Gensler: Regulation doesn’t go far enough

Commodity Futures Trading Commission chairman Gary Gensler believes proposed regulation by the Obama administration to govern derivative markets could contain loopholes.

Gensler tells the Washington Post that the legislation leaves significant elements of the market out of the reach of regulators and undermine efforts to combat fraud.  Of particular concern to Gensler is:

  •  certain types of derivatives used to bet on currencies could be exempt from regulators
  • minor derivative traders would not have to meet the robust trading requirements envisioned by the legislation.

He does, however, support the legislation:

A top federal regulator has urged Congress to adopt tougher rules to govern betting in exotic financial instruments known as derivatives than the Obama administration has proposed, warning that the administration’s new vision of market regulation could contain loopholes.

One of the Obama administration’s top priorities in its revamp is to regulate both derivatives and firms that trade them. READ MORE.

Recap of first CFTC hearing into speculation

Commodify Me! has been busy with the daily grind of life and would like to apologise for not posting this sooner.

Anyway, as we all know, the Commodities Futures Trading Commission held the first of its three hearings last week looking at ways to curb excessive speculation in oil, gas and other engery markets.

The New York Times provides a nice summary of the first day’s proceedings:

The country’s top regulator of commodity markets said Tuesday that the government should “seriously consider” strict limits on the trades of purely financial investors in the futures markets for oil, natural gas and other energy products.  READ HERE.

And CNNMoney.com provides a summary of day two:

Commodity Futures Trading Commission Chairman Gary Gensler sounded even more convinced Wednesday that trading limits must be imposed on speculative energy traders, and he found support from two of the biggest financial players in commodities markets.”No longer must we debate the issue of whether or not to set position limits,” Gensler said during the second day of CFTC hearings on excessive speculation in the energy markets. He added that the only remaining questions are how to go about it. READ MORE.

CNNMoney.com also has comments from big commodity players, Goldman Sachs and JPMorgan Chase, both of who had representatives speak at the hearings:

JPMorgan Chase & Co. (JPM) came out in favor of position limits both on and off exchanges in a hearing before the Commodity Futures Trading Commission on Wednesday.But the bank wants exemptions maintained for swap dealers that help commodity end users buy and sell derivatives to reduce their exposure to price fluctuations. JPMorgan’s views closely matched those of Goldman Sachs Group Inc. (GS), which also had a representative at the hearing. READ MORE.

You might also like to read the Seattle Times and the Houston Chronicle.

Geithner wants OTC derivatives traded on exchanges

A story from the Oil & Gas Financial Journal about U.S. Treasury Secretary Timothy Geithner talking about greater reglation for over-the-counter derivatives (OTC).

OTC derivatives are a type of contract used on the commodity exhange. They are privately negotiated and traded directly between two parties, without going through an exchange or other intermediary. CLICK HERE to read more about OTC derivatives.

Geithner says the Obama administration would like all standardised derivative contracts cleared through well-regulated central counterparties and executed either on regulated exchanges or regulated electronic trading systems.

Geithner says the reforms should not limit businesses’ efforts to manage financial risk (hedge):

“We want to preserve their capacity to participate in bilateral transactions as hedges as we increase overall protection for investors,” Geithner told a joint hearing of the U.S. House Agriculture and Financial Services Committees. READ HERE.

CFTC considers measures aimed at speculation

An interesting story from the Washington Post about the Commodity Futures Trading Commission (CFTC) chairman Gary Gensler considering implementing  policies that will reduce the price volatility caused by speculation on the commodity exchange.

The CFTC also has plans to regulate derivatives (financial contracts whose prices are derived from the price of something else. CLICK HERE for more information), limit the size of an investment a single firm can make in a particular commodity and allow greater public disclosure about the holdings of commodities traders:

The Commodity Futures Trading Commission will consider new measures to curb speculation in the markets for energy and other commodities, the agency is set to announce today.

The move aims to reduce the volatility of prices but faces resistance from top Wall Street firms, which fear the efforts could cut into profits. Regulators and lawmakers increasingly worry that these firms have used their size and power to inflate the prices of commodities, booking profits in the process. READ HERE.