CFTC to consider speculative energy commodity limits, Gensler says

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, he indicated. “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,” he 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 non-commercial 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 US Sen. Byron L. Dorgan (D-ND).

“The CFTC’s ongoing review of the many exemptions it has granted over the years to speculators is also long overdue. The CFTC should immediately limit or revoke exemptions granted to speculators using the markets to gamble on the future price of oil and other commodities. This does nothing more than drive up the price of oil and pick the pockets of American consumers,” he continued.

US Rep. Bart Stupak (D-Mich.) said that he was pleased that Gensler is using the CFTC’s existing 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.

“The CFTC should utilize its authority to the fullest extent to prevent the manipulation of energy prices by speculators. I urge Chairman Gensler to report back to Congress upon completion of the public comment period to discuss any additional authorities the Commission might need to effectively accomplish its mission,” Stupak said.

Contact Nick Snow at[email protected]