JPMorgan: Should Be Position Limits In All OTC, Exchange Mkts
July 29 2009 - 10:25AM
Dow Jones News
JPMorgan Chase & Co. (JPM) came out in favor of position
limits both on and off exchanges in a hearing before the Commodity
Futures Trading Commission on Wednesday.
But the bank wants exemptions maintained for swap dealers that
help commodity end users buy and sell derivatives to reduce their
exposure to price fluctuations. JPMorgan's views closely matched
those of Goldman Sachs Group Inc. (GS), which also had a
representative at the hearing.
"It makes sense to impose position limits across all markets,
both over-the-counter and exchange-based," said Blythe Masters,
head of global commodities at JPMorgan, adding that "exemptions
(should be) maintained for those who act as aggregators."
JPMorgan, Goldman Sachs and other financial institutions are
known as aggregators, as they offer complex financial products
tailored to individual companies' commodity needs, then trade in
large volumes using standard derivatives on exchanges to mitigate
their own risk. The banks also facilitate trades for index funds,
which buy a basket of commodity futures on behalf of individual
investors.
The increasing role of swap dealers and their index fund clients
has been tied by some lawmakers and regulators to last year's oil
price spike, which saw crude futures rise above $145 a barrel in
July before crashing down to just over $30 a barrel by the end of
the year.
On Wednesday, CFTC Chairman Gary Gensler said he backed position
limits as a means to limit speculative trading, though he
acknowledged that the mechanism for setting limits, and who should
be required to follow them, must still be worked out.
"No longer must we debate the issue of whether or not to set
position limits," Gensler said during opening remarks before
Masters spoke. "There are three important questions that do remain:
who should set position limits? Who should be exempted from
position limits? And at what level should position limits be
set?"
-By Brian Baskin, Dow Jones Newswires; 212-416-2453;
brian.baskin@dowjones.com