Edit: http://www.bloomberg.com/news/2011-10-18/cftc-votes-3-2-to-approve-new-limits-on-commodity-speculation.html
More later.
In a measure decried by Wall Street and trading companies as a misguided political attempt to cap soaring oil and grain prices, the Commodity Futures Trading Commission set out its rule on "position limits" that will cap the number of futures and swaps contracts that any single speculator can hold.
The final rule, due to be voted on after the commission meets from 9:30 a.m. EDT, will be a relief to many in the industry as it relents on several key provisions that were heavily criticized, as Reuters reported last month.
That included tough measures on whether separately controlled accounts must be aggregated and whether swaps and futures positions can be offset, so-called "class limits", the CFTC said. It also partly yielded to CME Group calls for equal treatment of cash and physical contracts.
But giving ground on those details will do little to temper deep frustration over a contentious plan that could force banks such as Morgan Stanley and industry traders like grains giant Cargill to scale back business, stemming an influx of investor capital. The CFTC estimated the measure would cost the industry about $100 million in the first year.
"The Wild West of exempting traders from any concentration levels whatsoever ends now," Bart Chilton, a CFTC commissioner and a staunch supporter of the limits, told Reuters.
A lawsuit to stop the measure coming into force seems likely, say industry experts and lawyers, one more hurdle for CFTC Chairman Gary Gensler, who is struggling against emboldened Republicans and a hostile Wall Street to put in place the rules required by the Dodd-Frank financial reforms.
After an eight-month battle, the Securities and Exchange Commission in July had its first Dodd-Frank rule overturned when a federal appeals court found the SEC had conducted a flawed analysis to support a rule that would make it easier for shareholders to nominate directors to corporate boards.
The position-limits rule may be challenged on similar grounds -- that the costs outweigh the benefits of a plan that many industry officials say will make markets riskier by driving trade to less-regulated overseas venues.
"We need to be very careful, but I believe we're on very solid legal ground," Chilton told Reuters Insider on Tuesday.
The limits could temper investors who have poured over $300 billion into commodity markets, often via index swaps with banks. Under the new rules, banks will no longer be given an exemption for such speculative swaps, although they will be able to hedge on behalf of corporate customers.
Gensler has worked tirelessly to win support from the commissioners. He is certain to have the backing of Chilton, a long-time advocate of tougher regulations, and likely will face opposition from Republican Jill Sommers. Michael Dunn, who is retiring, will likely be the pivotal vote.
Republican Scott O'Malia came out against the rule, saying the agency "overreached in interpreting its statutory mandate".
He said the CFTC had failed to provide the "empirical evidence" to substantiate the rule -- an argument similar to that put forth by industry officials who say that there no proof of the link between speculators and commodity prices.
DEVIL IN DETAILS
The rule covers 28 commodities from coffee to crude to copper, including nine crop markets that were already subject to limits, using a predetermined formula based on deliverable physical supply or open interest in the market. It includes for the first time contracts in the $600 trillion swaps market.
All the rules will be phased in over time, with the final limits for all contract months set only after the agency has collected a year's worth of swaps data, a process likely to be finished only late into 2012, officials said.
Several key provisions were eliminated from the CFTC's original proposal in January, as Reuters reported.
One key change relaxed the requirement that big commodity players aggregate all the positions held by any hedge funds or subsidiaries in which they have a stake. Instead, it retains the "independent account controller" regime currently in place, which views separately-run trading books independently.
Another eliminates a proposed "conditional limits" measure that would have allowed speculators in commodity markets that are settled in cash to accumulate positions of five times the limit for similar physical delivery contracts.
That rule had riled the CME Group, which feared losing business to rival cash-settled contracts, some of which are listed by the IntercontinentalExchange. The CFTC maintained this measure for the Henry Hub natural gas market, however, where cash contracts -- and in particular the ICE look-alike contract -- are already highly liquid.
Despite relenting on several elements that Wall Street had fought hardest, the new rule could ensnare a larger number of traders compared to the draft it released earlier this year.
Spot-month limits could affect 85 traders in the energy markets, more than double the January estimate, according to the CFTC's estimates. However, those estimates included companies that would qualify for hedging exemptions, leaving an open question as to how many speculators would be affected.
NO AGREEMENT
Dozens of academic, government and bank studies on the subject have differed on whether speculators influence prices long-term or whether prices simply respond to market conditions. The CFTC's own economists have yet to produce any economic evidence to connect speculators to price spikes.
Some politicians, however, have clamored for the CFTC to clamp down since early 2008, as oil and grain prices were shooting toward historic peaks.
"The bottom line is that we have a responsibility to ensure that the price of oil is no longer allowed to be driven up by the same Wall Street speculators who caused the devastating recession that working families are now experiencing," independent Senator Bernie Sanders said on Monday.
To prevent the "regulatory arbitrage" that many fear may ensue, Gensler will need to encourage overseas regulators to keep up with the CFTC.
Over the weekend, France lost its battle to force mandatory curbs on energy and food commodities, and Britain's Financial Services Authority -- which oversees most of the major non-U.S. commodity exchanges -- has maintained a staunch opposition to mandated limits.
(Additional reporting by Sarah N. Lynch; Editing by Jonathan Leff and Dale Hudson)
More later.
I hate posting anything to do with the CTFC as it usually goes no where. Maybe this time is different.
