Thursday, January 13, 2011
Good Morning- I would like to begin again today by thanking the staff of both of the teams for all of the hard work on the proposals we are considering today. Sarah Josephson has had a number of different rules contained within the internal business conduct standards and this is the final proposal for her team. I want to express my appreciation to all of them. The position limit team has also been before us on a number of different occasions and I want to thank all of them for their perseverance on the very difficult issues surrounding imposing limits.
I will be supporting the Swap Trading Relationship Documentation proposal today because I believe this documentation is a critical component to well-functioning swap markets. The documentation increases transparency to the regulators and increases certainty among the counterparties, both of which are vital.
Regarding the position limits proposal, let me say at the outset that while I opposed the Commission’s 2009 proposal and I oppose this proposal today, I do not have a per se, philosophical opposition to position limits. I understand that Congress has directed the Commission to implement position limits, as appropriate. If we had a reasonable and enforceable position limits proposal before us based on analysis of complete market information, I would support it. We have not in the past, nor do we have now, such a proposal before us.
I opposed our 2009 position limits proposal because I thought it was a bad idea to impose position limits on exchange-traded contracts when we had no authority to consider limits on the vastly larger over-the-counter markets. I believe that had we imposed limits solely on exchange-traded contracts, we risked driving market participants out of our regulatory purview and into the opaque over-the-counter markets or overseas. This would not have been a positive regulatory outcome.
I oppose the proposal before us today because I believe it is flawed in a number of respects. First, I believe we should conduct a complete analysis of the swap market data before we determine the appropriate formula to propose. We have not done that. Second, without data on swap market positions, the spot month limits we are proposing are not enforceable. I think it is bad policy to propose regulations that the agency does not have the capacity to enforce. Third, in Section 4a(a)(1) of the Commodity Exchange Act, Congress specifically authorized the Commission to consider different limits on different groups or classes of traders. This language was added in Section 737 of Dodd-Frank. The proposal before us today does not analyze, or in any way consider, whether different limits are appropriate for different groups or classes of traders. Finally, Section 737 of Dodd-Frank states that the Commission shall strive to ensure that position limits will not cause price discovery in the commodity to shift to trading on foreign boards of trade. This proposal does not contain any analysis of how the proposal attempts to accomplish this goal. In fact, the proposal does not even mention this goal. Driving business overseas is a long standing concern of mine, and that concern remains unaddressed.
Position limits has presented and still presents a number of different challenges for this Commission but I believe strongly that the proposal before us today still misses the mark.
Again, I want to express my appreciation for the enormous efforts from teams before us today.
Last Updated: January 13, 2011