CFTC Weighing Strict Position Limits on Energy
Source: Bloomberg, Tina Seeley and Asjylyn Loder (7/28/09)
"Changing the regulatory playing field is like a referee changing the rules in the middle of the game."
"This hearing is an opportunity to determine how speculative position limits could be used to address excessive speculation, not how we can eliminate speculation," Gensler said.
The commission plans to issue a report next month on the level of investment by index investors and swaps dealers that may bolster the case for expanding oversight into over-the-counter (OTC) markets, Commissioner Bart Chilton said.
Fluctuations in energy prices fed debate about whether speculators contribute to excess volatility. Crude oil futures in New York jumped 52% from Jan. 1, 2008, to July 11, 2008. They then plunged 77% in the next six months.
The commission on Sept. 11 issued a report finding that the level of investment by index investors was declining in the first half of 2008 as crude oil prices were increasing. Former CFTC Acting Chairman Walter Lukken told Congress at the time it "doesn't seem there's a correlation" between index investors and higher prices.
Gensler has said speculators did affect commodity prices last year. With his encouragement, the commission is weighing whether it should impose position limits on speculative trading in energy markets or other markets of "finite supply."
Limits on U.S. markets could benefit overseas exchanges and OTC markets that wouldn't be affected by the new rules, said Gregory Mocek, former director of enforcement for the commission.
"Changing the regulatory playing field is like a referee changing the rules in the middle of the game," Mocek said today in an e-mail. "We can only hope that the U.S. Congress and the CFTC do not overplay their hands in their quest to find a scapegoat for the financial crisis."
Gensler said exchanges have the power to question the behavior of traders or ask market participants to reduce positions at any time.
"The majority of the time, however, the exchanges do not execute their authority to require participants to decrease or refrain from increasing the size of their positions," Gensler said.