CFTC aims to limit speculation in commodities

US regulators Tuesday approved a proposal designed to limit trading on 28 commodities in a bid to prevent excessive speculation that can lead to price spikes.

The Commodities Futures Trading Commission voted 3-1 to propose position limits on oil, natural gas, copper and a host of agricultural and other commodities. The proposal will now be opened up to public comment for 60 days.

The proposal sets limits on the size of trading positions firms can take in key commodities, for example limiting spot contract positions to 25 percent of estimated deliverable supply.

The CFTC has long sought steps to prevent markets from becoming too concentrated, said CFTC Chairman Gary Gensler.

Gensler and other officials have cited prominent cases in which firms have taken dominant positions in the natural gas and silver markets, enabling market manipulation. Some critics believe the 2008 spike in oil prices was exacerbated, if not caused by, excessive speculation.

Position limits promote "the integrity of the price discovery function in the market by limiting the size of any one speculator's footprint in the market," Gensler said.

Exemptions to the rule include cases where traders are taking "bona fide hedging positions in physical commodities" as when a utility needs to procure energy, the CFTC said.

But CFTC Commissioner Scott O'Malia cast a dissenting vote against the proposal, in part because it "chips away" at the "vital hedging function of the futures and swaps markets."

The proposal could also revive opposition from groups like the Securities Industry and Financial Markets Association, which won a 2012 court ruling blocking a previous CFTC attempt to limit trading positions.

"SIFMA will review the proposed rule with our members and provide comments to the CFTC once we have fully assessed this proposal," said Ken Bentsen, president of the trade group, which represents securities firms, banks and asset managers.

"SIFMA steadfastly believes that any new regulation should not adversely impact liquidity, price discovery and the ability to hedge in the commodities and broader derivatives markets for end-users and all market participants."


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