Oil Speculation Rule Gets Final CFTC Push Before Trump Takeover

  • Agency head Massad said to be circulating position limit plan
  • Latest version would take into account industry demands

Timothy Massad

Photographer: Patrick T. Fallon/Bloomberg

Timothy Massad, the top U.S. derivatives regulator, is trying to push ahead before President-elect Donald Trump takes office with controversial rules that clamp down on traders’ ability to speculate in oil and other commodities, according to people familiar with the matter.

Massad recently gave his latest plan that caps the number of contracts a trader can have to the Commodity Futures Trading Commission’s other two members, the people said. That move raises the prospect that the chairman is trying to schedule a vote before the end of President Barack Obama’s term. Consumer advocates and Democrats have pushed for years for the so-called position limits as a way to reduce excessive speculation that they blame for driving up commodity prices.

The new draft takes into account some industry demands, giving certain traders more leeway to speculate than originally proposed, said one person, who asked not to be named since the plan hasn’t been made public. The version by Massad, who has said repeatedly even prior to the election that he wanted to get the regulation done, may still draw a fight though from exchanges, banks and Republicans who have railed against previous iterations of the rule.

Commissioner J. Christopher Giancarlo, the panel’s only Republican who’s likely to become acting chairman in January, has been a consistent critic of the limits. Industry opponents are already lobbying lawmakers and CFTC officials to try to thwart the effort, according to people familiar with the meetings.

A spokesman for the CFTC declined to comment.

“Deeply Controversial”

“The position limits rulemaking remains a deeply controversial proposal,” Representative Mike Conaway, a Texas Republican who chairs the House’s Agriculture Committee which oversees the CFTC, said in a letter on Friday to Massad urging him not to move ahead with his efforts. “The final supplement the commission proposed remains far short of a workable rule.”

The surprise election of Trump now makes it more likely that Massad, an Obama nominee who said before the election that he planned to stay on the job until his term ended in April, will step down sooner. While Massad hasn’t yet scheduled a vote on the rule, circulating it through commissioners’ offices is a step toward finalization. The measure would require majority approval by the three-person panel.

The effort could also all be for naught if the next Congress decides to review the regulation and override it, which they could do before it could be implemented next year.

“He took too long,” said Tyson Slocum, energy program director at advocacy group Public Citizen, which has urged for the limits to be put in place. “Having a hard, federally-enforced limit takes a lot of autonomy away from the exchanges.”

Rule Rejected

The rule that the CFTC proposed in 2013 set limits in 28 commodities for derivatives traded on exchanges such as those owned by CME Group Inc. and Intercontinental Exchange Inc., and in the swaps market. That version came after a federal judge in 2012 rejected the agency’s previous final rule in a case filed by the International Swaps and Derivatives Association and Securities Industry and Financial Markets Association.

While the surging gas prices that prompted Congress to include position limits in the 2010 Dodd-Frank Act have subsided, some lawmakers still want to see the rule finished. Senator Debbie Stabenow, the ranking Democrat on the Senate Agriculture Committee, said in an e-mailed statement on Friday that she supports Massad’s plan to complete the rule.

“Position limits are an important tool to ensure Wall Street speculation does not lead to high energy costs for families at home or at the pump,” she said.

— With assistance by Robert Schmidt

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