London, 26 April 2010

The U.S. Commodity Futures Commission received more than 7,500 responses on its proposal to limit speculative positions in energy futures markets during a comment period that ends on Monday. Below are some questions and answers about what happens next.

WHY DID THE CFTC PROPOSE POSITION LIMITS?

* Oil prices spiked to a record of more than $147 per barrel in 2008, raising concerns about speculation in markets.

* Lawmakers urged the CFTC to look into whether speculation had artificially inflated prices, but no direct relationship was found. [ID:nLDE6070Y1]

* CFTC Chairman Gary Gensler has said the regulator should prevent excessive speculation in futures markets.

* The CFTC put out a rule for comment on Jan. 14, although three of five commissioners expressed concern capping trade would shift volumes to unregulated or overseas markets. [ID:nN14182526] [ID:nN19226056]

WHAT DOES THE CFTC DO WITH THE COMMENTS?

* Staff will review and consider the recommendations, provide summaries to the CFTC's commissioners and prepare a draft of a final rule. [ID:nN20118627]

* There is no mandated timeframe for the review.

* It's up to Gensler to call a vote of commissioners on whether to move ahead. He would not likely call for a vote unless he was confident he has enough support.

COULD THE CFTC SHELVE THE PROPOSAL?

* Doubtful. Gensler has actively pushed for the limits, and it would be unlikely he would retreat from his position.

* Democratic Commissioner Bart Chilton also has expressed strong support.

* Congress is moving ahead quickly on financial reforms, including broad new powers for the CFTC. Proposals could help assuage the concerns expressed in January by Democrat Michael Dunn and Republicans Jill Sommers and Scott O'Malia.

WILL THE FINANCIAL REFORM PACKAGE AFFECT THIS PLAN?

* Congress seems poised to give the CFTC oversight of the over-the-counter derivatives markets, including a clear mandate to impose position limits. [ID:nN24157321] [ID:nN23152376]

* The reforms will give the CFTC more information about positions held by traders across a variety of energy markets.

* The proposals also may give the CFTC some ability to prevent U.S.-based traders from shifting their activity to less-regulated markets overseas.

* The momentum in Congress could help the CFTC move ahead on its plan for energy futures markets.

HOW QUICKLY WILL THE CFTC MOVE FORWARD ON THE PLAN?

* Unclear. Gensler could wait to call for a vote on the plan until President Barack Obama has signed off on the regulatory reform package, especially if it seems Congress can quickly agree on the plan. [ID:nN21198206]

* The CFTC will need to undergo an extensive rule-making process once Congress gives it oversight of OTC derivatives. There is a chance the CFTC could hold back its energy plan until the new rules are in place -- but most think the CFTC would move on the energy limits before attacking its broad new mandate.

* Timing also could be affected by the need to hire extra staff and come up with new administrative procedures to monitor trades more closely and enforce the limits.

WILL THE CFTC TWEAK THE PROPOSAL?

* Some public comments call for tougher limits. Most trade groups want the rules dropped or at least watered down.

* Two provisions that differ from existing agricultural limits have attracted most of the ire from industry -- and could be studied further by the CFTC and perhaps altered. Those provisions concern exemptions from the limits [ID:nN17240157] and aggregation of positions by account ownership instead of by account control. [ID:nN11140284]

WHAT ABOUT POSITION LIMITS FOR OTHER MARKETS?

* The CFTC has held a hearing to look at whether limits are needed for metals futures, but Gensler has not indicated what he plans to do next. [ID:nN25212518]

* The CFTC also has said it will examine the need for limits in soft commodities and other agricultural markets that don't already have hard position limits. [ID:nN15400205]

* There is less pressure from consumers and end-users for limits in metals and softs than in energy.

Ends --

Reporting by Roberta Rampton and Christopher Doering; Editing by Jan Paschal - Thomson Reuters 2010.