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Metals position limits don't yet have enough support on CFTC, Chilton says

Section: Daily Dispatches

By Christopher Doering
Monday, March 22, 2010

WASHINGTON -- The strongest proponent at the Commodity Futures Trading Commission for position limits said he does not think his fellow commissioners are currently willing to support a move to curb speculation for metals contracts.

Days before the top U.S. futures regulator holds a public hearing to explore whether position limits are needed for metals such as gold and silver, Bart Chilton -- one of five CFTC commissioners -- said he doubts whether there is enough support at the commission to advance beyond discussion to a proposal rule.

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"At this point I don't think there is support on the commission," Chilton said in an interview with Reuters. "I hope this (hearing) will be educational and informative, and it may shift opinions in favor of position limits for metals."

Chilton has been a strong proponent of imposing position limits on all commodities of limited supply -- including oil, sugar, gold, and coffee.

The CFTC has pushed to crack down on concentration in markets, beginning with a proposal made in January to limit speculation in energy markets, now out for public comment.

Three of the five commissioners -- Democrat Michael Dunn and Republicans Jill Sommers and Scott O'Malia -- have expressed concerns that the energy proposal could drive trade to markets outside the CFTC's jurisdiction.

Chilton did not explicitly comment on which commissioners he thinks have reservations about metals position limits.

It is not clear where CFTC Chairman Gary Gensler -- who has embraced using position limits to prevent excessive concentration -- stands on metals.

"There is no doubt in my mind that" position limits are necessary for metals and other commodities of limited supply, Chilton said.

Metal traders have said limits could sharply reduce liquidity as investment banks, hedge funds, and commercial hedgers would adjust positions in anticipation of future changes.

Chilton said he would use the day-long meeting on Thursday to probe whether position limit guidelines proposed for energy would work for the metals arena and if people could warm to the idea. The hearing will feature more than 15 speakers, including traders, exchanges, and individual investors.

While he was not sure what an appropriate position limit level would be for metals markets, Chilton said he liked the benchmark of 10 percent of open interest used in the energy proposal.

"I know I am uncomfortable with 40 percent," Chilton said. "I'm pretty uncomfortable with 20 percent too."

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