CFTC moves to rein in market speculation

The Commodity Futures Trading Commission  (CFTC) voted Tuesday to propose regulations meant to cap speculation on a broad array of commodities, including crude oil; natural gas; and gasoline.

The commission’s members voted 3-1 to approve a revamped rule that would impose position limits capping the number of futures contracts for the commodities that a company may hold.

Spikes in prices for the commodities in recent years have been blamed on rampant speculation. The 2010 Dodd-Frank Wall Street reform law required the CFTC to implement a new set of standards.

The goal, commission chairman Gary Genslar said Tuesday, is to, “prevent any single trader from obtaining too large a share of the market to ensure that derivatives markets remain fair and competitive.”

In response to Dodd-Frank, the agency finalized position limit regulations in 2011, only to see them struck down by a federal district court.  The court ruled that the CFTC had not sufficiently provided rationale for imposing the speculation limits.

In pushing a revised rule, the commission is dropping its challenge to the court’s 2012 decision.

“With a strong proposal ready for the commission’s consideration today, we determined that the best path forward to expedite position limits implementation was to pursue the new rule and dismiss the appeal of the court’s ruling,” Gensler said. “Today’s proposed rule is consistent with congressional intent.”

Commissioner Bart Chilton, who championed the measure, joined Gensler and Commissioner Mark Wetjen in voting to approve the rule’s proposal.

The lone dissenter, Commissioner Scott O’Malia, said the commission did not take sufficient time to analyze data to justify the rule, which, he said, could have gamaging effects for some in the financial sector.

“Regrettably, this proposal continues to chip away at the commercial and business operations of end-users and the vital hedging function of the futures and swaps markets,” O’Malia said.