U.S. swaps regulator seeks bank openness on commodities

WASHINGTON, Sept 13 Fri Sep 13, 2013 5:16pm EDT

WASHINGTON, Sept 13 (Reuters) - Regulators should have better insight into the commodity businesses owned by large Wall Street banks to help them prevent market manipulation, a senior official at the U.S. derivatives watchdog said.

The Federal Reserve is reviewing an exception that has allowed banks to trade physical commodities and even own metals warehouses and oil tankers despite a law that prohibits the mingling of finance and commerce.

But Bart Chilton, a member of the Commodity Futures Trading Commission which regulates swaps and futures, said his agency did not even know exactly what the banks owned.

"It is still nearly impossible to figure out exactly what banks own," Chilton said in notes prepared for speaking in Michigan at an event on Saturday.

"Unless we can see that, we can't reasonably and responsibly protect against market manipulations," he said.

Banks such as Goldman Sachs, Morgan Stanley and JPMorgan Chase - which generated an estimated $4 billion in commodity revenues last year - face growing pressure from a number of investigations in their operations.

The CFTC has subpoenaed a number of major metals warehousing firms, including Switzerland-based Glencore, seeking documents from the last three years in an inquiry into complaints about inflated metals prices.

Chilton, a Democrat and an often outspoken critic of large banking, earlier urged the Fed to reverse its policy of allowing investment banks' widespread activities in commodities, saying it created a conflict of interest.

Brewing companies have complained before Congress that banks were pushing up the price of aluminium, which they need for beer cans, by delaying delivery times and creating long queues for the metals warehouses they own.

The Fed, which oversees large banks, has said it is "reviewing" its 2003 decision that permitted Citigroup Inc's Phibro unit to trade oil cargoes, setting a precedent for a dozen more banks that followed suit.

Since then, JPMorgan Chase announced its exit from commodities trading, while Goldman Sachs, which has been looking to sell its warehouses, offered customers immediate access to aluminium it stores.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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