Every person and business in American buys and needs commodities like oil and wheat. Commodity prices are supposed to be set by supply and demand, but Wall Street speculators at the biggest banks also trade commodities in financial markets and have a dramatic effect on those prices. In the financial reform law, Congress directed the commodity market cops, the CFTC, to enact a rule to reduce the speculation running wild in too many commodity markets and needlessly driving up prices for American families and businesses. Unfortunately, the proposed rule is seriously inadequate and simply will not reduce excessive speculation, as detailed in a comment letter filed by Better Markets.

 

The proposed rule sets the speculative limits too high to prevent Wall Street from running up the prices of oil, wheat and other basic commodities. The rule is also too narrow because it does not capture all the types of traders that speculate. It also targets market manipulation, as it should, but then it fails to address or limit excessive speculation, which Congress required it to do. Worst of all, the proposed rule does not apply to some of the biggest culprits contributing to excessive speculation in the first place: Commodity Index Funds. This is an abdication of responsibility by the CFTC.

 

When the CFTC finalizes its proposed rule, it must apply position limits to commodity index funds specifically; set position limits at a low enough level to combat excessive speculation in addition to manipulation; remove loopholes for big financial players; and regularly adjust the limits every six months, or sooner, to reflect market conditions and new market data.

 

Position limits are one of the most important tools at the CFTC’s disposal to protect markets, consumers and businesses. It must take these limits seriously and design an effective, comprehensive regime to limit all kinds of excessive speculation in the commodity markets to promote economic growth and protect American households and businesses.