Magazine article Modern Trader

Energy Limits Proposed

Magazine article Modern Trader

Energy Limits Proposed

Article excerpt

The Commodity Futures Trading Commission (CFTC)'s recent calls for position limits in energy could be on shaky ground, with three of the agencies' commissioners and many in the industry expressing serious concerns about the proposals.

On Jan. 14, CFTC issued proposed rulemaking to establish a new position limit regime for energy futures and options markets. The proposal covers natural gas traded at the New York Mercantile Exchange (Nymex) and the Intercontinental Exchange and crude oil, heating oil and gasoline traded at Nymex. CFTC allowed for a 90-day public comment period for the rules.

CFTC Commissioner Michael Dunn said the proposed regulation "without the corresponding OTC regulatory authority and similar undertakings by other nations' regulators, may result in less transparency in the futures markets if those presently trading on exchange move to OTC and other opaque markets to circumvent these proposed position limits."

Commissioner Jill Sommers, who voted against putting the rule out for comment, also expressed concern that hard positions limits may be imposed on exchange trading without similar limits in place for OTC markets. "Forging ahead with federal limits in a piecemeal fashion is unwise. I am concerned that, without global standards, trading will move to other financial centers around the world," she said.

In his statement, Commissioner Scott O'Malia said the proposal "fails to make a compelling argument that the proposed position limits, which only target large concentrated positions, would dampen price distortions or curb excessive speculation."

Gary deWaal, general counsel at Newedge, says "It would be an ironic consequence at a time when [CFTC Chairman Gary Gensler] is arguing that trading should be on exchange and transparent that other policies [of the CFTC] would make this stuff non-transparent. …

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