New CFTC position limits due in June, commissioner O’Malia says

The US Commodity Futures Trading Commission (CFTC) will unveil its new rule on speculative position limits in the next six weeks, after its previous effort was rejected in an embarrassing court ruling, says commissioner Scott O’Malia.

“We may get it in late May, but I suspect it’s probably going to be in June,” O’Malia told participants at the Energy Risk USA conference in Houston on May 14.

The new proposal is sure to reignite debate over the CFTC’s efforts to curb speculation in commodity markets, an initiative that has been fiercely opposed by traders and many energy market participants.

In October 2011, the CFTC approved a rule that imposed limits on the size of positions that market participants could take in futures and over-the-counter swaps linked to 28 physically-delivered commodities. Implemented as part of the Dodd-Frank Act, the rule was intended to keep “excessive speculation” from provoking run-ups in commodity prices, even though many experts question the premise that speculators are responsible for commodity price spikes.

Two industry groups — the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association — filed a lawsuit to block the rule from taking effect, and on September 28 last year a federal court vacated the rule just two weeks before it was due to come into effect. Judge Robert Wilkins of the US District Court for the District of Columbia said the agency had failed to demonstrate the rule was “necessary and appropriate”.

In response, the CFTC undertook a two-pronged approach by appealing the court ruling and commencing work on a new rule, which would include the finding of necessity demanded by law.

O’Malia, who voted against the original position limits rule in 2011, appeared sceptical that the CFTC would be able to craft a rule that would survive further court scrutiny.

“I don’t know what it says yet, and I’m dying to know how we learned from our mistakes with the previous rule,” he said.


This article was first published on Risk

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