If you thought the City of London had pushed Wall Street off its pedestal, you failed to reckon on the might of the CFTC. The US commodities and futures market regulator has just squashed the FSA, imposing a series of new rules on London trading in oil futures contracts without the approval of the British authority.

Many Americans are convinced that the crude oil market is being manipulated. There is no specific evidence to support this belief, just very high levels of futures trading activity, which could be a consequence of high oil prices as much as a cause of the escalating price per barrel.

Nevertheless, in some celluloid fantasy world inhabited only by people who work on Capitol Hill, a band of renegade financiers, possibly acting on behalf of Islamist extremists, is operating out of London, bidding up the price of West Texas Intermediate (WTI), the benchmark crude oil traded on New York's Nymex exchange.

This feverish imagining is putting pressure on US market regulators because WTI futures are traded in London as well as New York. America imposes stiff reporting requirements on traders in WTI futures and, more importantly, limits the number of contracts that traders can hold. But the Americans have noticed that WTI is also traded in that cesspit of financial racketeering: London.

Until now, everyone assumed that the City of London was beyond the reach of America's earnest regulators. Indeed, when the New York Stock Exchange was casting a lascivious eye on the London Stock Exchange, the Government passed laws to keep the SEC and the DoJ prosecutors from treading on the green playing fields of England.

The privet hedge has been breached and a pack of American regulators in polyester suits and brown shoes are ruining the lawn and trampling the flower beds. Inside the marquee, the ladies and gentlemen of the FSA are staring glumly into their glasses of Pimm's, wondering what to do. They dare not look at the mess outside. If we pretend to ignore them, perhaps they will go away, thinks the FSA. The CFTC yesterday imposed rules and restrictions over trading in WTI futures on ICE Europe, an American company that owns London's oil futures exchange. ICE has little choice but to comply if it doesn't want to be buried by the CFTC. It is getting little support from the FSA, which yesterday had no coherent response to the CFTC's move.

This is not the way to deal with the American tanks. The US rules may be good ones, but we don't know. New financial markets are emerging in the Gulf, including oil trading exchanges. If we fail to get this right, the oil market will move East and not even those senators on Capitol Hill will be able to stop it.

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