January 13, 2011 / 4:15 PM / 8 years ago

UPDATE 4-CFTC advances position plan, more hurdles ahead

 * CFTC advances position limits plan to comment stage
 * Dunn: Needs more evidence of harmful speculation
 * Dunn: Plan may be "cure for disease that does not exist"
 * Gensler: Congress wants position limits for commodities
 * Lawyer: room to argue both ways
 (Recasts and updates with analyst comments)
 By Roberta Rampton and Sarah N. Lynch
 WASHINGTON, Jan 13 (Reuters) - Big speculators could face
curbs on wheeling and dealing in commodity markets after the
U.S. futures regulator on Thursday advanced a plan to cap large
positions, but internal dissent could delay final adoption of
the plan for months or longer.
 An important swing vote on the five-member Commodity
Futures Trading Commission expressed skepticism about whether
 curbs on their trades would prevent a large run-up in prices.
 "With such a lack of concrete evidence, my fear is that, at
best, position limits are a cure for a disease that does not
exist or at worst, a placebo for one that does," Commissioner
Michael Dunn said at the opening of the hearing.  
 The plan, adopted in a 4-1 vote to allow it to move to the
public comment stage, would attempt to curb positions investors
can hold in commodity markets, with the aim of preventing large
players from controlling the market.
 Consumers and some lawmakers say it would prevent a run-up
in prices, which hit record highs in 2008 in oil and many food
 But the surprisingly strong talk by Dunn, a Democrat, will
add fuel to a debate about the role banks and funds play in
energy, metals and agricultural markets, whose prices are
soaring again.
 His skepticism means a final rule on aggregate limits could
be delayed, or even shelved, said Daniel Waldman, a partner
with law firm Arnold & Porter, and a former general counsel at
the CFTC.
 "I thought it was an indication that there is a chance that
the Commission may never have the votes to put these aggregate
position limits in place," Waldman said.
  HIGHLIGHTS-What CFTC officials said       [ID:nN13246189]
  FACTBOX-Position limit proposal           [ID:nN09137318]
  FACTBOX-Comparison of limits plans        [ID:nN16213105]
  ANALYSIS-"Position points" lack bite      [ID:nN07191365]
  Position limits PDF           r.reuters.com/gan95r
  FACTBOX-CFTC rule on swaps documentation  [ID:nN13265098]
  Take a Look                                 [ID:nCFTCREG]
 The CFTC has wrestled with the role of speculators as
institutional investors, hedge funds and exchange-traded funds
flocked to commodity markets.
 But the CFTC's own economists have not been able to find a
causal link between speculation and price volatility. One
study, for instance, concluded that commodity index traders are
not causing price volatility and may actually be helping to
reduce it.
 Another analysis of New York Mercantile Exchange data from
2000 to 2009 found that a regulatory policy shift from position
limits to non-binding "accountability levels" had not changed
energy price volatility.
 Dunn said he wants "statistical or economic analysis"
before the limit plan moves to a final vote sometime after a
60-day comment period yields what's expected to be a flood of
responses from consumers and industry alike.
 Without Dunn's support, it will be extremely difficult for
Chairman Gary Gensler to finalize the rule.
 He has support from Bart Chilton, a Democrat who has been
the strongest proponent for limits.
 Republican Commissioner Jill Sommers voted against the
plan, which she called flawed, and her fellow Republican Scott
O'Malia also raised questions about it, but voted for the plan
to move forward to the comment stage.
 Asked if the CFTC has any leeway in whether it needs to
adopt limits, Gensler said he believes Congress wants the
agency to move forward.
 The Dodd-Frank financial reform law said the CFTC "shall"
set the limits "as appropriate," creating the dissent.
 "There's probably room to argue both ways," said Arnold &
Porter's Waldman.
 Philip McBride Johnson, a retired derivatives lawyer and a
former CFTC chairman, said there may be only so much wiggle
room in Dodd-Frank.
 "I'm not sure the statute gives them much choice. It seems
to me it's sort of a mandate from Congress to do it. But to the
extent it's done with the best information, who can quarrel
with that?" he said.
 Ultimately, pressure from consumers and lawmakers will
pressure the CFTC to put the limits in place, said Michael
Greenberger, a former senior official at the agency, now a law
professor at the University of Maryland.
 "Americans may be facing $4 gasoline, and you may have food
riots around the world," Greenberger said.
 "If it is just a placebo, well, let's try the placebo.
There's no harm going to be done to anyone," he said.
 Senior Democratic senators have warned the agency to stand
firm. "It has become increasingly clear that Wall Street seeks
to use the rule-making process to eviscerate the new position
limits," said a letter from Democrats including Maria Cantwell,
Bill Nelson and Carl Levin to the CFTC on Wednesday.
 But Republicans controlling the House have cautioned they
want to put the brakes on many parts of the Dodd-Frank law,
which gave the CFTC oversight of the over-the-counter swaps
market, valued at $600 trillion globally.
 The law required the CFTC to have limits for energy and
metals markets in place by January, a deadline the agency
conceded it had to miss because it lacked data.
 The hiccup in rolling out position limits was the latest
sign of the agency is struggling under its broad mandate and
lack of funding.
 The CFTC had also planned to vote on implementing a final
rule designed to limit banks' voting power in derivatives
clearing and trading venues on Thursday, but the rule was
yanked from the agenda a day earlier because some commissioners
felt it went too far, and others worried it lacked teeth.
 (Additional reporting by Christopher Doering;
Editing by Russell Blinch and Lisa Shumaker)

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