Seeing all the reaction following the release of the Commodity Futures Trading Commission’s report on “Commodity Swap Dealers and Index Traders,” I felt like a slacker. Here I had barely cracked the report when a half dozen or so groups had commented on the report.
But of course that has been the problem all along — various factions had formed an opinion and were merely looking for validation of that opinion, like when a congressional committee criticized the timing of an interim report and accused the CFTC of playing politics. The report did not match their view that speculators were the cause of high energy prices.
This past June, the CFTC, under increasing pressure from various congressional committees, initiated a special call to swap dealers involved in commodities and commodity index funds requiring them to provide data regarding their total futures and OTC commodities trading. It also required them to categorize the activities of their customers.
The survey’s goal was to get a better handle on the size and scope of trading both on exchange and in the OTC space as well as a better understanding of who was doing the trading and to what extent the use of swaps have allowed speculative position limits to be bypassed.
The CFTC has maintained throughout the past several months that it did not see evidence that activity of index funds were the cause for the spikes in energy prices as many in Congress contended. And the report notes that “the aggregate long positions of commodity index participants in New York Mercantile Exchange crude oil declined by 45,000 contracts the first six months of the year. The notional value of those positions increased because of the huge run up in prices.”
Richard H. Baker, president and CEO of the Managed Funds Association and a spokesman for the Coalition to Protect Competitive Markets, stated in a release, “The CFTC report refutes the notion that investor participation in the commodity markets has caused the rise in oil prices.”
The CFTC made eight preliminary recommendations based on their findings in the report. While many of the recommendations, such as increasing staffing and resources for the commission, creating a new category for swap dealers and publishing a report on swap dealer activity are not new or controversial, others go further. One recommendation included reviewing whether to eliminate “bona fide” hedge exemptions for swap dealers. It also recommended creating new limited risk management exemptions, reviewing swap dealer independence and encouraging clearing of OTC transactions.
As for us, we are going to read the report more carefully.
