Commodity Boom Wasn’t Speculation, Regulators Say (Update1)
News Date: 03/06/2009
Outlet: Bloomberg Business News

Last Updated: March 5, 2009 13:56 EST

By Chanyaporn Chanjaroen and John Rega

March 5 (Bloomberg) -- Commodity markets were more likely driven by supply and demand than speculation in last year’s price spikes, an international group of regulators said, while calling for more powers to guard against manipulation.

The report of a 12-nation task force is the result of a study of last year’s record oil prices and increases in food costs. Oil peaked last July at more than triple current levels and overshadowed the credit crunch among government leaders’ concerns. The panel was created by the International Organization of Securities Commissions in Madrid.

Regulators still need more power to demand data about markets, especially in over-the-counter trading, said the group, led by the U.S. Commodity Futures Trading Commission and the U.K. Financial Services Authority. Regulators also should get expanded powers to penalize traders who try to manipulate prices, it said.

“There are concerns about the possibility of market manipulation,” said Kathleen Casey, a U.S. Securities and Exchange Commission member who is chairwoman of IOSCO’s Technical Committee. The panel aims to ensure “regulators have the appropriate information and tools available to them to monitor futures markets.”

U.S. politicians last June said excessive speculation, not supply and demand, caused record prices for crude oil. They pointed to a lack of a limit on traders’ positions in London’s energy markets as giving the potential to influence prices near the expiration of futures contracts.

U.K. lawmakers asked the FSA at a parliamentary select committee in July why it hadn’t brought as many cases as its U.S. counterparts.

Alexander Justham, the FSA’s director of markets told the committee that the FSA was bound by law to “not only prove the intent but actually the effect or likely effect.”

FSA spokesman Abi Jones today said the agency “can take action against attempted manipulation, but only in cases where we can show that it was likely to have had an impact on the market.”

To contact the reporters on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net; John Rega in Brussels at 4317 or jrega@bloomberg.net.