Key Regulator Calls for Limits on Speculation in Commodities Markets

Washington – Having failed earlier this year to impose congressionally mandated limits on excessive speculation in commodities markets, a key regulator on Thursday called on the Obama administration to immediately impose temporary limits on some Wall Street investments.

“We were supposed to have these done earlier this year but have failed to do so,” complained Bart Chilton, one of three Democrats on the Commodity Futures Trading Commission.

Chilton is calling for what are known as spot-month limits, which would restrict how much of trading can be done by a single trader or company in contracts for next-month delivery of crude oil, natural gas, wheat or any number of other commodities.

The influx of Wall Street money into commodities markets, some on behalf of large pension funds and other institutional investors, has resulted in financial players far outnumbering the traditional traders in these markets, where producers have sought to protect themselves from large price swings.

The flow of this Wall Street money has led to wild and volatile price swings in the price of everything from crude oil to cotton to coffee_ hurting consumers and businesses.

It's also led some lawmakers, academics and market participants to conclude that the futures markets no longer work as intended. A series of reports this year by McClatchy suggests futures prices now are often divorced from the underlying supply-and-demand fundamentals in many markets.

Under the revamp of financial legislation signed into law in July 2010, the CFTC was directed to impose broad speculative limits in the commodities markets. But the CFTC already has missed earlier deadlines this year. Chilton insists the agency should begin by immediately imposing limits on the contracts for next-month delivery of products while the agency finalizes its broader, controversial rule.

The Senate Permanent Subcommittee on Investigations was supposed to hold a hearing Thursday into excessive speculation in commodities markets but postponed it into November on word that the CFTC has now scheduled an Oct. 18 vote on position limits.

A draft version of these final rules that has been circulating has angered Chilton and others who want tougher rules imposed on big Wall Street companies.

“The preponderance of evidence, in my opinion, is clear that we need limits. We need them in the energy, metals and in ag complexes. I believe it entirely, based upon my experience as a commissioner since 2007,” Chilton said during a speech Thursday in Houston. “But here is what I won't do: I won't settle for a weak position limits plan for the sake of getting 'something' done.”

Chilton's remarks are a direct challenge to CFTC Chairman Gary Gensler, a former Goldman Sachs partner who has been criticized by Wall Street for not listening enough and by many lawmakers for not moving fast enough in imposing new rules on his former associates. Although he runs the agency, Gensler is just one vote on the commission and one of three Democratic votes. Chilton made clear Thursday he'd stand in the way of any new rule he considered too weak.

“For those that think I may buckle to any plan because I've been the strongest advocate for limits and will settle, you don't know me well enough,” Chilton warned. “I'm sure the plan that is ultimately approved won't be as robust as I would like. I understand compromise, but I will only support something that Congress instructed us to do. I won't dance on the head of a legal pin and agree that when Congress told us to implement 'appropriate position limits' that they really meant that 'appropriate' could mean no limits whatsoever.”

Chilton's stand was supported by Sen. Bernie Sanders, a Vermont independent who blocked Gensler's confirmation for months in 2009 over concern about his Wall Street past.

“Commissioner Bart Chilton is right. At a time when the American people are paying high oil and gas prices, we need the commission to do its job, obey the law, adopt a rule with some real teeth and eliminate excessive oil speculation,” Sanders told McClatchy. “The American people have been gouged at the gas pump by Wall Street oil speculators for far too long. Unless speculation limits are imposed soon, people in Vermont may be forced to pay up to $4 a gallon for heating oil to stay warm this winter. That would be unacceptable. “

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