CFTC Passes Position Limit Rules
The Commodity Futures Trading Commission voted 3-2 today to impose position limits that will cap the number of futures and swaps contracts for single speculators.
The rule was split with the three Democratic members (Bart Chilton, Chairman Gary Genseler and Michael Dunn) approving it over their Republican colleagues objections (Jill Sommers and Scott OíMalia).
Chilton, who has been outspoken about imposing the rules, said, ìWhile I'd have an even tougher rule in many respects if I were the only author, this is nonetheless a very strong, needed and imperative rule to ensure more efficient and effective markets devoid of fraud, abuse and importantly, manipulation.î
The position limits rule will put a maximum number on derivatives contracts that a trader can hold on 28 commodities including oil, wheat, gold and two other energy contracts. According to the New York Times, the new rule will enforce spot-month position limits and prohibit traders from acquiring more than 25 percent of the deliverable supply for a given commodity.
The rule won't come in effect anytime soon, possibly 60 days, until after the CFTC finalizes a similar rule. This may take a few months to do so.
Other commodities may not be affected by the restrictions for at least a year.
This is a first action by a federal authority to put a lid on speculative trading in energy and metals contracts and many believe that Wall Street will fight it by going to court.
The rules comes from the Dodd-Frank law, which has tried to reign in speculative trading.
Many allege this has caused oil prices and market volatility to rise.
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