A coalition of trade groups, business and consumer advocates has called on the Commodity Futures Trading Commission (CFTC) to move forward with its proposal to set limits on speculation in commodity markets.
The Commission last Thursday delayed acting on the controversial regulatory reform -- setting limits on the amount of speculative trading of derivative swaps by a single entity -- until next year, thus making it highly unlikely that the agency would meet the congressionally mandated deadline for imposing position limits (see Daily GPI, Dec. 17).
The Dodd-Frank Wall Street Reform Act, which President Obama signed into law in July, requires the Commission to establish position limits on exempt commodities (metals and energy) by no later than Jan. 17, 2011, and on agricultural commodities by no later than April 17, 2011 (see Daily GPI, July 22). The next scheduled CFTC meeting for possible consideration of a proposal on position limits is Jan. 13.
"While speculation is important to provide these markets with liquidity, excessive speculation distorts markets and harms hedgers and consumers," said Sean Cota, a coalition member and president of Cota & Cota, a home heating company in northern New England.
Cota contends that commodity markets have become more volatile and dislocated from supply and demand. "Speculators now outnumber hedgers by four to one, the opposite of where we were 10 years ago. When massive speculative money pours in, including from index funds, commodity prices surge," he said.
The CFTC has proposed a rule limiting the amount of positions in futures and options contracts and economically equivalent swaps, other than bona fide hedge positions, that may be held by any entity in one of the 28 covered commodities, including crude oil, natural gas, heating oil and gasoline.
It would set spot or front-month position limits at 25% of deliverable supply for a commodity, with a conditional spot-month limit of five times that amount for entities with positions exclusively in cash-settled contracts.
Nonspot month position limits (aggregate single-month and all-months-combined limits that would apply across classes, as well as single-month and all-months-combined position limits separately for futures and swaps) would be set for each referenced contract at 10% of open interest in that contract up to the first 25,000 contracts, and 2.5% thereafter.
At a hearing on Capitol Hill last week, the coalition called the CFTC proposal an important first step, and said it planned to file suggestions with the agency on how the rule might be improved and implemented to protect hedgers and consumers.
The coalition has 53 members, including the American Trucking Associations, Arkansas Oil Marketers Association, California Independent Oil Marketers Association, Florida Petroleum Marketers Association, Louisiana Oil Marketers & Convenience Store Association, Massachusetts Oilheat Council, Michigan Petroleum Association, National Association of Oilheating Service Managers, Nebraska Petroleum Marketers & Convenience Store Association, New England Fuel Institute, New Mexico Petroleum Marketers Association, New York Oil Heating Association, North Dakota Petroleum Marketers Association, Petroleum Marketers Association of America and the Propane Gas Association of New England.
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