Federal Reserve to Discuss New Physical Commodity Rules

According to Reuters, the Federal Reserve is setting up to take public comments on new physical commodity rules that will limit banks’ ability to trade certain commodities this week.

This marks the Federal Reserve’s first steps in what will most likely be a long road ahead for reforming physical commodity rules. The driving force behind this reform comes from public and political complaints over the risk involved with having banks trade physical commodities like crude oil and aluminum.

During a Senate hearing last July, people involved in the industry spoke out about the banks’ ownership of the storage facilities that are required for physical commodities, and how this allowed them to inflate prices. Hundreds of millions were paid out in fines by big banks for manipulating energy markets in 2013 alone, producing a strong argument for reforming physical commodity rules.

Those taking part in the hearing as witnesses will include Norman Bay of the Federal Energy Regulatory Commission (FERC), market oversight chief Vince McGonagle of the Commodity Futures Trading Commission (CFTC), and Michael Gibson, the Federal Reserve’s director of banking supervision and regulation.

The Federal Reserve has not disclosed how it plans to reform physical commodity rules, but members of the industry will have 60 to 90 days to submit letters to be used in the forming of these new rules after the hearing.