According to Reuters, the position limit debate at the CFTC has become so rancorous that two whistleblowers have filed complaints with the agency’s Inspector General. The Commission was required by the Dodd-Frank Act to create a position limits rule intended to curb a perceived rise in excessive speculation. However, the hyper-political rhetoric surrounding the rule has led to delay, and possibly to failure.
CFTC Inspector General A. Roy Lavik has confirmed receiving two complaints. According to a pseudonymous email sent to Reuters, Lavik’s office has encountered anonymous emails and letters slipped under doors over the past week, all complaining that the final position limits rule under discussion cannot be implemented. According to the source, it requires a type of OTC derivatives data that the Commission simply does not collect. Lamented the employee: “Gutting out the intent of the position limits as required by Dodd-Frank, wasting taxpayer monies, steamrolling over other staff, proposing a rule that cannot be implemented, is wasteful.”
The second whistleblower, who delivered his or her grievance via a letter slipped anonymously under the Inspector General’s door, complained primarily about the process: “There are people on the team now that have been in the futures business less than a year and been at the CFTC even less than that.”
The provision of the rule mentioned by the first whistleblower refers to discrepancies between the large trader swaps reporting rule, scheduled to go into effect on September 20th, and the position limits rule, which appears to have been drafted without full knowledge or regard for the data required to be reporting by the earlier rule. According to the source, the current draft cannot be implemented without reconciling the already-final large trade swaps rule, or rewriting the position limits rule. Both options are costly in terms of time and money.
This debate, however, runs much deeper than this one disagreement. The creation of position limits has been an issue fraught with political tension. Dodd-Frank requires the CFTC to establish position limits to counteract a perceived increase in speculation on the part of large traders. Theoretically, position limits would curb the market influence any one firm could have over the price of particular swap-type. Pressure to draft and implement a strict rule reached a peak this summer, when oil hit $100 a barrel. However, market participants and their political allies point to the dearth of reliable data proving that position limits will actually curtail speculation.