New York, 7 January 2010

New rules to limit positions in energy and commodity markets continue to receive serious consideration from the Commodity Futures Trading Commission but tougher regulations are far from a done deal, two top officials said on Wednesday.

CFTC Chairman Gary Gensler told an audience in New York that position limits on commodity trading should be seriously considered for markets to work effectively.

Later, another senior CFTC official dampened speculation that new rules to make the commodity markets work more effectively would be imposed soon, saying position limits were a long way from finalized.

The CFTC has said it is considering a crackdown on excessive speculation in energy and commodity trading by restricting the holdings, or positions, of big players.

"We need to seriously consider (position limits)...to best promote fair and orderly markets, and ensure that they work in a way without concentrated outside positions" Gensler said at the Council on Foreign Relations in New York.

But Michael Dunn, one of five CFTC Commissioners and the head of the agricultural advisory committee, said markets should not expect finalized rules on position limits quickly, although proposals could be issued soon for public comment.

"It's a long way from a done deal," he told Reuters on the sidelines of the annual Beltwide Cotton Conference in New Orleans.

"It's a process, people get frustrated because things don't happen overnight," he said. "I would expect that we would get the proposed regulation out, but we would not see the final regulation for some time."

Gensler also said governance of trading and clearing venues should not be controlled by dealers. He added that dealer-to-dealer over-the-counter (OTC) swaps markets, and "some portion of end users," must be exchange-traded and cleared as part of wider U.S. efforts to regulate derivatives.

"Chairman Gensler is in a tighter spot then he initially anticipated he thought he would be. On the one hand he has lot of pressure form the hill to do something aggressive but he is getting a lot of pushback from those he's regulating," said Craig Pirrong, a finance professor at the University of Houston.

The CFTC is a key part of the Obama administration's revamp of financial markets, meant to avoid a repeat of the financial crisis.

The United States, Europe, Japan, China and Canada were "largely walking along the same path on this derivatives reform," Gensler said, noting the "five or six largest Wall Street firms" were the primary opponents of proposed changes.

There is some concern that if the United States imposes position limits, without overseas regulators adopting similar measures, that trading business could shift to other markets to circumvent the U.S. controls.

Gensler, under mounting political pressure, has pledged to be more aggressive on position limits amid a broader market revamp. But the industry has lobbied against them, and some of the CFTC commissioners are not enthusiastic about new rules.

At issue is how high to set the limits and who, such as some end-users, should be exempt. Gensler told reporters on Wednesday to "stay tuned" for more details on position limits. Any proposal would be open to public comment.

Position limits came into focus after the prices of oil, copper and other key commodities surged to record highs in 2008. Some blamed that spike on excessive speculation, while others such as futures exchanges have urged caution, warning a clampdown could drive trading overseas.

Gensler said he would continue working with U.S. senators to ensure standardized OTC swaps are both traded on exchanges and cleared by central counterparties in order to stabilize and bring transparency to the private markets.

"It would be an incredible climb down if they just let it go," Pirrong said. "The anticipation, the political expectation from Congress is that they take some action."

Ends --

By Jonathan Spicer and Edward McAllister, Reuters