CFTC eyes speculative limits on energy

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, July 9 -- The US Commodity Futures Trading Commission will hold a hearing on whether to establish federal speculative limits on energy and other commodities of finite supply, CFTC Chairman Gary G. Gensler announced.

The hearing will include a discussion of whether it is appropriate to exempt various types of market participants from such limits. “While the Commodity Exchange Act provides for exemptions from such limits for ‘bona fide hedging transactions or positions,’ the CFTC is currently reviewing the manner in which this exemption has been implemented,” Gensler said.

The CFTC recently completed a comment period on whether the bona fide hedge exemption should continue to apply to purely financial hedges as well as hedges arising from a commodity’s actual use, Gensler said. Independent oil and gas producers use this second type of hedge extensively.

Gensler said that the CFTC also will take four steps to improve weekly trader commitment reports. It will no longer aggregate the current commercial category separating out and categorizing swaps dealers. It will disaggregate the current noncommercial category by separating out and categorizing hedge funds and other professionally managed market positions. It will incorporate data the CFTC receives for all foreign contracts linked to domestic contracts. And it will incorporate data on contracts which perform a significant price discovery function.

Two federal lawmakers who have been critical of the CFTC’s past approaches separately called Gensler’s actions a good first step.

“If these hearings lead to rigorous, federally imposed position limits across all markets on oil speculators looking for a quick buck at the expense of American consumers, then that will be an action I can applaud,” said Sen. Byron L. Dorgan (D-ND).

Rep. Bart Stupak (D-Mich.) said he was pleased that Gensler is using the CFTC’s authority to explore actions he and others in Congress have asked the commission to implement for years. “The establishment of aggregate position limits, review of bona fide hedging exemptions, and more accurate reporting of hedge fund and swap dealer data are all important steps the CFTC can take to begin reigning in the excessive speculation running up oil prices even as supplies are high, demand is low, and we remain in a recession,” he said.

Contact Nick Snow at [email protected].