Comment Text:
Regarding position limits on Derivatives-
No single position should be allowed to exceed a sizable percentage of annual production, nor should a single position on either side of the trade (either long or short) be allowed to exceed a sizable percentage of total open interest.
Derivatives are simply a "fractional reserve" liquidity scheme that allows increasing interest in a scarce commodity to trade more freely than the commodity itself. Such practices are rife for fraudulent over-leveraging, and it is the responsibility of the CFTC and other regulators to establish the hard lines that may not be crossed.
I believe that any single open position (whether long or short) that exceeds 20% of the total annual production of the underlying commodity is excessive, and fraudulent, unless the issuer/stopper can prove without question that they possess the underlying commodity in size sufficient to collateralize the position.
Similarly, any single position that attempts to establish an individual player (regardless of whether they are issuers or stoppers in the contract) as more than 20% of the total open interest on the exchange (whether in the front month, subsequent months, or all months in aggregate) can only be fraudulent, and monopolistic at its core, and can only be intended as a vehicle to distort natural price discovery. Again, any provision to exceed this level should only be granted for those qualified to prove that the position is collateralized by sufficient physical stock to clear the contract.
5000 allowable contracts in Silver is ridiculous. 1500 is intelligent, and 2000 should be the upper limit of rational compromise.
If the final limit number for Silver exceeds the limit number for Copper, then the commission owes the market an explanation as to why a metal of greater scarcity (both in crust, and above ground) is justified at allowing for greater open interest in the speculative paper markets.
