[Congressional Record Volume 157, Number 53 (Tuesday, April 12, 2011)]
[House]
[Page H2587]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
IT IS TIME FOR THE CFTC TO ACT
(Mr. COURTNEY asked and was given permission to address the House for
1 minute and to revise and extend his remarks.)
Mr. COURTNEY. Mr. Speaker, yesterday the investment firm Goldman
Sachs came out with an amazing statement, which is that $27 per barrel
of oil today is the result of excessive speculation; it has no
connection to supply and demand. What that means is a motorist in the
State of Connecticut who is now paying $4 a gallon for gas should be
paying only $3 a gallon; but all the speculation which oil delivery
guys and gas station owners have been screaming about for the last 3
months is the factor that is driving up the price of gas.
Last year, the commodities trading commission in the Dodd-Frank Wall
Street Reform bill was given the authority to limit the amount of
outside speculator participation in energy futures trading markets.
They have not implemented those rules. It is time for them to act. It
is time for the CFTC to issue these new rules and to protect America's
consumers and small businesses.
U.S. Commodity Futures
Trading Commission,
Washington, DC, March 25, 2011.
Hon. Joe Courtney,
House Office Building,
Washington, DC.
Dear Congressman Courtney: Thank you for writing to the
CFTC regarding speculation. The agency considers most letters
from Capitol Hill as ``comment'' letters on regulations being
promulgated. I, however, wanted to take a moment to respond
to your letter.
On Wednesday, oil prices reached nearly $106 per barrel--up
29 percent this year. Not since 2008, when many of us raised
concerns about excessive speculation, have prices been so
high. This comes at a time when a fairly high supply of oil
and stable demand exists. Obviously there are myriad factors
impacting prices: the Middle East, Japan and crude
transportation issues, to name a few. At the same time,
however, we have speculators coming into energy markets at
blistering pace. In fact, the latest data indicates that in
the energy sector, speculative positions are at an all-time
high--up 64 percent from June of 2008 when crude oil prices
touched $147.27 per barrel.
I'm not suggesting that speculation is bad. In fact we need
speculation and there is ample evidence (in addition to
common sense) that speculation can decrease volatility. On
the other hand, speculation can become excessive. In these
instances, as we may be seeing now and as I believe we saw in
2008 and even for some period in 2009, that excessive
speculation can impact prices. I'm not suggesting that
speculators are driving prices or that they are the cruise
control on prices. I do think, however, that they tap the gas
pedal at times.
I didn't come to this conclusion lightly and continue to
cite many studies, paper and quotes that make this same
connection between speculation and prices (not just in the
energy complex, but also in agricultural commodities and
metals).
As you know, Congress enhanced the CFTC's ability to
address excessive speculation as part of the Dodd-Frank Wall
Street Reform and Consumer Protection Act. Specifically, the
Act mandates that the agency implement speculative position
limits in the energy sector within 180 days. Obviously, that
deadline has long since passed, which is unfortunate to say
the least. I had urged the agency to implement limits on
time.
We heard three primary arguments against implementation
within the required implementation time period, that is, by
mid-January, 2011.
First, some have suggested that when the statute says the
Commission shall implement ``appropriate'' speculative
position limits, that the word ``appropriate'' could mean
that no limits whatsoever could be ``appropriate.'' As many
Members have said, this provision of the statute should not
be interpreted with such elasticity as to mean no limits
whatsoever. The reason Congress gave us the expedited
implementation date was precisely because Congress wanted the
agency to implement speculative position limits.
The second argument against implementing limits on time was
that if we were to do so, there would be market migration. In
essence, the suggestion is that if the CFTC set very
restrictive position limits, traders would simply trade in
other venues. First, there is the suggestion that the trading
will migrate to currently unregulated over-the-counter (OTC)
markets. These markets will, however, within months not
years, be regulated by the agency. The other suggestion is
that the trading will migrate to foreign boards of trades.
Both of these suggestions are based on the dubious premise
that limits the agency establishes would be overly
restrictive. There is nothing that requires us to set a
certain position limit level, and, in fact, I have always
said that we should err on the high side at first--precisely
to avoid any negative consequences--and re-calibrate as we
move forward and know more about the markets.
The third argument against implementing limits on time was
that the agency doesn't have the data to set reasonable, or
appropriate, position limits. This is the only argument of
the three that has limited merit. We do not yet have, and
will not have for a few more months (September at the
earliest) some of the OTC trading data that would facilitate
setting position limits. Those who don't support position
implementation now use that argument to say no limits should
be in place whatsoever. Congress required that we have
several limits: spot month, all month and aggregate month
limits for currently regulated exchanges. The law also
requires that we have those same three limits for OTC trading
(spot, all month and aggregate limits). Those who oppose
limits now don't agree that we could have already imposed
spot month limits on all contracts (including OTC trades)
using the available physical supply of the commodity. We
could have done those in January, we can do them now.
Similarly, we could have, should have and can now implement
limits for all months and aggregate limits for currently-
regulated exchanges. Finally, if there was a desire, I
believe we could have developed an appropriate formula to
impose limits on OTC trading for the very largest traders who
also use the currently-regulated exchanges. This limit would
have also had to err on the high side.
On summary, the agency could have implemented a speculative
position limits regime in January. We can still do them now.
I will continue to urge that we do so.
Thank you again for your letter. If I can ever be of
assistance on this, or any other matter, please don't
hesitate to contact me.
Sincerely,
Bart Chilton,
Commissioner.
____________________