Big commodity traders mount last stand on U.S. curbs


By Kevin Drawbaugh and Christopher Doering
Monday, March 28, 2011

WASHINGTON -- A global push to damp down wild swings in oil and other commodity prices reached a pivotal point on Monday as big traders mounted their last attack on a U.S. plan to limit the role of speculators.

Many of the world's biggest commodity market participants such as U.S. agribusiness giant Cargill Inc are resisting new rules that would cap how many futures and related swaps contracts any one company can control.

The plan to impose "position limits", which has been under debate since prices first surged to records in 2007 and 2008, is now reaching its culmination, with companies rushing to submit their views to the U.S. Commodity Futures Trading Commission by Monday's deadline.

So far, most are reframing familiar complaints: Banks, traders and exchanges opposing the CFTC plan say it would make it harder for them to hedge risk, and that it would reduce liquidity and increase costs for consumers.


Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

If the proposed rules are adopted with no change, "there is a substantial risk that they would undermine the efficiency of the markets for hedgers, by reducing liquidity and disrupting markets which currently function well", Linda Cutler, a Cargill vice president, said in a letter to the agency.

But at a time when oil, grain and metal prices have again shot up, some reaching new heights, consumers too are looking for some regulatory relief. Politicians are stepping up pressure for action.

"The banks think this rule is too strong. Commercial end users, consumers, unions ... think it's far too weak," Michael Greenberger, a University of Maryland law professor and former senior CFTC staffer, told Reuters Insider.

"As the American public starts suffering from $4 a gallon gasoline ... the issue becomes more visible, the debate between the consumer and the big banks is more highlighted," he said.

... Politically volatile

From Chicago and New York to London and Paris, the commodities markets influence prices for energy, metals, food, and other products that hit consumers in areas such as the gas pump and the kitchen table, and so are politically volatile.

The CFTC polices the markets and is under orders from Congress to address perceptions that speculators periodically drive sharp swings in commodity prices that hurt consumers and producers.

The CFTC plan would apply to exchange-traded futures and related over-the-counter swaps in 28 energy, metals, and agricultural markets.

A 60-day period for public comment on it ends on Monday. The CFTC must next read the comments and decide whether to change the proposal. Its five commissioners must then vote.

Support for the plan is uncertain within the CFTC. The agency's chairman, Gary Gensler, may have trouble mustering the three votes needed to finalize it. A final vote may not come for some time.

The "position limits" fight comes as regulators worldwide are working to draw up and implement hundreds of new rules for banks and markets following the 2007-2009 financial crisis, which unleashed a wave of reform efforts.

... France targets speculators

France favors a crackdown on commodity market speculation in its role as 2011 chair of the Group of 20 major economies. French officials blame speculation for worsening a surge in food prices last year amid fears that such swings fuel political unrest, particularly in the developing world.

"While the Europeans, and particularly the French, share CFTC Chairman Gensler's concern about commodity prices, there is some skepticism among EU regulators that hard position limits are the right answer," said Joseph Engelhard, a policy analyst at advisory firm Capital Alpha Partners.

"The U.S. hard position limit approach leaves open the possibility that the regulators might overshoot their target levels and actually increase volatility," he said.

Although it is meant primarily to limit holdings by the funds and investors who have diversified into commodities over the past decade, the CFTC's plan threatens business models that have generated profits for years for some of the financial world's biggest players.

... U.S. banks' $5.5 billion business

The market leaders include firms such as Goldman Sachs and JPMorgan Chase & Co. U.S. banks took in $5.5 billion in revenues trading in commodity markets last year, versus a record $11 billion in 2009, the U.S. Office of the Comptroller of the Currency said.

The 2010 figures represented just under 10 percent of the industry's trading revenues. The decline from 2009 was due largely to decreased volatility and reduced hedging, officials have said, but also reflected less risk-taking by the banks.

Traders argue there is no evidence that speculators inflate prices, and say curbs could make prices more volatile.

The CFTC's economists have not found a causal link between speculation and price volatility, with one study showing commodity index traders are not causing price volatility, but may actually be helping to reduce it.

The agency's effort was mandated by Congress in the Dodd-Frank financial regulation reforms made law in July 2010. But as in many other parts of that sprawling legislation, Congress left it up to regulators to hammer out the details.

"We challenge the fundamental premise upon which the CFTC argues that it has authority to impose position limits under Dodd-Frank," said the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, both industry groups, in a letter to the CFTC.

"The proposed rules do not set forth why the proposed limits are necessary or appropriate," the groups said.

Earlier this month, Democratic Senator Maria Cantwell urged the CFTC to crack down on oil speculation that she said was likely contributing to recent gas price spikes. In a letter to Gensler, Cantwell and 11 other senators urged him to use his Dodd-Frank authority against "excessive speculation".

"While oil speculators on Wall Street may be profiting from Middle East turmoil ... families and businesses on Main Street are footing the bill at the gas pump," Cantwell said in a statement on Friday.

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