The loophole was a significant factor leading to dramatic price increases in commodities such as corn, soybeans and wheat in early 2008.
The Commodity Futures Trading Commission on Aug. 19 said it would close the loophole by withdrawing two “no-action” letters that had resulted in Deutsche Bank and another investment firm exceeding speculative position limits on corn, soybeans and wheat.
The CFTC’s action is a good first step toward ensuring dramatic price increases will be less likely to occur in the future as a result of this particular type of trading, according to Joel G. Newman, AFIA president and CEO.
“I believe that position limits should be consistently applied and vigorously enforced,” CFTC Chairman Gary Gensler said in an agency news release. “Position limits promote market integrity by guarding against concentrated positions.”
AFIA members identified this situation as one of six factors that contributed to last year’s most dramatic rise in commodity prices in history. “This is a critical issue that is within our control and should be addressed,” Newman said.
“We look forward […] to implement the remaining rule-making and legislative corrections to ensure the commodity markets remain effective tools for customers in agriculture and other industries to establish market prices and hedge against the risk of long-term commodity purchases.”