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Position Limits Proposal Would Fail to Control Excessive Speculation

Public Citizen Urges Commission to Modify Deeply Flawed Rule

WASHINGTON, D.C. – Public Citizen sent comments to the U.S. Commodity Futures Trading Commission (CFTC) Friday, opposing a proposed rule on position limits, one of the most important components of the Dodd-Frank financial reforms aimed at reining in Wall Street following the 2008 financial crisis.

Position limits restrict the extent of the market—or the size of an entity’s “position”—in a commodity that a trader may control.

Public Citizen’s Energy Program Director Tyson Slocum said in the comments that the proposed rule would fail to control excessive price speculation by needlessly expanding exemptions to position limits and granting leeway to financially conflicted for-profit exchanges to determine such exemptions. Slocum is a consumer representative on the CFTC’s Energy and Environmental Markets Advisory Committee and serves on the commission’s Market Risk Advisory Committee.

The proposed rule would dilute the effectiveness of position limits, exposing consumers to volatile prices driven more by excessive speculation and market position concentration. The proposal fails to take into account lessons learned from recent turbulence in oil markets and should require more public data reporting.

The commission should significantly modify this flawed rule and enact strong position limits without a decision-making role for the for-profit exchanges. It also should require more public data reporting to allow independent researchers an opportunity to better understand the role speculation plays in aggravating market inefficiencies.

The proposal is tone-deaf to the serious problems and inefficiencies in today’s commodity derivative markets and the commission should revise the rule to address these shortcomings.