Any business interested in curbing fuel price volatility – such as ours and most any other aviation business – should pay attention to the current discussion around new commodities trading regulations.
The airline industry has come out strong in support of the new regulations even though a simple understanding of how commodities markets work globally should give them pause.
According to an article in Reuters, Terry Duffy, Executive Chairman of the CME Group Inc – the world’s largest derivatives exchange – warned that the CFTC’s attempts to curb participation in a regulated marketplace could backfire.
As we’ve said many times on this blog, it is not just a possibility that it would backfire – it is a virtual certainty.
During a visit to Singapore, Mr. Duffy said:
"What they are going to do is to drive business out to an unregulated OTC platform, whether it’s in the U.S. through an ETF (Exchange Traded Fund) or a European or Asian entity […or OPEC…– Ed.]"
"It’s kind of counter-intuitive to what they are trying to achieve, which is to bring more transparency to the marketplace, and you do not do that by driving business off a regulated platform."
The article further states that Singapore – Asia’s oil trading hub – for example, has asserted that it does not plan to follow the U.S. in imposing stricter rules to curb speculation and volatility.
In fact, US commodities markets are some of the most transparent in the world. There had already been some good developments recently to bring even more transparency to these markets. However, the actual trading of commodities is a global activity. Simply imposing regulations that would make it much more profitable to trade outside of the US will make commodities prices even more volatile than they currently are.
Curbing “speculation” may have good intentions – but you know what they say about good intentions..
Gad Barnea – CEO – FlyMiwok, Inc.
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