CFTC Commissioner Dan M. Berkovitz advised the CFTC to focus on (i) increasing competition in the derivatives markets and (ii) setting speculative position limits with exemptions for bona fide hedging activities.
In an address at the FIA Commodities Symposium in Texas, Mr. Berkovitz stated that since recovering from the financial crisis, the derivatives markets have become increasingly concentrated. Mr. Berkovitz emphasized that one purpose of the Commodity Exchange Act is to promote fair competition. Mr. Berkovitz said that the CFTC responded to the issue by setting the swap dealer registration threshold at $8 billion instead of $3 billion. According to Mr. Berkovitz, lowering the threshold would have caused many entities in limited swap dealing to stop dealing in swaps and increase competition. Mr. Berkovitz disagreed with recently adopted speed bumps to slow down faster traders. He urged the CFTC to strive to "take the least anticompetitive means to achieve the objectives of the [Commodity Exchange Act]."
Mr. Berkovitz made other recommendations to the CFTC concerning the derivatives market, such as:
allowing proprietary trading firms to trade on swap execution facilities as registered floor traders, instead of registering as swap dealers;
removing the practice of "name give-up" (i.e., disclosing the identity of each swap counterparty) for anonymously traded and cleared swaps; and
working with prudential regulators to increase bank capital standards without adversely affecting the availability of clearing and other risk-management tools to end users.
Mr. Berkovitz also emphasized the necessity of providing speculative position limits in agricultural, energy and metals commodities. Since Congress tasked the CFTC with establishing certain position limits in 2010, progress stalled, according to Mr. Berkovitz. He argued that the CFTC should establish these limits, noting that the agency already observed and agreed that an exceedingly large speculative position could (i) distort markets, (ii) impede price discovery and (iii) play a role in manipulative schemes. He said that position limits are not intended to regulate commodity prices, and that speculative position limits focus on positions held by a single trader or entity and not the overall market.