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

By John Kemp

LONDON, Sept 15 (Reuters) – Cocoa’s stunning rally and equally spectacular bust over the last five months provides compelling evidence that large positions, especially in contracts close to delivery, influence futures prices, and that regulators should develop effective position limits to ensure market prices reflect supply-demand fundamentals and not the impact of dominant positions.

Britain’s Financial Services Authority (FSA), which regulates commodity markets, continues to insist there is no evidence large positions, either singly or collectively, influence futures prices, most recently in a position paper published in December 2009 (http://www.fsa.gov.uk/pubs/other/reform_otc_derivatives.pdf).

The FSA has rejected calls to follow the U.S. Commodity Futures Trading Commission (CFTC)’s lead in imposing position limits on commodity derivatives. It insists that London’s “position management” approach is more flexible and effective.

“Moving away from a regime which is flexible and established, to a different and more rigid system would imply there is an identifiable problem with the current regime. We have seen no evidence of this,” according to the FSA.