Commodity Rules Needed to Control Speculation, Chilton Says

Regulation of international commodities markets will control price volatility and benefit consumers by making trading more efficient and effective, said Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission.

The commission is writing rules on market regulation as supply and demand fundamentals can’t explain the high price volatility seen this year and in 2008, Chilton said in a speech to the United Nations yesterday, according to transcript of his comments on the CFTC’s website. Policy makers globally should work together so regulations and position limits correspond internationally, he said.

“We need to ensure that to the extent that we can, respecting sovereignty of course, we do our best to harmonize rules and regulations,” Chilton said. “Those nations that do so will reap a reward in my judgment in that they will make themselves more competitive, more efficient and effective.”

Price swings including those in oil futures in 2008 can’t be attributed to supply and demand, Chilton said. Oil futures rose to $114.83 in New York in May and are down 11.5 percent this year. The price touched a record in 2008.

“There is no way anyone can explain oil prices going from $147.27 a barrel in June of 2008 to $30.28 in December of the same year based upon supply and demand,” he said. “It simply can’t be done. The tremendous volatility we have seen in markets in recent months just can’t be justified purely as typical supply and demand fundamentals.”

Position Limits

People opposed to position limits will fight to ensure they’re not established or find ways to avoid them, even saying no studies exist to prove a link between speculative trading and price swings, Chilton said.

Some people “violently oppose position limits,” Chilton said. “They dance on the head of a legal pin trying to find a way around them or they threaten lawsuits if we impose them. I have accepted as self-evident the need for reasonable speculative position limits. We have actually had them in some agricultural markets for years. The world did not seem to end.”

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net