Position limits would guard against excessive concentration in the energy futures market, the chief U.S. futures regulator said in a speech to natural gas officials on Tuesday.
Chairman Gary Gensler of the Commodity Futures Trading Commission said the financial crisis last fall showed the risk posed by large concentrated actors on the financial stage.
I believe we should consider setting position limits to guard against excessive concentration in the energy futures market, said Gensler at a luncheon held by the Natural Gas Roundtable, a nonprofit organization.
The CFTC is weighing whether to set position limits -- a maximum market share -- for oil and other energy products. The agency already sets limits on agricultural contracts.
When the CFTC set position limits for certain agricultural commodities, the agency sought to ensure that the markets were made up of a broad group of market participants with a diversity of views, said Gensler.
He declined to discuss how position limits might be structured or sentiment among the five-member commission for action. I would say, just stay tuned, he told one questioner. A decision is possible before winter, he said.
If Congress passes a climate change law, it should fully regulate the expanded carbon markets -- including the futures market, the OTC (over-the-counter) market and the cash market -- without exception, Gensler said. He said CFTC is well suited to police the cash market for carbon credits.
Legislation pending in Congress would empower the CFTC to set aggregate limits across markets for physically deliverable commodities such as oil. It also would require many over-the-counter derivatives to go through clearinghouses and to be traded on regulated exchanges.
Two House committees have voted to exempt end users -- ranging from utilities and airlines to agribusinesses -- from the clearing requirement. End users say they often pledge assets as part of their deals and it would be a burden to post cash as margin during clearing.
Transactions between swap dealers and end users, even if the end-users are exempt from margin requirements, should still be traded on exchanges or swap execution facilities, said Gensler.
(Reporting by Charles Abbott; editing by Jim Marshall and Lisa Shumaker)