US regulator CFTC calls for curbs on oil trading in London

A rift has opened between regulators in Washington and London after the Americans called for restrictions on oil trading in the City.

It is understood that the Financial Services Authority (FSA) is resisting calls by the US Commodity Futures Trading Commission (CFTC) to introduce daily price limits on some oil futures contracts.

The Americans also want to cap the amount of particular oil contracts that a trader can hold. The moves would limit the ability of a trading firm or individual trader to corner the market in one type of futures oil contract.

The price cap measure, which exists in American energy markets, has been devised to stem sharp rises in the price of a particular commodity. However, London regulators believe that the market should determine the price of an asset, rather than it being limited by a daily price cap.

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The regulatory difference between the two, and the trading opportunities it opens up, is known as the London loop. American regulators are concerned that the difference in regulatory regimes allows traders to exploit the less regulated regime in London and distort the price.