NYMEX sets position limits on some natural gas contracts

July 28, 2009

Traders at New York Mercantile Exchange NEW YORK, July 28 (Reuters) – The New York Mercantile Exchange will impose what it calls “hard expiration position limits” on seven of its natural gas financially settled contracts effective with the October contract expiration.

In a notice to members issued in June, the exchange said the amendments were being implemented in response to a Commodity Futures Trading Commission (CFTC) rule, anticipated to be in force by September, that will require exempt commercial markets to establish hard position limits.

NYMEX officials could not immediately be reached for comment.

The changes come as hearings begin Tuesday in Washington in response to increased volatility in U.S. commodity futures prices with officials from the Intercontinental Exchange and the Chicago Mercantile Exchange, the world’s largest exchange, among those testifying before the CFTC.

The futures market regulator is set to review whether to set position limits for all finite commodities.

The CME Group Inc owns NYMEX and the Chicago Mercantile Exchange.

On Monday, the CFTC said it would subject ICE’s natural gas contract to more oversight, allowing the agency to better track trading in the contract and prevent market manipulation.

The CFTC for the first time used new authority that gives it more oversight over futures contracts listed on exempt electronic trading facilities, which play an important role in setting the price for the underlying commodity.

ICE said it would immediately begin submitting to the CFTC enhanced market data on its cash-settled Henry Hub natural gas contract.

Clearing firms will also give the CFTC data on large traders at ICE, which will be included in the agency’s weekly market report on large contract positions held by traders.

ICE’s natural gas contract will also be subject to position limits and accountability levels, which restrict the number of contracts certain traders can control at any one time.

Regulators have been looking for ways to curb what some have called “excessive speculation” in commodity markets, particularly in energy, which saw crude oil and natural gas prices spike to all-time highs last year amid accusations of manipulation.

But some in industry are not pleased by the added restrictions, fearing business here will decline as players move to less regulated markets overseas.
(Reporting by Eileen Moustakis and Joe Silha; Editing by Lisa Shumaker)


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