LEX Though it is one of America’s chief market regulators, the Commodity Futures Trading Commission has shown a shaky grasp of the basic forces that determine prices – supply and demand. In recent days though, key commissioners have softened their tone on limiting “excessive speculation” as it became clear proposed rules would drive business to unregulated products or foreign exchanges with little effect on prices.
Consider the impact of suggestions over the summer that the CFTC would more strictly interpret futures position limits. A leading natural gas exchange traded fund suspended share issuance in early August. Pent-up demand then sent existing shares to a highly unusual 20 per cent premium over its underlying futures contracts. The fund fixed the distortion by backing new shares with lightly-regulated swaps. Gas futures have since rallied by 45 per cent anyway. Or how about a month ago when the CME Group issued a warning on position limits, sending crude oil futures skidding? In the next month crude surged by nearly $10 a barrel.
