Speculative Position Limits
Section 4a(a) of the CEA, 7 USC 6a(a), specifically holds that excessive speculation in a commodity traded for future delivery may cause "sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity." Section 4a(a) provides that, for the purpose of diminishing, eliminating, or preventing such problems, the Commission may impose limits on the amount of speculative trading that may be done or speculative positions that may be held in contracts for future delivery.
Most physical delivery and many financial futures and option contracts are subject to speculative position limits. For several markets (corn, oats, wheat, soybeans, soybean oil, soybean meal, and cotton), the limits are determined by the Commission and set out in Federal regulations (CFTC Regulation 150.2, 17 CFR 150.2).
The two firms were breaking this rule and risking fines or worse, a rule put in place to avoid trading in a commodity to be overwhelmed or distorted by players who don't have a financial interest in the physical commodity itself. Such players are defined as "speculators".
The word "speculator" doesn't imply evil or nefarious intent on their part. It's just a working definition of one of the two groups of participants in the commodities field of trading. Their actions are restricted by the CFTC for the simple reason that the stakes are so high. There's no limit to the role of speculators in the stock market because if the price of a stock runs up or down, generally no real harm ensues.
But when the price of a physical commodity runs up, it can have eggregious effects. Since January, 2000 small trucking firms have gone under, airlines are teetering on bankruptcy, and auto manufacturers face declining sales. With regard to agricultural commodities running up in price, people go hungry or even starve to death in third world countries. So with the stakes so high, the CFTC long ago put restrictions on the amount of speculation that can take place by creating "position limits" for each commodity. These limits were/are being exceeded by traders on ICE and in a variety of ways, such as options and synthetic swaps.
Please tell me this makes sense to you because I'm giving up on trying to explain. It's not a political issue, but it seems to me you are stubbornly resisting the truth because you see it as one?? |
