The CFTC is in an interesting position now that the Dodd bill looks set to become law. The CFTC — or some of its commissioners, at least — is already considering imposing position limits on energy futures positions held by financial market players, much to the chagrin of some energy traders.
The Dodd Bill would likely cement the rights of the CFTC to impose such limits, and add a lot more besides imposing regulations on over-the-counter commodities trades. As FT Alphaville wrote in March:
Key proposals on that latter subject include obligatory clearing submissions for swap dealers, depository registration as well as minimum capital and margining requirements.
Swap trades that go uncleared, meanwhile, would under the proposed bill be hit with “substantially higher” capital requirements to offset the greater risk associated.
And who would be responsible for running this? The CFTC.
One CFTC commissioner is not happy about it, warning that it would “overwhelm” the commission, the FT reports.
Jill Sommers, one of two Republicans out of the five CFTC commissioners, opposed putting the proposed position limits announced in January up for public consultation, arguing they would reduce market transparency. So perhaps it’s not surprising she would also be sceptical about taking on the OTC responsibility.
But she’s not the only one arguing the agency would need considerably more heft to administer the OTC rules; chairman Gary Gensler (who supported the position limits) has also made the case, the FT reports:
Handling its new role would require 119 new employees and a $45m budget increase to $261m, Mr Gensler told Congress last month.
Scott O’Malia, the other Republican commissioner, last week said the agency still gets account information by fax.
Meanwhile the news came at an odd time for energy markets; with front month crude oil prices falling
Philip Verleger, an energy economist who argues that passive index investors have been a good thing for energy markets — encouraging storage and thereby reducing volatility — says the price declines “could not have come at a worse time” vis a vis the reform bill’s passage in the Senate, and could lead to a decline in both open interest and storage levels. Bloomberg reports that the CFTC’s weekly data for the week to May 18 showed the biggest decline in financial investors for the next eight months.