With The CFTC Position Limit Response Period Over, Here Are Select Opinions By PIMCO, World Gold Council And Goldman Sachs

The public comment period for the CFTC's proposed position limit rule has come and gone. It should come as no surprise to anyone (and particularly those transfixed by the massive surges in various commodities, among them most certainly gold and silver) that what is at stake here is not some actual position limit definition and subsequent regulation and enforcement (although that most certainly is), but yet another challenge to the klepocratic status quo which naturally prefers the status quo to remain as is, and public interests, which seeing 100% moves in the price of grain, cotton, corn, and other commodities, would obviously prefer to reign in speculative fervor. At the end of the day, Wall Street will find loopholes in whatever the end rule is as it always does, but the polemic on the way there is quite interesting. Which is why having combed through some of the last minute public comment submissions (of which there were 5,561 in total at last check), we present some of the most indicative ones: one the one hand that of Carl "Shitty Deal" Levin, Chair of the Permanent Subcommittee on Investigations, who obviously is for the most prompt implementation of position limits as envisioned in Dodd Frank, and on the other hand institutional money managers and traders such as PIMCO, Morgan Stanley, the World Gold Council, and, naturally, Goldman Sachs (oddly, we have yet to track down the response by one JP Morgan). We present these for our readers' perusal below.

But before that, here is a brief summary of where we stand in this process, via of Reuters:

A global push to temper wild swings in oil and other commodity prices reached a pivotal point on Monday as big traders mounted their last attack on a U.S. plan to limit the role of speculators.

Many of the world's biggest commodity market participants such as U.S. agribusiness giant Cargill Inc and Delta Air Lines are resisting new rules that would cap how many futures and related swaps contracts any one company can control.

The plan to impose "position limits", which has been under debate since prices first surged to records in 2007 and 2008, is now reaching its culmination, with companies rushing to submit their views to the U.S. Commodity Futures Trading Commission by Monday's deadline.

Most are reframing familiar complaints: Banks, traders and exchanges say the rules would make it harder to hedge risk, and that it would reduce liquidity and increase consumer costs.

If the proposed rules are adopted with no change, "there is a substantial risk that they would undermine the efficiency of the markets for hedgers, by reducing liquidity and disrupting markets which currently function well", Linda Cutler, a Cargill vice president, said in a letter to the agency.

Ah yes, the same "we provide liquidity" straw man excuse that the HFT scalp brigade uses every time someone threatens to take away their market frontrunning power.


But at a time when oil, grain and metal prices have again shot up, some reaching new heights, consumers too are looking for some regulatory relief. Politicians are stepping up pressure for action.

"The banks think this rule is too strong. Commercial end users, consumers, unions ... think it's far too weak," Michael Greenberger, a University of Maryland law professor and former senior CFTC staffer, told Reuters Insider.

"As the American public starts suffering from $4 a gallon gasoline ... the issue becomes more visible, the debate between the consumer and the big banks is more highlighted," he said.

Wall Street firms, including Morgan Stanley and Barclays Capital, want the CFTC to hold back on position limits until the agency can gather more data to assess the size of the swaps market.

"Only after it receives and reviews relevant market data should the Commission consider whether position limits are necessary and, if so, set appropriate and commercially practicable limits that preserver market liquidity and promote efficient price discovery," said Simon Greenshields, global co-head of Morgan Stanley's <MS.N> commodities business.

Roger Jones, a managing director at Barclays, warned the CFTC proposal was too vague and "oversimplifies the legitimate complexity of risk management."

And so forth. It is pretty clear where this is headed - another institution vs end-consumer debate. And with the CFTC head having worked long years at Goldman Sachs is there any doubt how it will be resolved.

For those interested here is a comparison of the the old and the new proposed plan are comparable and divergent:

That's all in theory.

In practice, here is how it is going to go down. All proposals such as the one immediately below from Carl Levin will be ignored, while those of the likes of PIMCO, Morgan Stanley, the WGC and of course Goldman Sachs, will be very much considered and probably implemented, resulting in a much watered down position limit rule, which will likely imitate the status quo almost verbatim.

Carl Levin response:

Levin CFTC

PIMCO response:


World Gold Council response:


Morgan Stanley response:

Morgan Stanley CFTC

Goldman Sachs response:

Goldman CFTC