Streetwise Professor

Today the CFTC voted out its position limit proposal for public comment.  Even though the vote was 4-1 (with Jill Sommers the lone nay), the ultimate fate of the initiative is still in doubt.  Indeed, its fate is even cloudier that previously thought.  That’s because of the most newsworthy aspect of today’s meeting: Commissioner Michael Dunn expressed skepticism about the need for limits.

This is newsworthy because (a) Dunn is a Democrat who is widely viewed as a swing vote on the Commission, but more importantly (b) is (as Reuters correspondents  Roberta Rampton and Sarah Lynch put it) a “circumspect senior commissioner who rarely airs his personal views in public.”

Dunn has a very, very solid basis for his skepticism.  Indeed, he echoed a theme I have hammered on for a long time: the lack of any evidence that speculation has actually distorted prices:

An important swing vote on the five-member Commodity Futures Trading Commission expressed skepticism about whether curbs on their trades would prevent a large run-up in prices.
. . . .

“To date, CFTC staff has been unable to find any reliable economic analysis to support either the contention that excessive speculation is affecting the markets we regulate or that position limits will prevent excessive
speculation.

“The test then is for the CFTC staff to determine whether position limits are appropriate. With such a lack of concrete evidence, my fear is that, at best, position limits are a cure for a disease that does not exist or at worst,
a placebo for one that does.”
. . . .

“If there is more than anecdotal evidence that there is excessive speculation distorting the prices in our markets, we need to see it. If there is statistical or economic analysis that shows that excessive speculation exists and that position limits will lower the price that we pay for gas, milk and steak … we need to see it.”

“Only after all these questions have been answered will I be able to determine whether or not position limits are appropriate.”

Nothing to criticize (a shocker, I’m sure): Nothing much to add.  I have pointed out repeatedly that the theoretical and empirical basis for the proposition that speculation has distorted prices is lacking (as suggested by the title of my piece on limits in Regulation: “No Theory? No Evidence? No Problem!“) So it’s encouraging to see Commissioner Dunn see that the lack of evidence is indeed a problem. It’s particularly encouraging to see him do so on a day when a group of eight senators put out an evidence-free statement demanding that the commission act to impose limits.

If actual, you know, evidence and data demonstrating the distortive effects of speculation asserted by the senators is required for position limits to move forward, they ain’t moving forward.

And speaking of not moving forward (yet, anyways), the rule limiting ownership and regulating governance of contract markets, SEFs, and clearinghouses was not put to a vote today, as had been anticipated.  There are apparently deep divisions within the commission, with some thinking what’s currently on offer goes too far, and others, not far enough.  These restrictions could have even more pernicious effects than position limits, so I can only hope that they too do not advance.