| WASHINGTON, July 27
WASHINGTON, July 27 The Obama administration's
move to tame the volatile commodity and energy markets gets
under way with hearings this week that promise to expose a wide
fissure of disagreement over how it should be done.
The Commodity Futures Trading Commission will hold the
first of three hearings on Tuesday to consider whether to limit
holdings of energy and agricultural contracts and whether some
traders should be allowed to exceed so-called position limits.
The agency, which will also hold meetings on Wednesday and
on Aug 5., will investigate whether players with deep pockets
distort the market's traditional role of price-setting when
they amass huge market positions.
The CFTC will hear from Representative Bart Stupak, Senator
Bernie Sanders, top executives from the Intercontinental
Exchange (ICE.N) and Chicago Mercantile Exchange (CME.O),
brokerage firms and energy industry representatives.
Bart Chilton, one of five commissioners at the CFTC, told
Reuters in an interview earlier this month he would like to see
the proposed rules issued in September, then implemented by
late October or November after a period of public comment.
To protect against market manipulation, the CFTC sets
limits on the amount of contracts each investor can hold in
some agricultural commodities. But for energy products, such as
oil, the limits are set by the futures exchanges.
"My firm belief is that we must aggressively use all
existing authorities to ensure market integrity and
efficiency," CFTC Chairman Gary Gensler said on July 7 in
announcing the review of position limits.
The moves to toughen up oversight marks a sharp turnaround
for the CFTC which has drawn criticism for its hands-off
approach toward market regulation, especially last year when
commodities rocketed to record heights on a heavy influx of hot
While some in industry balk at reforms, the CFTC has found
broad support in Congress and among farm groups and companies
who complain their traditional hedging practices were upset by
big players tossing so much money into futures.
The American Public Gas Association will argue in favor of
setting unified position limits across all natural gas markets
at the CFTC hearing.
"Our concern is any one trader or speculator becoming so
large that their actions could distort the market place," said
Laura Campbell, who will testify on behalf of the association.
The gas association will also raise concerns about
suggestions that all over-the-counter derivatives go through
clearinghouses at regulated exchanges. Campbell said this plan
would significantly raise costs for natural gas utilities and
With a number of anti-speculation bills pending in
Congress, the CFTC's actions have been praised by some
lawmakers, especially among Democrats.
Stupak, who criticized the CFTC for not doing enough to
keep crude oil prices in check as they soared to a record last
year, worked to include tougher derivative oversight in the
climate change bill passed by the U.S. House last month.
The legislation would ban "naked" credit default swaps,
require over-the-counter derivatives to go through central
clearinghouses and direct the CFTC to set position limits on
energy traders across all markets.
Trading firms, fearful of losing revenue to CFTC's
proposals, are expected to tell the agency that any changes
could only make the market less efficient.
"We do not ... believe that restrictions on index traders,
beyond those that we already impose, are anything but a
distraction," Charles Carey, vice chairman of CME Group, based
in Chicago, told a Senate subcommittee last week.
Some fear new rules to curtail speculation could make
markets less efficient by reducing trading volumes and moving
traders to offshore exchanges. Fewer speculators would mean
fewer traders willing to absorb risk, leading to higher
(Additional reporting by Ayesha Rascoe; Editing by Marguerita