Newspaper article International New York Times

Futures Trading Limits Unneeded, Panel Says

Newspaper article International New York Times

Futures Trading Limits Unneeded, Panel Says

Article excerpt

The Commodity Futures Trading Commission is advised to abandon plans to limit contracts a trader can hold on commodities like oil and natural gas.

A long-running fight between regulators seeking to curb speculation in the commodities markets and traders is heading into its next round.

An advisory committee of the Commodity Futures Trading Commission -- composed largely of representatives from the energy and trading industries -- has recommended that the regulator abandon its plans to limit the number of futures contracts a trader can hold on certain commodities, including oil and natural gas, according to a copy of the recommendation that was reviewed by The New York Times.

Such a reversal on so-called position-limits rules, if ultimately adopted by the agency, would hand a big victory to Wall Street.

The C.F.T.C. Energy and Environmental Markets Advisory Committee says in its report, being released on Thursday, that the regulator should not make the proposed limits final and that it finds "scant evidence" they are necessary. It adds that if the agency does proceed, it will need to make significant changes.

Eight of the nine members of the committee, which was created by the Dodd-Frank Act, approved the report. The holdout was an official of Public Citizen, a consumer advocacy group in Washington. In a dissent being circulated with the report to C.F.T.C. officials, Tyson Slocum, director of Public Citizen's energy program, complained that the committee was dominated by representatives of the oil and gas production sector, for-profit exchanges and proprietary energy traders.

"The participation involved in approving the report is duplicative, and weighted in favor of interests that may have a predisposition to opposing the concept of position limits," he wrote.

The advisory panel's members include two operators of futures exchanges -- the CME Group and the Intercontinental Exchange -- Morgan Stanley and the energy trading firm Vectra Capital, as well as representatives of the energy and power industries.

The commission declined to comment.

The report and the dissent underscore a yearslong battle between C.F.T.C. officials and Wall Street over position-limits rules.

Those who want position limits say they would curb speculative trading by putting a cap on the number of derivatives contracts a trader can have in a given commodity. Speculation was blamed for a run-up in energy and food prices before the recent slump in commodity prices.

Opponents have argued that limits threaten legitimate hedging and other risk-reduction strategies used by companies that have big exposure to commodity price swings, such as airlines and agricultural equipment makers.

They also say position limits harm the ability of traders to react to market shocks and could worsen volatility in commodity price swings. …

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