It’s easy to be blasé about commodity prices when you’re a wealthy American or European, and say “markets will be markets”. But if a large part of your income was going on oil or food, a 250% price rise in three years might bother you. Governments cannot duck the issue of whether speculation has created unnecessary volatility in commodity prices. It is time for the futures industry to stop trying to throw the regulators off the scent and engage seriously with the issues.
The truce between politicians and the futures markets is
over after less than a year. Hostilities were reopened by Gary
Gensler, new chairman of the Commodity Futures Trading
Commission, when he announced on July 7 a consultation on
whether the CFTC should set its own position limits for all
commodities trading, as it does already for agricultural
products. How hedge exemptions are awarded will also be
Market leaders, most of whom have been scrupulously
politically correct whenever the regulators said something
during the past 10 months of financial nightmare, took the
gloves off and hit back.
Interviewed on Fox News, Terry Duffy, chairman of CME Group,
said he thought critics of the market were confusing
manipulation with speculation. He suggested the regulators
should look first at the OTC markets, where big bets can be
made without limits, or they would risk driving business off
the regulated exchanges into "dark pools".
His colleague Craig Donohue, CME’s chief
executive, insisted to CNBC: "If you look at the empirical
evidence nothing supports the idea that speculators are driving
prices in futures markets."
As in 2008, when Congressional ire last focused on the
futures markets during the extreme boom in oil and other
commodity prices, three lines of defence are appearing, along
which the industry will try to protect its freedom from
These arguments are: that speculation does not affect
commodity prices; that even if it does, it doesn’t
matter because markets must be left to do their work; and that
curbing speculative activity would make markets less liquid and
hence more volatile.
Unfortunately, none of these arguments is convincing.
This article is available to subscribers and registered users
Please log in to continue reading.
Not yet registered? Take a free trial.
If you have already taken a free trial you
have ongoing access to the analysis section of FOW.com including this story.
Log in using your details below to read.
Already have an account? |