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May 28, 2020

CFTC Still Has Work to do on Position Limits

Better Markets submitted a comment letter earlier this month to the Commodity Futures Trading Commission (CFTC) in response to its proposal to set position limits in derivatives markets for 25 commodities.

The CFTC proposal caps the number of contracts that an individual can acquire. Limiting the number of contracts per individual investor is meant to prevent unjustified price swings in the market that could hurt consumers.

Better Markets’ comment letter was one of 65 submitted in response to the CFTC’s position limits proposal, which has been proposed and re-proposed five times since the passage of the Dodd-Frank Act in 2010. The proposal is designed to conform to the Commodity Exchange Act amendments of Dodd-Frank, which require a new regulatory framework for swaps and security-based swaps.

In the 66-page comment letter, Joe Cisewski, Senior Derivatives Consultant and Special Counsel, wrote that while Better Markets supports the CFTC’s attention to public interest concerns, the proposal still has specific policy and legal issues that must be fixed before being finalized.

The comment letter further states: “There are elements of the CFTC’s proposal that have merit, and some would represent significant progress in implementing a federal position limits framework. However, the CFTC’s fifth proposal in ten years continues to suffer from significant legal and policy deficiencies that must be remedied before finalization.”

Cisewski says the recent 27 percent drop in WTI oil prices is an example of the need for a stronger proposal on position limits.

“This is only further evidenced by the sharp drop in spot month oil futures prices earlier yesterday, which apparently was largely a result of an exchange order that USO perform an early, multi-day roll of its massive oil futures positions to later months along the futures curve. This is, again, a risk of such a concentrated speculative position, as we explicitly mentioned in our press release last week, and not the hallmark of a market ‘working to perfection.’ 

In short, Better Markets believes that the potential for implementing position limits that do not actually limit speculation remains too great.

Read the full comment letter.



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