The Commodities Futures Trading Commission (CFTC) is the federal agency responsible both for regulating the commodities markets and publishing weekly data on the state of those markets. The weekly Commitment of Traders report which provides information on open interest in the commodities markets was last published on September 24th.
The opportunities for market shenanigans multiply as the government shutdown continues. Of the CFTC’s approximately 680 employees only 28 are exempted from the shutdown and of those just a handful remain to watch the daily trading in the commodities markets where the usual number is 50. CFTC commissioner Bart Chilton told the Los Angeles Times last Friday, “The do-badders have an open reign to try and commit nefarious acts. And I hope they don’t. And we’ll be back and look at this stuff. But [it’s] not going to help anybody who gets taken advantage of in the meantime.”
Energy and agricultural commodities trades are particularly vulnerable, but metals trading could also be affected. The lack of information normally provided by the CFTC is likely to lead to sharp reductions in trading volume which in turns reduces liquidity and increases price volatility.
Another federal agency with a significant impact on the energy market is the Energy Information Administration (EIA) which has said that it has sufficient funding to remain operational until October 11th, just three days from now. While the EIA has no regulatory role, its weekly reports on petroleum and natural gas provide widely used data on the nation’s energy supplies.
Essentially what is happening is that commodities markets are less transparent and the situation can only get worse the longer the government shutdown continues. And as we noted, less transparency cuts trading volume, reducing liquidity and increasing volatility. That’s a combination that is ripe for manipulation.