CFTC floats limits on speculative oil market trading

The limits would apply to the four commonly-traded contracts for natural gas, crude oil, heating oil and gasoline. If implemented now they would affect 10 large traders, according to CFTC, although some might qualify for exemptions.

Bart Chilton, a Democratic member of the CFTC, said Thursday that the limits “err on the high side” but could be lowered if regulators believe they are not protective.

“Furthermore, while the proposed limits err on the high side, such levels would still ensure that the very largest traders’ positions, those with the greatest potential for causing market-contortions, would be limited,” he said in remarks prepared for a CFTC meeting today in which the body is expected to approve issuing the draft rules.

“Moreover, if limits were set too low, there would be a possibility that trading migration could take place, transferring traders to over-the-counter markets or overseas exchanges,” he added.

A CFTC official told reporters today that the restrictions would have limited the holdings of Amaranth Advisors, a hedge fund that collapsed in 2006 that had amassed huge positions in natural gas markets but bet the wrong way.

The proposal would limit the aggregate number of contracts that a trader could hold on the New York Mercantile Exchange and the Georgia-based Intercontinental Exchange.

The proposal does not address largely unregulated over-the-counter markets, but Wall Street reform legislation the House approved in late 2009 would give the CFTC new authority to police these markets as well.