Comment Text:
Commissioners,
Today is February 26th. In January of 2011, The US Mint sold more silver eagles than in any month in their history. Meanwhile, the Royal Canadian Mint struggles to get silver. Silver investors wait not only weeks, but months to obtain silver deliveries. The silver backwardation is at extreme levels. I believe it is evident a supply shortage in silver exists. This said, based on price action, one might think silver was everywhere. One silver ETF had to wait over a month to get 40 million ounces of silver delivered, yet a large commercial bank sold 1/4 the annual silver production short and made good delivery in one day (December 31st to January 1st) of 25 million ounces! Again, I would love to see this bank’s bills of lading to document the transfer! