U.S. subcommittee has hearing on excessive speculation

by World Grain Staff
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WASHINGTON, D.C., U.S. — After reviewing over 15,000 public comments on a proposal to combat speculative pressures on commodity prices, the Commodity Futures Trading Commission (CFTC) recently issued a final rule to put trading limits in place to clamp down on excessive speculation and price manipulation. Concerned about the impact of commodity speculation on jobs, families, and the economic recovery, the Permanent Subcommittee on Investigations has called a hearing for Nov. 3, to hear from, among other witnesses, CFTC Chairman Gary Gensler.

“Stable, reasonable commodity prices are critical to our economic recovery and jobs,” said Subcommittee Chairman Carl Levin. “We’re talking about gasoline prices, electricity and heating costs, food prices, computer costs, and industrial metals that together affect virtually every American family and business budget. Those prices need to reflect supply and demand, not speculators’ activities.”

To prevent excessive speculation and market manipulation, the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFTC to apply position limits, which have capped traders’ holdings of some U.S. commodities for 70 years, to a wider range of commodities, trading instruments, and markets. The new position limits will prevent individual traders from holding more than a specified number of futures contracts or swaps at a specified time, such as during the close of the so-called “spot month” when a futures contract expires and buyers and sellers have to settle up financially or through the physical delivery of commodities.

“A flood of speculative money continues to pour into U.S. commodity markets at unprecedented levels from index traders, hedge funds, money managers, exchange traded products, and mutual funds,” said Levin. “Unlike commercial firms, the speculators’ goal is not to hedge their price risks but to profit from changing prices. So it is no surprise that along with the rise in speculative dollars, commodity prices have become more volatile, with exaggerated swings that have less to do with supply and demand than with speculators playing the market. The new position limits rule needs to be able to curb excessive speculation.”
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