Washington, 29 July 2010

A new speculative position limit regime will also apply to metals and soft agricultural commodities, a top official at the Commodity Futures Trading Commission told Reuters Insider on Thursday. The U.S. futures regulator proposed new position limits for energy markets in January -- a rule that sparked angst among oil and gas traders -- but will use new authority granted in the recent financial reform act to apply curbs to "all commodities of finite supply," said CFTC Commissioner Bart Chilton.

"All those will have position limits. This will impact the largest of the large traders," he said in an interview. "I think on position limits we will have one rule ... and I hope we get it done on time and it goes into effect right away," said Chilton.

Limits restricting the number of contracts a trader can hold will apply to energy, metals such as gold and silver, and agricultural commodities, where some limits already exist in the spot month, he said.

Reuters Insider show with CFTC's Chilton: The CFTC will wait to hear from traders and the public before determining what levels to set new capital and margin requirements for swap dealers and major swap participants, another new feature of the financial reform act, Chilton said.

During the interview, he also said new powers granted by the act will make it easier for the CFTC to prosecute traders who try to manipulate markets. "We're going to find more people, put more people in jail," he said.

Chilton declined to comment on whether the CFTC is currently pursuing any manipulation cases, but noted that CFTC staff normally have 750 to 1,000 investigations going on at any one time. In its 36-year history, the CFTC has successfully prosecuted and won only one manipulation case in the futures markets.

The CFTC will now only have to show a trader acted in a manner that had the potential to disrupt the market, making it easier for the CFTC to prove its case. Until the new act, the CFTC had to prove an individual intended to manipulate prices -- evidence that was often difficult to find. It also had to show the person had the market power to move the price of a commodity and that they caused an artificial price to occur.

The new authority "will allow us to go after bad actors in these markets who are doing things that will contort prices," Chilton said.

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