U.S. Fed set to push ahead on new commodity trade rules
By Anna Louie Sussman and Emily Stephenson
The U.S. Federal Reserve is set to take its first formal step toward limiting the role of Wall Street banks in physical commodities markets this week by issuing a notice to seek public comment on the topic, sources familiar with the matter said on Monday. The Fed will publish an “advance notice of proposed rulemaking” on Tuesday, laying out the issues it is considering, one day before a second Senate banking committee hearing on the matter, the sources said. The notice and Wednesday’s hearing come after months of public and political outcry over the risks of allowing banks to trade physical commodities such as tankers of crude oil and pallets of copper. At a Senate hearing in July, witnesses testified that the activities pose a risk to the financial system in the event of a catastrophic accident. Metals consumers complained that banks’ ownership of physical storage assets enabled them to inflate prices for commodities such as aluminum. In 2013, banks including JPMorgan Chase and Barclays have paid hundreds of millions of dollars in fines for manipulating energy markets. In July, the Fed said it would be reviewing the role of banks in physical commodities trading, something that it has allowed a range of banks to engage in since 2003. Karen Shaw Petrou of Federal Financial Analytics in Washington said the notice would likely seek comment on how the risk varies by commodity, and would consider the systemic impact of various physical trading activities.