The American Trucking Associations (ATA) joined more than 75 other industry and consumer groups to advocate federal regulation of the commodity futures market. In 2008, excessive speculation in commodities pushed crude oil to $147 a barrel, exposing the trucking industry, consumers, and the national economy to crippling fuel prices.
ATA is a member of the Commodity Markets Oversight Coalition, which said in a letter to the US Senate Agriculture, Nutrition, and Forestry Committee that policy in the commodity trading markets should aim to strengthen oversight, transparency, and stability to address inadequacies in the derivatives markets.
Starting in the mid-1990s, traditional commodity exchanges scrapped firm speculative position limits for softer and often-not-enforced “accountability limits,” in an effort to better compete with over-the counter, electronic, and foreign boards of trade. These new policies allowed speculators to take controlling positions in particular commodities.
Financial speculation began to dwarf the physical value of commodities these markets were meant to represent. Commodity trading … “grew from two times the size of the traditional exchanges to more than 12 times between 1998 and 2008,” the coalition’s letter said. As a result, the markets saw unprecedented volatility and inexplicable price shocks, cumulating with the largest commodity bubble in US history in 2008.
The coalition that includes 16 other state trucking associations believes new legislation to reform the US derivatives markets should include these positions:
•Mandatory exchange trading for standardized derivatives contracts to ensure adequate transparency and federal oversight, and to reduce systemic risk.
•Mandatory clearing requirements for all other contracts that are not being utilized by bona-fide commercial hedging interests to manage risks, but rather by swap dealers, banks, or other purely financial market participants.
•A narrow end-user exemption to clearing and collateral requirements that will allow bona-fide non-financial hedgers continued flexibility and choice in hedging products; however this exemption should be written so as to avoid any new “loophole” to truly non-physical market participants.
•Commodity Futures Trading Commission (CFTC) authority to establish speculative limits on all markets and in the aggregate across all markets, and to access activity on foreign boards of trade that allow US access or that trade derivatives on commodities destined for US delivery.
•New CFTC enforcement authority so regulators may prosecute “reckless” manipulation.
•Give additional financial and personnel resources to federal regulators to implement and enforce new mandates and authorities.
Find the entire Commodity Markets Oversight Coalition letter at www.nefiactioncenter.com/PDF/cmocltr2010mar25final_ver.pdf.