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Cantwell Urges Equal Treatment of Cash and Physical Derivatives

Oct. 17 (Bloomberg) -- 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., 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.

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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