CFTC commissioner speaks out against position limits

Statement Regarding Position Limits and Interim Position Points

Commissioner Bart Chilton

January 4, 2011

I have been reluctant to support the Commission’s issuance of a position limit proposal because what has been proposed so far has not met the congressionally mandated implementation schedule. I have been clear about this and have stated that since there is not support on the Commission to implement position limits on time, we should institute an interim position "points" system.

To be clear, speculative position points are not speculative position limits. Limits would be hard and fast levels. The Commission would mandate traders adhere to position limits. On the other hand, interim position points would serve first as a flag for us to obtain further data. Second, they would allow for a determination of the size of a trader’s net position. If a trader's net position is in excess of a speculative position point, we could use that information to make a determination as to what, if any, course of action to take, just as we do now with market surveillance information. We could do nothing, or we could urge the trader to reduce trading positions. In addition, the Commission has other authorities that could, following an affirmative vote by the Commission, be used to ensure that a trader does not exceed the position point—but that, again, would require additional action by the full Commission. Not less than monthly, staff will brief Commissioners on those traders who exceed position points.

Let me reiterate: position points are not position limits. Only with the implementation of an additional position limit rule as directed by Congress will actual limits be put in place. Since the time of our last public meeting on December 16th, however, I have been convinced that the interim position point system is, unfortunately, the best the agency can do at this time, given the lack of Commission support for moving forward on actual position limits now.

Therefore, while I cannot prejudge what or when the Commission will do regarding position limits, it is my intent to move the process forward with the Chairman's concurrence to adopt the interim position points approach despite what I consider flaws in the position limits proposal.

While I will now support publishing a position limit proposal for public comment, I will continue to make the case that we need to address excessive speculation in these markets immediately. We already have more speculative positions in the commodities markets than ever before. There are some who suggest that certain commodity prices are currently delinked from supply and demand fundamentals, and are being impacted by excessive speculation. The delayed implementation in the Commission proposal exacerbates this already troubling set of circumstances.

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