How tough will CFTC get on speculators?

Companies that trade energy, metals and agricultural futures and swaps are closely watching how severe of a stance the US futures regulator takes against speculators in new position limits for commodities.

Position limits determine the maximum number of contracts an investor can hold in a specific instrument.

Many traditional hedgers that use markets to manage their physical risk want the Commodity Futures Trading Commission to write rules that would tamp down the flow of 'hot money' from investment funds they believe have overwhelmed their markets since 2008, when prices spiked to record levels.

But other players in the market including funds and banks say there's no evidence of excessive market-harming speculation, and argue draconian rules would push trade offshore, crimping liquidity that ultimately helps hedgers.

Here are some questions about what happens next:

How is the cftc developing its rules?

The work is led by a team of about a dozen CFTC staffers, some of whom helped develop proposed limits for energy futures markets in January. That plan was withdrawn after the CFTC got additional authority over the USD 615 trillion over-the-counter derivatives market in the Wall Street reform law but it is expected to form the basis for the new, broader scheme.

The team is also considering input from a wide variety of hedgers, banks and funds that have requested meetings, as well as comments submitted to the CFTC's web site.

Five commissioners, including Chairman Gary Gensler, will have the final word on whether the rules go ahead. They have also been meeting with industry.

When will the cftc unveil the limits?

The proposed regulation for energy and metals is expected by early November. That would allow time for a 30-day comment period, and any revisions before the mid-January deadline for the final ruled a deadline specified in the Dodd-Frank law.

The CFTC's initial proposal could be tweaked but will have a lot of momentum to move forward because of the agency's extremely heavy regulatory workload.

For agricultural commodities, limits must be finalized in April. The first draft is expected by the end of this year.

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