About 13 months after the previous version was thrown out by a federal judge, the Commodity Futures Trading Commission “CFTC, proposed a new set of regulations that now looms as a game changer for many markets in the economy, including the energy and commodity trading industry.
The proposed rule would impose speculative position limits on 28 physical commodities; even if market participants don’t exceed or approach the actual position limits levels, they will still be affected. For many energy corporations, an unsettling part of the CFTC’s new instruction is the fact that this proposed position limits regime contains trade options, a stance that has troubled many market participants.
One capacity where the CFTC’s new position limits rule varies from the preceding version is its treatment of hedge exclusions. This too has caused groups involved in the energy trading world to express their concern about the long term consequences of these revived policies. Experts in the Dodd-Frank Act even go as far as to claim that this new regime will impair the middle-market, and have a vast effect on the physical supply chain management businesses and other integrated companies with mid-market operations.
However, not all of the modifications in the CFTC’s new plan are seen as dangerous for energy firms. Some industry groups have greeted one change in the manner the CFTC is proposing to combine speculative positions across diverse entities in which companies have an equity stake.
Regardless of market participation, one thing is certain, businesses need to be prepared for the upcoming landscape in the energy trading world. The industry’s ability to adjust and adapt to these new set of regulations will determine their success in both short term and long term scenarios.
Note: Any discussion on Dodd-Frank does not constitute legal advice.
- On February 22, 2014