Executives of the Chicago Mercantile Exchange recently testified before Congress that there could be terrible consequences to trying to force speculators out of the futures markets. Here are a few facts that were pointed out:
- The Nymex increased margins 140% during 2007, and the price of oil doubled. Clearly, increasing margins won't bring down the price of oil
- Speculators are already required to put up 33% larger margins than exchange members who take delivery
- Restraining capital in this country will only cause capital flight to other places in the world where there is capital freedom. If this country doesn't accept or attempts to restrict capital, there are numerous other global futures exchanges where speculators can send their capital -- and they will.
- Research indicates that long traders tend to be much better capitalized than short traders. Therefore, increasing margins will only restrict those who short the markets, thus sending prices higher, not lower.
- Speculators only come into the market because the fundamentals are supportive of higher prices. Speculators don't drive prices higher; they follow the market.
