Four Horsemen: Republicans Challenge CFTC on Position Limits

Four Republican congressmen have written a letter to the CFTC challenging its controversial position limits regulation. The letter was signed by House Financial Services Committee Chairman Spencer Bachus, Vice Chairman Jeb Hensarling, and two additional members, Randy Neugebauer and Scott Garrett.

The CFTC suffered a setback in late September when its position limits rule was blocked by U.S. District Court Judge Robert Wilkins. The rule would have limited the number of contracts traders can hold in 28 commodities, including oil, coffee and gold.

Wilkins ruled that the CFTC failed to prove that position limits regulation is necessary for healthy market functioning. In their letter, the four Republican congressmen advised Gary Gensler of the CFTC against an appeal to the ruling.

“We are very concerned, in the wake of the financial crisis, that CFTC staff are using limited resources to pursue ideological and political goals rather than using the resources allocated by Congress to carry out the direct requirements of the agency,” they wrote.

Republicans have differed with the CFTC on whether position limits regulation is a mandate of the Dodd-Frank Act.  Gensler has been unequivocal on the issue.

“Congress mandated us to do this,” Gensler said at a derivatives conference on Wednesday.

The CFTC’s Plan For Position Limits

Meanwhile, Bart Chilton of the CFTC has provided a rough sketch of how the CFTC plans to push position limits through the courts.

  1. The CFTC will appeal the position limits decision.
  2. The agency will start drafting another, less ambiguous rule.
  3. The CFTC will call upon international regulators to do the same.

Perhaps Chilton’s comments lead the CFTC into the den of Republicans, who are arguing that such extensive action by the regulatory agency is ideological and far from cost-effective. In either case, it is unlikely that CFTC will be able to produce much more information in defense of the position limits rule, especially in the short-term; also, the longer it takes to tweak the rule in order to pass it through the courts, the more likely it is that the CFTC will be accused of wastefulness.

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