The Financial Times recently discussed how – even though the CFTC has not yet formally announced any new rules on “speculation” – fear of these rules is already affecting some very big names.
Barclays Global Investors said yesterday that it temporarily stopped creating shares in the $1.43 billion iShares S&P GSCI Commodity-Indexed Trust (GSG) – one component of the largest ETF in the world. The reason: “uncertainty” from potential new commodity rules.
Barclays’ iPath Dow Jones-UBS Natural Gas ETN, Deutsche Bank’s PowerShares DB Crude Oil Double Long ETN also made similar moves and the United States Natural Gas Fund, or UNG said it would halt new share issues because of “current and anticipated new regulatory restrictions and limitations”.
Putting the horse before the carriage and acting even before publicly announcing details about position limits, the CFTC has already imposed trading limits in IntercontinentalExchange’s (ICE) US over-the-counter natural gas swap. Last week it also yanked exemptions from limits on corn and wheat futures issued to Deutsche Bank and New York-based commodity manager Gresham Investment Management.
The article quotes Bart Chilton – an CFTC commissioner – as saying that the agency’s “antennas” go up whenever a single trader holds positions that breach certain levels.
“Regulators should be commodity-blind and price-neutral. That said, prices have to be fair and based upon economics, not on a trader or traders who have concentrated market-moving positions.”
The CFTC could theoretically decide “what’s fair” – but it should be about promoting transparency, not deciding “economic fairness”.. Commodities trading as we’ve said numerous times on this blog is a global affair and what’s fair here might – and probably won’t – be viewed as fair by OPEC. Nor would they care.
Along the lines of our analysis in this blog, John Hyland – Chief Investment Officer at United States Commodity Funds, UNG’s manager, said:
“The proposed direction the CFTC is looking to go is likely to produce results that are very much the opposite of what they seem to desire, They apparently are seeking an outcome of low prices and low volatility as being an ‘ideal state’. By eliminating financial investors from the marketplace and leaving it totally in the hands of oil companies, physical energy traders, and Opec, they are likely to end up with neither low prices nor low volatility.”
Indeed.
Gad Barnea – CEO – FlyMiwok, Inc.
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