August 5, 2009
I would first like to thank the panelists that have participated during our three days of hearings. Your testimony has been very helpful and will assist us with the difficult decisions we will be making in the days ahead. I would also like to thank the Chairman for calling these much needed hearings. And finally, I would like to thank the staff of the CFTC for all the work that has made these hearings possible.
During my opening statement last Tuesday, I made a commitment to listen with an open mind to the information presented, and to work with my fellow Commissioners to ensure that we have functioning futures markets. In the coming weeks, as I begin to digest the conflicting information presented at these hearings, and additional information from our staff and the public, my commitment to keep an open mind on this subject stands. Getting this right is of paramount importance to me and I will not be swayed by those seeking hastily made decisions without a careful consideration of all consequences.
Before I talk about speculative position limits, I would briefly like to mention two areas outside the stated purposes of the hearings that I believe require the immediate attention of the Commission.
First, I believe we must begin a review to determine if proper firewalls between research, reporting and trading divisions at financial institutions are in place, if they are adequate and whether oversight is necessary. I was delighted to hear that Goldman Sachs and JP Morgan welcomed this type of review and possible regulation. I would ask that our staff immediately begin this process.
The second area of interest raised during the hearings was high frequency trading and co-location. As the exchanges we regulate migrate from open outcry to electronic trading it is imperative that the Commission focus on new challenges posed by technological advances. When I first raised this issue prior to the hearings, I was encouraged by the Chairman’s immediate directive to staff to begin an assessment of the impact that high frequency trading and co-location might have on the market place. I believe that it is imperative that the CFTC acquire the human and technical resources to address technological issues as they develop.
During the three days of hearings on speculative position limits, we have received many recommendations on potential solutions to address the questions posed by the Commission at these hearings. The CME and ICE have indicated that they are working on approaches to address issues within their jurisdiction as self regulating organizations and I look forward to meeting with each in the very near future to discuss their preliminary proposals.
However, after listening to all the panelists and reading all the written statements and background materials, it is clear to me that the CFTC does not have the authority to set speculative position limits in all of the venues that may be affected by excessive speculation, specifically over-the-counter markets (OTC) and on foreign boards of trade (FBOT). Unilateral Commission action in only the markets we currently regulate may not have the desired effect of reigning in excessive speculation in the futures market. Without similar steps in the OTC markets and on FBOTs, those seeking to evade the limits we set could simply move to venues outside our authority.
To achieve a true level of efficacy, two additional events must take place. First, Congress must act to grant the Commission jurisdiction to set speculative limits in OTC markets. Treasury Sec. Geithner raised this issue in his May 13th letter to Congress discussing steps needed to establish a comprehensive regulatory framework for OTC markets. Second, truly effective regulation in this area requires greater harmonization of international regulatory regimes.
Since the Commission issued its concept release, I have heard many people attempt to explain what constitutes excessive speculation and describe how excessive speculation has affected the futures markets. Many have concluded that if excessive speculation exist, then speculation limits must be set. What these limits should be, who should set them, how they should be set, and who should be exempted from them, are additional questions that have been raised.
At the end of the day, the CFTC Commissioners are responsible to determine if action is needed, and if so, the Commission must do what is necessary to ensure the markets we regulate are functioning properly. I also believe that if we do act, the Commission must assess the impact of its actions on a regular basis.
I would be remiss in my duties as a Commissioner, if I did not point out the obvious fact that many of the actions advocated in these hearings go well beyond the capabilities of the Commission given our current staffing and funding levels. Adopting a course of action by the Commission without the monetary and human capital needed to successfully complete the mission would be perpetuating a cruel hoax on the public and all interested parties.
Again, I want to thank everyone for their participation and hard work.
Last Updated: June 10, 2010