Regulators Seek Limits on Energy Trading

By Published On: January 15, 2010

In an unusual public meeting, the Commodities Futures Trading Commission vetted a “proposed energy speculation position limits rule” that would affect only large traders January 14. According to staff, most affected by any new rule challenging how much a single trader could corral in the market would be those who deal in gasoline and oil. Staff noted that only one natural gas trader would be affected, and did not divulge the name of that trader. “It’s not price, it’s concentration of markets,” said CFTC chair Gary Gensler. He said the proposal is an attempt to ensure a diverse number of speculators in the market. Instigating the proposal is both the California 2000-01 energy crisis and the collapse of Amaranth gas trading in 2006. Amaranth was charged with manipulating the gas market in 2006. It lost over $6 billion at the time. In August 2009, the remains of the company settled with the federal government for $7.5 million in fines. The proposed rule would “not allow a trader to obtain large positions on one side of the market and not have an offsetting position that settles [the position] on another day,” said Steve Sherrod, CFTC acting director, division of market oversight. The agency is attempting to increase regulation of over-the-counter derivatives. Those trades are often used by energy traders and hedgers to cushion their markets against the vagaries of actual energy deliveries, supply, and weather concerns.

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