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CFTC 'considering' fresh limits on positions
8:45a ET Wednesday, August 26, 2009
Dear Friend of GATA and Gold (and Silver):
The good news in the Financial Times story appended here is that the U.S. Commodity Futures Trading Commission may not be done setting position limits in futures markets with especially concentrated positions. The bad news is the suggestion that the commission's objective is to prevent an increase in commodity prices, not to liberate markets.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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CFTC 'Considering' Fresh Limits on Positions
By Gregory Meyer
Financial Times, London
Tuesday, August 25, 2009
NEW YORK -- The chief US commodity markets watchdog reiterated doubts about whether banks should be free from limits on commodity trading -- a prospect that has alarmed Wall Street.
Leading banks such as Goldman Sachs and JPMorgan are exempt from most limits on positions in commodity futures markets so they can manage risks incurred by serving as market makers for clients. The Commodity Futures Trading Commission is to consider whether to strip these and other firms of their exemptions as it mulls blanket federal limits on markets from crude oil to corn.
Pressure to get rid of the exemptions could increase as commodity prices rebound, potentially smothering an economic recovery. US crude oil futures touched a 2009 high of $75 a barrel yesterday.
Gary Gensler, CFTC chairman said, the regulator is "considering" new limits on positions, softening his language since hearings on the issue in late July and early August. But he was wary of banks' argument that their commodities business largely reflects customer needs. Banks often help business hedge price risks by means of swap contracts.
"There are some that suggest that maybe swap dealers are just passive mechanics in the marketplace. I don't share that view," he told the Financial Times.
"I think that they're very active risk management enterprises, sophisticated financial enterprises -- and so we're going to take a very close look at the interplay of both position limits and exemptions."
Any rule to propose new position limits would be published in the autumn, Mr Gensler said.
Over-the-counter derivatives legislation pending before Congress has raised the hackles of some companies using commodity swaps to hedge.
The legislation proposed by Barney Frank and Collin Peterson, chairman of the House Financial Services and House Agriculture committees, respectively, would allow "non-cash" collateral to be permitted in some instances. Mr Gensler signalled support for the idea.
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