The US futures regulator, the Commodity Futures Trading Commission, has taken further steps to curb what it sees as damaging speculation on the pri
The US futures regulator, the Commodity Futures Trading Commission, has taken further steps to curb what it sees as damaging speculation on the price of oil by tightening the conditions under which US investors can access markets abroad.
The CFTC has amended the May 27 “no-action relief letter” under which the Dubai Mercantile Exchange is permitted to make its electronic trading and order-matching system available to members in the US.
This move is designed to prevent speculators evading restrictions in the US through trading the same derivatives contracts on markets elsewhere in the world, by requiring the foreign exchanges in question to impose the same trading restrictions on the contracts as their US counterparts and to report any breaches to the CFTC.
The commission says the new conditions are designed to help it carry out market responsibilities and maintain the integrity of prices established on CFTC-regulated exchanges, and will apply to any US-linked contracts that the exchange decides to trade in the future. Its move has been prompted by the Dubai exchange’s plan to trade a cash-settled oil futures contract based on the US benchmark energy contract, West Texas Intermediate.
The amended letter adds additional terms and conditions that must be satisfied by the Dubai Mercantile Exchange within 120 days in order to maintain the relief granted by the no-action letter, which allows access to US customers.
The CFTC is now requiring the exchange to adopt equivalent US position limits and accountability levels (including related hedge exemption provisions) for all DME-linked contracts, and to provide the commission with quarterly reports identifying any trader that with positions in a linked contract above the applicable position limit, indicating whether a hedge exemption had been granted, and if not stating whether disciplinary action has been taken.
The Dubai exchange is also required to publish daily trading information comparable to that published by US exchanges for all linked contracts. It must also provide the US regulator with a daily report of large trader positions in each linked contract for all contract months in a form and manner that can be fully integrated into the CFTC’s market surveillance systems, including identification of the beneficial owner of each position, as well as into its Commitments of Traders Report, including appropriate categorisation of traders and their positions.
Last month, the CFTC amended ICE Futures Europe’s no-action relief letter under which it is permitted direct access to US customers. At the time, the US regulator indicated that it planned to apply the new conditions to any future requests for direct foreign access to US customers for contracts that cash settle against those listed on any US exchange. The existing no-action relief letters for ICE Futures Europe’s and the Dubai Mercantile Exchange have been amended to meet the conditions.