I agree that it is very unlikely that JPMorgan will agree to any position limits and the CFTC will probably continue to waffle for another year.

Big commodity traders mount last stand on U.S. curbs

By Kevin Drawbaugh and Christopher Doering

WASHINGTON | Mon Mar 28, 2011 6:31pm EDT

(Reuters) - A global push to temper wild swings in oil and other commodity prices reached a pivotal point on Monday as big traders mounted their last attack on a U.S. plan to limit the role of speculators.

Many of the world's biggest commodity market participants such as U.S. agribusiness giant Cargill Inc and Delta Air Lines are resisting new rules that would cap how many futures and related swaps contracts any one company can control.

The plan to impose "position limits", which has been under debate since prices first surged to records in 2007 and 2008, is now reaching its culmination, with companies rushing to submit their views to the U.S. Commodity Futures Trading Commission by Monday's deadline.

Most are reframing familiar complaints: Banks, traders and exchanges say the rules would make it harder to hedge risk, and that it would reduce liquidity and increase consumer costs.

If the proposed rules are adopted with no change, "there is a substantial risk that they would undermine the efficiency of the markets for hedgers, by reducing liquidity and disrupting markets which currently function well", Linda Cutler, a Cargill vice president, said in a letter to the agency.

But at a time when oil, grain and metal prices have again shot up, some reaching new heights, consumers too are looking for some regulatory relief. Politicians are stepping up pressure for action.

"The banks think this rule is too strong. Commercial end users, consumers, unions ... think it's far too weak," Michael Greenberger, a University of Maryland law professor and former senior CFTC staffer, told Reuters Insider.

"As the American public starts suffering from $4 a gallon gasoline ... the issue becomes more visible, the debate between the consumer and the big banks is more highlighted," he said.

Wall Street firms, including Morgan Stanley and Barclays Capital, want the CFTC to hold back on position limits until the agency can gather more data to assess the size of the swaps market.

"Only after it receives and reviews relevant market data should the Commission consider whether position limits are necessary and, if so, set appropriate and commercially practicable limits that preserver market liquidity and promote efficient price discovery," said Simon Greenshields, global co-head of Morgan Stanley's commodities business.

Roger Jones, a managing director at Barclays, warned the CFTC proposal was too vague and "oversimplifies the legitimate complexity of risk management."

POLITICALLY VOLATILE

From Chicago and New York to London and Paris, the commodities markets influence prices for energy, metals, food and other products that hit consumers in areas such as the gas pump and the kitchen table, and so are politically volatile.

The CFTC polices the markets and is under orders from Congress to address perceptions that speculators drive sharp swings in commodity prices that hurt consumers and producers.

The CFTC plan would apply to exchange-traded futures and related over-the-counter swaps in 28 energy, metals and agricultural markets.