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.
Pension Funds are double dipping. They own large chunks of stock in oil companies and now they are manipulating the price of the oil.........................
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.
Ironically, raising margin requirements could actually push UP oil prices by inadvertently aiding the “speculators,” which really these days are pension funds like CalPERS and Hermes (UK).
They buy packaged commodity index deals structured for them by the big investment bank, which are “fully funded.” In other words, Calpers puts up the entire price of the futures contract, of which 5% gets put “down” for the margin requirement and the rest is invested in treasury bils, etc. Raising the margin requirement would only trivially reduce the actual return for the index fund investment.
On the other hand, raising margin requirements would devastate the real speculators, who are needed to come in as shorts against the overwhelmingly “long” positions of the pension funds. Bottom line, sharply fewer sellers and just as many buyers. Result: more price increases.
The deck is stacked against the sellers, who mostly are still subjected to position limits whereas the pension fund “longs” are exempted since they go thru swaps dealers who are treated by the CFTC as if they were “commericals.” The game is heavily rigged to the long side.
The dirty little secret is that the government likes high oil prices (to screw the Chinese). You could claim the givernment ain’t smart enough to rig a market this big. But if you have the Ruskies, the Saudis and the oil majors by the balls, and can channel enough government-run pension money into the market, you can run prices to the moon and back at whim by tinkering with a few of these arcane market regulations. The truth is that the gummint can’t be this STUPID as to let these terribly flawed policies continue in effect for years and year while market prices go crazy. Its a bidness plan.
BTW, I wonder what the REAL story is behind all those CalPERS honchos bailing out recently en masse. Maybe they couldn’t take the guilt of what they’ve been asked to do.