Sticky Fingers

The always progressive CFTC has come forward with a new effort to initiate position limits in a number of “key” commodity futures markets. This new rule, if enacted, would limit position sizes in a number of markets like: Crude, Wheat, PGM’s, Copper and others. Driven by pressure from end users, these rules will ostensibly diminish any upward price pressure on prices (forget the fact that large players can short as well).  We wonder why the CFTC is not more concerned with the HFT activity in these markets , but that is a whole different discussion for another day. We also have to wonder  if end users have fully thought out the possible implications of rules that might force players into alternative vehicles, namely the physical markets. It is not difficult to imagine an environment in which several large players choose to express their particular views on a specific commodity via the physical markets,  as opposed to the futures markets. In a market with tight supply,  no limits on physical holdings, and no real ease of  entry and exit, end users could be looking at a significant amount of available supply held in much stickier hands than before.