Comment Text:
10-005
COMMENT
CL-02351
From:
Sent:
To:
Subject:
secretary
Wednesday, April 7, 2010 12:25 PM
Metals Hearing
FW: March 25th meeting. I agree..No size exemptions for any individual or entity or sub entity
in any market or dark pool! Whatsoever in Silver and Gold..
From:
Ken Mentell [mailto:[email protected]]
Sent:
Wednesday, April 07, 2010 11:45 AM
To:
Chilton, Bart; Gensler, Gary; Dunn, Michael; Chilton, Bart; Sommers, .]ill
Cc:
secretary
Subject:
RE: March 25th meeting. I agree..No size exemptions for any individual or entity or sub entity in any market or dark
pool! Whatsoever in Silver and Gold..
Importance:
High
This message has been modified by removing a potentially harmful program. Only the appearance, not the content,
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Customer Service Center for assistance.
Please establish a speculative position limit in COMEX silver and gold of no more than 1000 contracts. Please do
not permit
any size exemptions for any individual or entity or subentity in any
market or
dark pool whatsoever in Silver and Gold. Please
stop the levels of concentration in COMEX silver futures that have been experienced over the past few years on the short side of
the market. FULFILL YOUR MANDATE, LEST THE PEOPLE HOLD YOU ACCOUNTABLE FORCOLLUSSIONINA
CONSPIRACY.
Ken Mentell
From:
Ken Mentell [mailto:[email protected]]
Sent:
Monday, March 22, 2010 6:27 AM
To:
[email protected]; [email protected]; [email protected]; [email protected]; .][email protected]
Subject:
March 25th meeting..I agree..No size exemptions for any individual or entity or sub entity in any market or dark pool!
Whatsoever in Silver and Gold..
Importance:
High
March 25th meeting..I agree..No size exemptions for any individual or entity or subentity in any market or dark pool,
whatsoever in Silver and Gold.. You MUST address and fix this issue on March 25, 2010.
Ken
Mentett
Got Gold Report - Letter to CFTC on Position Limits for
Gold, Silver
-- Posted Monday, 22 March 2010 I Diqq This Article:!:i:::i: I Share this articlel Source: GoldSeek.com
By: Gene Arensberg
Hon. Gary Gensler
Chairman, Commodities Futures Trading Commission
3 Lafayette Center
1155 21
st
St, NW
Washington, DC 5058110-005
COMMENT
CL-02351
¯
Re: Meeting to discuss the establishment of position limits for precious metals futures markets
scheduled for March 25.
Dear Chairman Gensler and Commissioners,
Certainly you all would agree with this statement:
"No
futures trader should be able to dominate the market
or be able to achieve such an overwhelming size of positioning on one side of the market that it would
intimidate the majority of traders in that market." Such a statement should be foremost in the policy totem
pole of futures market regulators. However, the fact is that just such an egregious situation currently exists
today in the U.S. precious metals futures markets, up to now apparently with the Commission's blessing.
The American people want to know why this Commission tolerates obvious and unfair market dominance by
just a few well-connected, well-informed, well-funded and politically clever entities. Further, the American
people look to you to end this inequity as one goal of this historic meeting.
Market dominance by a privileged few traders can only be accomplished if those few traders are granted a
trading advantage, either by the rules themselves or by the regulator's granting of exemptions to the rules.
Truly fair and free markets cannot exist so long as one or just a few traders are allowed trading dominance.
Problem Not Size Limits, Rather it is Exemptions to Limits
In the U.S. precious metals futures markets today an elite few traders are able to gain a trading advantage
over all the other traders because the Commodities Futures Trading Commission (CFTC) and the futures
exchanges routinely grant exemptions to position limits - in virtually unlimited size.
The statutes say generally that "bona fide hedgers" should be granted exemptions to position limits provided
that the positions are for legitimate hedging purposes. But, Mr. Chairman and Commissioners, nowhere is it
written that these exemptions should be given in such huge size that they overwhelm the trading of that
market. Yet, that is exactly the condition we find in the gold and silver futures markets from time to time.
