The New England Fuel Institute and the Petroleum Marketers Association of America expressed "guarded optimism" over two important new commodity trading rules approved by the U.S. Commodity Futures Trading Commission (CFTC). The groups also expressed "concerns" on the specifics of the rules and certain implementation deadlines that will be tied to other, long-overdue commission actions.
NEFI President and CEO Michael C. Trunzo said the 1,200 NEFI and 8,000 PMAA members, which include gasoline marketers and home heating oil dealers, are hopeful the regulatory measures, which would establish speculative position limits on futures and swaps and clarify rules for derivative clearing organizations (DCOs), will result in more transparent, stable and competitive energy trading markets.
"We believe the position limits rule is the most significant rule yet to be taken up by the commission under last year’s Wall Street Reform bill," Trunzo said. "However, the delay in the rule implementation for the spot month contracts concerns us greatly, as there is no timeframe in place.” The commission announced that spot-month limits would not be imposed until 60 days after the term “swap” is defined, which as of right now has no date certain.
“Further, we are fearful the limit levels themselves may be insufficient to adequately address excessive volatility and speculation…only time will tell," Trunzo said.
NEFI and PMAA were pleased that the rule mandates regular review of limits especially as other rules are implemented and new data becomes available. They were also pleased with the rule’s narrowing of exemptions from these limits afforded bona fide hedgers, which they have long argued as necessary to keep financial speculators from exploiting them.
PMAA, NEFI and their allies have called for responsive energy derivatives markets that are designed to serve hedgers, ensure stability and minimize price swings and that effectively communicate a price for energy based on real world supply and demand.
While they have praised the CFTC for moving forward with a final rule to establish a new position limits regime, the groups have criticized the speculative limits as being too high and continue to urge aggregate limits on all speculation, which was not included in the final rule.
"We will be watching when and how this rule is implemented and continue to urge action where necessary" Trunzo said. "Our members want to have confidence that the price per gallon of gasoline or heating oil as set by these markets is reflective of market fundamentals, not the cash flows of financial investors."
PMAA President Dan Gilligan said, "We applaud Chairman Gensler for negotiating the agreement on position limits, although more work remains, this is a tremendous step forward. Once CFTC captures the data on the multi-trillion dollar swaps market (probably late in 2012) it will apply position limits to those currently unregulated instruments. These combined steps are critical for fully functioning and liquid energy markets. This is a hugely meaningful step in a long process… a process which could be longer than it has to be if meaningful litigation is filed. The CFTC staff has been diligent in following all procedures which should help minimize lengthy litigation, but some delays are certain. PMAA and NEFI and our allies will continue to monitor and address where possible all attempts to delay implementation."
PMAA and NEFI were also extremely pleased that the CFTC staff is conducting an investigation and research into the role of index fund speculation in the commodities markets. The organizations have had a growing concern that such activity has adversely affected markets.
PMAA and NEFI professional staff will thoroughly review the final rule and provide additional updates as appropriate. We remain engaged in this issue and will continue to keep members apprised as the process moves forward.