CFTC staff recommends appeal of commodity limits ruling: source

CHICAGO Tue Oct 9, 2012 8:15pm EDT

CHICAGO (Reuters) - Staffers at the Commodity Futures Trading Commission have recommended that the regulator appeal a judge's ruling against federal limits on commodity market speculation, and commissioners are nearing a decision on the matter, according to a CFTC official.

The CFTC general counsel is circulating a memo asking the five CFTC commissioners to vote on an appeal, according to the official, who had direct knowledge of the situation and spoke on condition of anonymity.

A CFTC spokesman could not be immediately reached for comment.

The commission passed the position limit rule last year to cut down on excessive speculation in commodity markets. The rule limits the number of contracts traders can hold in 28-commodities, including oil, coffee and gold.

U.S. District Court Judge Robert Wilkins on September 28 sent the rule back to the CFTC for further consideration saying that the Dodd-Frank financial oversight law did not give the commission a "clear and unambiguous mandate" to set position limits without showing they were necessary.

Lawmakers and President Barack Obama have argued that regulators should be doing more to rein in traders who may be driving up the price of oil for consumers.

But Wall Street has argued that regulators have not proven position limits would curb speculation in markets and prevent disruptive price spikes.

Critics said position limits could inadvertently make markets more volatile, not less, because traders would move deals to overseas exchanges with looser regulations, reducing liquidity in U.S. markets.

CFTC Chairman Gary Gensler last week vowed to push ahead with the new rule to curb speculation in commodity markets, saying the commission would consider whether to appeal.

Bart Chilton, one of the five commissioners, has said the CFTC should immediately appeal.

The judge's ruling was a victory for Wall Street banks like Goldman Sachs and JP Morgan, which had feared the position limits would halt growth in their lucrative business selling commodity derivatives to financial investors.

It offered breathing room for other energy, metal and grain traders who were unsure how the limits would apply to the complex over-the-counter swaps market. Some feared they would potentially inadvertently violate the limits when the first phase came into effect October 12.

(Reporting By Tom Polansek in Chicago; Additional reporting by Alexandra Alper in Wasington DC; editing by Carol Bishopric)

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