One concern created by the onset of commodity index funds is that they have distorted the much beloved and heavily used Commodity Futures Trading Commission’s (CFTC) commitment of traders (COT) report. Because many of the fund’s positions are generated in the over-the-counter swaps markets, swaps dealers hedge those positions in the futures. Because they are hedging a cash position those dealers are categorized as commercial. But they are not commercials in the sense that many in the industry view commercials, and that has led to people complaining that the report is distorted.
“The reason I looked at it was I wanted to see what positions the commercials were compared to the large spec and more important the small spec. But when a guy isn’t a spec but he is always long what do you call it and how do you deal with it and what does it mean anyway?” Willis Sr. asks.
This summer the CFTC began a review of the report asking a series of questions regarding the report including: should the CFTC continue to maintain it and whether a new category of “non-traditional commercial” be created.
For the latter, DeCook says yes. “Absolutely, I don’t know why it would be so hard to identify, they’re just hiding. Why can’t they be broken out? Because they are not commercial in the sense that they were with cash grain and they don’t take or make delivery.”
As for the former question, the CFTC may wish they didn’t ask it. Donald H. Heitman, CFTC senior special counsel division of market oversight, says the agency set a record for public comments received of 4,651, the previous record was 1,061. Comments were received from 22 foreign countries. And people were not happy about the prospect of it being eliminated. Heitman notes that the CFTC’s secretariat had to ask him, “Are we required to post comments that have profanity in them?” They are, and they did.
Heitman in testimony before the Commission’s Agriculture Advisory Committee said, “Relax, calm down and take a deep breath. We are not going to stop publishing the COT reports.”
He noted that the vast majority of letters strongly supported continuing the report and also wanted a new category for non-traditional commercials to be created.
Based on that response Heitman says, “It is likely that that is exactly what is going to happen.”
