CMC Awaits CFTC Decision on Position Limits

After months of deliberation, the CFTC will vote on a final rulemaking tomorrow morning at 9:30 am ET.  CMC will be watching for resolution on these issues:

  • Bona Fide Hedge Definition
    • Will the Commission recognize anticipatory merchandizing transactions based on throughput and not fixed-capacity?
    • Will the Commission retain the current 30-day reporting regime or will it move to a daily reporting requirement?
  • Position Limits
    • How will the Commission handle the CME proposal for ag markets?
    • What will the effective date be?
    • Will long-term contracts be included in deliverable supply?
  • Class Limits
    • Will the CFTC allow netting of futures and swap positions?
  • Conditional Limits
    • Will the Commission address conditional limits in the final rulemaking or will it treat this issue differently?
    • Will ag markets and energy markets receive disparate treatment?
  • Aggregation
    • Beyond the independent controller exemption, are any additional exemptions made for subsidiaries of non-financial firms?

Gensler Fights On Two Fronts

While he has probably grown somewhat accustomed to the external attacks from lawmakers, trade groups and business, CFTC Chairman Gary Gensler finds himself also fighting off attacks within the Commission.  The discontent now reaches from CFTC staff to the Commissioners.  Christopher Doering in his Reuters’ article captures the current sentiment.

The discontent in some ways stems from the top. CFTC commissioners have openly disagreed on what the rules should look like, and the best way to put them into effect. Increasingly, some commissioners have spoken out about being left in the dark about what is going on at their own agency.

It now appears to be trickling down to lawyers, economists and others tasked with finishing the rules on which they have been working nonstop for nearly a year, and have at least six more months to go.

Jill Sommers, a Republican CFTC commissioner who has opposed a number of the rules, told Reuters on Friday she was frustrated by a lack of communication to agency commissioners about things going on at the CFTC.  “It’s frustrating that we find things out third hand,” Sommers said. “I understand there are a lot of different things being juggled and we have limited resources at the commission, so I’m sensitive to that, but I would guess there is a better way to keep us all on the same page.”

What many knew was a growing sense of discord culminated in a very public way around the CFTC’s position limit rulemaking.  The draft final rule was leaked and whistleblower complaints were also broadcast.  All of this at a time when the Commission is tasked with finalizing some of its most important rulemakings: position limits, product and entity definitions, capital and margin requirements, etc.  Again, Christopher Doering in his Reuters’ article, outlines the challenges facing Gensler, but also correctly notes that Gensler sought out many of them.

Gensler quickly became a go-to guy for Congress after being sworn in May 2009.  Lawmakers and staffers at the time lauded his ability to explain a complicated subject clearly and simply as they embarked on the Dodd-Frank financial reform legislation in the wake of the 2008 meltdown on Wall Street.

Gensler worked the halls of Congress and was a fixture on financial television as he pushed for a strengthening of the CFTC’s regulatory powers. When the reform bill was before the Senate Agriculture Committee, Gensler had a front-row seat.

The tide has turned, however.

Republicans, who are chafing at new regulations in general, are particularly vocal in their criticisms of the CFTC. Democrats, already concerned the agency is not being tough enough on Wall Street and anxious for action to crack down on speculators they blame for driving up food and fuel prices, are worried the agency may be watering down the rules.