Wednesday, January 20, 2010

The new proposals from the Commodity Futures Trading Commission

New regulations have been proposed by the Commodity Futures Trading Commission (CFTC) to try to curb speculation and domination of commodity markets by a few players.

The proposals amount to placing position limits on commodity trades. The size of the position limits is so massive that it will affect only the largest players.

This is a useful way to try to ensure that the whole market is not affected, and ensures that the biggest players are limited in their activities and impact.

One can think of it as the equivalent of the work of the UK's Monopolies and Mergers Commission which tries to prevent the natural tendency of capitalism to monopoly, by breaking up monopolies, duopolies and even oligopolies.

The only problem with the device of position limits is that it will encourage the largest players to either break up into smaller units (no bad thing even in itself), or encourage them to deal, in effect, through the layers of players immediately below the regulated level.

But I guess that if the CFTC is vigilant it can spot this and ameliorate it. The question is the ability and willingness of the CFTC to be vigilant.

Unfortunately, that is not guaranteed, if one judges on the basis of its performance over the last 25 years or so (of its 35 year existence). Sphere: Related Content

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