CFTC cracks down on commodity traders; will it stick?
WASHINGTON |
(Reuters) - The United States set out on Tuesday with its toughest measures yet to curtail speculation in commodity markets, likely shifting the focus of a fierce four-year debate from the regulators to the courts.In a measure decried by Wall Street and trading companies as a misguided political attempt to cap soaring oil and grain prices, the Commodity Futures Trading Commission set out its rule on "position limits" that will cap the number of futures and swaps contracts that any single speculator can hold.
The final rule, due to be voted on after the commission meets from 9:30 a.m. EDT, will be a relief to many in the industry as it relents on several key provisions that were heavily criticized, as Reuters reported last month.
That included tough measures on whether separately controlled accounts must be aggregated and whether swaps and futures positions can be offset, so-called "class limits", the CFTC said. It also partly yielded to CME Group calls for equal treatment of cash and physical contracts.
But giving ground on those details will do little to temper deep frustration over a contentious plan that could force banks such as Morgan Stanley and industry traders like grains giant Cargill to scale back business, stemming an influx of investor capital. The CFTC estimated the measure would cost the industry about $100 million in the first year.
"The Wild West of exempting traders from any concentration levels whatsoever ends now," Bart Chilton, a CFTC commissioner and a staunch supporter of the limits, told Reuters.
A lawsuit to stop the measure coming into force seems likely, say industry experts and lawyers, one more hurdle for CFTC Chairman Gary Gensler, who is struggling against emboldened Republicans and a hostile Wall Street to put in place the rules required by the Dodd-Frank financial reforms.
After an eight-month battle, the Securities and Exchange Commission in July had its first Dodd-Frank rule overturned when a federal appeals court found the SEC had conducted a flawed analysis to support a rule that would make it easier for shareholders to nominate directors to corporate boards.
The position-limits rule may be challenged on similar grounds -- that the costs outweigh the benefits of a plan that many industry officials say will make markets riskier by driving trade to less-regulated overseas venues.
"We need to be very careful, but I believe we're on very solid legal ground," Chilton told Reuters Insider on Tuesday.
The limits could temper investors who have poured over $300 billion into commodity markets, often via index swaps with banks. Under the new rules, banks will no longer be given an exemption for such speculative swaps, although they will be able to hedge on behalf of corporate customers.
Gensler has worked tirelessly to win support from the commissioners. He is certain to have the backing of Chilton, a long-time advocate of tougher regulations, and likely will face opposition from Republican Jill Sommers. Michael Dunn, who is retiring, will likely be the pivotal vote.
Republican Scott O'Malia came out against the rule, saying the agency "overreached in interpreting its statutory mandate".
He said the CFTC had failed to provide the "empirical evidence" to substantiate the rule -- an argument similar to that put forth by industry officials who say that there no proof of the link between speculators and commodity prices.
DEVIL IN DETAILS
The rule covers 28 commodities from coffee to crude to copper, including nine crop markets that were already subject to limits, using a predetermined formula based on deliverable physical supply or open interest in the market. It includes for the first time contracts in the $600 trillion swaps market.
All the rules will be phased in over time, with the final limits for all contract months set only after the agency has collected a year's worth of swaps data, a process likely to be finished only late into 2012, officials said.
Several key provisions were eliminated from the CFTC's original proposal in January, as Reuters reported.
One key change relaxed the requirement that big commodity players aggregate all the positions held by any hedge funds or subsidiaries in which they have a stake. Instead, it retains the "independent account controller" regime currently in place, which views separately-run trading books independently.
Another eliminates a proposed "conditional limits" measure that would have allowed speculators in commodity markets that are settled in cash to accumulate positions of five times the limit for similar physical delivery contracts.
That rule had riled the CME Group, which feared losing business to rival cash-settled contracts, some of which are listed by the IntercontinentalExchange. The CFTC maintained this measure for the Henry Hub natural gas market, however, where cash contracts -- and in particular the ICE look-alike contract -- are already highly liquid.
Despite relenting on several elements that Wall Street had fought hardest, the new rule could ensnare a larger number of traders compared to the draft it released earlier this year.
Spot-month limits could affect 85 traders in the energy markets, more than double the January estimate, according to the CFTC's estimates. However, those estimates included companies that would qualify for hedging exemptions, leaving an open question as to how many speculators would be affected.
NO AGREEMENT
Dozens of academic, government and bank studies on the subject have differed on whether speculators influence prices long-term or whether prices simply respond to market conditions. The CFTC's own economists have yet to produce any economic evidence to connect speculators to price spikes.
Some politicians, however, have clamored for the CFTC to clamp down since early 2008, as oil and grain prices were shooting toward historic peaks.
"The bottom line is that we have a responsibility to ensure that the price of oil is no longer allowed to be driven up by the same Wall Street speculators who caused the devastating recession that working families are now experiencing," independent Senator Bernie Sanders said on Monday.
To prevent the "regulatory arbitrage" that many fear may ensue, Gensler will need to encourage overseas regulators to keep up with the CFTC.
Over the weekend, France lost its battle to force mandatory curbs on energy and food commodities, and Britain's Financial Services Authority -- which oversees most of the major non-U.S. commodity exchanges -- has maintained a staunch opposition to mandated limits.
(Additional reporting by Sarah N. Lynch; Editing by Jonathan Leff and Dale Hudson)
No comments:
Post a Comment