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November-December 2011

Vol. 36, No. 6

 

Initial wins in fight to reduce commodity speculation

The growing number of individuals, businesses and social movements around the world who are concerned about excessive food and energy speculation won some recent victories in the U.S. and Europe with some market regulators passing stronger laws and others indicating a future shift to stronger rules. More than 450 economists signed a letter to the G20 finance ministers (U.S. Treasury Secretary Timothy Geithner and his counterparts from countries with the 20 largest economies) and the five commissioners of the Commodity Futures Trading Commission (CFTC) calling for regulators to "curb excessive speculation on food commodities" by increasing market transparency and establishing "position limits" or limits on the amount that any one speculator can hold at one time.

In the U.S., the CFTC voted 3-2 to establish new position limits in 28 commodity markets (19 agricultural, four energy and five metal markets). The new rules were criticized as both too strong and too weak. Republican appointee to the CFTC Jill Sommers said the limits "will make hedging more difficult, more costly, and less efficient, all of which, ironically, can result in increased costs for consumers." Others felt the limits were too high to have any real effect. Paul Cicio, president of the Industrial Energy Consumers of America, said, "The speculative limits are so large that they will not have any measurable positive impact reducing excessive speculation."

None of the rules will become law until the CFTC defines the term "swap" at some undefined future date and the bulk of the limits will only be in effect years from now after more data has been gathered about swap markets. Tyson Slocum, director of Public Citizen's Energy Program, called the CFTC's position limits "soft rules that won't take effect until who-knows-when… [T]he banks' status quo reigns supreme."

Across the Atlantic, the European Commission proposed new rules to increase transparency in commodity markets. In a joint statement, environmental and development organizations said the rules, if implemented, "will shed light on betting on food commodities by financial traders, but will not do enough to prevent speculation from fuelling high and volatile food prices." They complain that the rules "include too many exemptions, allows EU member states to create 'alternative arrangements' to position limits and does not go far enough to clamp down on speculation that is divorced from supply and demand."
Finally, at the G20 finance ministers meeting in Paris, the ministers suggested that regulators in each country should take measures to increase transparency but also stopped short of calling for measures to establish speculative limits.

The international divestment campaign has seen progress, with a number of universities pressuring their endowments to divest from commodity derivatives, and civil society organizations and concerned individuals approaching pension fund managers with the same appeal.

While these decisions can be seen as advances, there is still a long path ahead to truly rein in excessive speculation. In coming months and years, we see the following as key areas for civil society organizations and concerned individuals concentrate their efforts:

In the U.S. Congress: Defend CFTC and SEC funding; support the passage of Anti-Excessive Speculation Act, S. 1598, sponsored by Sen. Bill Nelson (D-FL) [and the parallel bill, HR 3006, sponsored by Rep. Peter Welch (D-VT) in the House]; and support passage of Sen. Ron Wyden's (D-OR) Stop Commodity Speculation Act (yet to be introduced).

In Europe: Follow EU Commission process to implement stronger transparency. Special focus on UK leadership who has been most resistant to stronger rules in the EU and G20.

With the G20: Push for stronger recommendations on speculative position limits.

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