The Commodity Futures Trading Commission (CFTC) in the US has unveiled its proposal to set position limits on commodity markets, which will now enter a 60-day public comment period.

If successful, the proposal will see restrictions imposed on the number of swaps and futures contracts that can be held by speculators in the metals, energy and agricultural derivatives markets, Reuters reports.

The CFTC has attracted the ire of Wall Street in the past over its plans to limit investor capital, with some blaming the agency for the record high grain and oil prices seen two years ago.

Traders and even some CFTC officials have raised concerns about the move, which will effectively give the regulator much more power to affect the markets for years to come.

"Will these limits actually minimize price distortions or curb excessive speculation? Will they serve to prevent price spikes?" asked CFTC commissioner Scott O'Malia, according to the Wall Street Journal.

"I remain to be convinced of the first and in response to the second question I am certain they will not."

The publication reports that the draft plan sets a cap on spot-month positions to 25 per cent of deliverable supply for a given commodity, in a move that could impact more than 100 energy, metals and agricultural derivatives trading companies in all.

Tim Evans, energy analyst at Citi Futures Persective, said the general framework of basing position limits on market size is sensible, but it is too early to say whether the levels proposed are right.

Meanwhile, former CFTC official Michael Greenberger said the release of the proposal is "encouraging", describing it as a "reasonable step designed to stabilise economic function".

"It's a complex proposal but it's in the ballpark of imposing restraints that industrial companies want," he told Reuters.

Mr Greenberger added: "The voices we have heard sounding off about this are often of traders or banks, but remember that industrial companies who wanted these reforms will keep pushing hard for them."

Sources:

CFTC limits speculative commodity positions (16/12/10)

CFTC vote on trading curbs stalls (17/12/10) 

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