I heard about this while listening to Mark Levin. Eric Bolling is a former commodities trader on the New York Mercantile Exchange and in the video here he rationally explains what the daily trading is like in the oil markets on the NYME. The premise is that on a given day, the amount of oil consumed is magnitudes of order smaller the the quantities of oil traded on the same day. In my mind, the greatest issue raised isn't the quantity of oil that is traded. Instead, it is that the banks and other major players in the market are able to make significant quantities of transactions without having to outlay any significant amount of capital (and if the trade is completed on the same day, no capital at all). This, by virtue of the rules enacted and the amount of volatility surrounding the product, effectively creates a massively desirable environment to these large banks as they can play the markets and make significant amounts of money. And since the banks are simply using this as an avenue to generate revenue, they greatly benefit from the rules while the individual consumers (you and I) are seriously affected.
In Indianapolis, we have weekly - daily - swings in the price of gas by 20-40 cents a gallon. If you time it wrong, it is ridiculously easy to go to work with a quarter tank of gas and see the price at $3.49 per gallon. On the way home, and needing to fill up, the price will be $3.89. It happens every week. It has to do with some strange law that was enacted several years ago about how tightly connected to the closing price of oil or gas is required vs the price at the pump. Basically, I live the volatility.
Bolling argues that by changing the trading rules such that only a certain percentage of the commodity in the market is allowed to be gambled that we could see a drop in price by nearly $1/gal overnight. Alternatively, it could be required that the players involved have to put up more capital to participate. The idea is simply to discourage purely speculative players from entering the trading. To cut out the completely random spikes in price that are solely related to groups jumping in and buying up product to make a quick buck.
I don't really see anything wrong with the idea. Regulation is indeed something that is the role of the federal government and regulating such a necessary commodity more tightly seems very appropriate.
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