Several other like-minded members of Congress have expressed the same opinion but it is not universal.
More dicey is the treatment of index investors. The change in the hedge exemption could make life difficult for them. In a letter to the agency sent while she was still Chairman of the Senate Ag Committee, Senator Blanche Lincoln talks specifically about not limiting index investors:
"I urge the CFTC not to unnecessarily disadvantage market participants that invest in diversified and unleveraged commodity indexes. ...diversifed, unleveraged index funds are an effective way to diversify their portfolios and hedge against inflation. Unnecessary position limits placed on mutual fund investors could limit their investment options, potentially substantially reduce market liquidity, and impede price discovery."
The difference of opinion in Congress is mirrored at the CFTC. While only one commissioner, Jill Somers, voted against putting the proposal out for comment, Commissioners Scott O’Malia and Michael Dunn expressed reservations.
While addressing the Futures Industry in March, Chairman Gensler acknowledged that some Dodd-Frank rules would be late and bucketed the myriad rules into three phases of implementation: early, middle and late. Duffy recalled this in his recent Congressional testimony and recommended the Commission save position limits for last.
The odd and perhaps dangerous part of the debate over spec limits is that those opposing and supporting it are operating under diametrically divergent realities. Those demanding tight limits believe with an exacting level of surety that speculators are distorting the market, and by some manner of restraining their activity prices would fall, despite the fact that there is no clear evidence to support that position, either in its diagnosis or in its prescription. Those opposing limits see no link or too weak of a link to take action and note that often in such cases the prescribed remedy will exacerbate further the problem it meant to address, as has been the case in the past.
And there is a third camp of folks who believe speculators, long-only funds in particular, probably are affecting price but believe any regulatory fix only would add to the problem.
The Commission has received nearly 12,000 comments, many of which are calling for tight limits but appear to be form letters generated from one source. In fact, a large portion of these letters focus on one commodity, silver, and appear to be generated by a theory making its way through metals-centered websites that a large banking institution, with the help of regulators, is manipulating the price of silver lower, not higher.
The position limit proposal does not go nearly far enough for many of those who believe speculators are manipulating price, which may make it seem — when compared to industry resistance — like the Commission struck the right balance, but its characteristics particularly regarding aggregation rules are extremely complex and will add costs. But the larger issue is that it purports to be a solution to a problem that may not necessarily exist.
Dunn noted at a public hearing on Jan.13 that the CFTC has a mandate to set position limits but added,
"To date, CFTC staff has been unable to find any reliable economic analysis to support either the contention that excessive speculation is affecting the markets we regulate or that position limits will prevent excessive speculation. The task then is for the CFTC staff to determine whether position limits are appropriate. With such a lack of concrete economic evidence, my fear is that, at best, position limits are a cure for a disease that does not exist or at worst, a placebo for one that does."
Twelve thousand comment letters later not much has changed.