The CFTC is planning to propose new curbs on trading positions in order to limit speculators' ability to drive commodity prices. Currently the CFTC only sets hard limits on speculative trading in certain agricultural markets, leaving the exchanges to set limits on other products. Exchanges only impose hard limits on energy products in the last three days of trading before a contract's expiration. The rest of the time, they impose accountability levels, which trigger additional oversight if exceeded. Mr. Gensler revealed today that in the past 12 months , a total of 70 different parties exceeded those accountability levels in the four major energy contracts. The CEO of the CME, Craig Donohue has apparently agreed to set hard limits on energy contracts, but he doesn't sound happy about it. Mr. Donohue argued that speculators have been wrongly targeted in the debate over energy prices and he believes that any effort to control prices or market volatility by position limits is a "failed strategy."
For some small foreshadowing of what could happen in the oil markets, we go to the New York Mercantile Exchange to check in with the natural gas market. Traders are grumbling about the new limits exchanges have imposed on natural gas trading. In the face of pending restrictions , natural gas prices have swung wildly and trading volume has declined markedly. In June, the New York Mercantile Exchange sent a notice that it would start imposing hard position limits on seven cash-settled natural-gas contracts, limits on the positions traders can hold in the three days before the contracts expire. This is supposed to limit volatility and seems to be working about as well as the price caps imposed on oil in the 70's. Natural gas prices jumped 11% in early June, followed by a 23% dive until July 13 and then rebounded 10% in recent days. Price volatility of three-month contracts shot up in June to the highest levels since the Gulf War, the First Gulf War, when the natural gas contract first started trading. So, you know, so far the restrictions are working really well in terms of curbing volatility.