Position limits deluge continues

Group bombards CFTC with comments on Dodd-Frank position limits; final rule delay expected; quantity unlikely to trump quality says expert

The supporters of Stop Oil Speculation (SOS) Now have sent nearly 6,000 emails to the US Commodity Futures Trading Commission (CFTC), voicing support for the position limits scheme proposed by the regulator in January. They believe limits should be imposed on energy traders to prevent speculation, which they argue causes commodity prices to rise.

The CFTC’s website showed 5,772 comments had been filed online about the rule-making by 4pm EST on Friday April 1, 2011, four days after the deadline for comments. However, SOS Now supporters have sent an additional 5,888 emails to the regulator, according to the Air Transport Association (ATA), the organisation behind SOS Now. The emails went to an inbox and will be transferred over the course of this week onto the CFTC’s website where the online submissions have been filed, according to a spokesperson for the regulator.

The emails can be generated on the SOS Now website, which gives users the ability to edit the wording or simply add their name and contact details and send. The email says: “Excessive speculation hurt the economy in 2008 and, once again, is harming the economy in 2011. According to data recently released by the Commission, speculators have raised their positions in energy markets by 64 percent compared to June 2008, bringing speculation to the highest level on record.” It also highlights a number of points specific to the proposal, including urging the Commission to impose spot-month limits and adopt effective back-month levels and single-month limits that are no higher than two-thirds of the limits for all-months-combined.

These emails will bring the total number of comments filed with the regulator on position limits to more than 11,000, compared to 186 comments filed online for the proposed swap dealer and major swap participant definitions and 1,306 for the proposed rule-making on the end-user exception for mandatory clearing of swaps.

The regulator will review the comments filed before issuing a final rule on position limits to be voted on by all commissioners. Chairman Gary Gensler indicated during a March 16 speech to the Futures Industry Association conference that further developments on the position limits regime are not likely until the summer. This is in line with general expectations that the original July 2011 deadline for implementation set by Congress would not be met.

The number of comments filed on the position limits plan shows the rule is expected to have implications for more than just commodity traders and companies directly involved in the sector. But how much weight are such submissions likely to carry during the process of drawing up a final rule?

“The comments will be reviewed but if [similar comments] come in from thousands of people, that is unlikely to give more weight,” says William Hederman, a former Federal Energy Regulatory Commission (FERC) director, now director of regulatory compliance, energy and resources at Deloitte & Touche.

“The commissioners have a responsibility to review the comments placed in the record and take that into account in applying facts from the comments to the rules and the statutes that they operate under,” he explains. “But I would not expect the number of times they get a comment to have any undue influence – and that could work in either direction – for example in the case of employees of an affected company, I would not expect repetition to affect the outcome.”

In its current form, the plan would see position limits imposed on 28 physical commodity derivatives. It was proposed by the CFTC in January and the public comment period ended on March 28, 2011.