FACTBOX-US works to expand CFTC role, commodities oversight

Oct 6 (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 Commodity Futures Trading Commission.

Following are details of initiatives:

OBAMA ADMINISTRATION

Financial reform plan requires standardized over-the-counter derivatives to go through central clearinghouses, which would assign risk and assign margin requirements, and to trade on federally regulated exchanges. [ID:nN11421984]

Higher capital and margin requirements would be placed on customized derivatives, to encourage more use of clearinghouses and exchanges. Trading in customized derivatives would be reported to trade repositories.

A broad definition of standardized OTC derivatives would be written to cover the evolving market. CFTC and SEC would have power to block attempts to masquerade as customized trades.

All OTC derivative dealers and market participants would be covered by capital, margin and reporting rules.

CFTC and SEC could set aggregate position limits across markets and large-trader reporting requirements for look-alike OTC derivatives that affect regulated markets.

SEC would regulate swaps based on a single security or a narrow-based security index. CFTC would oversee derivatives whose value is drawn from broad-based security indexes.

CFTC would have stronger power to act on fraudulent marketing of "rolling spot" commodity contracts.

CFTC REFORMS

* CFTC overhauled its weekly Commitments of Traders report on Sept. 4 to provide more information about exchange contract positions held by traders. The four classifications in the new weekly reports are producer/merchant/processor/user, swaps dealers, managed money and other market participants.

* CFTC and the U.K. Financial Services Authority increased supervision of energy markets. The steps, which include closer auditing and mutual on-site visits of exchange operators, will help them gain a better view of trading in U.S. oil futures on the IntercontinentalExchange's London exchange. [ID:nN20521060] * CFTC increased oversight of ICE's natural gas contract, and proposed in August to exercise similar authority on the carbon spot contract on the Chicago Climate Exchange. [ID:nN17377833]

* CFTC withdrew "no-action" letters that allowed Deutsche Bank AG's commodity pool operator and commodity trading advisor and Gresham Investment Management to exceed speculative limits for contracts, including corn and wheat. [ID:nN19477588]

CFTC POSITION LIMIT HEARINGS

* On Aug. 5 the CFTC wrapped up a series of three public hearings addressing "the current application of position limits and exemptions from position limits in energy markets."

* CFTC Chairman Gary Gensler stressed that "every option must be on the table" to combat excessive speculation.

* The CFTC will likely issue any proposed rules this fall.

SEC/CFTC HARMONIZATION

* CFTC and the U.S. Securities and Exchange will issue an Oct. 15 report outlining where their regulatory frameworks differ and ways to bridge those gaps. The administration asked the agencies in June to reduce overlaps. [ID:nN30230041]

* They will recommend to Congress and the White House, among other things, steps to strengthen enforcement powers, investor protection and an ongoing coordination process.

* In early September, SEC and CFTC held joint meetings to resolve long-standing regulatory differences. [ID:nN02373991]

HOUSE CLIMATE CHANGE

The climate change bill passed by the U.S. House would ban "naked" credit default swaps and require OTC derivatives to go through central clearinghouses. [ID:nN26352177]

It also directs the CFTC to set position limits on energy traders and brings energy swaps under CFTC oversight. Some provisions, such as mandatory clearing, mirror Obama plan.

SENATE REVIEWS SPECULATION IN WHEAT

A 247-page report from the Senate Permanent Subcommittee on Investigations blamed big speculators for over-inflating 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. [ID:nN24227774]

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.

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 referred to the Agriculture Committee, would expand CFTC powers to prevent excessive speculation. Main points:

* CFTC and international regulators would develop uniform reporting and regulatory standards for energy futures.

* CFTC would set position limits on energy and agricultural futures contracts. Exchanges must adopt and enforce position limits on contracts with a significant price-discovery role.

* CFTC would have oversight of any major commodity market disturbance that disrupts liquidity or price discovery.

* Index and swaps dealers would be required to provide detailed reports of their activities.

HOUSE BILL

Approved by the House Agriculture Committee, HR 977 requires clearing of OTC transactions, expands CFTC's powers to control speculation and gives CFTC criminal-prosecution power. [ID:nN20271292]

Its main points are:

* OTC transactions must be cleared through central clearinghouses, unless the CFTC grants an exemption.

* CFTC can suspend trading in "naked" credit default swaps related to securities barred from short-selling by the Securities and Exchange Commission.

* CFTC is required to set position limits for physically deliverable commodities for the spot month, each month and aggregate totals for all months.

* CFTC can set position limits on look-alike OTC contracts.

* Agriculture Committee chairman Collin Peterson said on September 17 that Congress has lost its momentum for financial regulatory reform and may not pass a bill before next spring, if at all. [ID:nN17214186] (Compiled by Ayesha Rascoe, Charles Abbott, Christopher Doering and Jasmin Melvin)