In a 30 page letter to David Starwick, secretary of the CFTC, John Damgard, president of the FIA, called on the US futures regulator to “defer any further action on its proposals until Congress completes its deliberations this session on financial regulatory reform legislation”. That legislation may authorise the watchdog to impose position limits.

Damgard said it was premature to press ahead without waiting for Congress’s view.

The FIA was the first major industry body to come out and declare its opposition to the CFTC’s position limit plans. Damgard said that, while the FIA opposed market manipulation: “based on our analysis, the proposed rules would harm these public interests and should not be adopted”.

The FIA’s letter details several objections to the position limit plan, introduced in the wake of unprecedented highs in energy prices. Central to its opposition is the FIA’s refusal to accept the CFTC’s belief that excessive speculation contributed to the record commodity prices.

But the FIA also claims that the CFTC has no legal authority at present to impose position limits. It said the Commodity Exchange Act only allows the CFTC to limit speculation when it finds those limits to be “necessary” to prevent price distortions that burden commerce. The CFTC never indicated that it found the proposal to be “necessary”, the FIA said.

The FIA said that if the CFTC had determined that position limits were necessary, the US public should be entitled to comment on the basis for that finding. And the FIA claimed the CFTC should consult the public on how it determines when it is necessary to impose such limits.

Repeating its stance that the limits were unwarranted, the FIA said the CFTC had never cited any evidence “that speculation caused energy price distortions”.

The association highlighted the US agricultural market, where the CFTC does set position limits on futures trading, and concluded that it was not aware of any evidence to suggest that the restrictions had caused market prices to move in “a materially different, let alone more fundamentals-driven pattern” than the US energy markets.

The Washington-based industry association said that if the CFTC pressed ahead with its plans, it would hurt the US public interest.

The association, which represents US brokers and exchanges, said the CFTC’s plans “would rob US exchange markets of liquidity that serves price discovery and efficient hedging” and would “encourage more trading in non-transparent or overseas markets outside the CFTC’s market surveillance systems”.

Although the proposals impose fairly high positions limits on bankers and dealers, the FIA said the plan should be rejected because the CFTC’s proposed exemptions for hedging and swap dealers were “unworkable, unduly constricting and contrary to the statute”.

The FIA said that while the plan recognised that swap dealers were bona fide hedgers, these firms should be treated for purposes of exemptions like all other hedgers. The FIA said the US regulator had not offered any reason why it discriminated against swap dealers.

The CFTC had proposed on January 14 to introduce position caps on trading in oil, natural gas, heating oil and gasoline futures. The CFTC invited public comment, eliciting the response of the FIA.

A CFTC spokesperson declined to comment on the FIA’s letter.