The Commodity Futures Trading Commission (CFTC) is expected to release within a few weeks a new and improved rule to restrict excessive speculation in the swaps market, said CFTC Commissioner Bart Chilton Wednesday.
Last fall, the U.S. Court of Appeals for the District of Columbia Circuit rejected the agency’s initial rule on speculative trading, saying that the Dodd-Frank Wall Street Reform Act “clearly and unambiguously” requires the Commission to make a finding of necessity prior to imposing position limits. The rule was remanded to the Commission for further consideration (see Daily GPI, Oct. 1, 2012). The agency has since appealed the court decision.
The new speculation rule will be “similar” in some respects to the original rule, but “we’re going to make this sort of bullet-proof,” Chilton told a packed room of attorneys and energy executives at the annual conference of the Energy Bar Association in Washington, DC. “We are going and going and going to get limits in place…period. Congress wanted them; President Obama wants them; traditional market participants want them and I want them,” he said.
The original rule, which was voted out of the CFTC in October 2011, established limits on speculative positions in 28 core physical commodity contracts, four of which are energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and New York Harbor Heating Oil (see Daily GPI, Oct. 19, 2011).
“I am fully confident that we’ll be sued again [by opponents of position limits in the energy markets] because I think they don’t care if they win or lose. I think they’re just trying to run out the clock,” Chilton noted.
The Commission will also address the cost-benefit analysis of the new rule. “I think we did as good a job as we could” with the initial rule in analyzing the costs and benefits, Chilton said. “Hardly anybody responded to us” when the agency asked them how much position limits would cost them, “other than to say we don’t like this rule at all.”
In addition to a cost-benefit analysis, the rule that the CFTC is working on will seek to clarify the phrase “as appropriate” in Dodd-Frank, and “we may do some other things to tighten it up.”
The words “as appropriate” have appeared in statutes governing the CFTC’s authority to implement position limits for at least 40 years without challenge, until now. In fact, the CFTC used the authority of that exact line, complete with its “as appropriate,” to establish position limits on grain commodities decades ago. Even those who drafted Dodd-Frank later weighed in, saying they had intended for the language to explicitly instruct the CFTC to establish position limits “at levels that were appropriate.”
Responding to three senators’ recent recommendations for the CFTC and the Federal Energy Regulatory Commission to stop bickering over their jurisdictional boundaries, Chilton agreed. “We need to do a better job. I take the letter [from the the senators] seriously and we’re going to work on working better with FERC. To prove a point, I broke bread with a FERC commissioner” on Tuesday.
In a letter Monday, Sens. Dianne Feinstein (D-CA), Ron Wyden (D-OR) and Lisa Murkowski (R-AK) called on the two agencies to execute a memorandum of understanding (MOU) to resolve the ongoing dispute over their jurisdictions (see Daily GPI, May 1). “We do have an MOU and it is legally binding. We’ve had it since I’ve been at the Commission ,” Chilton said.
MOUs “are as good as the people [who] are there [in the agencies]…It really depends on the people. The one thing that you can do is agree to information-sharing and we have that, and that happens between the staff,” he noted.
Chilton said he advocates transaction fees to offset the sequestration cuts in the CFTC budget. The more lawmakers complain about how “crappy” Dodd-Frank is, the more they want to cut the budget.
According to Chilton’s estimates, a fee of six one-hundredths of a cent per transaction could raise as much as $300 million a year, which would offset the CFTC’s budget shortfall and serve as a disincentive to high-speed traders, Chilton said.
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