CFTC mulls investment limits on commodities-linked products

The Commodity Futures Trading Commission is mulling setting position limits on physical commodities and is questioning whether swaps dealers should remain exempt from position limits. Policy changes under debate at the CFTC may limit the amount of money investors put into commodities-linked products. Exchange traded notes are the primary way that retail investors get exposure to commodities. The commission yesterday concluded three days of hearings to address concerns over excessive speculation in futures markets epitomized by the run-up in oil prices in 2007 and 2008. “Most of the stink-eye is being cast in the direction of [commodities] index investors,” said Brad Zigler, Santa Rosa, Calif.-based managing editor of hardassetsinvestor.com, a website from Van Eck Associates Corp. of New York. “The [ETNs that invest] in commodities were blamed for all kinds of evil.” The CFTC is considering setting position limits on physical commodities and is questioning whether swaps dealers should remain exempt from position limits. “The commission is taking a close look” at eliminating that exemption, said CFTC Chairman Gary Gensler in a hearing today. The exemption for swaps dealers is crucial for funds that track the price of commodities such as grains, metals and energy. These products and exchange traded notes use swaps to get exposure, rather than futures. Because swaps dealers are exempt from position limits, sponsors of commodities funds don’t have to worry about hitting capacity constraints in the futures markets, Mr. Zigler said. Without swaps, product sponsors would have to use more types of futures contracts to meet investor demand. But in doing so, they wouldn’t track their underlying commodity index as well, he said.