ATA joins coalition call for derivatives market regulation

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The American Trucking Associations on Friday, March 26, joined more than 75 other industry and consumer groups to advocate federal regulation of the commodity futures market. In 2008, excessive speculation in commodities was blamed for pushing crude oil to $147 a barrel, exposing the trucking industry, consumers and the national economy to crippling fuel prices.

ATA is a member of the Commodity Markets Oversight Coalition, which said in a letter to the U.S. Senate Agriculture, Nutrition and Forestry Committee that policy in the commodity trading markets should aim to strengthen oversight, transparency and stability to address inadequacies in the existing derivatives markets.

“We believe that commodities trading, including swaps, futures and options, and related markets and exchanges were established as a price discovery and risk management tool for bona-fide hedgers of physical market exposures,” said the letter. “Since the mid-1990s, the commodity markets have transformed greatly, and are now dominated by financial institutions rather than commercial participants.”

Starting in the mid-90s, traditional commodity exchanges scrapped firm speculative position limits for softer and often not enforced “accountability limits” in an effort to better compete with over-the counter, electronic and foreign boards of trade. These new policies allowed speculators to take controlling positions in particular commodities.

Financial speculation began to dwarf the physical value of commodities these markets were meant to represent. Commodity trading “grew from two times the size of the traditional exchanges to more than 12 times between 1998 and 2008,” the coalition’s letter said. As a result, the markets saw unprecedented volatility and inexplicable price shocks, cumulating with the largest commodity bubble in U.S. history in 2008. During this time, crude oil reached $147 a barrel in July 2008, and consumers were paying more for fuel, food and home energy bills.

The Coalition that includes 16 other state trucking associations believes new legislation to reform the U.S. derivatives markets should include the following positions:
• Mandatory exchange trading for standardized derivatives contracts to ensure adequate transparency and federal oversight, and to reduce systemic risk;
• Mandatory clearing requirements for all other contracts that are not being utilized by bona-fide commercial hedging interests to manage risks, but rather by swap dealers, banks or other purely financial market participants;
• A narrow end-user exemption to clearing and collateral requirements that will allow bona-fide nonfinancial hedgers continued flexibility and choice in hedging products. However, this exemption should be written so as to avoid any new loophole to truly nonphysical market participants;
• CFTC authority to establish speculative limits on all markets and in the aggregate across all markets, and to access activity on foreign boards of trade that allow U.S. access or trade derivatives on commodities destined for U.S. delivery;
• New CFTC enforcement authority so that regulators may prosecute reckless manipulation; and
• Give additional financial and personnel resources to federal regulators to implement and enforce new mandates and authorities.

State trucking associations that signed the letter include Arkansas Trucking Association, Georgia Motor Truck Association, Indiana Motor Truck Association, Iowa Motor Truck Association, Kansas Motor Carriers Association, Michigan Trucking Association, Minnesota Trucking Association, Mississippi Trucking Association, Motor Carriers of Montana, Nebraska Trucking Association, New York State Motor Truck Association, North Dakota Motor Carriers Association, Ohio Trucking Association, Pennsylvania Motor Truck Association, South Dakota Trucking Association and Vermont Truck and Bus Association.