Crackdown on Commodity Trading: A Good Idea Spoiled
Wed, Oct 19, 2011By Jeff Macke | BreakoutAfter four years of fighting between government officials and commodity trading agencies of various stripes the Commodity Futures Trading Commission (CFTC) voted 3-2 to impose limits on the number of futures and swap contracts a trader can hold. The new restrictions are intended to reduce speculation and cap price spikes in oil, gold, and grain prices, among other commodities. But will this work as intended?
It's mostly "brouhaha about getting speculation out of the markets," says Ed Meir, senior commodity analyst with MF Global. Leaving aside the fact that the only markets without speculation are grocery stores, the question is whether or not the CFTC's action is really a step towards eliminating spikes like we saw in 2008 when crude oil jumped to over $140 a barrel. The short answer is probably not.
Meir says this compromised solution is going to make it more difficult for a market to find the natural, unregulated price of the commodities. The "bigger spreads and bigger price distortions" Meir describes are, of course, a field of trading dreams for exactly the type of reckless speculators the rule is intended to put out of business. For this and other reasons Meir characterizes the restrictions "more than a little baffling." ..........
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