Financial Regulatory Forum

ANALYSIS-CFTC speculation limits may pass quietly, unchanged

U.S. Commodity Futures Trading Commission Chairman Gary GenslerBy Christopher Doering

WASHINGTON, Dec 17 (Reuters) – New U.S. rules to limit speculation in commodity markets could move forward quickly, and with few alterations, after objections by the measure’s most vocal supporter unexpectedly delayed a key vote.

Gary Gensler, head of the U.S. Commodity Futures Trading Commission, abruptly postponed a vote on Thursday to open proposed new position limits to public comment, evidence of mounting pressures internally as the agency implements dozens of rules meant to make markets safer and more transparent.

The agency must carefully balance the laws it is required to implement as part of the sweeping Dodd-Frank financial overhaul with the opinions of its five commissioners, who disagree on how they should get there.

Gensler has managed to maneuver around the two Republican commissioners who have several times voted against releasing new rules, concerned they could damage the market. This week he pushed forward with a plan to set up special exchanges to trade swaps after delaying a vote last week due to objections.

He faced concerns from the opposite corner on Thursday — Bart Chilton, a Democrat and most ardent supporter of limits, who argued that the two-part approach would leave markets unprotected from rampant speculation for too long.

FACTBOX-CFTC to-do list for implementing reforms

Nov 22 (Reuters) – The U.S. Commodity Futures Trading Commission faces the mammoth task of writing detailed regulations to implement reforms passed by Congress giving the agency oversight of the $600 trillion over-the-counter derivatives market.

Working from a list of 30 topic areas, the agency may end up writing 50 to 60 regulations, CFTC Chairman Gary Gensler has said.

The CFTC hopes to unveil the first drafts of most of the proposed rules by the end of the year to allow time for public comment and revisions before its July deadline for final regulations. Some rules have earlier deadlines.

CFTC rules point to crackdown on manipulation: John Kemp

– John Kemp is a Reuters market analyst. The views expressed are his own –

By John Kemp

NEW YORK, Nov 9 (Reuters) – Two proposed regulations published by the U.S. Commodity Futures Trading Commission (CFTC) clarify its power to take enforcement action in cases of market manipulation and are intended to lead to a tougher regulatory regime in future.

The Commission is giving effect to the sweeping provisions of Section 753 Dodd-Frank Wall Street Reform and Consumer Protection Act (PL 111-203) which give it strong new powers over market manipulation and spreading false information.

from Tales from the Trail:

Think brussels sprouts and cauliflower are agricultural commodities? Think again.

While the financial bailouts tossed to automakers, banks and other groups during the recent economic crisis left a funny taste in the mouth of some Americans, one former U.S. regulator hopes efforts to prevent another panic doesn't go rotten.

The U.S. Commodity Futures Trading Commission is immersed in drafting dozens of rules to assist it in increasing oversight of the once opaque over-the-counter derivatives market, widely blamed for exacerbating the recent financial crisis. USA/

Among the rules it must craft is what the definition of an agricultural commodity is? Of course, corn, cotton, soybeans and livestock, among other items, fall into this realm.

Regulation and the day the machines took over -The Scott McCleskey Report

HIGHFREQUENCY/By Scott McCleskey, Complinet

It took five months, a PhD in Physics, a Nobel Prize winner and a staff of quants, but the SEC and CFTC have now figured out what happened to the markets during the “flash crash” in May. Given the well-orchestrated string of sneak-peeks the SEC had given before the publication of the joint report,  the findings weren’t particularly surprising. Nevertheless, they are enlightening both for what they tell us about the state of the markets and for what they tell us about the assumptions we have made when regulating them. The upshot: markets aren’t efficient, and rulemakers should stop acting as if they are.

(more…)

ANALYSIS-Study casts doubt on traders’ ‘raison d’etre’

By Herbert Lash

NEW YORK, Oct 12 (Reuters) – A new study about May’s “flash crash” casts doubt on two basic premises of high-frequency traders: that they help markets function properly by providing liquidity and that they smooth out price volatility.

