WASHINGTON (Reuters) - The top U.S. futures market regulator’s proposals to rein in speculation through position limits is a step in the right direction but may not go far enough, some U.S. lawmakers say.
The Commodity Futures Trading Commission on Thursday unveiled a proposal that would cap the number of futures contracts traders could control in the oil and gas markets at a level likely to affect just some of the biggest energy players.
The commission voted 4-1 in favor of subjecting the rule to a 90-day comment period. Besides the dissenting vote, two of the five commissioners had strong reservations about the proposal that could limit trading positions of the big players.
A number of energy market commentators seem relieved the proposals were not as stringent as first feared, but others in Washington were concerned that more should be done.
“While yesterday’s proposal is a step in the right direction, we are concerned that the proposed limits may be too high to rein in damaging speculation in oil and gas markets,” John Diamond, a spokesman for Senator Maria Cantwell, said.
Cantwell, a Democrat, has been a vocal proponent of increased energy market oversight and introduced legislation that would have forced CFTC to set position limits.
“The CFTC must set the limits at a level that does not allow excessively high speculative positions that ultimately harm energy consumers,” her spokesman said.
The proposed regulations would still allow a trader to amass a 98 million-barrel position in crude oil, equal to more than a day’s global consumption and five times the New York Mercantile Exchange’s loosely enforced cap.
CFTC Commissioner Bart Chilton told Reuters before the proposal was revealed that the commission would “err on the high side” to lessen the risk of traders jumping to overseas or unregulated over-the-counter markets.
Senator Jeff Bingaman, chairman of the Senate Energy and Natural Resources Committee, said he was pleased the CFTC was acting to better regulate the energy markets but there were still regulatory gaps.
“While over-the-counter markets remain invisible to regulators, we cannot expect the position limits to be effective in preventing excessive speculation from the largest traders,” Bingaman said.
The proposed regulations will undergo a 90-day public comment period after which the CFTC will review the proposal and decide how to move forward. The agency did not provide a timetable as to when such a decision may be made.
It is unclear whether CFTC Chairman Gary Gensler will be able to finalize the rules due to concerns that traders may circumvent the proposed limits by moving to opaque markets and in turn decrease transparency of the futures markets.
Jill Sommers, the sole commissioner to vote against moving the proposal forward to the public comment stage, said she did not want to implement limits on exchanges unless caps were also placed on over-the-counter markets.
“Legislation giving us the authority to impose OTC limits may be enacted this year, but the timing and final form of such legislation is unknown,” Sommers said on Thursday.
“While I wholeheartedly support efforts to enhance our authority in this area, I am concerned that forging ahead with federal limits in a piecemeal fashion is unwise,” she said.
The Senate agriculture committee is prepared to take on reform of its markets in the coming months.
Its chair, Senator Blanche Lincoln, said speculative position limits will be of interest and applauded the CFTC for opening the regulations up to such a thorough public discourse.
“We will be following the comments submitted to CFTC on this rule very closely,” she said.
Additional reporting by Ayesha Rascoe and Tom Doggett; editing by Jim Marshall