FIA has submitted comments urging the Commodity Futures Trading Commission (CFTC) to assess whether position limits are needed and to expand exemptions for hedging activities before setting any new federal position limits.
The position limits re-proposal, which would establish speculative position limits for 25 exempt and agricultural commodity futures and option contracts, and physical commodity swaps that are ‘‘economically equivalent’’ to such contracts, contains changes made in response to comments from FIA and other market participants. FIA supports many of these changes and appreciates the Commission’s work to improve the rule. Nevertheless, FIA believes fundamental problems remain and has urged the CFTC to withdraw the current proposal and study the threshold question of whether excess speculation exists, and thus whether position limits are necessary.
“End-users like farmers, manufacturers, and construction companies rely on the risk management tools provided by derivatives markets,” said Walt Lukken, president and CEO of FIA. “It’s vital that we don’t put in place policies that will impede hedging. Before moving forward, the Commission has a legislative requirement to define when speculation becomes excessive and demonstrate that this speculation has an undue effect on prices. Instead, this re-proposal attempts to prevent any speculation that may be occurring in the guise of bona fide hedging. The result is a rule that too narrowly defines bona fide hedging and threatens to limit critical risk management activities by commercial businesses.”
FIA emphasized that the rule should include more enumerated bona fide hedges and more flexibility for hedging activities generally. Additionally, FIA noted that the rule significantly underestimates the costs of the proposed reporting forms, which could be replaced by less burdensome but equally effective reporting mechanisms.
The letter further noted that, should the CFTC move forward on this rule, it must provide sufficient time for firms to implement monitoring systems and internal policies to comply with the new federal regime. FIA also requested that the CFTC phase in limits, with spot-month limits first, and then establish accountability levels in lieu of hard limits on non-spot-month contracts only after determining that restrictions on outer-month contracts are necessary.