New limits set by the Commodities Futures Trading Commission (CFTC) on hedge swap and futures positions were met with bi-partisan criticism in the Senate but with cautious optimism.
“The U.S. Commodity Futures Trading Commission (CFTC) today voted unanimously to re-propose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).”
The CFTC specified that “the re-proposed regulations include requirements and acceptable practices for Designated Contract Markets (DCMs) and Swap Execution Facilities (SEFs) for setting position limits for the 25 referenced contracts, as well as acceptable practices for exchange position limits or accountability rules in all other listed contracts, including excluded commodities. The re-proposed regulations also permit exchange recognition of non-enumerated bona fide hedging positions, certain enumerated anticipatory hedge positions, and granting of spread exemptions. The reproposal includes updated reporting requirements under part 19 of the CFTC’s regulations.”
Part 19 of CFTC’s regulations deals with bona fide hedge positions.
A summary of the rule expanded, “the Commission proposes to further amend certain relevant definitions, including to clearly define the general definition of bona fide hedging for physical commodities under the standards in CEA section 4a(c) (dealing with excessive speculation). Separately, the Commission proposes to delay for DCMs and SEFs that lack access to sufficient swap position information the requirement to establish and monitor position limits on swaps.
Pat Roberts (Republican, state of Kansas), the Chairman of the Senate Agriculture Committee, which maintains oversight of the CFTC, immediately referred to the late move as “midnight rulemaking”, a derogatory political term for regulations made during lame duck periods an outgoing President’s administration.
“Though I do not appreciate so-called ‘midnight rulemaking’ and certainly am not in favour of limiting farmers, ranchers, and end-users’ risk management tools, I am encouraged that the CFTC decided not to make the controversial parts of this rule final.” said Chairman Roberts. “With the new administration preparing to hit the ground running and critical issues remaining unresolved, I’m hopeful the CFTC will not take away valuable risk management tools for our farmers, ranchers, and end-users. They need more tools – not less.”
Meanwhile, Debbie Stabenow (Democrat, state of Michigan), also criticized the move but for not going far enough and making the rule permanent.
“I am disappointed that the CFTC is not finalizing the position limits rule in its entirety this year – nearly six years after the CFTC first proposed a rule. Position limits are a critical tool for the CFTC to ensure that Americans are not paying too much for energy at home or at the pump. Finalizing a full and meaningful rule should be the first priority of the Commission next year.” Stabenow said in her statement.
Meanwhile, House Agriculture Committee Chairman, Michael Conaway (Republican, state of Texas), struck a more hopeful tone.
“I want to thank Chairman Massad and his fellow commissioners for re-proposing the position limits rulemaking. The Committee on Agriculture has heard repeatedly from end-users across the economy about the importance of getting this rule right. Today’s action will offer them the opportunity to refine this rule and ensure that it does not negatively impact their ability to manage their risks.”
Dodd-Frank, which transformed the financial industry, did not spare the trading industry, and this latest news is part of a pattern of significantly increased regulations of traders, giving both the CFTC and the Securities and Exchange Commission (SEC) more say in who can trade many securities, especially those the bodies deem “risky”, and how those securities can be traded.