CFTC Chairman Gensler’s comments on position limits

Opening Statement of Gary Gensler, Meeting of the Commodity Futures Trading Commission

Good morning. This meeting will come to order. This is a public meeting of the Commodity Futures Trading Commission to consider issuance of proposed rulemakings under the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding:

  • Position limits for physical commodity derivatives, which is the pending business before the Commission; and
  • •Swap trading relationship documentation requirements for swap dealers and major swap participants.

Before we hear from the staff, I’d like to wish everyone a happy new year. I’d also like to take this opportunity to congratulate Commissioner Mike Dunn on his 25 years of service to the Federal Government. Mike is a trusted colleague who works incredibly hard in service to the American public at the CFTC. He also has served at the Farm Credit Administration, Department of Agriculture and the Senate Agriculture Committee under Senator Patrick Leahy’s chairmanship. He has been nominated by presidents from both parties and confirmed by the U.S. Senate six times for roles in the government. I am honored to work with Mike and to call him my friend.

I thank Commissioner Dunn as well as Commissioners Jill Sommers, Bart Chilton and Scott O’Malia for all their thoughtful work to implement the Dodd-Frank Act.

I’d also like to take a personal moment to honor my wife on her birthday. We lost Francesca nearly five years ago, and our three daughters and I miss her very much. Francesca was a beautiful woman with an incredible sense of style and grace. She is no longer physically with us, but my thoughts and love are with her on her birthday.

Now I will return to the business of today’s meeting. I’d like to welcome members of the public, market participants and members of the media to today’s meeting, as well as welcome those listening to the meeting on the phone or watching the live webcast. This is the ninth public meeting to consider Dodd-Frank rulemakings. Our next meeting will be on January 20, and we will schedule additional meetings in February. We will announce the rulemakings that the Commission will consider at least one week before those meetings.

The staff has worked very hard on the rulemakings that the Commission is considering today. They will present thoughtful recommendations for how the Commission can best comply with its statutory obligations under the Dodd-Frank Act.

We look forward to receiving public comments on all of the proposed rules we are considering today. Each of the rules, as well as fact sheets and “Questions and Answers” on the rules, will be posted to our website shortly.

Before I turn to my fellow commissioners for opening statements, I would like to wish everyone a joyous holiday and happy New Year.

Statements for the record on each rule:

Position Limits

I support the proposed rulemaking to establish position limits for physical commodity derivatives. The CFTC does not set or regulate prices. Rather, the Commission is directed to ensure that commodity markets are fair and orderly to protect the American public.

When the CFTC set position limits in the past, the agency sought to ensure that the markets were made up of a broad group of market participants with a diversity of views. At the core of our obligations is promoting market integrity, which the agency has historically interpreted to include ensuring markets do not become too concentrated.

Position limits help to protect the markets both in times of clear skies and when there is a storm on the horizon. In 1981, the Commission said that “the capacity of any contract market to absorb the establishment and liquidation of large speculative positions in an orderly manner is related to the relative size of such positions, i.e., the capacity of the market is not unlimited.”

Today’s proposal would implement important new authorities in the Dodd-Frank Act to prevent excessive speculation and manipulation in the derivatives markets. The Dodd-Frank Act expanded the scope of the Commission’s mandate to set position limits to include certain swaps. The proposal re-establishes position limits in agriculture, energy and metals markets. It includes one position limits regime for the spot month and another regime for single-month and all-months combined limits. It would implement spot-month limits, which are currently set in agriculture, energy and metals markets, sooner than the single-month or all-months-combined limits. Single-month and all-months-combined limits, which currently are only set for certain agricultural contracts, would be re-established in the energy and metals markets and be extended to certain swaps. These limits will be set using the formula proposed today based upon data on the total size of the swaps and futures market collected through the position reporting rule the Commission hopes to finalize early next year. It is only with the passage and implementation of the Dodd-Frank Act that the Commission will have broad authority to collect data in the swaps market.

It will be some time before position limits for single-month and all-months-combined can be fully implemented. In the interim, if a trader has a position that is above a level of 10 and 2 ½ percent of futures and options on futures open interest in the 28 contracts for which the Commission is proposing position limits, I have directed staff to collect information, including using special call authority when appropriate, to monitor these large positions. Staff will brief the Commission and make any appropriate recommendations based upon existing authorities for the Commission’s consideration during its closed surveillance meetings at least monthly on what staff finds.

Collecting this data relating to large traders with positions in the futures markets above such levels or points of 10 and 2 ½ percent would give the Commission a better look into the market and help us identify potential concerns. For example, if a trader does not have a bona fide hedge exemption, we can look into the details of its position and its intentions. It may also give us additional information as to how the position limits in the proposed rulemaking would affect traders in these markets.

These levels, or points, are the positions at which CFTC staff will brief the Commission under its existing authorities. They would not be a substitute for current position limits or accountability levels, and they should not be interpreted to be a level that will automatically trigger any additional regulatory action.

Swap Trading Relationship Documentation Requirements for Swap Dealers and Major Swap Participants

I support the proposed rulemaking that establishes swap trading relationship documentation requirements for swap dealers and major swap participants. The proposed regulations are consistent with the express mandate of the Dodd-Frank Act to prescribe standards for the timely and accurate confirmation, processing, netting, documentation and valuation of swap transactions. One of the primary goals of the Dodd-Frank Act was to establish a comprehensive regulatory framework that would reduce risk, increase transparency and promote market integrity within the financial system. The proposed regulations accomplish this objective by establishing procedures that will promote legal certainty regarding terms of swap transactions, early resolutions of valuation disputes, enhanced understanding of one counterparty’s risk exposure to another, reduced operational risk and increased operational efficiency. One of the key chapters from the 2008 financial crisis was when large financial players, including AIG, had valuation disputes and other problems regarding documentation standards. These rules will directly address many of these issues, highlighting issues for senior management and regulators earlier and lowering risk to the public.

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