[Congressional Record (Bound Edition), Volume 157 (2011), Part 4]
[House]
[Pages 5779-5780]
[From the U.S. 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

[[Page 5780]]

     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.

                          ____________________