In the past 10 years there has been a tremendous growth in the number and types of financial instruments which are available to investors. The creation and authorization of these financial instruments has been the responsibility of the private sector, at least in the United Kingdom. In the development of these investments, legal advisers have been concerned with the possible impact of the Gaming Act 1845.1 A legal problem that has not been satisfactorily resolved is that of distinguishing between legitimate investments and unenforceable gaming or wagering contracts.2 This problem has caused particular difficulty in the commodity and financial futures markets. With the advent of new legislation to protect investors,3 it would seem necessary that the existing legal position be clarified. The object of the following article is to explain the present law of wagering as it applies to futures contracts and to suggest why reform is necessary.

A futures contract is an agreement to buy or sell later a commodity or financial instrument. It is not the same as buying stocks or shares. An investor does not receive an interest in the underlying instrument, whether it be shares, soya beans or dollars. There is no tangible participation in an asset; there is merely a contractual right either to make delivery or to take delivery of a given commodity or financial instrument at a future time and a given price. These contracts are sold on various commodity exchanges. All the terms of each contract except the price are determined by the rules of the exchange, so that the only term that is negotiated during trading is the sale price of the contract.

A unique feature of commodity futures contracts is that they may be settled by giving or accepting delivery of the commodity or by making or taking an offsetting transaction in the futures market. The latter process is called “closing out” or