WASHINGTON — The Commodity Futures Trading Commission by a three-to-two vote on Oct. 18 approved implementing contract limits on index funds investing in the commodity futures markets, including wheat and other agricultural markets.
“The C.F.T.C.’s vote in favor of position limits is a step in the right direction, although we were hoping for more,” said Robb MacKie, president and chief executive officer of the American Bakers Association. “This new rule marks the return of the markets to their original intent — a way for bakers and farmers to manage their respective risks. We commend the C.F.T.C. for taking a bold step forward today to address extreme volatility in the wheat market.”
Cory Martin, the A.B.A.’s senior manager of government relations, added, “A.B.A.’s position all along has been for the removal of hedge exemptions on index funds and redefining them as traditional speculators. The new rule will place limits on index funds, which will prohibit their ability to buy and hold hundreds of thousands of contracts, with some exemptions remaining.”
The A.B.A. has been engaged in discussions with the C.F.T.C. since late 2007 on this issue.
“This has been one of the A.B.A.’s top priorities since the 2008 wheat crisis,” Mr. MacKie said. “Our members, most notably bakers engaged with the A.B.A. Commodity and Agricultural Policy Committee, have worked tirelessly to create solutions to decreasing market volatility. Their proposal to the C.F.T.C. to remove hedge exemptions and impose limits on index fund investment in the market played a critical role in today’s vote.”
One area of concern for the industry was that the new rule still allowed position limits bakers viewed as too high.
“While the new rule does increase the current position limits, before today’s vote, index funds had no limits due to hedge exemptions,” Mr. Martin said. “Index funds will soon have restrictions on investments similar to those placed on traditional speculators. These new limits will lead to decreasing volatility, returning some certainty to the market.”
Mr. Martin said the A.B.A. will continue to work with the C.F.T.C. to address the issue of high position limits as well as possible exemptions to the limits during the rule’s implementation over the next year.