(Bloomberg) -- The UK’s Financial Conduct Authority proposed more stringent rules around the trading of certain commodity futures after a slew of once-in-a-generation price moves in recent years.
The measures are designed to limit risks from large positions in oil, gas and other critical commodities that can cause disorderly pricing and settlement conditions, the FCA said in a release this week. They include removing some requirements that place unnecessary burdens on firms, while putting tighter limits on a narrow set of contracts that pose the biggest risk to the economy.
Commodities have come under increased regulatory scrutiny after a series of outsized moves in recent years, including US crude’s plunge below zero in 2020, Europe’s natural gas crisis in 2022, and the unprecedented squeeze that effectively broke the nickel market. That’s particularly been the case after soaring living costs drew increased focus on raw material prices.
The proposals include making trading venues responsible for setting position limits, rather than the FCA. That would allow those venues to change limits more effectively and quickly if market conditions require them. Position limits generally prevent traders from amassing a number of contracts that is so large it risks distorting prices.
The new rules would only apply position limits to certain critical commodity futures contracts. Those are identified as:
- LME nickel, aluminum, copper, lead, tin and zinc
- London cocoa, robusta coffee, white sugar, UK feed wheat futures
- Low sulfur gasoil futures, Brent crude futures, West Texas Intermediate futures
- UK natural gas futures
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