According to Reuters, it seems unlikely that the Federal Reserve will be detailing their plans on commodity regulation until after next month’s Senate hearing over the rigging of the aluminum market. A final decision on commodity regulation should be expected early next year.
After receiving complaints from MillerCoors, the Federal Reserve is looking into a decade old rule that allows large banks to trade physical commodities. According to MillerCoors and other large aluminum manufacturers, banks trading stocks in aluminum were driving up the price through their control of warehouses.
Although they are waiting until after the hearing to move forward, the Federal Reserve will not be taking market manipulation into account, leaving the issue up to the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC).
The review of commodity regulation rules has many banks feeling the heat. Many feel that the Federal Reserve will implement new rules that will drive up the cost of business for trading. This fear has already led some banks to sell their positions and give up on the physical commodities industry all together.
The Federal Reserve will also not be doing much to change the significant amount of scope in the industry some banks have over others. Banks who changed their status to bank holding companies allowed them to grandfather in their commodity trading activates, including the storage and transportation of commodities, saying that they may change some orders, but are unlikely to change the law as a whole.