Because the Commission allows the mere possession of (or direct control of) physical metal inventory as a
qualifying criteria for hedgers seeking exemptions to position limits, and since there are actually a very small
number of entities who possess or control vast amounts of physical metal, there are in reality only a precious
few traders capable of using and abusing the privilege of exemptions to size limits.
When the criteria for exemption looks only to a trader's claimed inventory for qualification, while ignoring the
impact on the entire market an overly-large one-way position will ultimately have, then it is the exemption
process and the implementation of it that perverts the price discovery mechanism of the futures markets.
Such overwhelmingly large exemptions to position limits have the direct result of allowing one side of the
market to become dominant and very highly concentrated, with way too large a proportion of the actual
trading dependent upon (and subject to the effects of) the actions of a very few traders the Commission
deems "bona fide hedgers."
The problem is not, repeat not, an issue of the speculative position limits being too large. The Commission
need not reduce the size of the current position limits if the Commission deems it necessary to impose its own
limits rather than allowing the exchanges to regulate trading size.
Neither should the Commission bother with determining whether or not any particular trader is worthy of being
granted such an obvious trading advantage. Instead, the Commission should grant no trader an advantage,
period. The Commission should adopt new position limits which are blind as to the individual trader's needs or
goals, looking only to the integrity and fairness of the market itself as the prime goal, and then rigorously
enforce those new limits on both sides of the trading battlefield. (That is only if the Commission quits granting
exemptions to position limits which are out of all proportion to the total open interest, as suggested below.)
We reviewed the prefatory questions supplied by Commission staff before preparing this memorandum. One
question staff should have asked, but didn't is:
"Does
allowing virtually unlimited size exemptions to
position limits cause distortions in the futures markets or provide an unfair advantage to one side
of the equation?"
The answer to that question is "yes, obviously."
Futures Markets
-
Bullion Bank Playground10-005
COMMENT
CL-02351
Again, the problem is not the current position limits. The problem is that some traders abuse (or at least have
the opportunity to abuse) exemptions to those position limits and the possibility exists for those traders to
dominate and intimidate the entire market because of that.
Position limits for futures are laughable so long as the Commission continues to allow virtually unlimited size
"exemptions" to a very few "hedgers" in the metals markets. When traders on the speculative side of the
market are strictly limited in their position taking (as they are now), while two very large U.S. based bullion
banks are granted exemptions which allow them to take opposing positions 10, 15 or even 20 times the
supposed speculative limits, clearly there is an imbalance of trading strength granted by this Commission to
the hedging or short side of the trading pit.
The current exemption regimen therefore appears to favor the short, or hedging side.
As of March 2, for example, less than four and probably just two U.S. banks[i][1] held a net short position of
30,286 contracts in the small silver COMEX futures market when the entire open interest on that market was
108,248 contracts open (just two banks holding 28% of the entire market net short). [1][2] Those two bank's
net short position dwarfs and overwhelms the trading "horsepower" of the largest speculative traders where
even the four largest combined longs amounted to 14.4% of the open interest.
The UiS. banks' net short positioning relative to the total open interest of the COMEX silver market is plotted in
the graph just below.
Note, please, that the huge jump in U.S. bank net short positioning for silver occurred at roughly the same
time as the Bear Stearns
"take-under"
in 2008. Note also that the overly-large concentration of net short
positioning by these two banks continued at least through March 2, 2010. Just two banks hold over one-
quarter of all the COMEXaction net short. No other trader or pair of traders even comes close to that market
dominance.
We believe the U.S. banks are most likely JP Morgan Chase and HSBC, although their identity is guarded and
kept from the American people by the Commission by convenient statute. However, through the dedicated
research of others, particularly the Gold Anti-Trust Action Committee (GATA), led by William J. (Bill) Murphy
and Chris Powell, we believe there is little question these bullion banks are directly responsible for the
overwhelmingly large interests consistently on one side, the short side, of the bullion markets.[1][3]
While we would not openly accuse any particular bank of using position-intimidation or of attempting to
manipulate prices lower, we would point out to this Commission that allowing just one or two traders virtually
unlimited size in the futures markets is tantamount to encouraging that trader to use the weight of its own
trading to achieve a price outcome favorable to them and contrary to the price discovery mechanism the
futures markets are supposed to be.
