Feb. 25, 2016
CFTC Commissioners Should Reject Flawed Advisory Committee Report and Move Forward on Position Limit Rule That Will Protect Consumers
Statement of Tyson Slocum, Director, Public Citizen’s Energy Program
Note: Today, the U.S. Commodity Futures Trading Commission’s (CFTC) Energy and Environmental Markets Advisory Committee (EEMAC) holds a public meeting in Washington, D.C. Some members of the advisory committee have advanced a report of questionable validity and origin that recommends the agency weaken a Dodd-Frank rule designed to protect consumers from energy price spikes caused by speculative buying in commodities markets. Tyson Slocum is the lone public interest and consumer representative on the advisory committee. View Slocum's dissenting remarks.
Despite the conclusions of the disputed advisory committee report, the long-stalled commodities position limit rule being considered by the CFTC should be approved as is by federal commissioners. The EEMAC’s majority report is a flawed compilation that presents no compelling new material to support overturning what the agency already has proposed. Therefore, the report should be rejected and the rule immediately adopted.
The debate around this proposed CFTC rule is more than simply a dispute about specifics in a committee report. The heart of the situation is whether the agency will do its job and protect consumers.
The 2010 Dodd-Frank Act clearly ordered the CFTC to establish position limits as a primary tool to combat the excessive speculation that had been harming consumers and hindering market integrity. While a federal court remanded the rule after a 2012 challenge by Wall Street trade associations, the re-proposed rule fully documents that excessive speculation has indeed been a major problem, and that position limits offer an important cure to help protect consumers.
If the CFTC moves forward with the rule, American consumers can expect that prices will be more a result of supply and demand rather than dictated by the whims of powerful speculators. Position limits are created for the purpose of maintaining stable and fair markets for consumers. Limits protect futures markets from excessive speculation that often create disastrous price spikes.
But the majority report ignores this evidence and instead, without providing any new evidence to back up its claims, argues that speculative position limits are unneeded; that if implemented they would cause harm to the market and market participation; and that for-profit exchanges – not public regulators – should instead apply flexible “position accountability regimes” that would be developed, overseen and run by the for-profit exchanges.
Public Citizen’s dissent from the majority report alleges that its conclusions are flawed because: 1) It was not a collaborative product; 2) It was authored on the independent initiative of only one of the nine members; 3) The report’s conclusions reflect the inadequate professional diversity of a committee whose membership is heavily weighted in favor of Wall Street and big energy interests; 4) The report ignores the large body of evidence and research showing the clear need for position limits; and 5) The for-profit exchanges feature numerous inherent conflicts of interests that render them inappropriate venues to enforce substitutes to CFTC-determined position limits.