Investor Relations 101

[Tina]

Issue Date: IR Alert - July 7, 2009,

Seeking "Fair and Transparent Price Discovery Process" for Energy Commodities, Regulators Mull Futures Contracts Limits
Federal regulators will examine whether the government should impose limits on the number of futures contracts in oil and other energy commodities held by speculative traders, the head of the Commodity Futures Trading Commission said Tuesday. The agency will hold a hearing later this month to gather views from consumers, businesses and market participants on the idea of new limits for energy futures contracts, the agency’s chairman, Gary Gensler, said in a statement, the AP reports.

It will be the first in a series of hearings in July and August on various topics to determine how the commodities agency "should use all of its existing authorities to accomplish its mission," Gensler said. The hearings come against a backdrop of concern in Congress and complaints by traders over speculation in the oil futures market.

By law, the agency sets limits on the amount of futures contracts in some agricultural products that can be held by each market participant to protect against manipulation. But for energy commodities — crude oil, heating oil, natural gas, gasoline and other products — it is the futures exchanges themselves that set the position limits if they desire to do so.

"This different regulatory approach to position limits for agriculture and other physically delivered commodities deserves thoughtful review," Gensler said, the AP reports. "It is incumbent upon the C.F.T.C. to ensure a fair and transparent price discovery process for all commodities."

Oil traders and brokers have complained that funds traded on exchanges have pumped billions of dollars into energy commodities — enough to artificially prop up energy prices.

For example, benchmark crude oil prices have roughly doubled since March even though government reports show the United States brimming with surplus oil. Investors have been buying oil barrels not because of traditional supply and demand, but on the expectation that the economy will eventually improve. Some are also buying crude oil as a hedge against inflation, betting that the dollar will get weaker and push the price of energy commodities even higher.

The agency twice last year took the unusual step of disclosing investigations into the possible manipulation of prices — of crude oil and cotton futures.