Dodd-Frank Timeline, Position Limits for Derivatives
| Interim and Final Rule
|| VACATED BY COURT ORDER
|| Re-proposed Rule Issue
|| Comment Deadline (reopened July 3, 2014)
| November 18, 2011
|| September 28, 2012
|| November 5, 2013
|| August 4, 2014
Hearings and testimony addressing position limits regulation.
On November 3, 2011, the U.S. Senate Committee of Homeland Security & Governmental Affairs Permanent Subcommittee on Investigations held a hearing on Excessive Speculation and Compliance with the Dodd-Frank Act. Panelists included:
Paul N. Cicio, President, Industrial Energy Consumers of America, whose statements included:
- "As an asset class investment, the retail investor doesn’t really care about the supply or demand of the underlying commodity. Their priority is that they have made an investment in an area that diversifies their investment assets. And, when they invest in these passive index funds, the fund rolls the current month position to the next month without any regard to the price of the commodity. They are completely insensitive to price."
- Regarding commodity ETFs, "Passive speculators should be banned from the futures market."
Tyson T. Slocum, Director - Energy Program, Public Citizen,
Wallace C. Turbeville, Derivatives Specialist,, whose statements included:
- "Speculation has increased dramatically in the commodity derivatives markets and is excessive. This has caused not only greater price volatility, but has also increased absolute commodities prices in both the futures and physical markets."
- "The CFTC's Final Rule on position limits has several important features and is a good first step, but it must be strengthened in the future if the commodity markets are to serve their dual intended functions of price discovery based on actual supply and demand for the underlying commodities and providing a mechanism for correspondingly appropriate hedging by commercial producers and purchasers."
- "Commonly used tactics and trading methodologies of high-frequency and algorithmic trading already disrupt and degrade the price discovery functions of the commodity markets."
- "Commodity index funds have disrupted the commodities futures and physical markets in ways that distort price discovery and increase commodities markets."
Gary G. Gensler, Chairman, Commodity Futures Trading Commission, whose prepared statement offered a summary of Dodd-Frank-related rulemakings.
In advance of the issuance of proposed rules on position limits, the CFTC met with several key industry players, in order to more fully understand the how the implementation of position limits will affect the various market participants. In September 2010, the commission met with Goldman Sachs Group. Below is an excerpt from the meeting -- a summary of the issues on which the commission should focus as it drafts the position limits proposal:
- Aggregate limits
- Excessive speculation mandate
- Netting of contracts having comparable underlying risk in order to ensure liquidity and price discovery
- Focus should be on spot month where squeezes, corners are risk
- Swap Dealer Hedge Exemptions:
- Reduced reliance on swap hedge exemption in light of reduced scope and manner in which dealers manage operations
- Risks in Rulemaking
- More expensive execution for customers
- Aberrations; movement of open interest
- Other considerations
- “Crowding out”
- Account controller aggregation
Public Meeting to Examine Futures and Options Trading in the Metals Markets - March 25, 2010
Part IV of the public meeting featured:
- John J. Lothian, president and CEO of John J. Lothian & Co. and founder of MarketsWiki
- Thomas Callahan of NYSE LIFFE US
- Dr. Henry Jarecki, chairman, Gresham Investment Management
Commodity Futures Trading Commission Hearing on Energy Position Limits and Hedge Exemptions - July 28, 2009
Testimony of Congressman Bart Stupak U.S. House of Representatives
- The driving factor contributing to an increase in the price of oil this year was the surge of funding from index investors back into the oil markets.
- According to an independent analysis of CFTC data on oil futures positions, index investors increased their crude-oil holdings to the equivalent of more than 600 million barrels in June, up more than 30 percent from the end of 2008.
CFTC Hearing on Price Discovery, Position Limits and Hedge Exemptions - August 5, 2009
Written Testimony of Mark D. Young, Kirkland & Ellis LLP on behalf of the Futures Industry Association
First, under current law, if the Commission decides to set new position limits for energy or other commodities of finite supply, it should do so in a manner that will not compromise price discovery and the other public interests served by futures markets or cripple competitively U.S. futures exchanges and firms. Position limits no matter how well meaning create real market migration risk and pushing price discovery of agricultural, energy or metals markets to overseas or other trading venues would be contrary to the purposes of the Act.