Bullion Banks "do it" Because They Can
In Texas English: To us it seems the CFTC winks at position limits when it comes to a few preferred players.
That is why so many now believe that those elite bullion banks consider the COMEX as their own trading
playground. It is like allowing JP Morgan to usea battleship and an aircraft carrier against the natives using
bows and arrows in the small COMEX silver frog pond.
While one might argue that an entity holding a little more than a quarter of the open interest net short is not
dominant or intimidating because that would mean that three-quarters of the market is left, we would argue
otherwise. Primarily because under the rules today no one is granted an equally powerful exemption to the
position limits for the opposite side of the market, the long side.
Therefore, if JP Morgan wanted to or felt compelled to, it certainly could dominate or intimidate the rest of the
market participants simply by taking ever larger net short positions until the real market demand has been
artificially and temporarily sated. They are able to by virtue of their ability to claim an exemption to position
limits purely because they hold or control metal inventory in excess of the entire market open interest for
silver.
No trader on the long side has that "weapon" and everyone knows it. Only a very few bullion banks can use10-005
COMMENT
CL-02351
that weapon; they do so with this Commission's blessing and everyone knows it. There is nothing equitable
about that.
Further, the above graph compares the two U.S. bank's net short position to the total open interest of the
COMEXon March 2, 2010. In order to understand just how concentrated that U.S. bank positioning really is,
we need to see it in terms of all the commercial net short positioning. It is there where we see just how
dominant these two entities are in the COMEX silver market.
As of March 2, the two U.S. banks held 135 silver contracts long and 30,421 contracts short for a net short
position of 30,286 contracts. On that same date, all traders classed by the CFTC as "commercial," all of them,
held 31,034 contracts long and 71,974 contracts short for a collective commercial net short position of 40,940
contracts.[1][4] Therefore just these two well-connected bullion banks held astaggering 74% of all the
commercial net short positioning on the COMEX. The two banks' net short positioning relative to all traders
the CFTC classes as commercial is shown in the graph below.[1][5]
At times during the last year and a half these two U.S. banks have been responsible for as much as 99% (not
a misprint) of all the commercial net short positioning on the COMEX.
In no other market is there anything close to this kind of overwhelmingly concentrated positioning on either
side of the trading pit. The only reason it is possible is because this Commission allows it and apparently
approves of it. There isa similar, but somewhat less dominant situation in the much larger gold futures
market, but we will confine our comments to silver for this memo.
In short (no pun intended), the current exemption policy allows an imbalance in the futures
markets which can only be corrected by placing limits on the number of contracts ANY trader may
hold, regardless of their bias, measured as a percentage of the total open interest at any given
time. Limits which recognize that the futures market is not large enough to allow unlimited
exemptions for traders who hold inventories too large to hedge on this bourse.
Time for a Level Playing Field
Speaking as to question number 6a in the staff memorandum, which asked:
"If the Commission were to
establish position limits for metals derivatives markets, what types of exemptions from such limits should be
permitted?
a) The statute states exemptions should only be granted to bona fide hedgers. What should be the
qualifying factors for an entity to be determined to be a bona fide hedger?"
The Commission should ignore a trader's inventory of metal as a qualifying tenant of an exemption because
there are only a very few traders who hold or control vast amounts of precious metals and the ones that do -
control an overwhelmingly large amount of the metal. Therefore they are able to claim an exemption for
virtually any size in the futures markets and are able or have the potential to overwhelm and intimidate the
opposing side of the market. The futures market is not large enough to allow such beneficial treatment to a
few giant bullion banks.
