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CFTC Sets Sights on Position Limits, Speculation

Posted: 07/07/09

By: tomgrisafi

The Commodity Futures Trading Commission will consider new measures to curb speculation in the markets for energy and other commodities, the agency is set to announce today.

The move aims to reduce the volatility of prices but faces resistance from top Wall Street firms, which fear the efforts could cut into profits. Regulators and lawmakers increasingly worry that these firms have used their size and power to inflate the prices of commodities, booking profits in the process.

Concern over such deal-making reached a fever pitch last summer, when oil prices were sky high and people were feeling pain at the gas pump. CFTC data showed last year that a significant amount of trading in oil was concentrated in the hands of just a few speculators. These worries have waned since then, as gas prices have moderated from last year's highs, though a recent run-up in fuel prices may prompt new questions.

But a report last month by a Senate investigative committee warned that firms manipulated the price of wheat, causing farmers and consumers to pay much higher prices.

The initiatives are among the most significant steps taken by CFTC Chairman Gary Gensler since he started in May. The CFTC often operates in the arcane world of agricultural policy and finance, but the spillover effects of its policies can affect how much consumers pay for fuel and food.

The CFTC already has established position limits for some commodities, such as wheat. But it has also granted exemptions to these limits, which congressional investigators have in part blamed for fueling speculation. The CFTC plans to review its policy on exemptions.

The CFTC is also planning to require more public disclosure about the holdings of commodities traders. For many years, the agency has issued weekly reports about these holdings. The new reports will provide more detailed information about the types of firms, such as banks and hedge funds, that hold significant positions. In addition, the reports will provide more information about trading in derivatives linked to commodities.

Source: Washington Post, Bloomberg

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