He urged the CFTC to curb speculation in the commodity trade

U.S. regulators and lawmakers this week are considering rules to curb speculation in the commodity trade, as Wall Street firms delay calls for companies like Delta Airlines Inc. urging strict limits.

Commodity Futures Trading Commission Chairman Gary Gensler is set to appear today before a subcommittee of U.S. agriculture House, in part to discuss the progress of the agency about the rules. Tomorrow, the commissioners will meet in the field.

The CFTC has received hundreds of comments on how to implement a contentious part of the Dodd-Frank financial reform - the limits of the influence of large traders in the markets for crude oil, gasoline, heating oil and natural gas. Commissioners have discussed so-called position limits in at least 75 of the 400 meetings have been held with banks, oil companies, hedge funds and others, according to the website of the agency.

"The speculative bubble in oil prices has specific negative consequences for the real economy," said Richard B. Hirst, Delta's general counsel, in a Dec. 13 letter that encouraged the CFTC to move "aggressively" to limit the number of contracts a single company can hold.

The law gives the CFTC until January to impose restrictions on energy and metals trading, and until April to limit agricultural contracts.

Gensler said last week that the agency will consider the proposed division of position limits between spot month and all months combined. The agency may move "quickly" on the proposal this month in cash, he said.

Sufficient data

The financial sector has recommended that the commission delay the establishment of limits. The asset management group of the Securities Industry and Financial Markets Association, a trade group in New York and headquartered in Washington, said in a Nov. 23 letter that the CFTC first have sufficient data to evaluate the "desirability" of standards.

Morgan Stanley and the Association of Futures Industry, a trade group in Washington, suggested that the Commission set interim standards. CME Group Inc., the largest futures market, pushed the CFTC to set limits to defer until the regulators have "the necessary data to accurately establish and enforce limits."

The commission has position limits in place for other commodities, and legislators and regulators have been debating whether and how to curb energy speculation for more than two years. The focus on the role of speculators was intensified in 2008 when oil prices reached a record $ 147.27.

"We see little merit to the argument that the CFTC has not sufficiently considered the imposition of such limits," said Jim Collura, VP Fuel Institute New England, a coalition of energy providers in the home, in testimony prepared for the hearing House and obtained by us.

"We are disappointed"

"We are disappointed that, despite ample evidence of excessive speculation in commodity markets that some continue to doubt, question and absolutely deny that speculation has been and can never be excessive," said Collura.

The limits are necessary because two decades of market deregulation "led to an opaque market that meets the needs of financial speculators and not protectionist in good faith and customers," said Robert J. Hirsch, president of Hirsch Fuels Inc., a heating oil company in Hauppauge, New York, 19 November in a letter to the CFTC.

Companies such as Goldman Sachs Group Inc., Vitol and Cargill Inc. have teamed up with the CFTC on the rules, according to the website of the commission.

Vulnerable consumers "

"If the Commission does not act in a timely manner or not to adopt strong position limits, markets and consumers will be more vulnerable to commodity prices and excess volatility resulting from speculative trading activity," said William F. Galvin, the chief financial regulator for the state of Massachusetts, in a letter of 09 December.

The hearing of the House will be the first time the agriculture panel debate the financial law, since it was enacted in July and since regulators began writing dozens of regulations. Along with Gensler, Bart Chilton, one of the five commissioners of the agency, is scheduled to testify.

The CFTC must resist pressure "inside and outside the agency" to find a way around the time of execution, Chilton said yesterday in a speech prepared for a conference held by the Americans for Financial Reform, an advocacy organization which includes the work of the AFL-CIO federation.

Terrence Duffy, executive chairman of CME Group, Jeffrey Sprecher, chairman and CEO of IntercontinentalExchange Inc. and Robert Jones, senior vice president of ABN Amro in Chicago Clearing LLC also scheduled to appear before a panel of 18 members.

Swaps loophole

The Bill Dodd-Frank expanded the authority of the CFTC for the derivatives market sales for the first time since the swap was first introduced 30 years ago. Before the law passed, merchants can buy futures on regulated markets or in private could negotiate contracts not covered lookalike.

The so-called swaps loophole allowed traders to circumvent the limits by buying derivatives, which are contracts whose value derives from commodities, stocks, bonds, loans, currencies or linked to specific events such as changes interest rates or weather. Some companies use contracts to fix prices of goods they buy or sell, while speculators may be used to place bets in the markets.

into account the collapse of Amaranth Advisors LLC, a hedge fund in 2006 lost 6.6 billion U.S. dollars in bets on natural gas derivatives. Amaranth amassed a large position in unregulated swaps after being ordered to reduce its position in the regulated market.

The new rules limit the number of contracts that a company can have on both trade and private market transactions while the exemption to cover the commercial risk. The CFTC has not published the rules that define which firms are exempt.