CFTC considers trading curbs

By Russell Blinch

WASHINGTON (Reuters) - The top regulator of U.S. futures markets is considering a clampdown on excessive speculation in energy and commodity trading by restricting holdings of big players, part of a broader move by the Obama administration to stabilize the financial markets.

Commodity Futures Trading Commission Chairman Gary Gensler said in a statement on Tuesday that the agency will hold hearings in the next few weeks to seek comments from consumers and market players on whether to set position limits on all commodity futures contracts.

"Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities such as crude oil, heating oil, natural gas, gasoline and other energy products," said Gensler, who took office on May 26.

CME Group Inc slumped more than 5 percent to $282.06 on Gensler's statements, while IntercontinentalExchange dropped more than 12 percent to $98.03 a share.

William Blair and Co said in a research note that the stock sank on fears of CFTC imposing restrictions on futures trading, noting that energy futures comprised up to a quarter of revenue for each of the exchanges.

The CFTC will also seek comment on who should qualify for exemptions from position limits.

Oil prices soared to a record above $147 a barrel last July and grains contracts surged to historic levels as some market players complained that hot money distorted futures markets.

Last month the Obama administration sent Congress a wide-ranging plan to tighten U.S. financial regulation and prevent another banking and market crisis, including tougher oversight of over-the-counter derivatives.

Phil Flynn, analyst at PFGBEST Research in Chicago, said Gensler was bowing to political pressure and the tightening of position limits won't be effective unless traders are restricted on a worldwide basis.

"I think it's kind of a witch hunt," said Flynn. "I don't think speculation was the cause of oil going to $147, nor was it the cause of it going to $37."

Currently, CFTC does not set position limits on oil and other energy contracts, although futures exchanges do. CFTC has position limits on some agricultural contracts.

"The commission will be seeking views on applying position limits consistently across all markets and participants, including index funds and managers of exchange-traded funds; whether such limits would enhance market integrity and efficiency; whether CFTC needs additional authority to fully accomplish these goals; and how the commission should determine appropriate levels for each market," said the statement.

TIGHTER REGULATIONS COULD HURT LIQUIDITY

In Chicago, some players may welcome the moves if it removes speculative froth from markets that were roiled last year by huge price swings. Some farm groups complained traditional hedging was impossible under such conditions.

But others worry that if the CFTC is too tough all speculators would be hit, which could hurt market flows.