Comment Text:
10-005
COMMENT
CL-02570
INVESTMENT
MANAGEMENT
March 31, 2010
LLC
Dr. Henry
G.
Jarecki
Chairman
Mr. Gary Gensler
Chairman
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
e-Mail: [email protected]
Dear Chairman Oensler:
ThaN( you so much for letting me participate in the March
25
th
meeting. As you can tell, I find such
discussions, and particularly the impromptu part, stimulating and challenging.
Just to clarify one matter: I do not object at all to regulation¯ I am as critical of much that happened in
the last two years as I thiN( you and the American public are, and I thiN( Government has great
*
¯
¯
S
opportunities to prevent it hereafter. I was commenting on the ~dea that all that was needed wa to set
limits and that it wouldn't matter how high they were or even if they had any impact. That is what led to
my comment about regulation for regulation's sake and to the overstated metaphor that it could lead to
regulating when each trader should.go for lunch. :
The limits that you are exploring do not, so it seems to me, have the same "for its own sake" impact. I
may not agree with you (and as you know I don't in some particulars) but I thiN( that what you are
suggesting certainly will prevent the very big boys from having very large positions.
I also thiN( it is important for the Commission to be able to make distinctions between actions that
could conceivably be harmfN to an orderly market and those that could not. To that end, we would
suggest that for those portions of a trading firm's business that meet certain qualifications, such firms be
considered intermediaries and position limitations be placed on the final beneficiary.: The criteria that
would define such business, and allow for positions to be disaggregated and counted at the end user are:
the inte~rnediary must announce openly what mix of commodities a person will be
buying when he invests, so that it is the. customer, not the intermediary, who is maldng
the decision;
the customer must give the intermediary 100% margin which is segregated at the
intermediary's baN( and/or clearing member, so that there is no risk of excessive
speculation;
* My old friend and former regulator, Jim Stone, just wrote a piece in the Boston Globe about financial industry
regulation. I share his views, especially about the central character of price opacity and excessive leverage.
67 Irving Place
New York, N.Y. 10003
Telephone (212) 984-1440
Fax: (212) 984-144210-005
COMMENT
CL-02570
GRESHAM
INVESTMENT
MANAGEMENT LLC
Mr. Gary Gensler, Chairman
Commodity Futures Trading Commission
March 31, 2010
Page 2
Co
all contracts must be exchange-traded and clearing-house cleared, so that there is
transparency and safety;
the intermediary must make available to the CFTC the name and quantum of each market
participant whose positions in total exceed a certain amount;
the set of positions must be truly diversified, so that there is no concentration in any
commodity (we have as you know 31 commodities in our pool)
intermediaries granted this right must not make use of over-the-counter trades as
coverage for their positions; and
the intermediaries must ensure that their clients be out of all spot positions an agreed
length of time before the first delivery day.
I would be happy to visit with you to discuss the possibility of malting a distinction for the portion of
business of those enterprises which act solely in this fashion, as this should completely obviate the risks
of opaqueness, concentration, and excessive leverage. I can understand not wanting to make exceptions
or gr~int exemptions, biat it should equitlly be unsatisfactoryto tba'ottle abu-sin-e~ that h~g caused no
harm and has no prospect of doing so. It is the business of the Commission to make distinctions and I
was grateful to hear you say you shared that view and were not thinldng of just having a blanket
approach.
All the foregoing notwithstanding, I enjoyed the challenge of the meeting and of seeing you once again
in command of it all.
All best wishes.
Sincerely yours,
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