Is CFTC wrong about position limits

Author: Michael Washburn | Published: 27 Nov 2012
The Commodity Futures Trading Commission's (CFTC’s) announcement that it plans to appeal a circuit court's decision to void the position limits rule does not serve the interests of small investors and is questionable from a procedural standpoint, US lawyers have said.

But other markets observers disagreed, saying the regulators are making a responsible move to curb out-of-control speculation in the commodities markets.

The widely divergent reactions reflect divisions within the financial sector over whether position limits unfairly limit competition and liquidity and the extent of the CFTC's regulatory mandate.

Part of the controversy stems from a lack of clarity over the meaning of excessive speculation, noted Dan Waldman, a partner at Arnold & Porter in Washington.

"What is excessive, and if there is too much speculation, will position limits be effective in reducing it? The question is very difficult to test, it’s very difficult to empirically demonstrate one way or...