This blog was written by Suzy Glucksman, private sector senior advisor, policy and campaigns. This past Tuesday, the Commodity Futures Trading Commission (CFTC) voted 3-2 to approve new limits on commodity speculation. This “final rule” was mandated by the landmark Dodd-Frank Wall Street reform bill passed in 2010. Action to bring sanity to the commodity […]
This blog was written by Suzy Glucksman, private sector senior advisor, policy and campaigns.
This past Tuesday, the Commodity Futures Trading Commission (CFTC) voted 3-2 to approve new limits on commodity speculation. This “final rule” was mandated by the landmark Dodd-Frank Wall Street reform bill passed in 2010. Action to bring sanity to the commodity markets is certainly good news–it was rumored that a vote could have been pushed into next year or not happen at all. But sadly, the new limits are woefully weak and could potentially even facilitate further excessive speculative activity if they go unchanged. As my colleague Gawain remarked, these kinds of baby steps may deserve recognition, but the adults at the CFTC should already know how to walk.
Excessive speculation has repeatedly been shown to increase food price volatility and contribute to the record-high food prices that have pushed tens of millions of people into poverty in the last year alone. A recent letter from over 461 economists called on the commissioners of the CFTC to take urgent action to rein in speculation pointing out the serious and harmful impacts on poor people.
The Dodd-Frank Act directs the CFTC to issue regulations, known as “position limits”, that cap the size of bets that can be made in the futures market and the number of futures contracts a market player may hold. These position limits can go a long way to diminish, eliminate, or prevent excessive speculation.
But the limits in the final rule are set far too high and will be delayed in implementation, weakening the safeguards against the most harmful trading practices. In fact, no position limit caps will be imposed on transactions known as “forward month trading” until the word “swap” is defined. The CFTC has yet to even announce a timeline for when that definition will be made.
The CFTC, after receiving over 15,000 comments on the draft rule and conducting thousands of meetings, has appeared to have bowed to the wishes of an organized and well-funded campaign by Wall Street banks, hedge funds, and traders to water-down the rule. The result is the commission took the absolute minimum level of action necessary to begin to address excessive speculation. Many experts say it fails to even meet that basic responsibility.
Although the CFTC could improve the rule down the road, troubling signs suggest they have little motivation to do so. The initial review period of the rule pertaining to agricultural commodities has been extended from one year to two, slowing the timeline for possible fixes. Even more worrying may be that the data they will need to conduct this analysis in a timely manner has been slow to trickle in with the commission continuously delaying reporting requirements imposed on swap dealers to bring transparency to the market. In fact, the CFTC also voted Tuesday morning to propose delaying rules affecting the swap market until as late as July 16, 2012. These rules were required under Dodd-Frank to take effect in July of 2011.
It is up to Congress and the Administration to act to ensure the CFTC implements stronger limits that protect vulnerable people around the world. Legislation has already been introduced in both the House and Senate to compel further action. Sadly, in the current highly polarized environment, these efforts face an uphill fight.
But though slow in coming, this rule cannot be the end of the story. With public support for further action and leadership from elected officials, additional steps to stabilize the markets and prevent excessive speculation are possible.