CFTC Chief Rejects Calls to Set Aside Trading Caps

by Jonathan Adams

It didn’t take long for the top U.S. commodities regulator to shoot down fresh calls for his agency to abandon a much-debated, long-delayed rule designed to curb bets on oil, gold, sugar and other commodities.

Commodity Futures Trading Commission Chairman Timothy Massad rejected a CFTC advisory panel’s push, hours after the group—largely industry executives—warned that new trading restraints are economically unjustified and would harm markets.

“It strikes me a bit like saying you’re against speed limits because they may make you late for work,” Mr. Massad said, speaking at the conclusion of the advisory panel’s meeting at the CFTC.

“If there’s a speed limit of 10 miles an hour on Interstate 95, yeah, that would be highly inefficient and it would discourage people from using the highway,” he said. But having no speed limit would put people at risk, he added.

The comments came hours after the panel issued a report calling on the agency to rewrite its plan, with “substantial changes.”

The rules stem from the 2010 Dodd-Frank regulatory overhaul that gave the CFTC new authority to extend trading restraints, or position limits, to 28 contracts covering commodities such as natural gas and silver. Agricultural and livestock commodities have long had limits on speculation.

The agency first issued the rules in 2011 and offered a proposed revision in 2013 after a federal court rejected the initial plan on the grounds that the language in the Dodd-Frank law was ambiguous as to whether the limits were mandatory and that regulators didn’t properly justify them.

The second time around, the agency took steps to buttress their legal justification. Specifically, the CFTC cited the alleged cornering of the silver market by the Hunt brothers of Texas in 1979 and 1980, as well as the more-recent alleged manipulation of the natural-gas markets by now-defunct hedge fund Amaranth Advisors LLC.

Progress in completing the restrictions has been slow. Mr. Massad has said repeatedly the agency is taking its time to best calibrate the rules.

On Thursday, the agency’s Energy and Environmental Markets Advisory Committee released a 14-page report concluding that the costs of carrying out the proposal outweigh their benefits.

The panel’s membership includes representatives of Morgan Stanley, industry groups such as the Edison Electric Institute and futures exchange CME Group Inc. The panel’s sponsor, J. Christopher Giancarlo, the CFTC’s sole Republican member, commissioned the report.

The vote to release the report was 8-1, with Tyson Slocum, director of Public Citizen’s energy program, the sole dissenter. In a public statement, Mr. Slocum said the report was “weighted in favor of interests that may have a predisposition to opposing the concept of position limits.”

The report drew condemnations from Democratic lawmakers on Capitol Hill. Sen. Elizabeth Warren (D., Mass.) called on Mr. Giancarlo in a letter to withdraw the report, citing “significant procedural irregularities” with it and criticizing the membership of the panel, which she said deviated from legal requirements it include diverse viewpoints.

Mr. Giancarlo, speaking at Thursday’s meeting, said the report was merely an attempt to characterize discussions at two of the advisory panel’s meetings last year. He rejected criticism of the panel’s composition, saying CFTC members signed off on the individual members.

A spokesman for Mr. Giancarlo had no immediate comment on Ms. Warren’s letter.

House Agriculture Committee Chairman Mike Conaway (R., Texas) said CFTC leadership should respond to the “real, substantive concerns” expressed in the report.

“While the report may be critical of the proposed position limits rule-making, it is important that it is not simply dismissed out of hand because the conclusions it reached are inconvenient,” he said in a written statement.

This article is for information purposes only.
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