CFTC Exploring the Impact of Swaps on Commodity Speculation

The CFTC is focusing on the swap market, which is currently for the most part unregulated in comparison to the exchanges (see Financial Times article). Currently, swap dealers receive exemptions for speculative positions limits that may apply to other speculators in the commodities markets. In essence, swaps are private contracts between investment banks and investors that allow for exposure to commodity prices without investing directly in the futures that backed the assets. This does allows one to take a speculative position without posting the same margin or abiding by the same position limits that one would encounter on a futures exchange such as the Nymex. A CFTC survey found that of the 550 clients of swap dealers, at least 18 were above the exchange limits as a result of using swaps. Closing this path, or at least imposing the same limits, would put these traders more in-line with current exchange requirements. Whether this curbs speculation to a noticeable degree, beyond affecting the 18 or so mentioned clients, will have to be seen.