UPDATE 1-U.S. swaps regulator to vote on commodity limits rule

Wed Oct 23, 2013 6:03pm EDT

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(Adds second meeting, background)

By Douwe Miedema

WASHINGTON Oct 23 (Reuters) - The U.S. derivatives regulator will meet next month to adopt a rule that will curtail Wall Street's ability to speculate with commodities, a measure investment banks are fighting in court.

The Commodity Futures Trading Commission is revising the rule on so-called position limits, even as its lawyers are preparing to defend an earlier version knocked down by a U.S. court last year.

But Mark Wetjen, one of the CFTC's four commissioners, said this week that the dual strategy of pursuing the appeal and a new rule at the same time was not necessarily the best, and that the agency could drop the appeal.

Reuters reported earlier that the CFTC was finishing the new rule, which would remove an important irritant for the bank groups fighting the rule before the court, by allowing broader exemptions.

The new rule would contain a better legal justification to conform with the U.S. District Court ruling that the CFTC had failed to prove that the limits were needed, and will better weigh the costs and benefits of the rule.

Separately, the CFTC said it would meet next Wednesday to adopt a rule telling futures brokers to better protect their clients' money, a measure put in place after the collapse of MF Global in October 2011.

The rule will bar brokers from using excess money a customer has lodged with it to back futures trades - so-called margin - to cover the temporary shortfall of another customer, which the industry has complained will raise costs.

The fact that the CFTC is now calling a public meeting is ordinarily a sign that a majority of the Commission is behind it, even though Scott O'Malia - currently the only Republican on the Commission - has publicly criticized it. (Reporting by Douwe Miedema; Editing by Andre Grenon and Dan Grebler)

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