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US watchdog wants London to tighten oil market rules

Times Online
June 18, 2008

US watchdog wants London to tighten oil market rules

Robin Pagnamenta

American regulators are heading for a direct confrontation with the Financial Services Authority (FSA) after trying to slap new trading restrictions on the London oil market without the approval of the British watchdog.

The Commodity Futures Trading Commission announced new disclosure requirements yesterday for trading in West Texas Intermediate (WTI) oil futures contracts on the City’s ICE Europe exchange, which controls 30 per cent of the global market. A spokesman for the FSA said that the step had been taken without its approval and ICE Europe said that it would agree to the CFTC’s request only subject to FSA acceptance.

The move comes as London’s oil market has met mounting fire from a powerful clique of US senators, who blame speculative activity in the Square Mile as a key factor driving global crude prices to their existing levels of nearly $140 a barrel.

In a speech to Congress last week, Senator Dianne Feinstein, of California, portrayed the UK regulator as ineffectual and understaffed. “The British only have 80 people monitoring market abuses,” she said.

“Not one of these 80 people is specifically assigned to monitor trading of West Texas Intermediate, American Gasoline or New England Heating Oil. This may explain why the CFTC tells me that British regulators are yet to bring a single manipulation case against traders in any contracts for US delivery.”

The CFTC has been pressing the FSA to introduce US-style daily limits on WTI, heating oil and US gasoline contracts bought and sold by traders using ICE Europe by capping the number of contracts that traders can hold.

The proposals, which could come into effect within three months, are intended to stop traders from evading position limits in the United States by trading on ICE Europe – the so-called “London loophole”. However, the FSA believes that only the market should determine the price.

The watchdog, which has the power to veto the decision, said that it was still in talks with the CFTC. “We will need to consult with the market and then decide,” a spokesman said.

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