We may soon see if Goldman Sachs Group Inc.’s (Nasdaq: GS) argument that government attempts to curb energy market speculation will have unwanted consequences.

All signs point to the CFTC putting in trade position limits by the fall; and those unwanted consequences may affect exchanges and the government as much if not more than the trading firms.

It does not seem to matter that Goldman has friends in high places — the head of the Commodity Futures Trading Commission that’s hosting the hearing on position limits  today in Washington worked at Goldman for nearly two decades.

There appers to be a groundswell of support for legislation designed to curb excessive energy speculation, after oil rose above $147 a barrel last year. It’s taken Congress more than a year to decide exactly how it wanted to react, but Uncle Sam now appears ready to make a move.

Goldman’s bankers and others were invited this week to Washington to air their views on the subject. But it looks like the decision to institute position limits is all but made.

Case in point, The New York Mercantile Exchange already is falling in line with limits it expects will be in place by September. Natural gas contract limits will be effective with the October expiration. The changes are in anticipation of new CFTC regulations it sees coming down the pike.

The other exchanges may soon follow the Merc’s lead.

Critics charge that position limits are federally instituted market  manipulation — not anti-manipulation. After all, is it not up to the market to set the price for commodities?

But there is precedent here. Several agricultural commodity markets have had position limits in place for years. If anything, it looks like the CFTCis trying to apply the rules evenly, making position limits apply to all markets and trading platforms.

Goldman has not complained nearly as loudly about commodity position limits, since it and Morgan Stanley are by far the banks that stand to make the most money on commodity trading. They have as much as half the total exposure the top 10 banks have in the business.

Goldman, of course, never says how much of its revenue comes from commodities. But make no mistake, that is at the heart of their appeal. The firm that has spent a generation building upon its commodity trading expertise is adamantly opposed to rule changes that might hamper its ability to maneuver in the trading pits.

It’s a legitimate complaint.

And it’s one that appears to be falling on deaf ears.

If indeed position limits indeed are a matter of when vs. if, it will be interesting to watch the strain it puts on not only traders, but the exchanges and the government itself.

Remember, it will be impossible to tell exactly to what degree the changes may affect Goldman’s bottom line.

The battle to watch, therefore, will be how the exchanges will pull off the monitoring, if the new rules affect trading volumes and liquidity at extremes, and if the  government really has the resources available to effectively enforce the limits it is proposing.

Mike Tarsala

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