By Brad Rosen, J.D.
Commissioner Dan Berkovitz, the sponsor of the Commodity Futures Trading Commission’s Energy and Environmental Markets Advisory Committee (EEMAC), announced that the EEMAC will hold a public meeting on Thursday, May 7, 2020 to hear remarks on the Commission’s position limits for derivatives proposed rule. The announcement came on the same day as an unprecedented move in CME Group’s May crude oil futures, where the May contract settled at negative $37.63 per barrel, down approximately 305 percent for the day. At the committee’s March meeting, which focused on COVID-19 related market dislocations, Commissioner Berkovitz had indicated that the committee would reconvene in May to discuss the position limit proposal.
Meeting agenda. According to the agency’s official meeting notice, the EEMAC will examine (1) the proposed position limits for spot months, single month, and all-months-combined, and (2) the proposed bona fide hedge exemptions from such position limits and related procedures. The meeting will be held via conference call in accordance with the agency’s implementation of social distancing due to the COVID-19 pandemic.
Controversy around sufficiency of the comment period. The proposed position rule was approved on January 30, 2020. Initially, the period for public comment was set to close on April 29, 2020. Subsequently, in light COVID-19 related market dislocations, the comment period was extended for 16 days until May 15, 2020.
Commissioner Berkovitz has been highly critical of the brevity of the extension in light of the disruption to market participants caused by the COVID-19 pandemic. In a dissenting statement to the vote approving the extension, Berkovitz specifically addressed the position limit rule and observed, “the commodity markets have experienced unprecedented price movements and stresses over the past several weeks, and commenters and the Commission would be well-served to review and take into account how the markets performed in this environment in fashioning and considering public comments. He added “there is no compelling reason to require public comments on a position limits rule that has been ten years in the making without fully considering how the market has performed in the recent conditions of extreme stress.”
Chairman Tarbert, for his part, acknowledged turbulence in the markets, but has insisted the agency must move forward expeditiously in pursuing its broader mandate. He has observed “I respectfully disagree with those who insist our important policy work could or should be put on pause… Our position limits proposal could help prevent corners and squeezes. Now more than ever, our markets and the everyday Americans who rely on them are counting on us to get the job done. With the hard work of the CFTC’s talented and dedicated staff, we can strike the right balance to accommodate the current circumstances. ”
EEMAC’s meeting to express comments. Commissioner Berkovitz stated that “the EEMAC meeting will provide an opportunity for our energy and environmental markets participants to share their feedback on the Commission’s recent position limits proposal.” He also noted that “it is imperative that the Commission implement a position limits regime that includes both limits on speculative positions to prevent excessive speculation and exemptions for bona fide hedging activities to enable producers, end-users, merchants, and others to use the futures and swaps markets to manage their commercial risks.”
The recent unprecedented market activity in WTI crude oil futures will also likely factor into discussions at the EEMAC’s upcoming meeting.