Interviews
CFTC announces several policy initiatives
06 Jun '08
2 min read
On June 3, 2008 the Commodity Futures Trading Commission (CFTC) announced several policy initiatives to address the concerns about the agricultural futures markets raised at its April 22nd roundtable in Washington, DC.
In order to address the lack of convergence between the futures and cash prices, the CFTC has asked the Agricultural Advisory Committee (whose members include representatives of national farm organizations, major commodity groups, agribusiness concerns, and agricultural bankers), (1) to collect further industry input regarding the role and size of over-the-counter agricultural swaps, and the practices of exchanges on determining margins, daily price limits and methodologies of setting settlement prices; and (2) to develop proposals for improving convergence between futures and cash prices.
The CFTC staff is working with agricultural lenders to facilitate an understanding of financing and credit issues faced by market participants arising from higher margins in the futures market when commodities prices rise.
In order to improve oversight of the futures market and bring greater transparency and scrutiny to the types of traders in the marketplace, the CFTC will:
(1) require more detailed information from index traders and swap dealers in the futures markets, and review whether classification of these types of traders can be improved for regulatory and reporting purposes;
(2) withdraw the proposed rulemakings that would have increased the Federal speculative position limits on certain agricultural futures contracts, including cotton, and created a risk management hedge exemption to positions held by (a) intermediaries who pass price risks on to their customers (such as index funds), and (b) pension funds and other institutional investors seeking to diversify risks in portfolios by including an allocation to commodity exposure;
In order to address the lack of convergence between the futures and cash prices, the CFTC has asked the Agricultural Advisory Committee (whose members include representatives of national farm organizations, major commodity groups, agribusiness concerns, and agricultural bankers), (1) to collect further industry input regarding the role and size of over-the-counter agricultural swaps, and the practices of exchanges on determining margins, daily price limits and methodologies of setting settlement prices; and (2) to develop proposals for improving convergence between futures and cash prices.
The CFTC staff is working with agricultural lenders to facilitate an understanding of financing and credit issues faced by market participants arising from higher margins in the futures market when commodities prices rise.
In order to improve oversight of the futures market and bring greater transparency and scrutiny to the types of traders in the marketplace, the CFTC will:
(1) require more detailed information from index traders and swap dealers in the futures markets, and review whether classification of these types of traders can be improved for regulatory and reporting purposes;
(2) withdraw the proposed rulemakings that would have increased the Federal speculative position limits on certain agricultural futures contracts, including cotton, and created a risk management hedge exemption to positions held by (a) intermediaries who pass price risks on to their customers (such as index funds), and (b) pension funds and other institutional investors seeking to diversify risks in portfolios by including an allocation to commodity exposure;
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