Commodity groups launch next attack on U.S. position limits rule

WASHINGTON Tue Feb 11, 2014 5:14am IST

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WASHINGTON Feb 10 (Reuters) - A group of commodity firms came out against a new U.S. rule to curb market speculation in a letter on Monday, after banks successfully shot down an earlier version of the position limits rule in court.

The new rule by the Commodity Futures Trading Commission attracted well over 100 comment letters by industry participants after the agency - which regulates swaps and futures - launched it in November.

"The Commission would inevitably hurt the efficient operations of U.S. derivatives markets," if no changes were made, the Commodity Markets Council said, adding that the rule also exceeded the Congressional mandate.

The CMC is a powerful industry body whose members include oil major BP Plc, commodity power houses Cargill Inc and Bunge Ltd, as well as the world's largest future exchange, the CME Group Inc.

Position limits have long been used in agricultural markets to curb speculation, but Congress gave the CFTC far greater powers to impose them after the crisis. The agency will now extend them to oil, natural gas and metals markets.

A judge knocked down an earlier version of the rule in 2012 after Wall Street challenged it in court, fearing they would incur high costs because they needed to tally up the positions across hundreds of subsidiaries.

The agency is now arguing the rule is needed by looking at the manipulation of the silver market by the Hunt Brothers in 1979 and the cornering of the natural gas market by hedge fund Amaranth in the 2000s.

The new rule had been expected to irk commodity merchants such as Cargill looking to hedge certain transactions, which is set to become harder if the rule stays unchanged.

Under U.S. law, the Commission needs to look at the public comments before issuing a final rule, and adopt changes or explain why they were not needed.

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