US regulator wants 'strict' energy futures position limits

28 July 2009 15:42  [Source: ICIS news]

US CFTC mulls limits on energy futuresHOUSTON (ICIS news)--The time has come to contemplate "strict" position limits in energy futures as a means of ending excessive speculation and diversifying market participation, the head of the US futures market regulator said on Tuesday.

"Position limits can enhance liquidity by promoting more market participants rather than having one party that has so much concentration so as to decrease liquidity," said Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC).

"I believe we must seriously consider setting strict position limits in the energy markets," Gensler said.

Gensler was speaking at the first of three public meetings that the CFTC is staging to discuss position limits in commodity futures, and to debate whether regulators or exchanges should have responsibility for setting those limits. 

Gensler noted that while the CFTC currently sets and enforces position limits on certain agriculture products, it does not do so for energy markets. 

Instead, the futures exchanges set energy position limits only in the last three days of trading to address manipulation and congestion, he said.

But they are not required by law to set and enforce limits, and do so to maintain accountability rather than to address excessive speculation, Gensler said.

"The exchanges do have the authority to ask market participants to take their positions down after passing accountability levels or refrain from increasing their position," Gensler said.

"They have used this authority to a degree," he said. "The majority of the time, however, the exchanges do not execute their authority to require participants to decrease or refrain from increasing the size of their positions."

Gensler called for responsibility to deal with speculation to lie with his own agency.

"I believe that the CFTC’s mission is to protect the interest of the American public, and it should be this agency that sets the rules and regulations on our futures markets," he said. 

The hearings come amid sustained political pressure on regulators to rein in the kind of speculation that is widely blamed for creating a bubble in commodity prices in 2008.

The US chemical industry has campaigned for years for tighter trading controls in energy markets to reduce volatility in feedstock costs.

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By: Stephen Burns
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