Comment Text:
10-005
COMMENT
CL-02865
Thomas R. Zeinz
4746 Hayden Blvd.
Columbus, OH 43221
614-876-6436
708-305-1949 (cell)
email: [email protected]
April 10, 2010
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21 st Street NW
Washington, DC 20581
RE: Metals Position Limits & Hedging Exemptions
Dear Sir/Madam;
Thank you for the opportunity to comment on the issue of position limits for precious
metals.
As an individual investor, I am of the considered opinion that "hard" speculative position
limits in COMEX gold and silver of no more than 6000 gold contracts and 1500 silver
contracts, futures and options (all months) combined, are entirely appropriate and
should be imposed.
More importantly, hedging exemptions from those limits should be strictly limited to
legitimate producers, industrial consumers and those who have verifiable inventories of
actual, deliverable metal. Anything else should be deemed speculation. I find the entire
notion of certain traders claiming "hedging" exemptions in order to use exchange traded
futures contracts to offset OTC cash settled derivatives positions highly objectionable.
This is a clear subversion of what the hedging exemptions were originally intended for in
that such activity is wholly speculative in nature (no one "forced" them to enter into
derivatives positions, they "chose" to do so themselves). It also creates an excessive
leverage situation which will greatly compound the ill effects of any possible futures
delivery defaults should the latter ever occur. And "cash settlement" of commodities
futures contracts should never be considered as an option. People who buy
commodities futures and elect to take delivery want the commodity, not cash.
Also,
contrary to certain testimony offered at the March 25 open meeting on this subject, I find
it exceedingly difficult to believe commercial traders cannot segregate the respective
hedging and speculative aspects of their trading. I perceive any such claims as pure10-005
COMMENT
CL-02865
smokescreen. They can and should be required to separate such positions and report
them accordingly.
Further, to the extent any trader claims an exemption for the purpose of hedging a bona
fide physical inventory, they should also be required to demonstrate that the said
inventory they are hedging is distinctly separate and apart from any inventories of like
metals they are holding on behalf of clients under custodial or certificate arrangements,
unless the individual client(s) themselves have specifically authorized their respective
holdings to be hedged on their own behalf.
Another matter is that the March 25 meeting testimony offering how gold and silver
prices are set in London (the "London Fix") as evidence that COMEX doesn't "set
prices" is thin at best. Again, I find it most difficult to believe that trading on the COMEX
doesn't figure into setting the London price, especially when it was quite clear that one
or more of the participants in the group that fixes London prices are likely also among
the 4 or 8 largest commercial traders in the same commodities on the COMEX.
Finally, with respect to the notion that "hard" position limits and detailed vetting of
hedging exemptions, in the absence of additional statutory authority to regulate OTC
markets and/or coordinated international efforts, may force trading to "less transparent"
venues, I say "hogwash!" One: Where are they going to go? And, two: If so, then
"good riddance!" If the CFTC doesn't take the lead in this matter, who will? And forcing
the COMEX to clean up their act could very well result in increased trading volume there
in that more traders are likely to be attracted to markets they know are fair and honest
The investing public is depending on you, the CFTC, to stop the levels of concentration
in COMEX gold and silver futures that have been experienced over the past few years
on the short side of the market.
Sincerely,
Thomas Zeinz
Individual Investor
4746 Hayden Blvd.
Columbus, OH 43221
email: [email protected]
