate the CEA’s exchange trading requirement. Rather than address this in a proposed rulemaking, the CFTC chose instead to issue its 1989 swaps policy statement, establishing a no-action safe harbor for OTC swaps. So long as OTC swaps met the safe harbor’s conditions, the CFTC would not treat them as futures. While this was of great relief, especially for commodity swaps, the issue could always resurface in litigation. Also, the safe harbor did nothing to allay growing concerns under state law.The problem for OTC swaps under state law in the 1980s was the Futures Trading Act of 1982, which added section 12(e) to the CEA. This legislation had nothing to do with the emergence of interest rate swaps and currency swaps early in the decade. Its purpose was to combat illegal off-exchange futures activity by conferring concurrent jurisdiction on the states. In effect since 1974, the CEA’s exclusive jurisdiction clause (section 2(a)(1)) would now be limited to lawful commodities activities, i.e., exchange-traded futures and other CEA-permitted contracts. Otherwise, by virtue of section 12(e), the CFTC and states would share jurisdiction over unlawful activities, including off-exchange futures. This resurrected state bucket shop laws, which criminalize and void off-exchange futures.To raise awareness of these issues and the need for an all-encompassing legislative solution, this article was one of two papers presented at the Practising Law Institute’s swaps program in New York City in 1990 and 1991, respectively. New York City was an ideal place for this dialogue since swap agreements with U.S. counterparties typically include a New York choice of law provision, and New York continues to be one of several states with a vexing bucket shop law (New York General Business Law §351). Could it be that swap market participants were unknowingly choosing a law that could potentially render their transactions unenforceable and subject them to criminal sanctions?Although the legal landscape for swaps completely shifted with the passage in 2010 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, this article may be useful for anyone researching bucket shop laws or as background for understanding why revised CEA section 2(d) excludes swaps from CEA section 12(e)(1). For a discussion of swaps and the interplay between CEA section 2(a)(1)(A) (the exclusive jurisdiction clause, which covers both futures and swaps) and CEA section 12(e)(1) (the concurrent jurisdiction clause, which covers off-exchange futures but not swaps), see Barry Taylor-Brill, Cracking the Preemption Code: The New Model for OTC Derivatives, 13 VA. L. & BUS. REV. 1 (2019), available at http://ssrn.com/abstract=3373123
