CFTC analysis nixes emergency trading curbs

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The U.S. futures regulator has concluded it cannot currently use its emergency authority to impose trading curbs on speculators in the oil markets, according to people familiar with a recent internal legal analysis.

The Commodity Futures Trading Commission conducted the study as it faces pressure in an election year from lawmakers to crack down as soon as possible on oil market speculation that they blame for driving up gasoline prices.

The CFTC has already passed rules that would impose limits on the positions investors can take in 28 commodities, including oil, coffee and gold. But those limits are not scheduled to go into effect until later this year, and they are facing a legal challenge from the financial industry.

CFTC staff presented the results of the internal study two weeks ago to all five commissioners at the agency, according to people familiar with the matter.

The study included market data and the legal history of the CFTC's authorities. It concluded that the CFTC cannot use its emergency authority to immediately put in place position limits in commodity markets, these people said.

The Commodity Exchange Act gives the agency authority to impose limits on market positions if it believes an emergency exists. Emergencies include market manipulations and disturbances that prevent the market from "accurately reflecting the forces of supply and demand."

But the agency has never exercised its emergency powers based on price trends that have developed over months or years.

The CFTC declined to comment for this story

The results of the study give political cover to CFTC Chairman Gary Gensler, whose agency has been targeted by Democratic lawmakers and an independent senator to do more to give Americans relief at the fuel pump.

U.S. gasoline prices have been easing in recent weeks, but they are still at historically high levels, after surging to a seasonal high of about $3.94 a gallon at the start of April.

President Barack Obama last month called on lawmakers to raise civil and criminal penalties on individuals and companies involved in manipulative practices. He also pressed for more funding for the CFTC to hire "more cops" for oversight and to upgrade old technology.

In March, six senators unveiled legislation that would require the CFTC to use its emergency powers to impose position limits in oil futures markets within 14 days of the measure becoming law.

Gensler told lawmakers on a Senate committee, the same day the legislation was unveiled, that the CFTC has only used its emergency powers four times.

The last time was in 1980 when the CFTC ordered the suspension of futures trading for two days for wheat, corn, oats, soybean meal, and soybean oil on four exchanges after President Carter announced an embargo on grain and other agricultural exports to the Soviet Union.

Gensler told the Senate committee in March he did not believe Congress had the authority to force the CFTC to use its emergency power.

The internal study recently completed gives Gensler more power to deflect criticism that he has not done enough to curb market speculation.

Gensler's term expired last month, but the law allows for the Democrat and former Goldman Sachs executive to remain on the job through 2013 even if he is not renominated.

The CFTC in October finalized its position limits rule, included in the 2010 Dodd-Frank financial oversight law, to limit the number of contracts any trader can hold in certain commodities.

Wall Street has criticized the position limits rule, first proposed following a commodity spike in 2008, as a misguided political attempt to stem soaring prices.

The Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) challenged the rule in December.

The agency says it must finish related rulemakings and collect more swaps data before the limits go into effect.


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