Cantwell Urges Equal Treatment of Cash and Physical Derivatives

The U.S. Commodity Futures Trading Commission may increase risk of manipulation and volatility in markets for oil, gas and other commodities unless new speculation limits apply similar treatment to physical-settled and cash-settled derivatives, Senator Maria Cantwell said.

Cantwell, a Washington Democrat who supports so-called position limits, made the comment in an Oct. 14 letter to CFTC Chairman Gary Gensler, whose agency is scheduled to vote on Dodd-Frank Act rules to impose the restrictions at a meeting in Washington tomorrow.

In a January proposal, the CFTC supported conditional position limits that would allow larger positions in cash derivatives markets. Chicago-based CME Group Inc. (CME), the world’s biggest futures exchange, objected to the plan’s different treatment of the physical-delivered derivatives market, which it dominates, and the cash-settled market primarily controlled by Atlanta-based IntercontinentalExchange Inc. (ICE)

The January proposal would set limits on derivatives trading based on the market for an underlying commodity such as oil. A trader could hold a position as much as 125 percent of the size of the estimated deliverable supply, as long as the derivatives were cash-settled and the trader controlled no more than 25 percent of the physical market. The limit wouldn’t be as generous for traders with positions in both cash-settled and physical-delivered derivatives.

The CFTC may change the rule to narrow differences between the two markets, Bloomberg News reported on Sept. 22.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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