Comment Text:
10-005
COMMENT
CL-00857
From:
Sent:
To:
Subject:
Dwight Sutton
Monday, April 12, 2010 12:32 AM
Metals Hearing
Limits on "hedging" in precious metals futures trading
Dear Commissioners:
As a minor silver investor, I watched your recent hearing on position limits in future metals trading with great
interest. Thank you for including panelists from many different sides of the metals market.
The panelists in favor of limits on the precious metal shorts were armed with names and numbers. In contrast the
defenders of the large shorts could only say that they thought that the banks were long in the London exchange
and that the resulting liquidity was good for the market. Such vague statements were hardly reassuring.
One of the panelists wanted to divide the metals into industrial and those that were a "store of value" (formerly
monetary). He put silver in the latter category, but silver's industrial use has grown considerably in recent years,
even as the supply has waned. There is a real danger that business demand could squeeze the shorts. If they
could not produce the physical silver, a buying panic might ensue.
Hedging has traditionally been used to protect the interests of producers in periods of oversupply. Hedging silver
contracts has had little justification in recent years when the supply of silver is down and the price is up.
I believe, as one panelist proposed, that the limit, for both short and long traders, should not exceed 25% of the
total open interest.This is a higher limit than other markets permit, but should be sufficient to prevent
manipulation. If an exemption to the limit is granted to a short, than 40% of the metal backing their contracts
should be deposited in a COMEX warehouse.
Respectfully yours,
Dwight Sutton
