Regulatory arbitrage under way in commodities-CME

Differing plans for the
regulation of commodity markets around the world risks driving
traders to the least transparent exchanges, a managing director
at CME Group said on Tuesday.

Bob Ray, CME’s head of international products and services,
told Reuters on the sidelines of the UN Global Commodities Forum
in Geneva that “regulatory arbitrage” was already under way.

“The ambiguity in some global markets is already encouraging
some trades to move to other markets,” Ray said. “To make any
kinds of changes effective they have to be coordinated
globally.”

Regulation of commodity markets has been under the spotlight
since prices across a broad range of markets soared to all-time
highs on the eve of the financial crisis, before plummeting as
the worldwide recession took hold.

The U.S. Commodity Futures Trading Commission (CFTC) has
proposed imposing stricter trading positions on speculative
investors in energy markets, but has faced resistance from some
groups.

The Futures Industry Association said last week the moves
risked hurting markets and cited a rash of studies saying
speculators were not responsible for distorting energy prices.
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The CME Group runs the NYMEX Exchange, the world’s largest
futures exchange for oil where the benchmark West Texas
Intermediate contract, or U.S. crude, is most actively traded.
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Ray said he supported the “dialogue” between the U.S. CFTC
and Financial Services Authority in London, but was concerned
more oil trade could move to smaller exchanges with less
regulatory oversight or into the over-the-counter (OTC) market.

“We understand where the CFTC is coming from, but our fear
is that without position limits across the board, in a totally
integrated market place, then it really is a self defeating
situation,” Ray told the conference. “Capital is apolitical.”

Ray added that he would like to see a large percentage of
the OTC market move to trading on electronic exchange.

“The plain vanilla products could easily be cleared,” Ray
said. “In the long-run it would be a positive for the market as
it increases transparency.”

http://blogs.reuters.com/david-sheppard/2010/03/23/regulatory-arbitrage-under-way-in-commodities-cme/

Regulatory arbitrage under way in commodities-CME

Regulatory arbitrage under way in commodities-CME

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