US proposes speculator caps

[Critter]

ATW HOME » INTERNATIONAL AVIATION & REGULATION » US proposes commodity speculator caps; ATA urges tougher limits

US proposes commodity speculator caps; ATA urges tougher limits

The US Commodity Futures Trading Commission last week issued a proposed rule to place "position limits" on a number of commodities, including oil, that would restrict the amount of holdings a speculator could own, theoretically lowering the cost of commodities. The Air Transport Assn., long a proponent of reining in oil speculators in order to keep fuel costs down, said the "speculative position limits for energy" proposed by CFTC need to be more "stringent" and urged the agency to include tougher limits when it issues a final rule, which could be released in as soon as 60 days.

But other voices, particularly at several large Wall Street firms, are asserting that the proposed limits are too high and could disrupt the market. Even the CFTC itself is unsure: While the Notice of Proposed Rulemaking was released following a 4-1 vote in favor by CFTC commissioners, two of the four voting for the proposal said they did so to allow a 60-day public comment period to commence but have reservations and may change their vote when the final rule comes up for approval.

Under the NPRM, speculators would be restricted by formula to holding a capped percentage of a given commodity. ATA VP and General Counsel David Berg stated, "The extraordinary [fuel] price fluctuations that harmed consumers, industry and the economy in recent years will not be prevented by the proposed limits, and with predictions that [oil] prices will once again exceed $100 a barrel, the CFTC must do more to address this problem … The market easily can function efficiently and effectively with more stringent limits."

The NPRM exempts "bona fide hedgers," such as airlines hedging on fuel, from the restrictions. ATA noted that airlines, truckers and other bona fide hedgers "used to represent 60% of the oil futures market; today, speculative interests control 60% of the market. Restoring historical levels of speculative interest in the oil futures market will do much to prevent unfounded volatility in energy prices, maintaining adequate liquidity for bona fide hedgers."