Regulator to Watch Futures Markets After Spike in Food Prices
The top U.S. commodity regulator will tighten rules for investors and index funds, including increased disclosure about holdings in agricultural markets, after farmers and lawmakers alleged that speculators had inflated food prices.
The Commodity Futures Trading Commission, in an e-mailed statement, called yesterday for more information from traders and dealers in the futures markets. The CFTC will curb exemptions on limits to speculative positions related to agricultural index trading and plans to provide more detail on trading holdings starting next month.
"We want to make sure that markets are functioning correctly," Acting Chairman Walter Lukken told reporters during a teleconference yesterday. "We want to encourage access to markets, but we want to be sure too much money isn't distorting markets artificially."
The CFTC, which regulates markets including silver, soybeans and derivatives linked to stock indexes and bonds, is under pressure from Congress to ensure that markets aren't being manipulated. The prices of gold, copper, corn and wheat rose to records, gasoline is $4 a gallon, and the government forecast an increase in U.S. food costs that would be the biggest since 1989.
Sen. Joseph I. Lieberman (I-Conn.), chairman of the Homeland Security and Governmental Affairs Committee, said May 20 that he was considering legislation limiting large institutional investors in commodities markets. The legislation would aim at speculators and other investors who use commodities to hedge against swings in investment instruments such as stocks and the dollar, Lieberman said during a hearing.
Billionaire investor George Soros yesterday testified before the Senate Committee on Commerce, Science and Transportation that the record oil prices weighing on the economy were the result of a "bubble" caused by speculation from index funds and a tight balance between supply and demand.
The CFTC is working on ways to improve risk-management choices for farmers and agricultural businesses, including developing alternative financial tools and a plan for the clearing of agriculture-related securities called swaps, according to the statement.
The portion of each commodity market held by index funds varies by product, from 40 percent of cattle futures to 15 percent of other goods, Lukken said. Rising concern over higher agricultural prices justifies the CFTC's inquiry, said Lukken, who received a favorable reaction from Senate Agriculture Committee Chairman Tom Harkin (D-Iowa).
"Today's announcement outlines a prudent approach, and it's urgently needed for American commodity producers and consumers," Harkin said in a statement.
The agency said it was withdrawing plans to increase speculative position limits on some agricultural futures contracts, which Lukken said would be bad timing given current prices. That proposal also would have created a risk-management hedge exemption from federal speculative position limits for agricultural futures and option contracts.
Source: Washington Post