Rather than allowing a few large holders of metal to dominate a market, position limits should be based on the
market's relative size only, without regard to the trader's advantages or disadvantages in that market. The
market should be blind as to the trader's needs. It should instead be concerned with the integrity and fairness
of the market itself.
Position Limits Should Favor No One
In order to insure a fair market for all participants, ALL participants, even bona fide hedgers, should be
restricted to no more than a reasonable percentage of the open interest at any one time. Both in the spot
month and in deferred or future months.
Just as no single trader (or cabal of single-minded traders) should be able to amass a dominant position of
tens of thousands of contracts on the long side, neither should any one trader be able to do so on the opposite
side. There are other, larger and less regulated markets in which such large players can hedge via swaps,
options, forwards, over-the-counter derivatives, etc.10-005
COMMENT
CL-02351
The Commission should not let the arguments of a few very large players determine its policy for the entire
market,
As a suggestion for the silver market, the limits could be set initially at no more than :[0% of the open interest
or :[0,000 contracts (whichever is the higher) for all participants, long, short or spreading, in all contract
months, with no more than 3,000 contracts in the spot month,
Then, as or if the open interest increases beyond :[00,000 contracts, in minimum :[0,000 contract marks, all
traders would be able to increase the position size limit by :[,000 contracts (:[0% of the increase in open
interest) in all months (and across all CFTC regulated markets), or an additional 300 contracts (:[0% of the
increase in the open interest) in the spot month, so that in no case could any trader hold more than :[0% of
the market in any trading period, Again, this assumes that the Commission no longer allows any trader an
overly large exemption to the limits,
Otherwise, if the Commission allows any trader an exemption to size limits, for any reason, the limits for
traders on the opposing side should be increased by the exact same amount, Otherwise the potential for
abuse of those exemptions will follow,
Don't Let Bankers Determine CFTC Policy This Time
In conclusion, granting exemptions to position limits without regard to the imbalances and market intimidation
such exemptions cause is the prime issue this Commission should focus on and correct now.
We very much hope that you, Chariman Gensler, and all the CFTC Commissioners will take this historic
opportunity to finally bring balance to the U,S, precious metals futures markets and end the abuse of it by a
few powerful actors,
This Commission should immediately adopt fair position limits for the precious metals markets which will no
longer favor a few large bullion banks and instead restore a level playing field for all market participants,
To do otherwise now will confirm that this Commission is partial to the bullion banks and contrary to the will of
the American people, To do otherwise will perpetuate the common impression of the U,S, futures markets as
a playground for miscreant bullion banks with this Commission unable or unwilling to intercede,
If we can be of any assistance to you or your staff in formulating the new, fair trading policy, do not hesitate
to contact us.
Respectfully,
Gene Arensberg
Got Gold Report
GotGoldReport.com
(Address sent separately)
CC: CFTC Commissioner Michael Dunn
CC: CFTC Commissioner Scott O'Malia
CC: CFTC Commissioner Jill E. Sommers
CC: CFTC Commissioner Bart Chilton
CC: CFTC Secretary David Stawick
CC: CFTC General Counsel Dan Berkovitz
[1][1] For 19 months prior to December, 2009 there were two U.S. banks reported. Beginning in December, 2009 the CFTC quit reporting
the number of banks if less than four, presumably at the request of one or both of the banks.
[1][2] See: March 2 CFTC Participation of Banks in Futures and Options report.
[1][3] See GATA memo dated March 18, 2010 to the CFTC in preparation for the CFTC hearings.
[1][4] CFTC commitments of traders report for March 2, 2010.
[1][5] Data from CFTC Bank Participation in Futures and Options reports, Cash Market for silver.
From:
Chilton, Bart [mailto:[email protected]]10-005
COMMENT
CL-02351
Sent:
Tuesday, July 14, 2009 5:04 PM
To: [email protected]
Subject:
Re: Silver Position Limits
Here is my statement on the matter for your information. I've said metals should be included. I look forward to our hearings and
hope my colleagues will agree.
