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Trio of Senate Democrats Criticize CFTC's Position Limits Delay

A trio of powerful Democratic senators criticized the Commodity Futures Trading Commission's (CFTC) recent decision to repropose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

"We are disturbed by the CFTC's action to delay this rulemaking and your inability to guide the rule to completion in the two and a half years of your tenure," Sherrod Brown (D-OH), Maria Cantwell (D-WA) and Dianne Feinstein (D-CA) wrote in a letter addressed Wednesday to CFTC Chairman Timothy Massad. "Instead of working to achieve a balanced rule based on years of consideration and comments since the November 2013 reproposal of the rule, you have simply kicked the issue into the future and created the uncertainty that you stated you were trying to avoid."

Cantwell and Brown are the ranking members on the Senate Energy and Natural Resources and the Senate Banking committees, respectively.

With the Obama-to-Trump transition and the expected change in attitude toward regulations that will come with it approaching, the CFTC earlier this monthvoted unanimously to adopt a 910-page reproposal that included "many changes to the 2013 proposal we inherited," according to Massad.

With CFTC in a time of transition, he said he did not want to adopt a final rule "that the Commission would choose not to implement or defend next year. Our markets and the many end-users and consumers who rely on them are served best by having reasonable and predictable regulation. Uncertainty and inconsistency from one year to the next are not helpful."

In response to comments on a prior proposal published in December 2013, and on a supplemental proposal published in June 2016, CFTC is reproposing limits on speculative positions in 25 core physical commodity futures contracts and their "economically equivalent" futures, options, and swaps (referenced contracts), and is deferring action on three cash-settled commodities.

CFTC is also reproposing the definition of bona fide hedging position, as well as exemptions for bona fide hedging positions in physical commodities. Exemptions are being reproposed for, among other things, positions that are established in good faith prior to the effective date of the initial limits that would be established by final regulations, CFTC said.

The three senators said they urged CFTC in March to move quickly to finish the final position limits rule, and that Massad said in May, when CFTC approved a supplemental position limits proposal, that he looked forward to completing the rule by the end of the year.

"Now, in December, we see that our concerns were well founded -- the rule has been unnecessarily delayed and is now on track to be weaker," the senators wrote.

The senators also criticized the CFTC for stalling or weakening 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.

The reproposal is the result of the latest effort by CFTC to implement position limits as directed by Congress in 2010. In 2013, after withdrawing its appeal of a federal court decision that tossed a controversial final rule aimed at limiting speculative trading in the swaps markets, CFTC voted to propose new rules in place of the discarded position limits rule.

The proposed rule would implement section 737 of Dodd-Frank, clamping down on speculation in 28 selected physical commodity futures and swaps, including four energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and New York Harbor Heating Oil.

Massad, formerly assistant secretary for financial stability at the Treasury Department, was nominated CFTC chairman by President Obama in 2013. It is widely assumed that he will step down from that position as part of the looming transition. Massad has not announced his post-inauguration plans or commented on speculation that Commissioner J. Christopher Giancarlo could be Trump's selection to take over as CFTC chairman. Giancarlo, a Republican, was a brokerage firm executive before being appointed to CFTC.

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