Skip to comments.Raising oil margins won't curb speculators -Bodman
Posted on 05/23/2008 12:47:21 PM PDT by Red Badger
WASHINGTON, May 23 (Reuters) - Significantly raising margin requirements on oil futures trading at the New York Mercantile Exchange (NMX.N: Quote, Profile, Research) would not rein in speculative investors and bring down crude prices, U.S. Energy Secretary Sam Bodman said on Friday.
Many U.S. lawmakers blame hedge funds, pension fund managers and other speculative investors for pushing up prices for crude oil and other commodities to record levels.
"I don't think that the margin requirements per se are going to have any impact on it," Bodman said in an interview on CNBC television.
Legislation is pending in the U.S. Senate that would require the Commodity Futures Trading Commission, which regulates NYMEX, to significantly raise the amount of money, or margin, that speculators have to put up to trade oil futures.
The bill does not specify how high margins should be increased, leaving it up to the CFTC to decide.
However, the CFTC has told Congress that, while more speculators are doing business in the futures markets, the agency has no evidence they have caused prices to rise.
When purchasing stocks, many brokerage firms require investors to have between 30 percent and 40 percent of the market value of the securities in margin accounts.
Margin requirements for futures are generally lower, less than 10 percent for many contracts, and often change depending on the volatility of the contracts.
Separately, Bodman said he supported broadening some regulatory powers of the CFTC, which this week was given new authority from Congress to monitor and collect more information on some of the energy trading going on in exempt commercial markets, such as the Intercontinental Exchange (ICE.N: Quote, Profile, Research). (Reporting by Tom Doggett; Editing by Walter Bagley)
With this congress and administration we a F...ed, just bend over, these idiots in congress have let this get out of hand. Now they blame everyone but the reflection in the mirror.
make a an are but what’s the dif?
“WASHINGTON, May 23 (Reuters) - Significantly raising margin requirements on oil futures trading at the New York Mercantile Exchange (NMX.N: Quote, Profile, Research) would not rein in speculative investors and bring down crude prices, U.S. Energy Secretary Sam Bodman said on Friday.”
Of course it would. Investors would park the money in other commodity futures with lesser margins or stocks or such.
Anyway, why not try it???
I agree. Raise them way up.
It was this 10% number that helped contribute to the crash of 29'
Move it upwards of 50% maybe even 75%.
X is not typically a very large number, either. For NYBOT/ICE Coffee 'C', the figure is 50 contracts. I believe, but I'll have to look it up, that X is 100 contracts for NYMEX Light Sweet Crude.
The point of all this is that CFTC had best be careful raising the margins. They must specifically exempt hedgers and small specs for 2 reasons: 1) hedgers, because they are using the mkt for its traditional purpose, namely insurance, and 2) small specs, because trebling the margins (or bumping them 10-fold, as some want) will chase every small spec out of a mkt right away, immediamente, and the bid/ask spreads will increase equally quickly, thus making it more expensive for the normal mkt users to obtain their insurance hedge.
If the Regress **really** wanted to start fixing the situation -- which, of course, they don't -- they'd start enforcing provisions of ERISA that would chase a number of huge pension funds such as CALPERS out of futures mkts. Pension funds have absolutely no business -- the ''prudent man'' doctrine, and all that -- in dealing in spec mkts.
Translate to English, please.......
33.33 percent would shave off a bunch of the speculators...........
Stock shares represent proportional ownership of a company, and a 50% cash figure is a quite reasonable requirement when dealing with ownership.
Futures ''margin'', contrarily, is simply a performance bond ensuring that the hedger or trader will hold to the terms of the contract traded, as well as be responsible for any trading losses.
Now, where in your experience, where on this planet does someone require a 50%-of-net-contract-value as a performance bond?
Pension Funds are double dipping. They own large chunks of stock in oil companies and now they are manipulating the price of the oil.........................
At times like these....elction year, expensive gas, remember that Congress can not act. It must react.
We are now feeling the heat to boil public opinion. When it boils and the heat is greater than that of the enviro wackos, congress will react and there will be enough drilling to settle the public.
I don’t think they can go to the election without some drillling, relaxation of refinery regulation
Why couldn't the CFTC raise the margins and provide the exemptions that you stated? I think the point here is to make it more difficult on strictly speculative traders. They're making their money on the volume discounts and leverage. Just make it tougher on them.
Get the pension funds OUT of spec mkts NOW. Should've been done years ago, but the Regress doesn't enforce ERISA worth a damn.
There may be legitimate reasons not to raise margin requirements, but it would almost certainly bring down oil futures prices in a hurry, simply because it would reduce the amount of dollars chasing contracts.
Of course it would, you lower the profit margin, the money moves elsewhere, what an idiotic statement to say this would have no effect.
Make the margin requirement on all energy futures to be 75% and raise the capital gain tax rate on this trading as well, and you’ll see the speculative bubble burst quickly.
Do it ,its worth a try.
Margin-raising is ineffective, as regards the big specs. Why? They'll simply move to SIMEX, DUBEX, Rotterdam, or London. Capital knows no borders.
What WILL cool out the big specs is the following:
1) Suspend Section 1056 of the IRS code specifically regarding big specs in energy mkts. (Explanation on request, it's somewhat technical.)
2) ERISA enforcement. This will remove, in very short order, ALL the pension-fund money that's currently in spec mkts.
3) Felony sanctions for position-limit violations. Right now, all the big specs get when they violate position limits (which some of them do routinely, btw) is a slap-on-the-wrist fine. Make it hard jail time.
4) A revision in daily trading limits, and a change of procedure when a daily limit is touched. (Again, technical, will explain at your request).
Given only the will, these four provisions could be executed in 30 days' time or less. Having been a futures trader since 1972, I guarantee you on my life that the mkts in which these are enforced will be cleared out of ''hot money'' and the overparticipation of the big specs in 2 weeks or less.
See #19 for detailed reasons why raising margins won’t have any effect except curtailment of liquidity at NYMEX. No other effect in this world.