Limits on Oil Contracts
Delete Topic|Reply to Topic
Displaying all 7 posts by 2 people.
Post #1
Pat Ambrus (Fordham) wroteon July 7, 2009 at 8:36pm
Regulators to Consider Limits on Oil Contracts
July 7, 2009, 2:07 pm
NYMEX
Reacting
to swings in oil prices in recent months, federal regulators announced
on Tuesday that they were considering trading restrictions on hedge
funds and other “speculative” traders in markets for oil, natural gas
and other energy products, The New York Times’s Edmund L. Andrews
writes.
In a big departure from the hands-off approach to market
regulation of the last two decades, the chairman of the Commodity
Futures Trading Commission, Gary Gensler, said his agency would
consider new limits on the volume of energy futures contracts that
purely financial investors would be allowed to hold.
The agency
also announced that it would pull back part of the veil on the oil and
gas markets, publishing more detailed information about the aggregate
activity of hedge funds and traders who arbitrage between domestic and
foreign energy prices.
“My firm belief is that we must
aggressively use all existing authorities to ensure market integrity,”
Mr. Gensler said in a written statement.
Mr. Gensler announced
that his agency will hold several hearings in July and August, the
first of which will examine whether to impose federal “speculative
limits” on futures contracts for energy products.
Oil prices
have swung wildly in the last year, hitting about $145 a barrel last
summer, then plunging to $33 in December before rising to about $70.
Much
of that gyration stemmed from chaos in the global financial system, as
banks and much of Wall Street came perilously close to collapse last
September and the global economy fell into the most severe recession in
decades.
But a growing number of critics have blamed some of the
extreme volatility on the role of purely financial investors — those
who are simply betting on the direction of energy prices, as opposed to
those who actually use such products, like airlines.
The
Commodity Futures Trading Commission, an independent regulatory agency
that regulates the trading of futures contracts for commodities ranging
from wheat and corn to oil, precious metals and currencies, has for
years followed a deregulatory path that rarely interfered with the
burgeoning markets they regulated.
Federal officials said
“speculative” traders were primarily those the agency defined as
“noncommercial,” which are essentially financial investors who are not
users or producers of the commodities and are primarily interested in
betting on the direction of prices. “Commercial users,” by contrast,
include farmers, airlines and oil companies that want to hedge against
the risk of rapid price changes.
Noncommercial traders accounted
for almost a fifth of the activity in several major oil and gas
products for the week that ended June 30, according to data compiled by
the commodities agency.
Mr. Gensler, who was nominated by
President Obama and took over the agency this year, made it clear that
he was pushing toward tighter regulation on several fronts. His efforts
mirror actions taken by the Justice Department to strengthen antitrust
enforcement and by financial regulators to police banks and investment
firms much more closely.
Mr. Gensler noted that his agency
already imposed volume limits on speculative trading in agricultural
products like wheat and corn. But in the case of energy products, the
agency allows the futures exchanges — primarily the New York Mercantile
Exchange — to set limits.
A future is a contract to buy or to
sell a particular volume of a commodity by a particular date. Futures
contracts were originally created to help farmers shield themselves
from price volatility between the time they planted their crops and the
time of harvest. But futures are now used to hedge price swings in
everything from oil and gas to electricity, Treasury bonds and foreign
currencies.
In the case of energy products, Mr. Gensler said,
the exchanges were not required to set or enforce position limits aimed
at preventing “excessive speculation.” The contrast between approaches
taken for agricultural and energy commodities, he said, “deserves
thoughtful review.”
Mr. Gensler added that the agency would be
reviewing the manner in which traders receive exemptions from trading
limits by claiming the need to carry out “bona fide hedging
transactions.”
========================================================
I
wish regulators would just let the markets balance themselves out. As I
learned in kindergarten, "too many hands spoil the soup."
--Pat
Reply to PatMark as IrrelevantReportDelete Post
Post #2
You wroteon July 7, 2009 at 10:05pm
my
god this is like bretton woods all over again except with
commodities... when will regulators learn... at this rate the right
wing agenda's propopanda might be true...
very nice post pat, we will have to watch this closely as our future depends on it ....
