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Fed puts out proposed rule on physical commodities trading

The FederalReserve has put out a proposed, stricter rule that covers physical commodityactivities of financial holding companies.

The proposedrule's aim is to cut down the risks commodities trading poses to financialholding companies. Among others, covered companies would be required to holdadditional capital for commodities trading activities for which existing lawswould impose liability if the commodity were released into the environment, andcomply with new public reporting requirements on the nature and extent of theirphysical commodity holdings and activities.

Theproposed rule would also tighten the quantitative limit on how much physicalcommodity trading activity is permissible, remove copper from the list ofprecious metals that all bank holding companies are permitted to own and store,and rescind authorizations that allow firms to engage in physical commodityactivities involving power plants.

The Fed hasopened the floor for public comment on the proposed rule.

Earlierthis month, the OCC proposed a similar rule, which states that national banksand federal savings associations should not deal and invest in metals primarilysuited to industrial or commercial uses.