Exchanges Signal Acceptance Of New Limits On Energy Trading
July 28 2009 - 6:13PM
Dow Jones News
WASHINGTON (Dow Jones)-Recognizing new restrictions on energy
trading are coming, executives at two major exchanges said Tuesday
they are willing to accept tougher regulations despite doubts that
speculators adversely affect market prices.
In testimony before the Commodity Futures Trading Commission,
CME Group Inc. (CME) Chief Executive Craig Donohue said his company
is "prepared to lead" and take steps to allay concerns that big
banks and hedge funds are engaging in excessive speculation.
"We are prepared to respond to those concerns by adopting a hard
limit regime for those products," Donohue said.
IntercontinentalExchange Inc. (ICE) Chief Executive Jeffrey
Sprecher also expressed support for new limits, and he testified
that regulators - not exchanges - should be the ones to set
them.
Sprecher said regulators should "give users a bucket of position
limits they are allowed to hold" so they can shop for the best
exchange.
The positions taken by the exchanges is aligned with a shift at
the CFTC on energy speculation that coincided with the change from
a Republican to Democratic presidential administration. The CFTC
was criticized last year for lax regulation after oil futures
prices rose to $145 a barrel.
Critics blamed index traders like pension funds and hedge funds
for driving up prices, arguing those market players should be
subjected to stricter trading limits.
CFTC Chairman Gary Gensler, appointed by President Barack Obama,
has said he believes speculation did play a role in driving oil
prices to record highs. He indicated Tuesday the agency is headed
in the direction of more regulation for the energy markets.
"I believe we must seriously consider setting strict position
limits in the energy markets," Gensler said. He added that the
"CFTC is in the best position" to apply those limits - suggesting
the exchanges may lose their longstanding ability to set limits on
energy and possibly other commodities.
"Hedge exemptions from speculative position limits generally
should only be available to persons who produce, process,
merchandise, manufacture or consume a commodity," said Ben Hirst,
the senior vice president and general counsel for Delta
Airlines.
Still, exchanges on Tuesday defended index traders, saying they
bring needed liquidity to the market, and they reiterated they have
not seen one study proving excessive speculation caused record
price spikes last summer.
Even the CFTC's own economists, in a report last autumn, did not
find evidence that speculation was directly to blame. The report
studied financial investors that place bets on commodity prices by
purchasing futures contracts tied to indexes.
An updated CFTC report with additional data on swap dealers and
index traders is expected in August.
"The numbers that will be in that (August) release have not been
seen by any of the four commissioners," Gensler said, adding he
thinks it would be "inaccurate to report as to what those numbers
might say."
Gensler said the commission plans to start issuing reports with
data on swap dealers every quarter, with the goal of making such
reports monthly. The reports aim to shed new light on the
over-the-counter market, which the Obama administration also hopes
to bring under federal regulation.
Gensler is asking Congress to give the CFTC new power to set
trading limits on some over-the-counter contracts.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com
(Brian Baskin contributed to this report.)