Three days of CFTC hearings are underway on the topic of speculation in the futures markets, and the impact on market pricing.
“This hearing is an opportunity to determine how speculative position limits could be used to address excessive speculation, not how we can eliminate speculation,” said CFTC Chairman Gary Gensler, adding that the CFTC “must seriously consider setting strict position limits” in the energy markets. Read more from Gensler in the Wall Street Journal article, “Gensler Pushes for Trading Curbs,” on July 28, 22009.
ICE Chairman and CEO Jeffrey Sprecher cautioned in his CFTC testimony that “during times that unpopular price signals are being sent by markets, it is often tempting for policy makers to take pro-active steps to address what they perceive to be structural problems in the market. While well intentioned, these measures often fail to achieve their desired objectives or, worse yet, lead to unintended consequences such as increased price volatility and distortion of important price signals that would otherwise be discovered in properly operating markets.” Read the full testimony.
Meanwhile CME Group CEO Craig Dononue said “efforts to control price or volatility by position limits is a failed strategy” but that the CME recognizes the concerns respecting the role of index funds and swap dealers in the futures market, and in particular, the impact that their participation in the markets might have on energy prices.
“We are prepared to respond to those concerns by adopting a hard limit regime for those products, including single-month and all-months combined limits in addition to the current limits that apply during the last three trading days of the expiration month,” he said.
Concerning the impact of index funds, Donohue said “index investing is an efficient means for thousands of small traders to gain the benefit of asset diversifcation or to hedge risk, ” and that “contrary to the picture painted by a few witnesses at recent Congressional hearings, index funds are not monoliths where a single speculator, who controls a large block of capital, stays long against all odds and logic.” Read Donohue’s CFTC testimony.
More articles today on the issue of speculation and the CFTC hearings.
“CFTC Poised to Move Aggressively on Position Limits,” Reuters
“NYMEX Sets Position Limits on Some Nat Gas Contracts,” Reuters
“Traders Balk at Plans to Limit Natural Gas Trading,” WSJ
“Speculators Cleared in U.K. Oil Volatility,” WSJ
“Traders Blamed for Oil Spike,” WSJ
“CFTC Should Set Trading Limits in Energy Markets, Groups Say,” Bloomberg
“CFTC to Issue ‘New and Better’ Report on Speculation,” Bloomberg
“CFTC Hearings Look at Ways of Curbing Energy Price Spikes,” FT
“CFTC: Regulators are Worse Than Speculators,” 24/7 Wall Street
“Spotlight on Goldman as Commodities Hearings Begin,” MarketWatch
