US cash commodity traders fret over “swaps” regs
February 10, 2011
Traders in physical commodity markets from grains to oil to sugar and gas are worried that a U.S. government push to regulate opaque over-the-counter trading will disrupt their business. At issue is scrutiny by the CFTC on trading by cash merchants of contracts for things like grain barges or oil tank cars, as "paper" commodities.
One grain merchandiser explained that the problem is lack of CFTC definition now that could bite traders later. "The rule says if you have the physical intent to deliver then it's not a swap. But what happens is everybody has physical intent that you're going to sell a barge and deliver it -- you buy and sell all these barges," the trader said.
In reality, though, barge paper privately changes hands many times, as ownership risk is switched based on prices in a similar dynamic seen in futures markets.
Cross References
Dodd-Frank Act, Title VII, Sec. 721