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.
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