November 15, 2012
When I voted against the Commission’s final position limit rule last November, I expressed dismay that the Commission had failed to utilize its expertise to lay the necessary foundation for the establishment of position limits. A federal district court affirmed my reasoning in striking down the rule in September. Regrettably, instead of taking the opportunity to revise its flawed reading of the statute, the Commission has decided to double down on its no-justification-needed stance by appealing the district court's ruling.
In its decision, the court explicitly stated that the statute unambiguously requires a finding of necessity before establishing position limits. It went on to argue that subsequent parts of the statute are ambiguous. I continue to believe that the statute is crystal clear in calling for a necessity finding – and that this should be the end of the discussion. But we can certainly agree on this: the Commission needed to explain itself much more than to say, “Congress made us do it.” And yet, with this appeal, the Commission is simply repeating this unacceptable rationale in the vain hope that another court will somehow find it acceptable.
Even if the Commission successfully appeals the ruling, there is a very good chance that the Commission would be right back in the district court to defend against plaintiffs’ other challenges, including their argument that the Commission failed to adequately weigh the costs and benefits of the rule. To save the Commission’s time and resources, it would be much more logical for the Commission to go back to the drawing board now to study the markets and to determine whether new position limits are in fact necessary, and only if so then to decide on the most cost-effective way of establishing such limits. Ideally, it would make sense for Congress to act and clarify the statute in order to end any further debate about its meaning.
Finally, with all attention focused on the limits that will not be put in place pursuant to the court ruling, I would like to point out structures that are in place for monitoring the derivatives markets. The Commission currently imposes position limits on certain agricultural commodity contracts. For energy and metals contracts, exchanges have set position limits in the spot month and accountability levels outside the spot month. The Commission has a longstanding large trader reporting program for futures. It has recently instituted an analogous system for swaps, which is already yielding data from clearing organizations and clearing members and will soon yield data from swap dealers. Put together, these sources can provide the Commission with the information it needs to perform the prerequisite factual analysis I’ve called for all along.
Last Updated: November 15, 2012