October 18 letter from CMOC to CFTC concerning speculative position limits
The undersigned organizations write to voice our support for the efforts of the Commodity Futures Trading Commission (CFTC) to implement Speculative Position Limits in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2012 (Pub.L.111-203). We remain committed to the rule’s timely implementation and vigorous enforcement.
The Commodity Markets Oversight Coalition is a non-partisan alliance of organizations that represent commodity-dependent American industries, businesses, end-users and consumers. Our members rely on functional, transparent and competitive commodity derivatives markets as a hedging and price discovery tool. As a coalition we advocate in favor of government policies that promote stability and confidence in the commodities markets; seek to prevent fraud, manipulation and excessive speculation; and preserve the interests of bona fide hedgers and American consumers.
We have long argued that unstable, opaque and unregulated markets and extreme price volatility, disruptive trading and potential fraud and manipulation threaten the welfare of the U.S. economy, harm American consumers and jeopardize the ability of hedgers to guard against price risks. For market-users, excessive speculation only leads to increased hedging costs and diminishes confidence that commodity prices fairly reflect actual supply and demand factors. Speculative bubbles certainly can and do cause financial crises, as was the case in 2007 and 2008, when food prices were at record highs and oil reached $147 per barrel.
For these reasons, our coalition strongly supports the imposition of meaningful speculative position limits across all commodity futures, options and swaps markets as a means to promote market integrity and confidence, to prevent manipulation and as a means to restrain excessive speculation.
We are disappointed that the U.S. District Court vacated the new position limits rule, albeit on narrow grounds, and remanded it back to the CFTC for further consideration. It is noteworthy, however, that the District Court did not question the CFTC’s authority to address excessive speculation. The court merely concluded, wrongly we think, that the statute was ambiguous on the question of whether the agency must set speculative position limits and that the agency failed to address this ambiguity. We believe the court’s reasoning is flawed and that the Congressional mandate to impose position limits was unambiguous for a number of compelling reasons, not the least of which is that Congress required position limits to be imposed “within 180 days” for energy and “within 270 days” for agricultural commodities, and that a study be conducted and presented to Congress on the final rule’s effect on markets.
Putting aside the court’s ruling, we believe there is more than adequate evidence of excessive speculation, and more than adequate evidence that market opacity and excessive speculation have been disruptive to commodity markets and diminished confidence in these markets. In recent years, more than 100 studies, reports and analyses on such findings have been published by academic institutions, central banks, market experts and governmental organizations (online at http://bit.ly/ListStdys). Evidence can also be found in the thousands of businesses and market end-users including many of our member companies that have submitted comment letters to the CFTC in support of position limits and related rules.
We do not believe there is an “ideological and political goal” associated with proposed limits on commodity speculation. First, we point to the non-partisan and non-ideological nature of this coalition and its long-time support for such limits. Second, commodity position limits have enjoyed a long history of bipartisan support. As early as the 110th Congress, nearly 70 House Republicans voted to approve legislation (H.R.6604) that would have established across-the-board position limits and even provided the CFTC with 100 new employees to carry out the its mission. Of these Republicans, 44 still serve in the House of Representatives, including Energy & Commerce Chairman Fred Upton of Michigan and Agriculture Committee Chairman Frank Lucas of Oklahoma.
In the current Congress, during the May 24, 2011 mark up of a bill (H.R.1573) to delay enactment of new derivatives rules under the Dodd-Frank Act, the House Financial Services Committee approved by voice vote and with bipartisan support the Lynch Amendment to exempt measures to address excessive speculation, such as position limits, from the regulatory moratorium. Several prominent House Republicans have also been vocal about the need to address excessive speculation, including Reps. Burgess of Texas, Fortenberry of Nebraska, Gibson of New York, LoBiondo of New Jersey, Jones of North Carolina, Fitzpatrick of Pennsylvania, and Bilbray of California.
In conclusion, we believe that the imposition of speculative position limits is vital for the proper functioning of the commodities markets and that the CFTC’s promulgation and defense of this rule was in keeping with both the intent of the Congress and the interest of American businesses and consumers. While we commend the committee for exercising diligence in overseeing the work of the Commission and ensuring proper use of taxpayer dollars, we believe that the time and resources invested by the CFTC in the position limits rule has been a responsible use of funds.
Thank you in advance for your consideration. If you would like to meet to discuss these issues further, please contact coalition co-chairmen Jim Collura or Sherri Stone.