The chief regulator of U.S. commodities markets, Gary Gensler, is serious about limiting speculation in energy futures trading and will move to provide details about managed funds' contract positions in an attempt to make markets more transparent.
The chairman of the Commodity Futures Trading Commission unveiled a broad vision in a Reuters interview of gaining transparency in the once high flying markets, including using new authority to tighten oversight over futures contracts on exempt markets.
I think, as chairman, we have to seriously consider position limits, he said. Position limits help protect the markets from highly concentrated positions that can be distorting in difficult periods, he said.
Gensler, the former Goldman Sachs executive charged with overhauling the volatile commodity trading world, held up agriculture regulation as a model for energy trading where prices have whipsawed over the past several months.
The principal reasons we do it in agriculture is relevant for energy and it's to promote market integrity, to promote markets that are fair and orderly and have the liquidity in them by having a minimum number of participants, Gensler said.
To protect against market manipulation, the CFTC sets limits on the contracts each investor can hold in some agricultural commodities. But for energy products, such as oil, the limits are set by the futures exchanges.
The accountability limits set by futures exchanges, however, are not stop or yield signs that prevent market players from taking highly concentrated positions that can distort market dynamics, Gensler said.
They're sort of honk-as-you-go-by signs, he said, noting that in the last 12 months, accountability levels in four major energy products were exceeded by about 70 parties.
The CFTC's actions follow a spike in oil and other commodity prices to record levels last year. At the time, many lawmakers criticized the regulator for not doing enough to tamp down the influx of hot money from hedge funds.
As part of the broader regulatory overhaul promised by the Obama Administration, the CFTC held a series of hearings to examine position limits and which traders, if any, should be allowed to exceed those limits. Gensler said new rules on position limits could be set as early as autumn.
Officials from the IntercontinentalExchange Inc , or ICE, and the Chicago Mercantile Exchange , the world's largest exchange, have warned the CFTC that it risks increasing volatility, distorting pricing functions and pushing traders to less regulated offshore markets.
Shares in the exchanges fell sharply on Monday, with ICE shares slumping 3.81 percent to $87.04 and the CME dropping 4.05 percent to $269.63.
Gensler said the agency would also subject a number of exempt contracts to oversight. This is not a small number. We're going to have a series of these that we're going to try to put out in the next couple of months.
The Chicago Climate Exchange's carbon spot contract could become the second contract subject to the CFTC's new authority. Last month, the agency boosted oversight of the natural gas contract on the ICE's natural gas contract after it determined that the contract played a significant role in price discovery.
In addition to bolstering oversight on exempt exchanges, the CFTC is also increasing transparency in futures markets by providing more specific details about the nature of market participants.
Starting this month, the CFTC will issue expanded weekly trader reports including four categories: producers and merchants, swap dealers, hedge funds, and other participants.
There has been concern that while Washington moves to tighten oversight, trading will simply move overseas.
But Gensler said his agency is working with overseas regulators, including his counterparts in London's Financial Services Authority, to harmonize rules internationally.
I think it's incumbent upon regulators to work closely together around the globe, he said.
(Additional reporting by Charles Abbott, Roberta Rampton, Tom Doggett; Editing by Russell Blinch and Marguerita Choy)