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Futures Association Against CFTC Setting Speculative Limits

While noting that the organization stands behind the Commodity Futures Trading Commission's (CFTC) efforts to prevent price manipulation, the Futures Industry Association (FIA) said Thursday it opposes the commission's proposed speculative position limits on energy commodities.

In a comment letter addressed to David Stawick, secretary of the CFTC, FIA said it applies one standard when reviewing the commission's position limit proposal: whether the proposed limits would "help or harm" the ability of the U.S. futures markets to serve the public interests in price discovery and efficient price risk management. "Based on the available record, FIA must answer that the proposal would actually harm these public interests and should not be adopted," it said.

Citing the apparent trading irregularities of Amaranth Advisors LLC and large positions taken by the United States Natural Gas Fund LP (UNG) as evidence of the need for action, the CFTC in January voted out a notice of proposed rulemaking (NOPR) that would set limits on speculative trading of exchange-traded futures and options contracts in major energy markets (see NGI, Jan. 18).

Instead of adopting the proposal, FIA urges the commission to defer any further action until Congress completes its deliberations this session on financial regulatory reform legislation (see related story), which could include changes to the provisions of the Commodity Exchange Act, which authorize the commission to impose position limits.

FIA applauded the CFTC's ability over the last decade to "police effectively price manipulation and attempted manipulation, especially in the energy commodity markets." However, the organization noted that manipulation is not synonymous with speculation. Despite media coverage and public relations campaigns to scapegoat speculators, FIA said it "is not aware of any convincing or even credible evidence that large traders with speculative positions in energy futures markets have trumped market fundamentals as the determining factor in energy futures prices."

"The FIA strongly supports the CFTC's ongoing efforts to prevent price manipulation and to conduct effective market surveillance to protect price discovery," said FIA President John Damgard. "Based on our analysis, the proposed rules would harm these public interests and should not be adopted."

FIA's analysis cites multiple grounds for its opposition:

As a trade organization for the futures industry, FIA's membership includes some of the world's largest futures brokers as well as derivatives exchanges from more than 20 countries.

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