Regulated Futures Contract
U.S. tax and futures-market term for a futures contract marked to market and traded on or subject to a qualified board or exchange.
A regulated futures contract is a U.S. tax-law term used in Internal Revenue Code Section 1256. In simplified terms, it is a futures contract whose margin deposits and withdrawals depend on a mark-to-market system and that is traded on or subject to the rules of a qualified board or exchange.
Do not confuse the phrase with a generic statement that “futures are regulated.” In this context, the term affects tax classification and reporting for Section 1256 contracts, while the trading venue and clearing rules still govern execution, margin, and settlement.
Core Requirements
Section 1256(g)(1) defines a regulated futures contract around two key ideas:
| Requirement | Practical meaning |
|---|---|
| Mark-to-market system | Margin deposits and withdrawals respond to daily market value changes. |
| Qualified board or exchange | The contract trades on or is subject to rules of a qualifying exchange or board. |
For the statutory source, see 26 U.S.C. Section 1256 and the Cornell definition of regulated futures contract. For investor-level reporting context, see IRS Publication 550.
Why It Matters
Regulated futures contracts can be Section 1256 contracts, which generally receive year-end mark-to-market treatment for U.S. tax purposes. Tax reporting can differ from ordinary stock trades, options, or OTC derivatives.
This page is not tax advice. The classification can depend on the instrument, exchange, account type, and current law. Taxpayers should use broker tax forms, IRS instructions, and professional advice for reporting decisions.
Trading Context
In market practice, regulated futures contracts are also associated with:
- exchange rules and contract specifications
- clearinghouse risk management
- margin accounts and daily variation margin
- position limits, price limits, and delivery rules
- CFTC oversight and NFA/member registration where applicable
The CFTC futures basics page explains that commodity futures and options generally must be traded through an exchange by appropriately registered persons or firms, with exceptions and specific rules.
Related Terms
- Future Contract: Broader futures contract concept.
- Mark to Market: Daily value adjustment concept central to Section 1256 treatment.
- Margin Account: Account context for futures collateral and margin movements.
- Futures Market: Exchange-traded market for standardized futures contracts.
- Regulatory Requirements: Broader compliance context.