US CFTC compromises of parts of speculative curbs

US futures regulators are yielding to banks and other major traders of commodities on several key provisions in a plan to crack down on speculation, but are holding their ground on the need to forge ahead with position limits. A draft of the Commodity Futures Trading Commission's final rule, reviewed by Reuters late on Wednesday, is likely to be seen by traders as somewhat less draconian than an initial proposal floated by the CFTC earlier this year.
The CFTC's final rule maintains that the Dodd-Frank Wall Street overhaul law requires position limits - caps on the total number of commodity-linked contracts that any one trader can hold - to prevent excessive speculation in oil, grain, silver and other commodity markets. The rule also keeps intact a game plan to phase in position limits over time until the agency can gather greater data on the opaque $600 trillion over-the-counter derivatives market.
But in the details of the plan, the CFTC modified key areas that were a major concern for big Wall Street banks like Morgan Stanley and oil companies such as Shell. The final rule, however, would still would snag large passive index funds, which critics have blamed for causing a massive run-up in oil prices in 2008 by buying and holding contracts without regard to market fundamentals. It would also still have a major impact for the CME Group Inc and IntercontinentalExchange, the two largest futures exchanges in the United States, which both have expressed concerns that overly strict limits could drive trading volume overseas.
The 238-page draft, dated September 19, could still be subject to changes, especially as the five-member commission and its staff have been divided on how to craft the rule. The run-up in food and oil prices this year has renewed political pressure on the agency to crack down on speculators, whom some blame for the high prices.
"The draft final rule on position limits, as currently written, is extremely weak," said Senator Bernie Sanders, a staunch critic of the CFTC. "At a time when the American people are experiencing extremely high oil and gas prices, this proposal will do little or nothing to lower prices and it will not eliminate, prevent or diminish excessive speculation as required by the Dodd-Frank Act," he said. The CFTC's final rule is tentatively slated for a vote on October 4.
"It remains a work in progress... and our commissioners haven't fully weighed in yet," said CFTC spokesman Steve Adamske, who declined to comment on the details late Wednesday night. One of the key changes in the final draft relaxes some proposed requirements for large commodities players that have ownership stakes in entities that hedge, deal and speculate.
The CFTC had initially wanted to add or aggregate positions for entities that share common ownership, regardless of whether they share trading strategies and control. The agency is now backing down, allowing companies to avoid aggregating all of the different positions in various trading accounts, provided those accounts are independently controlled and the companies impose vigorous firewalls between their trading desks.