Was today's broad and very much coordinated selloff in commodities a result of the just announced news that the CFTC's position limit plan may, contrary to prior expectations, be enforced very soon? It appears that outspoken CFTC commissioner has flipped in his stalling tactic and instead is now endorsing the position limit plan. Per Reuters: "Under the system, if a trader's holdings in a commodity reaches a certain threshold, it triggers a new level of heightened regulatory scrutiny by the CFTC where commissioners could vote to require the trader to reduce their positions." This means that JPM's accumulated holdings in various precious and industrial metals are not only about to likely become public, but that the CFTC will be mandated to very shortly enforce a break up on those positions which are deemed too concentrated. It is unclear how foreign entities, to whom the recent accumulation in various precious metals has been attributed, will be impacted by the proposal which now appears may be shortly enacted.
A top official at the U.S. futures regulator said on Tuesday he was now in favor of a stalled position limit plan, a key turnaround that would allow the controversial rules to advance to the public comment stage.
The Commodity Futures Trading Commission introduced on December 16 its long-awaited plan to curb speculation in the metals, agriculture and energy markets but at the meeting, Chairman Gary Gensler abruptly postponed a vote on the proposal.
Commissioner Bart Chilton, the most vocal proponent of cracking down on speculators, was key to the postponement as he told Reuters he would have voted against the plan. It would have included a two-step approach to allow more time for the agency to gather information on the opaque swaps market.
"While I will now support publishing a position limit proposal for public comment, I will continue to make the case that we need to address excessive speculation in these markets immediately," Chilton said in a statement on Tuesday.
It is widely believed that by lifting his objection, the position limits plan will obtain the approval of at least three of the five CFTC commissioners needed to release the proposal. A separate vote will be needed to finalize the measure after the 60-day public comment period ends.
Chilton has emphatically said the CFTC needs to do more in the short term while it implements the position limit plan required by the Dodd-Frank legislation passed last July.
At the December 16 meeting, Gensler agreed to instruct CFTC staff to implement Chilton's suggested "position points" system until the CFTC puts its position limit plan in place.
Under the system, if a trader's holdings in a commodity reaches a certain threshold, it triggers a new level of heightened regulatory scrutiny by the CFTC where commissioners could vote to require the trader to reduce their positions.
A coalition of businesses dependent on buying commodities which has pushed for the limits said it supports Chilton's plan as an interim measure.
And once again we hear about this imaginary concept referred to as "market confidence." We hope the CFTC by now realizes that all those who actually participate in the commodities market understand full well that the entire market is dominated by one or two major players, and that any paper exposure in the market is seen by many as a guaranteed way to promptly transfer wealth over to the monopolists who continue to have full domain over several key commodities markets.
"In light of the existence of large speculative positions in today's energy and agricultural markets, it is imperative that the Commission to do something now, and without delay, in order to address these large positions and send a message of confidence and certainty to market participants," said Jim Collura, spokesman for the Commodity Market Oversight Coalition.
And if indeed this news was the catalyst for today's precious metal and other commodities sell off, it is woefully misinterpreted, as the only major institutional parties impacted will be those who hold outsized short positions in the precious metals space. As for JP Morgan's ongoing attempt to corner the copper market: we wish them godspeed.