FACTBOX: U.S. works to expand CFTC role, commods oversight

WASHINGTON Fri Jul 10, 2009 2:07pm EDT

WASHINGTON (Reuters) - The U.S. government wants to boost oversight of commodity markets by increasing regulation of over-the-counter derivatives, clamping down on excessive speculation and expanding the power of the Commodities Futures Trading Commission.

Following are details of government initiatives to step up oversight of commodity trading:

CFTC PROPOSALS

The CFTC will move swiftly and aggressively to expand its existing authority to better regulate the energy and commodity markets.

Bart Chilton, a CFTC commissioner, told Reuters he wants to see proposed rules put out in September, opened for public comment and implemented by October or November.

Public hearings are tentatively scheduled for the last week of July and first week of August on proposals for multi-market position limits on trading to curb excessive speculation and to protect investors.

The CFTC will use the input of consumers and market players at the hearings to help determine how it can ensure fair trading.

The agency will also begin to report the activities of swaps dealers and hedge funds in its weekly Commitments of Traders report.

The report will also provide data on foreign contracts linked to U.S. contracts and on contracts that play a leading role in setting prices.

Gary Gensler, head of the CFTC, said these changes will take effect in the near term, but he did not set a date.

Gensler has said the country must urgently move to regulate the over-the-counter derivatives market. He proposed amending the Commodity Exchange Act to define OTC derivatives and give CFTC authority to regulate them. OTC derivatives would be cleared through central clearinghouses whenever possible.

He also said the federal regulation must apply to all dealers and all types of derivatives. Gensler suggested two sets of rules: one covering markets, including regulated exchanges, electronic trading and clearinghouses, and the other governing dealers.

His proposal included adherence to position limits set by CFTC and requiring record keeping and reporting for all OTC derivatives positions and transactions. [ID:nN0466048]

OBAMA ADMINISTRATION PROPOSALS

The Obama administration is pushing for a sweeping overhaul of the U.S. financial regulatory system. Increased oversight of derivatives trading is part of this larger effort.

Big market players would be subject to much stronger supervision and more regulation under proposals set out by U.S. Treasury Secretary Timothy Geithner. [ID:nN10491020]

Conservative capital requirements, conservative margin requirements and strong business conduct standards would have to be upheld by all OTC derivatives dealers as part of the administration's plan.

Geithner told legislators the CFTC should have the authority to impose record-keeping and reporting requirements on all OTC derivatives.

This added transparency would give regulators all the information they need about activity in the markets and help prevent manipulation, fraud and other abuses.

HOUSE CLIMATE CHANGE

The climate change bill passed by the U.S. House would expand federal regulations by banning "naked" credit default swaps and requiring over-the-counter derivatives to go through central clearinghouses.

It also directs the CFTC to set position limits on energy traders and brings energy swaps under CFTC oversight.

Some of the proposals in the climate bill, such as mandatory clearing of OTC derivatives, are part of the Obama administration's proposal for financial regulatory reform.

SENATE REVIEWS SPECULATION IN WHEAT

A 247-page report from the Senate Permanent Subcommittee on Investigations blamed big speculators for overinflating wheat prices in recent years. The report said commodity index funds drove up wheat prices so high that it became impossible for grain firms using the Chicago Board of Trade contracts to hedge their positions.

The Subcommittee recommended the CFTC enforce the standard limit of 6,500 positions for index traders in the wheat market and phase out existing waivers.

Its chairman, Senator Carl Levin, said the CFTC should take a closer look at the role index traders have played in price moves for other commodities, such as oil.

Separately, U.S. Agriculture Secretary Tom Vilsack told Reuters Television that Congress is eyeing ways to make sure speculative trading helps commodity markets rather than distorting pricing signals.

SENATE BILLS

Pending at the Senate Agriculture Committee, S 272 would end OTC financial transactions by requiring all trading of them, including credit default swaps, to be on federally regulated exchanges.

A second bill -- S 447 --filed by Senator Carl Levin and

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