If you have been following this blog, you know that we watch the CFTC’s actions on regulating oil “speculation” very closely. We have mentioned some possible and some actual side effects that can or are occurring already, but in an article from today at reuters, another interesting new development is being discussed.
In the fierce competitive battle between the worlds two largest energy exchanges, the InterContinental Exchange (ICE) and the New York Mercantile Exchage (NYMEX), ICE is gaining ground on its much larger rival. This is somewhat due to the uncertainty about CFTC actions and future direction.
According to Christopher Bellew of Bache Financial
“Some non-U.S. companies did not want to come under CFTC regulation […] The irony is that the ICE is just as American a company as the CME is."
There’s a real danger that position limits that are too severe would drive traders to OTC markets outside the US and ICE is perceived as being a better option for non-US trading.
However, another recent twist is CFTC commissioner Bart Chilton’s statement last month that position limits will probably be very high as to not affect trading that much:
The US should use caution and avoid draconian position limits on energy holdings when it implements new regulations on derivatives markets
Bottom line is that what happens in the next few months with regards to commodities trading regulations and its impact on the epic struggle between ICE and NYMEX will dictate much of what the global picture of energy trading will look like moving forward. We fear that if the most transparent markets in the world (i.e. the US markets) become unattractive to traders – unnecessary volatility will result.
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