CFTC to Probe Speculator Role in Commodity Prices
Special to CNBC.com
The Commodities Futures Trading Commission will be looking at the role of speculators in recent volatile commodities pricing, Commissioner Bart Chilton told CNBC Friday.
"We’re not price setters but we’re supposed to make sure these markets are efficient, that they’re effective, and they’re devoid of any fraud, abuse or manipulation, and I get particularly concerned about that last one, manipulation," he said. He said speculators won't be the sole focus of the probe.
"This is extreme volatility that we’ve seen and I don’t think that’s good for markets, for traders or, most importantly, for consumers. We just need to make sure that prices are based upon fundamentals."
He understands commodities are commonly used by investors as safe havens but "everything can’t be a safe haven against the dollar. I understand precious metals may be a safe haven, maybe crude oil, but coffee, cocao, sugar? I think it begs the question to make sure these markets are operating under the fundamentals."
Chilton has other concerns: high-frequency "cheetah" traders and the algorithmic trading technology that contributed to the "flash crash" exactly one year ago, when the Dow Jones Industrial Average fell over 1,000 points in 20 minutes before recovering.
"We’ve got to make sure that these programs that some of these cheetah traders let loose…don’t go feral, and if they do, if they cost people money, we need to ensure there is some accountability," Chilton said. "So I think we need some testing, I think we need kill switches."
He said CFTC needs to do a better job of "harmonization between the equities side and the futures side" and needs to work more with its European counterparts.
"If the flash crash had happened at 9:30 or 10 a.m. in the US, when the markets in Europe were open, this could’ve been a lot worse," he said. "Hard to believe but we may have dodged a bullet last year."