Exclusive: U.S. watchdog readies tighter new commodity limits rule
By Douwe Miedema
WASHINGTON (Reuters) - The U.S. derivatives regulator is finishing a new rule to curb speculators with large positions in commodity markets that is in parts tougher than the previous version, two sources with direct knowledge of the plan said.
Commodity Futures Trading Commission Chairman Gary Gensler is rushing to get a revamped rule out before his term runs out in December, said the sources, even while agency lawyers are preparing to defend the original position limits rule that was knocked back by a U.S. court last year.
"Gary wants to get this done before he leaves," said one of the sources, asking not to be named because he was not authorized to talk to the press.
The position limits rules are among the most contentious of the 2010 Dodd-Frank legislation reforms that aim to prevent a repeat of the financial crisis but they threaten to compound the troubles facing Wall Street's biggest banks whose role in physical commodity markets is under fire.
The new rule will contain a better legal justification to conform with the U.S. District Court ruling that the CFTC had failed to prove that the limits were needed, the first source said. It will better weigh the costs and benefits of the impact of the rule to support the economic rationale behind it.
It would drop an important irritant for the bank groups who fought the rule before the court, by allowing broad exemptions for positions held by firms in which they own minority stakes of between 10 and 50 percent, as long as the banks can prove they don't control the firms.
The original rule set the threshold for aggregating positions at 10 percent, a level the industry had found "draconian", according to the first source. Above 50 percent, exemptions were also still possible, though explicit CFTC approval was needed, the sources said.
This may placate banks like Goldman Sachs (GS.N: Quote) and Barclays (BARC.L: Quote) and others, who had said before the court that the fact they needed to aggregate holdings of companies they owned meant high compliance costs. Continued...