High frequency traders have pointed with glee to the fact a mutual fund company, identified as Waddell & Reed Financial Inc, helped trigger the steep market plunge on May 6, as outlined by U.S. regulators in a report almost two weeks ago.

Yet the new study by staff of the Commodity Futures Trading Commission to be unveiled on Tuesday not only gnaws at the service high-frequency traders claim to provide but says their response to that day’s slide sparked greater volatility. (more…)

OPINION-The heavy lift of harmonization-CFTC’s Chilton

–The author is Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission. The opinions represent the view of the author and not that of Reuters.

By Bart Chilton

Now that the U.S. has approved the largest financial regulatory reform ever undertaken, it’s time for other nations to join in to ensure more efficient, effective market systems. Here is what we know: free markets without sufficient sideboards led to the global economic collapse.

Banks moved away from traditional lending and into exotic mortgages and foolhardy bets — like naked credit default swaps — and ultimately the American taxpayer was left with the bill for bailing out large institutions previously thought of as too big to fail.

Swapping the rules: derivatives concern SEC, CFTC and the market (Westlaw Business)

Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, gestures as he testifies before the Financial Crisis Inquiry Commission hearing on the Role of Derivatives in the Financial Crisis on Capitol Hill in Washington July 1, 2010. REUTERS/Yuri Gripas (UNITED STATES - Tags: POLITICS BUSINESS)

Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission.

(Westlaw Business) - Swap markets and players were a main focus of Dodd-Frank, yet the SEC and CFTC were left to work out the details. The market, from Ropes & Gray to the Reinsurance Association of America, has provided these regulators with public comment and disclosure commentary. Now that the public comment period has drawn to a close, one thing is clear: issues from “security-based swap” to “swap participant” are certain to have big impact on a broad array of companies, both in financial services and beyond.

Enacted on July 21, 2010, Dodd-Frank incorporated a 360-day-window for the Act’s wrinkles to be smoothed out before implementation. One of the first casualties has been the CFTC’s rejection of discretionary Grandfather relief the Act allows the Commission to provide. Some 300 days remain in which all Dodd-Frank’s administrative detail work must be concluded. According to CFTC Chairman Gary Gensler, 30 teams have been dedicated to address the key policy and drafting issues of the new law. The working definitions of affecting the entire derivatives industry now rest in the hands of the SEC and CFTC.

Title VII of the Act, subtitled Wall Street Transparency and Accountability, defines terms as part of a complex scheme to regulate swap markets and security-based swap markets. The law looks to curtail the kinds of highly leveraged derivatives trades that have the potential to wreck the U.S. economy (again). Even more acutely, the act seeks to prevent Federally regulated institutions from (more) taxpayer bailouts. Market experts, however, have expressed concern that without narrow tailoring, these changes could not only increase compliance costs and margin requirements, but erect barriers to entry and foreclose the use of important risk management tools.

COLUMN-FSA coffee case heralds commods crackdown: John Kemp

LONDON, June 2 (Reuters) – The Financial Services Authority’s (FSA) decision to fine a London coffee broker 100,000 pounds ($146,400) and ban him from working in the financial services industry marks a significant toughening in the market abuse regime for commodities.

The banning order on Andrew Kerr marks the first successful action for market abuse in commodity markets. Kerr is accused of helping a client execute large orders during a period in which reference prices were set based on a volume-weighted average. It was a deliberate move to influence market prices in the run up to an option expiry.

While Kerr’s behaviour was unusually blatant, and unfortunately for him captured on tape in unguarded language, using large volume trades to support or batter market prices close to daily or option settlements is common practice across commodity markets.

COLUMN-Pending U.S. bill clears way for CFTC limits vote: John Kemp

– John Kemp is a Reuters market analyst. The views expressed are his own –

By John Kemp

LONDON, May 24 (Reuters) – With Congress poised to enact sweeping financial reforms next month, attention will switch back to the Commodity Futures Trading Commission (CFTC) proposals to impose tougher position limits on major energy contracts.

The Commission voted in January to put its proposals out for a major 90-day consultation exercise, which ended in late April. Staff are wading through almost 8,000 written comments. The Commission will then have to decide whether and how to reshape the proposal in the light of comments received, before putting it to a final vote.

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