Reply to Your PostDelete Post
Post #3
Pat Ambrus (Fordham) wroteon July 7, 2009 at 10:58pm
"we will have to watch this closely as our future depends on it ...."
words
of wisdom Alex. Though I cannot believe this legislation will come to
fruition. Obama cannot afford to p*ss off the Republicans any more than
he has. It is a damn shame though. We are worried about legislation as
an issue for incorporation. Makes me want to be a politician. Not
really...
Reply to PatMark as IrrelevantReportDelete Post
Post #4
You wrote21 hours ago
hahaha "Makes me want to be a politician. Not really... " well put my friend, my sentiments exactly.
Kell is doing some great work on the legislation side hopefully we can come up with the best place to incorporate soon.
Reply to Your PostDelete Post
Post #7
You wroteabout an hour ago
Limits
on "ENERGY ETFs" ....... this is just horrible. Like the guy says
hopefully this does not kill the lidquitiy in these markets, ETFs are
just rising to star to popularity, it would be a shame to its demise
before it even shines.
I prey Hong Kong won't mess with their new etfs much either
---------------
Witch Hunt? Or Fair Trial?
Written by Dave Nadig
Thursday, 09 July 2009 00:00 | Related ETFs: UNG
Yesterday
we got news that the CFTC is paying attention to the ETF industry. I
suppose we should be flattered, but I'm much more concerned than
titillated.
It's not all that infrequent that
regulators raise the specter of "speculators" in the headlines, and
it's nearly as surefire a paper-seller as "man bites dog." Very few
market participants really call themselves speculators, and the word
itself has taken on near-evil connotations. If you'd walked into a
cocktail party in May of 2008 and told everyone you were an oil
speculator, you would likely have had a martini-bath and an early
taxi-ride home.
Today's news was that the CFTC is looking into
limits on speculative position limits on all "commodities of finite
supply"—really, energy commodities. This is virtual handwriting on the
wall—there will be position limits, just as there have been in
agricultural commodities. It will be difficult to argue that the
position limits in place in agriculture have somehow killed the
liquidity in corn and soybean contracts, and the best we can hope for
is that the position limits on energy commodities are sensible, and
structurally similar to those we already have in place elsewhere.
The
immediate impact for ETF investors was in the U.S. Natural Gas Fund
(NYSE Arca: UNG)—a product that's received an incredible amount of
attention (and asset flows) lately. UNG, like most futures pools, needs
to issue new shares on a regular basis, and had simply run out of its
initially approved 200 million shares. Normally, getting approval to
keep an ETF growing is a rubber stamp from the SEC. Not this time—no
more UNG shares are getting minted.
Some people are speculating
(pardon the pun) that the move by the CFTC is directly tied to UNG, and
I suppose that's possible. Citigroup recently opined that UNG was
single-handedly responsible for keeping the price of natural gas
artificially high, and it's certainly easy to create the sequence of
phone calls that has the CFTC writing the memo.
But let's think
what this shutdown of creations means. That means if you want UNG
shares, you have ONLY one way to get them—you buy them in the market.
If you want to get rid of UNG shares, you still have your options. What
that means for investors is simple: If there's demand for UNG, and
there certainly has been, those shares will likely trade at a premium
on the ask. The bid, however, will likely stay relatively normal. After
all, if you don't like the price the market's offering for your big
block o' UNG, you can just wait until the end of the day and redeem.
It
will be interesting to look back in a few weeks at the spreads and see
how that panned out. It's possible that the bad PR on UNG from all of
this will dampen investor enthusiasm for the fund enough that a premium
doesn't manifest.
Side note: The second half of CFTC Chairman
Gensler's statement yesterday was about improving the quality of the
Commitments of Traders (COT) report we get every Friday, breaking out
various parts of the report that are currently single line items into
more detail. That's a kind of transparency I think most ETF investors
can get behind.
Tue May 03, 2016 9:51 am by Andrea ForexMart
Subject: Limits on Energy Securites!!!! - (taken from Group ANLZ Discussion Board) 
