CFTC Reopens Comment Period for Proposed Position Limits Rule
Commentary by Bob Zwirb and Steven Lofchie
The CFTC reopened the public comment period for its proposed position limits rule.
According to the CFTC, the reopening of the comment period is in anticipation of questions and comments that may arise from the CFTC's Agricultural Advisory Committee meeting scheduled for December 9, 2014.
CFTC Commissioner Sharon Bowen released a statement to express her support of the comment period reopening. She urged the CFTC to not allow the rule to "linger indefinitely" on the CFTC docket, stating that she believes a final rule should be released by spring 2015.
The comment period will be open for 45 days after the notice is published in the Federal Register, which is expected on December 3, 2014.
See: Text of Comment Period Reopening; CFTC Press Release; Commissioner Bowen's Statement.
Related news: CFTC Extends the Comment Period for Certain Aspects of Proposed Rules on Position Limits and Aggregation (Fed. Reg.) (July 3, 2014); CFTC Further Extends the Comment Period for Proposed Rules on Position Limits and Aggregation (June 27, 2014); Drums along the Potomac on Position Limits Roundtable (Article in Energy Metro Desk) (July 2, 2014); CFTC Public Roundtable on Position Limits for Physical Commodity Derivatives (Cadwalader Summary) (June 23, 2014); CFTC Holds Public Roundtable on Position Limits for Physical Commodity Derivatives (with Delta Strategy Group Summary) (June 20, 2014); CFTC Reopens Comment Periods for Position Limits for Derivatives and for Aggregation of Positions (Fed. Reg.) (May 29, 2014).
Commentary
Notwithstanding the length of time that has elapsed since it was first proposed, the position limits rule has been a victim of haste and rushed analysis, including an intentional decision to forego meaningful consideration of its cost and benefits. That decision played no small role in the legal challenge that succeeded in delaying it further. A few days after a federal court vacated the rule, one of its members, former Commissioner Bart Chilton, publicly urged the Commission to reissue a new rule that would have repeated the same mistake in a worse manner: "We already know what most folks think. So, I suggest we do what is called an interim final rule with a short comment period, perhaps 15 days. . . . This would allow us to quickly do what we had planned, and the exchanges and market participants had already planned to do in 10 days."
Fortunately, the Commission did not follow Mr. Chilton's advice. Maybe it learned a lesson from its sister agency, the SEC, which responded in a similar manner to that advocated by Mr. Chilton with respect to its mutual fund governance rules by issuing a new rule within a matter of days of a judicial setback without reopening the rulemaking record, only to suffer a second defeat on appeal. See Chamber of Commerce of US v. SEC, 443 F.3d 890 (2006). Likewise, it would be wise for the new commission at the CFTC not to worry about how long this rule has "lingered" on it docket, or to meet an arbitrary deadline of next spring. As the D.C. Circuit cautioned the SEC in the Business Roundtable case: "Lest the Commission on remand apply to the investment companies a newly justified version of the rule, however, only to be met in court again by valid objections, we think it prudent to take up the more serious of the concerns posed by investment companies but left unaddressed by the Commission." Business Roundtable v. SEC, 647 F.3d at 1148, 1154 (2011).
Commentary
By reopening comment on the issue of position limits, Chairman Massad is taking on an important issue of substance; one that matters both for the economy and for the reputation of the CFTC as an agency.
Before Chairman Massad took over, the CFTC had been inclined to adopt very burdensome position limit rules, despite the costs of compliance and even in the absence of substantive evidence that such rules would benefit the economy. The steadily rising price of energy provided popular support for the view that the government should "do something" to "get the speculators" even if that "something" would be ineffectual or damaging. Now that energy prices have crashed, it seems obvious that energy prices are largely determined by macro-economic and political factors, not by speculators. (Are there really speculators out there who can affect energy prices on the scale of OPEC?)
A new round of comments on the position limits proposal combined with the CFTC's fresh look at both those comments and at the substantial amount of economic literature that exists on the subject should result in a new rule, or perhaps a new rule proposal. A process that includes deep analysis of market data, presented to it by market participants that will likely have conflicting views and interests, will bring credit to the CFTC as a regulatory authority possessed of genuine economic expertise.