The Commodity Futures Trading Commission made clear today that it intends to follow through on its promises to strictly enforce speculative position limits in futures markets. The agency withdrew two no-action letters that provided relief from position limits on corn, soybean and wheat contracts. The no-action letters, both from 2006, allowed a unit of Deutsche Bank, DB Commodity Services (through its DB Commodity Index Tracking Master Fund), and an unnamed CPO/CTA to take positions that exceeded federal speculative position limits. A person familiar with the matter says this is the first time a no-action letter had been withdrawn from DB. And a CFTC spokesperson told the Financial Times that this was the first time the commission has revoked a position limit exemption.
Hearings last month at the CFTC focused on the current application of position limits and exemptions from position limits in energy markets. And in June, CFTC Chairman Gary Gensler said the agency would “carefully consider” a report by Sen. Carl Levin stating many of the wheat futures contracts purchased and held by commodity index traders on CME Group over the last five years constituted excessive specualtion. Levin’s report recommended the CFTC impose stricter position limits on wheat for index traders.
Today’s actions by the CFTC could be just the beginning of a crackdown on position limits, past and present.
For more on the CFTC’s position limit hearings, check out the September issue of Futures magazine, online Aug. 25.
Tags: CFTC, position limits, speculation, speculators
Is there a perception that some endeavors are “worthy” of hedging but others are not? For example, that planting corn deserves to be hedged with corn futures but tracking an index of corn prices does not? That drilling for oil justifies hedging in WTI futures but writing oil swaps or managing an oil ETF does not? If dealing in “financial instruments” is a disqualification, we must stop all those mutual funds and pension plans from hedging with S&P 500 futures, and all those dealers in Treasuries from using Govvie futures.
These sorts of government machinations to manipulate prices never work. If anything, they drive prices higher through capital flight that sinks the dollar, dries up liquidity, and creates shortages of basic commodities. What better way to empower large market participants and increase their market leverage, than to shrink the liquidity pool, transforming them from blue whales in an ocean of liquidity, into blue whales in a small fish pond that can throw their weight around. Goldman Sachs must be jumping for joy! Is it any wonder that such regulations would come from the GS partner who now heads the CFTC?
Note that prices for ALL these commodities (ag and energy) are HIGHER than before these changes were announced! This is no coincidence! So much for reigning in high prices!
Funny thing! I didn’t know Hugo Chavez had moved to America!