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Oct. 18, 2011

Commodity Futures Trading Commission’s Compromise Gives Wall Street Too Much Leeway

Statement of Tyson Slocum, Director, Public Citizen’s Energy Program

A divided U.S. Commodity Futures Trading Commission (CFTC) delivered soft rules that won’t take effect until who-knows-when. But consumers aren’t divided that Wall Street-driven commodity speculation is killing our economy. It is now time for Congress and the president to step in and order the CFTC to deliver stronger position limits to protect our economy and hold Wall Street accountable.

As thousands of Americans occupy Wall Street, Wall Street banks occupy our government. Fresh evidence is the CFTC’s long-delayed rule that fails to effectively crack down on the excessive speculation that has defined energy trading markets.

Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included mandatory position limits with the understanding that unregulated energy markets allow Wall Street banks to play a role in encouraging excessive speculation. Such speculation increases prices paid by households, and Benjamin Bernanke, chairman of the Federal Reserve, warned earlier this year that sustained high commodity prices pose a “threat” to America’s economic recovery.

Congress designed position limits as a central tool to eliminate excessive speculation and used the decades-old agricultural position limit rules as a model. Section 737 of Dodd-Frank orders that the CFTC “shall … establish limits on the amount of positions, as appropriate … [in order] to diminish, eliminate or prevent excessive speculation … [and] to deter and prevent market manipulation, squeezes and corners.”

The CFTC has been split for months, as frenzied lobbying by Wall Street banks denied Chairman Gary Gensler the majority votes needed to take strong action. With today’s so-called compromise, oil traders are limited to 25 percent of deliverable supply in the spot month and natural gas traders will be allowed to hold contracts equal to five times deliverable supply. For longer-term oil contracts, positions will be limited to 10 percent of the first 25,000 contracts of open interest and 2.5 percent after that.

These limits are simply too permissive to the big banks and allow them to hold positions that are too large. And with the rules’ implementation delayed until the commission defines the term “swap” (no timeframe on that), the banks’ status quo reigns supreme.

Public Citizen would prefer to see limits at 5 percent in the spot month and for the first 25,000 contracts.

In a development that shows just how much industry dominates the debate, Wall Street and its allies argue that these weak rules go too far and exceed the CFTC’s statutory authority.


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