On Tuesday, the SEC extended its temporary rule restricting short selling on financial stocks including Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, UBS, Bank of America and others. It remains to be seen what lasting effect the rule will have on the market – the initial action spurred a market recovery – but either way the rule has been a definite plus for OneChicago. The single stock futures (SSF) exchange has taken full advantage of the short selling rule by touting SSFs on the financial giants affected by it – Bank of America, Barclays, Citigroup, Deutche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch, etc. OneChicago CEO David Downey says that since the short selling rule was introduced, the exchange has seen some increase in business, especially in Fannie Mae SSFs. “Interestingly we have been taking many calls from traders who are taking another look due to the new rules,” he says, adding, “It still remains that the clearing members, ironically the very names that this ruling addresses, still resist letting the customers trade SSF.”

Sen. Maria Cantwell (D-Wash.), one of the loudest voices in the current battle royale between Congress and what many legislators have decided are evil speculators, has taken another stand by blocking the nominations of CFTC Acting Chairman Walt Lukken, Commissioner Bart Chilton and first-time commissioner nominee Scott O’Malia. “I want them to do their job,” she said in a McClatchy news story. But many industry insiders are maintaining that the CFTC IS doing its job – that it’s not their job to control prices. And several experts we’ve talked to say that many of the bills being tossed around Congress by Cantwell and others designed to lower the price of oil show a huge misunderstanding by legislators about the way markets work and may actually raise the price of oil and drive investors out of U.S. markets. One commentor on our blog jokingly suggested that all candidates for Congress must first pass a course in economics before being entitled to speak or write about anything related to commodity or financial markets. So how will this Congressional firestorm end? What do you think?

On Tuesday, Sen. Harry Reid (D-Nevada) introduced yet another bill on designed to “curb excessive oil speculation.” This one, however, left out previous bills’ calls to impose higher margins on oil traders, such as the one introduced by Sen. Byron Dorgan (D-ND) on June 24 which would require the Commodity Futures Trading Commission (CFTC) to increase margin requirements to 25% for trades classified as non-legitimate hedge trades. Reid’s bill calls for “eliminat[ing] excessive speculation by changing the definition of ‘legitimate hedge trading’ to include only those producers and purchasers of actual physical energy commodities, and places limits on trading by those who are not trading actual physical petroleum products.” The Futures Industry Association released a statement on Reid’s bill, calling it a “mixed bag.” “While it mandates appropriate studies and it enhances energy market transparency, the bill has many provisions that would amount to liquidity-robbing, regulatory overkill. We fear that those provisions would undermine the bill’s own transparency goals, make hedging more expensive [and] drive energy market activity overseas,” the statement said.

(more…)