Poisoning the well

Just two days before a public meeting at the Commodity Futures Trading Commission (CFTC) to “examine the trading of futures and options in the precious and base metals markets,” one CFTC Commissioner is not waiting to hear what the industry players have to say before coming to a conclusion on policy. CFTC Commissioner Bart Chilton in an interview with Kitco News said, “I have called Congress to amend our statute to give us the tools we need to deter, detect, and prosecute behavior that harms the pricing functionality of markets.”

Chilton went on to say, “We need to have a law that provides us with the professional grade regulatory tools to do our job and put folks in jail who try to rig and contort these markets.” 

Thursday’s CFTC public meeting will attempt to answer numerous questions including, “Could and should speculative positions limits be applied consistently across all metals derivatives markets and participants…?

I wonder what the 14 industry experts set to provide testimony at the hearing think about some of the conclusions Commissioner Chilton seems to have arrived at. To be fair this is an issue that has been discussed at length for the last two years but I would be a little concerned over such a preemptive strike. Why bother having someone fly to Washington  to give testimony if you have already come to some conclusion on what policy direction to follow?

It isn’t the first time that Chilton appeared to have jumped the gun. Chilton was quoted in a Wall Street Journal story this summer refuting a study put out by the CFTC the previous fall following the energy spike of 2008. The study indicated that speculators where not responsible for the spike in crude oil prices and Chilton called that study flawed.

The story stated that the CFTC would soon release a new report on the spike that indicated that speculators indeed played a role in the price spike. Chairman Genlser refuted the story as being simply being wrong and there was no specific study by the CFTC on the crisis released, though subsequent disaggregated reports have failed to show any relationship between the price spike and speculators. In fact, the report shows long open interest dropping as crude oil rallied from $75 to $147.

The comments and timing of the story ,then and now, seemed to be bad form and bad timing. With the CFTC bringing together so many industry experts for a public hearing, it seems, to us,  to be bad form for a Commissioner to be poisoning the well. Perhaps Commissioner Chilton’s time would be better spent formulating questions to ask his guests.

About the Author
Daniel P. Collins

Editor-in-Chief of Futures Magazine, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures in 2001 and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.

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