U.S. May Phase In Curbs on Speculative Trading

U.S. May Phase In Curbs on Speculative Trading

By SARAH N. LYNCH

WASHINGTON—U.S. regulators indicated they may phase in new curbs on speculative trading as they gather more data on the swaps market, in a move that could appease House Republicans who fear the agency may be moving too fast.

Commodity Futures Trading Commission Chairman Gary Gensler discussed the agency's tentative plans during a hearing at the House Agriculture panel Wednesday, just one day before the CFTC is formally slated to vote on a proposal to tackle excessive speculation in commodity futures, options and over-the-counter derivatives markets.

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Earlier: CFTC Unveils Derivatives Rules
.Speculators are traders who bet on price movements in the market without having an underlying business interest in the commodity. They were blamed by critics in 2008 for driving oil prices to record highs, although futures exchanges and even CFTC economists haven't found evidence that speculators caused the price volatility.

Mr. Gensler told the panel Wednesday he recognizes the CFTC doesn't yet have enough data on the swaps market, an area the agency didn't have authority to regulate until the July enactment of the Dodd-Frank Act. Until the agency can implement the law and collect more market data, he said, it's possible the agency will tackle speculative-trading limits over time instead of all at once.

"Staff is examining whether certain elements of the rule for which the commission has substantial data can proceed on a more expedited time frame, while leaving those aspects of the rule that depend upon additional data for later implementation," Mr. Gensler said.

The Dodd-Frank Act requires the CFTC to place limits on the number of commodity futures, options and swap contracts that any one speculative trader can hold at a given time to prevent one company from controlling too much of the market. The law requires the CFTC to place limits on commodity contracts traded across all derivatives markets that play a role in setting market prices. The limits would apply in the aggregate for all months and across all trading venues, as well as for each individual month and the so-called spot month, or the month when a contract expires. The limits would only be imposed on futures and swaps tied to commodities of which the supply is finite, such as crude oil, wheat or silver.

The Dodd-Frank Act sets much earlier deadlines for the CFTC to finalize its position-limit proposal than for most other provisions in the law to regulate the over-the-counter market. Some Democrats and industry groups representing sectors that use commodity contracts to hedge their risks have raised concerns in recent weeks that the CFTC may miss its deadline.

Mr. Gensler's comments Wednesday appeared to try to balance concerns by Democrats as well as Republicans, who are poised to take control of the House in January and expressed fears Wednesday that the deadlines in the law aren't realistic.

"I stand willing to consider an easing of statutory deadlines to ensure rules don't end up further distorting markets and costing American jobs," said the presumptive House Agriculture Chairman Frank Lucas (R., Okla.). Mr. Lucas pledged a "long series of intense oversight hearings" in the coming months.

Senator-elect Rep. Jerry Moran (R., Kansas) said Wednesday he doesn't understand how the CFTC can set limits until new swap-data warehouses created in Dodd-Frank are up and running. Without additional market data, "the commission could neither have enough information to adequately determine the appropriate position limit or have the information necessary to enforce position limits," he said.

Mr. Gensler said that spot-month limits would be easier to implement first, and could be set based on a percentage of deliverable supply.

Limits for a single month and for all months are trickier, he said, because they are generally set as a function of the overall size of the market. Those could become effective "when sufficient data becomes available," he said.

In the meantime, the CFTC has a proposal pending that would let it collect swap-position data from large traders. Mr. Gensler said this plan would help the CFTC collect the data it needs until formal swap data repositories are up and running.

Write to Sarah N. Lynch at Sarah.Lynch@dowjones.com