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CFTC and FSA welcome proposals to boost regulation of commodity futures

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The US Commodity Futures Trading Commission and the UK’s Financial Services Authority have welcomed proposals published by the technical committee of the International Organisation of S

The US Commodity Futures Trading Commission and the UK’s Financial Services Authority have welcomed proposals published by the technical committee of the International Organisation of Securities Commissions recommending improved supervision of the commodity futures markets.
 
The proposals were developed by an Iosco task force on commodity future markets, currently co-chaired by the CFTC and FSA. The report follows concern over price rises and volatility last year in agricultural and energy commodities and examined whether futures market supervisory approaches remained appropriate in light of recent market developments.
 
The task force concluded that in light of the complexity of factors that drive price discovery in futures markets and the critical importance of these issues to world economies, continued monitoring was appropriate to improve understanding of price formation and the interaction between regulated futures markets and related commodity markets.

The task force also made recommendations to address identified factors that potentially inhibit the ability of futures market regulators to access all of the information that may be needed to understand fully price formation in a particular futures contract.
 
Specifically, it recommended that where they cannot already do so regulators should be able to access relevant information from other markets, such as cash and OTC derivatives, that can affect the pricing of regulated commodity futures. Accessing such information may be needed to understand fully price formation or to monitor for, and detect, manipulation in the futures markets.

Moreover, because manipulative schemes are often complex and may involve futures, OTC and cash markets in one or more jurisdiction, the task force called for measures to improve regulators’ supervisory and enforcement powers and the enhancement of global cooperation.
 
Michael Dunn, acting chairman of the CFTC, says: ‘I am delighted that the CFTC has played a key role in achieving a significant set of recommendations in a very short time period. I applaud Iosco’s efforts to assemble the world’s leading commodity futures regulatory authorities to examine whether regulations have kept pace with the profound changes in the futures markets. The recommendations for greater transparency will help regulators answer continuing questions concerning commodity market price formation. Moreover, the recommendations for enhancing surveillance, enforcement and cooperation are a significant step in enhancing our ability to maintain the integrity and confidence in global commodity futures markets.’
 
Sally Dewar, FSA managing director of wholesale markets (pictured), adds: ‘We are pleased to have worked with IOSCO, the CFTC and other international regulators on drafting proposals that could help improve transparency on commodity market price formation.’
 
‘Regulations have to keep up with the changing financial landscape to ensure that markets are properly monitored, any abuse or manipulation is detected and that effective global cooperation happens, all of which would significantly benefit commodity futures market users across the board.’

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