Futures regulators want to limit oil and other commodities speculators to 10 percent of market now, but can't because "Wall Street is taking us to court to keep us from implementing the rule," said Bart Chilton.
"We need speculators in these markets. There’s no markets without them," Chilton, a member of the Commodity Futures Trading Commission, told CNBC Thursday. "It’s the excessive speculation we’re concerned about" because of the roller-coaster effect it is having on gasoline prices at the pump.
"Right now consumers pay more to the pump than they should and that’s expanding to small business, large business, even federal, state and local government," he said.
The CFTC has had a rule limiting commodities exposure to 10 percent since October but hasn't been able to implement it because "Wall Street is taking us to court" to block implementation.
The financial industry claims the agency, among other things, had not conducted sufficient cost-benefit analysis of the tough "position limits" plan, which they say would reduce liquidity and increase volatility.
Chilton told a New York financial conference on Thursday that regulators are "paralyzed" by the threat of lawsuits from Wall Street firms that want to slow or stop the rollout of the rules because they would crimp their bottom line.
If regulators live in fear of a lawsuit alleging they failed to consider sufficiently the costs and benefits of a rule, rulemaking slows or halts and opponents have succeeded, Chilton said.
"Sure, people have the right to go to court and challenge things," Chilton said at the conference. "But regulators need to keep our eye on the ball and not be scared into making rules and regulations weak or ineffective because we are overly concerned about what we call 'litigation risk.'"
Chilton said the CFTC follows the proper requirements for assessing the cost-benefit analysis. The agency puts out a proposal, asks for comments and what the cost might be.
Reuters contributed to this report.