IMHO the CFTC commissioners might get something in their Christmas Stockings that is probably not a lump of coal. Following from Reuters today.

* CFTC (1586.TWO - news) to delay vote on position limits

* Gensler says rules need a little more time to complete

* Commissioner O'Malia says rules have flaws, are complex

* CFTC heeded objections of some big Wall Street players (Recasts, adds comment by Gensler in para 3)

WASHINGTON, Dec 16 (Reuters) - The U.S. futures regulator on Thursday unexpectedly held off on moving forward with its most aggressive measures yet to prevent speculators from distorting commodity markets, with its chief saying the agency needed more time to develop the controversial proposals.

A draft rule on position limits put forward by the Commodity Futures Trading Commission's staff showed the agency had softened some key provions after criticism from Wall Street and big traders since January, when it first put forward a plan to cap the influx of investor capital that some blamed for driving oil and grain prices to record highs in 2008.

But CFTC Chairman Gary Gensler, who initially said he supported the proposal, surprised a hearing into the new rules by announcing that he would delay voting on whether or not to put the package out for a 60-day public comment period. A separate vote would still be required to approve the rules.

He said the commission would take it up again when it was "ready," but he offered no timeline on when it will complete the complex plan. A majority of commissioners had earlier indicated they would support the procedural vote.

The limits would restrict the number of swaps and futures contracts that speculators can hold in energy, metals and agricultural derivative markets, which could affect nearly 80 agricultural traders and dozens of metals and energy players.

The proposal was part of efforts to boost oversight of the $600 trillion global over-the-counter derivatives market required under the Dodd-Frank bill passed by the U.S. Congress in July, which has expanded the CFTC's mandate but also complicated its work.

It has already been forced to slow the timeline. As expected, the proposal set out general formulas for calculating the limits and applying those to the spot month contract, but it suggested waiting until the agency has more data on the opaque swaps market before expanding that to all months.

Thursday's hearing would have released the rules for 60 days of public comment.

The rules would likely have offered some relief for companies such as Goldman Sachs (NYSE: GS - news) and Royal Dutch Shell that argued overly strict rules could reduce market liquidity, elevate volatility and make the markets more risky.

"This is the CFTC trying to stick to the letter of the law ... but at the same time ease their way into the rulemaking process with the market, recognizing that the markets are kind of jittery about whatever comes down the line," said Chad Hart, an agricultural economist at Iowa State University.

NARROWS HEDGING DEFINITION, DROPS 'CROWDING OUT'

Compared to the previous proposal in January, which applied only to energy markets, the new rules attempted to draw a clearer line between financial players who have flooded commodity markets with over $350 billion over the past decade, and the traditional traders who often take large positions to hedge their own -- or customers' -- physical trading.

"The truly inane aspects of the previous proposal, e.g. crowding out and the limited risk management exemption, have been jettisoned," said Craig Pirrong, a finance professor at the University of Houston.

"So the main sticking point now is the narrow bona fide hedge exemption."

Under the proposed rules, the big banks can now claim an "unlimited bona fide hedge exemption" -- allowing them to engage in hedging on behalf of big producers or raw material customers without counting against their own limits.

This replaced a more limited risk management exemption proposed in January.

But trades to offset swap deals with speculators or investors would still be subject to the limits, and the CFTC narrowed the bona fide hedger definition, seeking to limit it only to those who have a legitimate physical business.

The biggest change was the removal of a "crowding out" provision that would have made it hard for any company to run both speculative and hedging books. This had drawn widespread criticism and was generally expected to be removed.

The CFTC also appeared to relax a provision on aggregation, which requires companies to combine positions across any firms in which they own more than 10 percent. It said a firm may be allowed to exclude those positions if the investment is passive and the stakeholder does not participate in management.

While Gensler said the plan "would ensure sufficient market liquidity", commissioners Scott O'Malia and Jill Sommers voiced worries about its pace and a perceived lack of information about the proposals. Republican O'Malia said it "still suffers from significant flaws in its complexity".

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