Kate Mackenzie Trans-Atlantic commodities get co-op-tastic

Watch out, commodities speculators. The US Commodities and Futures Trade Commission and the UK’s Financial Services Authority have agreed a little more of the detail of their 2006 agreement aimed at stamping out the ‘London loophole’. This agreement deals with the trading of lookalike oil futures contracts between the US and London markets – particularly, the copy of the Nymex’s West Texas Intermediate contract that trades on the London-based ICE exchange.

As fears over commodity speculation has been a concern for US lawmakers in recent years, the goal was to make sure that the more lightly-regulated UK-based contract was not manipulating the WTI price.

Both CFTC and the FSA announced the following points:

The respective organisations will immediately work toward implementing strengthened surveillance over US-linked energy contracts including, where appropriate:

enhanced direct access rights to trade execution and audit trail data;

mutual on-site visits of exchange operators;

the sharing of exchange regulations and notices;

the sharing of disciplinary notices; and

the framework to consider the coordination of taking emergency action.

The key points appears to be that ‘emergency action’ will be ‘coordinated’ (still a somewhat vague definition), and that they have worked out a more formal procedure for on-site visits of exchanges between the two countries and sharing of data. The two organisations already share information on clone contracts in both directions, and, as the FT reported last week, data so far show – somewhat ironically – that classic reviled speculation such as taking out spread positions and betting on price rises was actually more evident in the US than the UK.

Related links:

FTC says: Don’t be bad (FT Energy Source, 06/08/09)
Comment: Why commodities regulation is different (FT Energy Source, 30/07/09)