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By Douwe Miedema
WASHINGTON, Nov 5 (Reuters) - The U.S. derivatives regulatoron Tuesday launched a plan to curb commodity market speculation,reviving a crucial Wall Street reform after a judge knocked downan earlier version of its rule on position limits.
The redrafted rule by the Commodity Futures TradingCommission will allow exemptions for positions held by firms inwhich banks own stakes of up to 50 percent, the agency said indocuments prepared ahead of a public vote.
An earlier version of the rule had set the hurdle at 10percent, a level that was deemed draconian by the industry,which then gained a victory over the agency when a DistrictCourt vacated the rule in September 2012.
The rule has been one of the most hotly debated aspects ofan overhaul of Wall Street after the financial crisis. It comesas some of the largest global banks face political pressure toreduce their control over commodities markets.
The Dodd-Frank law gave the CFTC greater powers to limitpositions held by large traders to prevent them from corneringthe market, while exempting farmers and others who use futuresand swaps to protect against price swings.
The CFTC's public vote on the proposed rule is normally asign that a majority of commissioners is in favor. The rule willthen be opened up for comment.
The easier so-called aggregation hurdles for firms - abovewhich they need to count positions their affiliates hold totheir own - removes an important irritant for banks, which hadcomplained it would send costs soaring.
To use the exemption, trading firms - often large banks suchas Goldman Sachs and Barclays - will need toprove they do not control the affiliate. Above that onlynon-consolidated units can be exempted.
Reuters had first reported the main changes in the CFTC'snewly drafted rule.
The CFTC's rules will limit a trader's maximum size inderivatives to 25 percent of the estimated deliverable supply ofthe underlying commodity, for a range of agricultural, energyand metal contracts.
The new rule also reintroduced so-called conditional limits,which allow traders to hold five times as much as that limit incash-settled contracts provided that they do not hold a singleposition physical-settled contracts.
The text of the rule, which was several hundred pages longaccording to CFTC staff, will also change certain details ofwhat constitutes hedging - an activity that is exempted fromposition limits under the Dodd-Frank law.
The rule will no longer allow an exemption for derivativecontracts entered into by traders to make good rent they pay onempty storage facilities, CFTC staff said.
The agency had found no sufficient link between marketprices and storage facility rents to allow the practice, a formof anticipatory hedging, the staff said.
The CFTC staff also said that futures exchange CME Group Inc had provided new estimates of deliverable supply thatwere higher than the CFTC had initially used, so that thepercentage position limits were also higher.
