Who is Going to Regulate the Regulators?*

Considering the CFTC's policy on position limits, there are actually two questions that need to be answered.

The first is whether it is true that speculative positions affect prices. There are good economic reasons to reject this notion.  A futures position is a commitment to deliver a commodity by the short side and a commitment to take delivery of that commodity by the long side.  Those commitments are distinct from demand or supply of the product.  This is because the long side can immediately sell the commodity received to someone who wants to consume it.  Likewise the short side can buy the commodity immediately before delivering it per their contract.  For the long side, these constitute transfers of the commodity as opposed to demands for the purpose of consuming it.  Likewise, generally the short side satisfies its delivery requirement via a transfer rather than through engaging in its actual production.  Examinations of the effect that undertaking positions has on prices have consistently found no relationship between position changes and subsequent price changes.  This is precisely the result that the above economic reasoning predicts.  That is, unless long positions actually shift commodity demanded or short positions actually shift commodity supplied, then trading in futures should have no effect on pricing fundamentals.

Volcker Rule: Grounds for Divorce?*

In a narrow 3-2 vote on 11 January 2012, CFTC Commissioners proposed their own version of the Volcker Rule, which prohibits proprietary trading activities of banks and limits their investments in private-equity and hedge funds in line with the restrictions already proposed by the Federal Deposit Insurance Corp., the Federal Reserve, the SEC and the Comptroller of the Currency in October, 2011. The intent of the Volcker Rule is to reduce risk in the US banking system by limiting the excessive risk-taking activities of banking entities, defined as any insured depository institutions and their subsidiaries.

Blame Game Continues: Speculators v Regulators

On January 13, 2012, I presented at the International Workshop on "Financial Speculation in the Oil Market and the Determinants of the Oil Price", organised by the Fondazione Eni Enrico Mattei in Milano, Italy. My presentation was entitled "Blame Game Continues: Speculators v Regulators."

My presentation was based on the following articles that I co-authored:

• Fundamentals, Trader Activity and Derivative Pricing
• The Prevalence, Sources, and Effects of Herding
• The Role of Speculators in the Crude Oil Futures Market
• Speculators, Prices and Market Volatility
• Commodities and Equities: 'A Market of One'?
• Speculators, Commodities and Cross-Market Linkages
• Does 'Paper Oil' Matter? Energy Markets’ Financialization and Equity-Commodity Co-Movements