Will the CFTC Defy Congress's Mandate to Stop Excessive Speculation in Commodity Markets and Aid and Abet Hyperinflation in World Food and Energy Prices? - Analysis of the CFTC's Proposed Rules on Speculative Position Limits

Posted: 3 Apr 2011

See all articles by Michael Greenberger

Michael Greenberger

University of Maryland Francis King Carey School of Law

Date Written: April 1, 2011

Abstract

On January 26, 2011, the Commodity Futures Trading Commission issued the Notice of Proposed Rulemaking on Position Limits for Derivatives pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rules are designed to implement the historic Congressional mandate of the Commodity Exchange Act, as amended by Section 737 of the Dodd-Frank Act, to ban excessive speculation from the derivatives market, i.e., the speculation which exceeds the need for liquidity by commercial handlers hedging price risk in these markets. Section 737 is the result of multi-year consideration by Congress, during which a strong consensus was reached there that excessive speculation by Too Big to Fail banks in commodity derivatives markets is the source of an unnecessary and huge premium paid by consumers worldwide to bolster casino-like betting on commodity price direction. However, the proposed rules are so weak that they defy the Congressional intent. Specifically, the proposed limits on big bank speculation are so high that they will have no meaningful effect on limiting speculation, leading to wholly unnecessary price volatility and unpredictability in commodity staples. Moreover, the proposed big bank exemption from speculative limits must be removed from the final rule, because it enshrines the Too Big to Fail financial institutions’ casino-like atmosphere where passive wealthy investors and institutions are encouraged for a handsome bank transaction fee to do nothing more than gamble on the future price of commodities.

Suggested Citation

Greenberger, Michael, Will the CFTC Defy Congress's Mandate to Stop Excessive Speculation in Commodity Markets and Aid and Abet Hyperinflation in World Food and Energy Prices? - Analysis of the CFTC's Proposed Rules on Speculative Position Limits (April 1, 2011). University of Maryland Legal Studies Research Paper No. 2011-20, Available at SSRN: https://ssrn.com/abstract=1801238 or http://dx.doi.org/10.2139/ssrn.1801238

Michael Greenberger (Contact Author)

University of Maryland Francis King Carey School of Law ( email )

500 West Baltimore Street
Baltimore, MD 21201-1786
United States

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