Regulation: UR Doin it Wrong, CFTC

Friday, September 04, 2009 , , , , , 1 Comments

mmmmm, pork bellies

Until I see a resolution to the Goldman Sachs exemption while cockblocking everyone else, this is a non-event on the part of the CFTC. Stop bastardizing transparency already.


Money managers were mostly net long on major U.S. commodities in the week to September 1, according to a government report issued on Friday to increase transparency on hedge fund bets in the markets.

The figures were included in the inaugural report released by the Commodity Futures Trading Commission (CFTC), aimed at providing more information about the trading activities of hedge funds, large institutions, producers, merchants and traditional commodity hedgers.

The Commitments of Traders (COT) report, issued every Friday, is a crucial supply and demand indicator for traders buying and selling futures on energy, agricultural and other major commodity markets.

Pushed by the Obama administration to shed more light on the opaque dealings of speculators blamed for high commodity prices, the CFTC chose to break out four new categories for 22 commodities in the weekly report: Producer/Merchant/Processor/User; swap dealers; managed money and other reportables.

The managed money category includes hedge funds. These speculative funds have come under fire for running up commodity prices to record highs last year, raising the specter of global inflation, food shortages and runaway energy costs.

Previously, the weekly CFTC's COT report broke down market players by commercial and noncommercial only, separating small traders holding minor positions into a "nonreportable" category.

In theory at least, Friday's report showed that managed money provided a base for higher commodity prices by being net long on some markets that commercial producers were short.

For instance, managed money was net long on 62,004 contracts of NYMEX crude oil, versus a net short of 125,206 lots held by commercials.

Managed money was also net long on 902 contracts of copper; 57,557 lots of soybeans and 146,545 contracts of sugar. Producers were net short on 32,924 lots of copper; 133,775 contracts of soybeans and 194,537 lots of sugar.

The CFTC has vowed to clamp down on excessive speculation in the markets it regulates and had won praise in the run-up to the release of the revamped COT report.

But trade reaction on Friday to the report was lukewarm at best.

"It's the same data, just broken out differently," said Tom Bentz, energy analyst at BNP Paribas Commodity Futures Inc. "For those concerned about speculators in the market, I notice the managed money positions are not that different from the commercials."
Enlightening and as pointed out by Jesse's Café Américain, it is a step in the right direction but certainly not nearly enough. The CFTC, not content to stop the insanity with corn and soybeans, may start looking at castrating the Comex (this too will be good but I don't see how they possibly think they'd be able to hack away at a phony paper market without burning the entire thing down in the process):

Commodity ETFs are getting so big that they are directly affecting the commodity markets---both the futures markets and the markets for hard commodities. For instance, when investors buy shares of United States Oil Fund LP (NYSE: USO), the fund managers have to go out into the futures market and buy more crude oil contracts, which pushes the price of those contracts higher.

The impact these commodity ETFs have on the futures market has caught the attention of the Commodity Futures Trading Commission (CFTC), and the CFTC is now investigating whether or not it will curb the amount of futures contracts any ETF can hold. Regulators are also looking at potential limits on the amount of gold and other commodities ETFs can hold.

So what does this mean for you?

ETFs may be forced to limit the number of shares they have available. They may even be forced to redeem shares and cut availability even further. Hopefully everyone involved will be able to figure our a solution that will allow us individual investors to maintain access to the commodities market via ETFs, but we'll have to wait and see.

If the idea of a regulatory rewrite gets you all hot and bothered, how about the idea of an SEC/CFTC merger? Ohhhh yeah, I always like my FAIL with a side of FAIL.

Financial News reports that the Options Clearing Corporation (OCC) is planning to back a merger between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Several U.S. exchanges will testify at a meeting in Washington on Sept. 3., regarding regulatory changes in the markets.

The OCC believes the current regulatory structure for derivatives is not optimal for financial markets. The OCC’s stand is against that of the CME Group, which will oppose the merger. Craig Donohue, CEO of CME, is expected to testify at the hearing.

Good times, kids!

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


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