WASHINGTON Nov 5 The U.S. derivatives regulator
on Tuesday launched a plan to curb commodity market speculation,
reviving a crucial Wall Street reform after a judge knocked down
an earlier version of its rule on position limits.
The redrafted rule by the Commodity Futures Trading
Commission will allow exemptions for positions held by firms in
which banks own stakes of up to 50 percent, the agency said in
documents prepared ahead of a public vote.
An earlier version of the rule had set the hurdle at 10
percent, a level that was deemed draconian by the industry,
which then gained a victory over the agency when a District
Court vacated the rule in September 2012.
The rule has been one of the most hotly debated aspects of
an overhaul of Wall Street after the financial crisis. It comes
as some of the largest global banks face political pressure to
reduce their control over commodities markets.
The Dodd-Frank law gave the CFTC greater powers to limit
positions held by large traders to prevent them from cornering
the market, while exempting farmers and others who use futures
and swaps to protect against price swings.
The CFTC's public vote on the proposed rule is normally a
sign that a majority of commissioners is in favor. The rule will
then be opened up for comment.
The easier so-called aggregation hurdles for firms - above
which they need to count positions their affiliates hold to
their own - removes an important irritant for banks, which had
complained it would send costs soaring.
To use the exemption, trading firms - often large banks such
as Goldman Sachs and Barclays - will need to
prove they do not control the affiliate. Above that only
non-consolidated units can be exempted.
Reuters had first reported the main changes in the CFTC's
newly drafted rule.
The CFTC's rules will limit a trader's maximum size in
derivatives to 25 percent of the estimated deliverable supply of
the underlying commodity, for a range of agricultural, energy
and metal contracts.
The new rule also reintroduced so-called conditional limits,
which allow traders to hold five times as much as that limit in
cash-settled contracts provided that they do not hold a single
position physical-settled contracts.
The text of the rule, which was several hundred pages long
according to CFTC staff, will also change certain details of
what constitutes hedging - an activity that is exempted from
position limits under the Dodd-Frank law.
The rule will no longer allow an exemption for derivative
contracts entered into by traders to make good rent they pay on
empty storage facilities, CFTC staff said.
The agency had found no sufficient link between market
prices and storage facility rents to allow the practice, a form
of anticipatory hedging, the staff said.
The CFTC staff also said that futures exchange CME Group Inc
had provided new estimates of deliverable supply that
were higher than the CFTC had initially used, so that the
percentage position limits were also higher.