Comment Text:
Dear Chairman Gensler and fellow Commissioners,
I respectfully ask that you approve most of your staff’s proposal on position limits, including limiting exemptions to bona fide hedgers, with the sole exception of silver. The position limits for silver should be much lower. Staff's proposed formula would result in a position limit of over 5,000 contracts for any single speculator, on an all-months-combined basis. That is far out of line with any legitimate hedge, considering that 5,000 contracts is the equivalent of 25 million ounces of silver.
Australia's BHP Billiton mining company produced 42 million ounces of silver in 2009, based on statistics from the Silver Institute. Poland's KGHM Polska mining group produced almost 39 million ounces, and Fresnillo PLC in Mexico produced almost 38 million. Those are the only three mining groups in the entire world producing more than 25 million ounces a year.
Statistics regarding actual consumption totals for individual companies, whether refiners such as Handy & Harman or mints such as the Perth Mint in Australia, are harder to obtain. Nonetheless, there are probably no more than half a dozen consuming entities who would need to hedge at anywhere near the proposed 5,000 contracts limit.
When I last corresponded with Commissioner Chilton in July 2010 regarding the subject of position limits, I urged that 1,500 contracts be the limit for silver. At the equivalent of 7.5 million ounces of silver, it is more in line with the legitimate hedging needs of buyers and sellers, which is supposedly the function of the Exchange.
We have had over two decades of price manipulation in the silver market, owing to the concentrated position of the big banks. Having a position limit of 5,000 contracts actually encourages price-rigging speculators. The 5,000 limit will compound rather than solve the silver manipulation scandal, whereas instituting position limits of 1,500 contracts in silver will prevent undue concentration and help ensure more orderly market performance.
Respectfully submitted,
J.F.G. De Roeck
