Monday, December 19, 2016

Senators strongly criticize CFTC's inaction on its excessive speculation rule

By Joanne Cursinella, J.D.

Senators Dianne Feinstein (D-Calif), Sherrod Brown (D-Ohio), and Maria Cantwell (D-Wash) in a joint letter to CFTC Chairman Timothy Massad criticized the Commodity Futures Trading Commission for inaction on its rule to curb the number of futures contracts a trader can hold on certain commodities, including oil, natural gas, and gold. The rule proposal was revised in 2013 but the agency has yet to approve it.

Disturbed by inaction. According to a press release, on December 5, Massad “punted again” in reproposing the rule despite assurances it would be completed this year. The senators noted that both Dodd-Frank and the Commodity Exchange Act direct the agency, among other things, to establish position limits to diminish, eliminate, or prevent excessive speculation and to deter and prevent market manipulation.

They say in the letter that Massad failed to “guide the rule to completion in the two and a half years of your tenure,” and instead “kicked the issue into the future and created the uncertainty that you stated you were trying to avoid. “Now, in December,” they wrote, “we see that our concerns were well founded—the rule has been unnecessarily delayed and is now on track to be weaker.”

Other disappointments. The inaction on the positions limit rule is not the only matter the senators took issue with. They also condemned the CFTC for stalling or weakening its rules related to oversight of derivatives traders dealing in multibillion dollar swaps, capital and liquidity for swap dealers, margin requirements for uncleared swaps, and automated trading, as well as for criticizing banking rules that they say made the financial system safer and more sound.

Noting that news reports indicate that Massad will step down in 2017, they urged him to spend his remaining time at the CFTC to put the agency in a position to finalize strong Dodd-Frank rules for the derivatives market.