Lacking trading data, CFTC may delay commodity position limits


By Roberta Rampton and Christopher Doering
Tuesday, October 19, 2010

WASHINGTON -- Clearinghouses, their members, and swap dealers will have to report large swaps positions in 46 commodities to the U.S. futures regulator daily starting in six to 10 months in a plan unveiled on Tuesday.

The Commodity Futures Trading Commission said about 180 trading firms and swap dealers and five clearinghouses likely will need to report positions, an effort to help the agency police position limits for speculative trades as part of the sweeping new Wall Street reform law. The CFTC has intensified its focus on trading activity of banks and funds in commodity markets since 2008, when prices spiked to record levels in oil, wheat, and many other markets, prompting demands from consumers and lawmakers to crack down.

The proposed plan, which builds on CFTC's monthly "special call" report by expanding the number of firms that must report as well as increasing the frequency to daily, is a key piece of the CFTC approach to position limits, a separate proposal that will be unveiled in the next month. This proposal sets the bar for mandatory daily reporting high enough to exclude most end-users, an official said, and applies only to "economically equivalent" swaps that are either based on a futures price or mirror a futures contract.

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Prophecy Resource Goes Into Production
at Ulaan Ovoo Coal Mine in Mongolia

A commission appointed by Mongolia's Ministry of Mineral Resources and Energy has conducted the final permit inspection at Prophecy Resource Corp.'s Ulaan Ovoo mine site and has instructed the company to begin coal production. Prophecy Resource (TSX.V: PCY) has begun production of its first 10,000 tonnes of coal as a trial run of supply to be taken by rail to electric power stations in Darkhan and Erdenet, Mongolia's second and third largest cities after the capital, Ulaanbaatar. The company is the second-ever Canadian mining company to get a permit to mine in Mongolia and start production there.

For the company's complete announcement, please visit:

The new Dodd-Frank financial reforms require the CFTC to set position limits for commodity futures and swaps. Energy and metals limits face a mid-January deadline and agricultural market limits must be finalized in April. That timetable puts the CFTC in the awkward position of having to establish the curbs before having complete data for bilateral and over-the-counter swaps.

"The primary source could be, in the future, swap data repositories, but those are not operational yet," an agency official said in a background briefing. While the new report will help the CFTC enforce and reset limits, it won't be ready in time for the agency to set its initial limits, the official said.

Commissioner Scott O'Malia said he is concerned that the new report will not provide a good enough base for the upcoming position limit rule, and suggested that the CFTC should delay its implementation. "I would prefer the commission take a ready, aim, fire approach to position limits, rather than to shoot first and ask questions later," O'Malia said.

The CFTC's five commissioners, including Chairman Gary Gensler, will vote on Tuesday whether to advance the proposed regulation to the next stage -- a public comment period lasting at least 30 days but possibly as long as two months. After staff consider changes, the commissioners will vote again to finalize the plan.

The Dodd-Frank law gives the CFTC oversight of the $615 trillion over-the-counter derivatives market. The bilateral contracts will now have to be reported, and most will have to trade and clear to increase transparency and diffuse risk. The CFTC has said it plans to unveil the first draft of all its proposed regulations to implement the law by the end of the year so that it can meet deadlines to finalize them by July.

On Tuesday, the CFTC also proposed a formal definition for "agricultural commodity," and two regulations dealing with protecting consumer financial information. Next Tuesday, CFTC commissioners will meet to vote on six other rules, including regulations to prevent manipulation and disruptive trading practices, and the process for reviewing
swaps for clearing, Gensler said.

Since June 2008, the CFTC has collected detailed information on swaps positions held by the largest financial traders each month through a "special call." Under the new rule, clearinghouses and dealers will have to report positions of 50 or more "economically equivalent" swaps (on a futures-equivalent basis) in any one month. A swap is deemed "economically equivalent" if the floating price refers to a futures contract settlement price or if it is a "lookalike" contract to a commodity futures.

The new report will mirror the CFTC's large trader reporting system for futures markets, and the threshold will be high enough to exclude most commercial end-users who use swaps to hedge their risk buying and selling physical commodities, an official said.

"A position of 50 futures-equivalent contracts seemed like a reasonable way to get visibility on the market. Then, as time goes by, the commission might consider whether a higher level or a lower level is appropriate," the official said.

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Sona Resources Expects Positive Cash Flow from Blackdome, Plans Aggressive Exploration of Elizabeth Gold Property

On May 18, 2010, Sona Resources Corp. (TSXV: SYS, Frankfurt: QS7) announced the release of a preliminary economic assessment for gold production at its flagship Blackdome and Elizabeth properties in British Columbia.

Sona Executive Chairman Nick Ferris says: "We view this as a baseline scenario for gold production. The project is highly sensitive to the price of gold. A conservative valuation of gold at $1,093 per ounce would result in a pre-tax cash flow of $54 million. The assessment indicates that underground mining at the two sites would recover 183,600 ounces of gold and 62,500 ounces of silver. Permitting and infrastructure are already in place for processing ore at the Blackdome mill, with a 200-tonne per day throughput over an eight-year mine life. Our near-term goal is to continue aggressive exploration at Elizabeth and develop a million-plus-ounce gold resource, commencing production in 2013."

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A Canadian gold opportunity ready for growth