Published: Monday, 27 Jul 2009 | 6:38 PM ET

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The Obama administration's move to tame the volatile commodity and energy markets gets under way with hearings this week that promise to expose a wide fissure of disagreement over how it should be done.

The Commodity Futures Trading Commission will hold the first of three hearings on Tuesday to consider whether to limit holdings of energy and agricultural contracts and whether some traders should be allowed to exceed so-called position limits.

• Slideshow: The 10 Hottest Commodities of 2009

The agency, which will also hold meetings on Wednesday and on Aug 5., will investigate whether players with deep pockets distort the market's traditional role of price-setting when they amass huge market positions.

The CFTC will hear from Representative Bart Stupak, Senator Bernie Sanders, top executives from the Intercontinental Exchange and Chicago Mercantile Exchange, brokerage firms and energy industry representatives.

Bart Chilton, one of five commissioners at the CFTC, told Reuters in an interview earlier this month he would like to see the proposed rules issued in September, then implemented by late October or November after a period of public comment.

To protect against market manipulation, the CFTC sets limits on the amount of contracts each investor can hold in some agricultural commodities. But for energy products, such as oil, the limits are set by the futures exchanges.

"My firm belief is that we must aggressively use all existing authorities to ensure market integrity and efficiency," CFTC Chairman Gary Gensler said on July 7 in announcing the review of position limits.

The moves to toughen up oversight marks a sharp turnaround for the CFTC which has drawn criticism for its hands-off approach toward market regulation, especially last year when commodities rocketed to record heights on a heavy influx of hot money.

While some in industry balk at reforms, the CFTC has found broad support in Congress and among farm groups and companies who complain their traditional hedging practices were upset by big players tossing so much money into futures.

The American Public Gas Association will argue in favor of setting unified position limits across all natural gas markets at the CFTC hearing.

"Our concern is any one trader or speculator becoming so large that their actions could distort the market place," said Laura Campbell, who will testify on behalf of the association.

The gas association will also raise concerns about suggestions that all over-the-counter derivatives go through clearinghouses at regulated exchanges. Campbell said this plan would significantly raise costs for natural gas utilities and harm consumers.

With a number of anti-speculation bills pending in Congress, the CFTC's actions have been praised by some lawmakers, especially among Democrats.

Stupak, who criticized the CFTC for not doing enough to keep crude oil prices in check as they soared to a record last year, worked to include tougher derivative oversight in the climate change bill passed by the U.S. House last month.

The legislation would ban "naked" credit default swaps, require over-the-counter derivatives to go through central clearinghouses and direct the CFTC to set position limits on energy traders across all markets.

Trading firms, fearful of losing revenue to CFTC's proposals, are expected to tell the agency that any changes could only make the market less efficient.

"We do not ... believe that restrictions on index traders, beyond those that we already impose, are anything but a distraction," Charles Carey, vice chairman of CME Group

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[CME  Loading...      ()   ], based in Chicago, told a Senate subcommittee last week.

Some fear new rules to curtail speculation could make markets less efficient by reducing trading volumes and moving traders to offshore exchanges. Fewer speculators would mean fewer traders willing to absorb risk, leading to higher prices.

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