CFTC should hike speculative oil margins – senator

Thomson Reuters

* Speculation in oil markets hits new records-CFTC

* Nelson: speculators raise prices, hurting consumers

* Says CFTC should use new powers to increase margins

* Would require new rule-making from CFTC

By Roberta Rampton

WASHINGTON, March 11 (Reuters) – Speculators in oil futures markets are “profit-gouging” Americans at the gasoline pump, a Democratic senator said, urging his colleagues to help pressure the U.S. futures regulator to raise speculative margin requirements as fund investment hit record highs.

The Commodity Futures Trading Commission should use a new power granted by the Dodd-Frank financial reform law to call for higher margin requirements, said Senator Bill Nelson, who is one of a key group of Democrats who pushed the CFTC to take action on speculation amid the record run-up in prices in 2008.

Nelson, a member of the Senate Finance Committee, is gathering support for a letter to the agency in one of the first signs political pressure is building against speculators as oil prices rise amid turmoil in Libya and Egypt.

Speculation that oil prices will rise hit new records last week, CFTC data showed on Friday.

“The loser in this game of profit-gouging by speculators is the American consumer,” Nelson said in a letter to his colleagues.

The call echoed similar rhetoric from 2008, which ultimately helped lead the CFTC to propose limits on speculation in energy markets.

A raft of studies by the CFTC, exchanges and others concluded speculators were not responsible for the 2008 run-up.


Dodd-Frank gave the CFTC the ability to establish margin requirements to protect the financial integrity of markets. Margins traditionally have been set by exchanges, who adjust requirements depending on volatility.

The measure has received little attention compared with new powers given to the CFTC to set position limits to curb “excessive speculation” in oil and other commodity markets.

The CFTC has proposed new limits, but has not finalized the plan and would need to be able to collect data on the vast over-the-counter swaps market before it could put the curbs into effect.

“Meantime, speculators continue to buy $100 worth of oil futures with just $6 down,” Nelson said.

“I believe the commission already has an extremely effective tool at its disposal it could use to discourage excessive energy speculation and bring down gas prices — the authority to impose higher margin requirements for oil futures contracts,” he said.

The margin increases should not apply to trades made for hedging price risk for oil producers and consumers, he said.

The CFTC would first need to write a rule to use its new power, Nelson noted.

The request comes as the agency is grappling with more than 40 new regulations it has unveiled to implement its share of Dodd-Frank derivatives reforms, including position limits.

The CFTC has received more than 3,400 comments on its plan for limits, most from individuals and small companies arguing speculators have distorted prices.

CFTC Chairman Gary Gensler has been careful to avoid linking the agency’s efforts to the surge in commodity prices.

“Though we’re not a price-setting agency, we are about ensuring the markets have integrity,” Gensler told Reuters in an interview last week. (Editing by Alden Bentley)


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