Industry worries haste could hurt CFTC reform

By Christopher Doering - Analysis

WASHINGTON (Reuters) - The Commodity Futures Trading Commission looks eager to move quickly to implement trading limits on commodity and energy futures, leaving opponents little time to argue that the agency is going too far, too fast.

In response to gyrating oil and commodity prices, the CFTC announced this week it was planning to clamp down on big market players by implementing position limits on all commodity futures contracts of limited supply, focusing especially on energy.

The CFTC said it would hold hearings in the next few weeks to get broad public input before embarking on the reforms. Some analysts had suggested the process could be slow and it would be months before anything new was implemented.

But Bart Chilton, a CFTC commissioner, signaled otherwise.

"We're looking at a pretty fast timeline," Chilton told Reuters in an interview.

"We're going to use our authority to the fullest extent possible. That doesn't mean we're going to be draconian or go too far," he vowed.

Chilton is only one of five commissioners and cannot predict what the agency will ultimately do. But he would like new proposals for reform to be issued in September and then implemented by late October or November after a period of public comment.

Some industry groups are worried the CFTC won't be able to fully study the impact position limits could have on the market. They fear limits could actually increase volatility by choking liquidity, while also driving traders overseas.

"I think they feel pretty strongly that they've already got this thing sort of teed up and they ... know the direction they want to go," Craig Pirrong, a finance professor at the University of Houston, said of the CFTC.

William Black, an economics and law professor at the University of Missouri-Kansas City, said the agency should adopt "a period of experimentation precisely because they haven't tried" this in the past.

Black noted that while the CFTC appears eager to roll-out some type of reform on position limits, the agency should consider "a number of smaller steps" that begin by collecting data and launching investigations as to whether there is manipulation going on in the marketplace.

Chilton said the CFTC was not overreacting. He said open, public meeting was the right thing to do. He said the CFTC has tentatively scheduled hearings during the last week of July and first week of August.

"As long as we strike a reasonable balance with whatever sort of position that we end up instituting I don't think we'll drive folks from the market," he said.

Trading firms fearful of losing revenue could mount a fierce opposition to the CFTC's proposal, which comes on the heels of an Obama administration proposal to Congress to tighten U.S. financial regulation.

Some experts say CFTC Chairman Gary Gensler, dogged by his prior opposition to regulate financial instruments, could use position limits to show Congress he is serious about getting tough on oversight.