CFTC: Citi to pay penalty for wheat futures position limits violation

The Commodity Futures Trading Commission on Friday ordered Citigroup Inc and a subsidiary to pay a $525,000 penalty for violating position limits, which cap the number of contracts any trader can hold in certain commodities.

The CFTC said Citigroup, through Citigroup Global Markets Ltd, on several occasions in December 2009 held aggregate net long positions in wheat contracts in excess of caps.

The trading occurred on the Chicago Board of Trade, which is owned by CME Group Inc.

Citigroup spokesman Scott Helfman said in an emailed statement that the company is pleased to have resolved the matter.

The penalty is just the second imposed by the CFTC for position-limit violations this year, and comes weeks before a new set of trading curbs kicks in on October 12. Those rules, which aim to rein in speculation and limit price spikes, were included in the 2010 Dodd-Frank financial reform law and finalized by the agency last October.

Financial industry groups have sued to stop the new position-limit rules from taking effect, saying the curbs would irreparably harm the marketplace and arguing that the CFTC failed to sufficiently weigh the economic consequences of the rule, as is required by law.

LONG BATTLE

Position limits have long been a part of agricultural markets, but have remained a highly divisive issue.

Some lawmakers had pushed for the CFTC to clamp down since early 2008, as oil and grain prices were shooting toward historic peaks.

However, traders and some Republican lawmakers have argued there is no evidence that speculators inflate prices. They say curbs could make prices more volatile by removing liquidity and sending business to overseas markets.

The CFTC’s new curbs, the first of which are slated to take effect next month, will for the first time apply to the swaps market.

Additional curbs are likely to go into effect next year.

The Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) challenged the new rules in December. The court has yet to rule in the case.

In the meantime, the CFTC is still working to enforce current rules.

In February, the CFTC ordered New York firm D.E. Shaw & Co to pay $140,000 for violating soybean and corn futures position limits.

In December of last year, the agency ordered Merrill Lynch Commodities Inc to pay $350,000 for position violations in the cotton futures market.

Reuters