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The CFTC’s Proposed Position Limits would Not Stop Excessive Speculation but would Raise Costs on American Families, Farmers and Producers

Wednesday, May 27, 2020
Contact: Pamela Russell at 202-618-6433 or prussell@bettermarkets.com
Washington, D.C.  –  Joseph R. Cisewski, Senior Derivatives Consultant and Special Counsel for Better Markets, issued the following statement with respect to the Commodity Futures Trading Commission’s (CFTC) proposed speculative position limits framework:
“In simple terms, position limits are restrictions on excessive speculation in the derivatives markets. They are precautionary measures that prevent purely speculative traders from accumulating concentrated positions that enable manipulation and other disruptions or distortions to markets for critical commodities, like cereal, bread, gas, oil, and many household products. Position limits are among the CFTC’s most important regulatory tools for limiting predatory price swings in derivatives markets, which adversely impact America’s consumers, families, farmers and producers.
“For the fifth time in 10 years, the CFTC has proposed a regulatory framework for position limits. Although aspects of the proposal have merit, the newest position limits framework suffers from numerous fatal legal and policy deficiencies that would permit—if not encourage—excessive speculation on agricultural, energy, and metals commodities priced by reference to the derivatives markets as we detailed in our comment letter here and our fact sheet here. That would be great for speculators but terrible for Main Street families.
“The latest proposal is flawed in three fundamental respects. First, in many cases, it would institute or permit position limits that would be so high, or so narrowly applied, that they would fail to prevent excessive speculation outside of the most egregious and patently unlawful cases of manipulation. Second, it would fail to address disruptive speculation caused by exchange-traded funds and similar vehicles designed to provide passive speculative exposures to commodities prices. That is particularly concerning because April oil markets anomalies demonstrate an obvious need for such limits (as explained in our comment letter here and as discussed in our previous press release here), and because Congress explicitly amended the Commodity Exchange Act to authorize limits on any ‘group or class of traders.’ 
“Finally, the proposal delegates too many of the CFTC’s critical duties and authorities to protect the public interest to a handful of for-profit exchanges. Those exchanges would be asked to consider, if not prioritize, shareholder interests at the same time that they would be charged with protecting the public by preventing excessive speculation. However, limiting speculation is tantamount to limiting trading, which reduces key revenues for these for-profit exchanges. The CFTC therefore has constructed a position limits proposal too dependent on exchanges with built-in conflicts of interest and strong incentives to protect their profits over the public interest. No proposal built on that foundation can be expected to be effective.
“For these reasons, among others, the CFTC’s position limits proposal would do far too little to limit excessive speculation. The ultimate harm will be to working Americans already struggling through the deepest economic crisis in generations. They will be left with a higher bill for everything from the groceries feeding their families to the gas fueling their cars and trucks. Worse, this de facto ‘speculative tax’  will be hidden from these families by an opaque trading system and, in essence, enrich speculators in the financial markets serving minimal, if any, socially useful purpose.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.  

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