UK FSA does not act on commods but says exchanges do

Mon Mar 21, 2011 1:46pm EDT

* FSA has not used position management powers since pre-2010

* Says only exchanges have intervened in markets

* Contrasts with U.S. CFTC's fines for big positions

* High oil, food prices put regulators in spotlight

By Emma Farge

LONDON, March 21 (Reuters) - Britain's financial regulator has not used its powers to intervene in commodity markets to close or reduce trading positions since the start of 2010, a Reuters Freedom of Information (FOI) request has shown.

Instead it says exchanges have used their powers to caution players but did not know how many times that had happened.

Soaring global commodity prices have pushed regulation of commodity markets up the political agenda.

Some politicians blame speculation for high food and energy prices, with France's Nicolas Sarkozy spearheading efforts to empower regulators as head of the Group of 20.

Britain's Financial Services Authority (FSA) has the power to force market participants to cut or close positions through a system called position management.

But the FSA said in response to a Reuters freedom of information request that it has not used these powers in at least a year, delegating this responsibility entirely to exchanges.

A spokesman for the FSA said that exchanges have exercised these powers at least once since January last year, but the watchdog said it holds no information about these cases.

"We can confirm that exchanges have used their position management powers in relation to commodity markets since the start of 2010. But...the FSA does not hold information on the number of times these powers have been used over this period," said a spokesman for the watchdog.

The UK policy contrasts with the United States CFTC's use of powers to directly sanction traders who exceed proscribed position limits in agricultural markets. It has used this sparingly in the past, but so far this year has already issued two for exceeding limits. [ID:nN07228265]

Reuters also asked the FSA whether it has launched a market abuse investigation into the unusual strength of Brent crude oil futures traded on the IntercontinentalExchange (ICE.N) but the regulator declined to comment on the grounds that it was not in the public interest.

Brent oil prices LCOc1 have risen to more than two-and-a-half year highs near $120 a barrel in late February and a record premium to U.S. oil benchmark West Texas Intermediate. CLc1

NEW RULES

The 19-component Reuters-Jeffries commodity price index this month rose to the highest since September 2008. CRB.

The European Commission has published its plans for sweeping reforms of the bloc's markets in financial instruments directive, including plans to introduce U.S.-style trade caps in 2012 or 2013.

The FSA has previously told Reuters that it is not its job to control prices and has defended its stance that position management, not hard position limits, is a sufficient tool to control markets. [ID:nLDE6A82DZ]

These fix the maximum size of a position in a given market in advance. ICE declined to specify what level of open interest, or number of unclosed positions on any given contract, would prompt position management powers.

"The levels of positions held by customers across all markets are reviewed by compliance every day," said David Peniket, president of ICE Futures Europe.

A senior manager at a broking firm said that he would be concerned if a single market participant held a position representing than 10 percent of open interest.

"I think I would be worried if any participant had between 10-15 percent of open interest on a given market. I think it's good to police this."

(Additional reporting by Roberta Rampton in Washington; editing by William Hardy