Statement of CFTC Commissioner Bart Chilton on Speculative Limit Hearings and Increased Transparency
July 7, 2009
These hearings are an excellent starting point to address a significant issue, that is, how to ensure that speculative activity in the
marketplace does not distort prices. First, we need to look at the issue of spec limits generally; we've got federally-set spec limits
in ags, but not in other physically delivered commodities, like oils and metals, and we need to see if it's appropriate for the CFTC
to set limits in those commodities as well. Oil, for example, is certainly as important a commodity as wheat, and, as we saw last
summer when the price of oil skyrocketed out of control, federally-set spec limits may have been able to provide some needed
"speed bumps." Second, we need to look at whether exemptions that have been granted with regard to these limits are
appropriate. This involves a review of our fundamental concept of "bona fide hedging"; specifically, should that include entities
that are primarily involved in financial hedging, and not in the actual commercial dealings in underlying commodities? We need to
drill down on this issue, and figure out how best to craft this definition to protect consumers and markets. We need to have an in-
depth and comprehensive analysis of this, to ensure that appropriate speculative activity is permitted, but that activity causing
uneconomic price moves is prohibited.
On enhanced transparency issues, that is improved COT reports and the swaps report, I want to commend our chairman for
moving ahead in this venue as well. I'm glad to see he has announced a needed revamping of our Commitment of Traders
reports, which is long overdue. This is intended to 1) separate swaps dealers out of the current commercial category, 2) separate
hedge funds and other managed accounts out of the current non-commercial category, 3) include data from foreign contracts that
are "linked" to domestically traded contracts, and 4) include data from significant price discovery contracts. I look forward to
getting comment from the public as to what they think of this new report, and whether additional improvements can be made.
Lastly, until we have authority granted by Congress increasing our ability to look into "dark markets," I think we need to continue
to improve our information gathering related to our swaps "special call"; this information is only as useful and reliable as the data
we receive, and I believe we must also continue to improve our scrutiny of this information to ensure its utility to us and to the
marketplace.
From:
Ken Mentell
To: Gensler, Gary; Dunn, Michael; Chilton, Bart; Sommers, Jill
Sent:
Tue Jul 14 15:23:00 2009
Subject:
Silver Position Limits
Please reduce the position limits in silver to below 1000 contracts to stop the current monopoly and manipulation occurring in the
silver markets.
Also please do away with the phony exemptions granted to a few big shorts that hold such massive manipulative positions in the
silver market. Please make transparent the reason why they are short and why these massive positions have been permitted by
the CFTC.
Please lower the silver limits to equal all other commodities and disallow all exemptions.
Ken Mentell
From:
Chilton, Bart [mailto:[email protected]]
Sent=
Tuesday, January 12, 2010 5:13 PM
To:
'[email protected]'
Subject=
Re: Thursday's Meeting on Position Limits-Make sure to discuss Silver Position LIMITS
I agree we need position limits. I continue to raise this every chance I get. I did so in our hearings in August, and in the media. I
won't let this mtg Thursday be any different. Thx for the email.
B
From:
Ken Mentell >
To:
Gensler, Gary; Dunn, Michael; Sommers, Jill; Chilton, Bart; O'Malia, Scott; Berkovitz, Dan M
Sent:
Tue Jan 12 17:07:32 201010-005
COMMENT
CL-02351
Subject:
Thursday's Meeting on Position Limits-Make sure to discuss Silver Position LIMITS
I trust in Thursday's meeting you wit[ discuss sitver position [imits. To not do so woutd be a mistake. The position limits in
COMEX silver should be reduced to 1000 contracts. Please publicly explain why this shouldn't be the limit. I find
it outrageous that JPMorgan is allowed to be short 40% of the COMEX silver market and 30% of world
production. Please end JPM'sconcentration and dominance. There should not be any allowed exemptions
whatsoever! God help the commissioners that turn a blind eye to these issues. When it all comes tumbling
down the people will be seeking to hold someone accountable.
Ken Mentell
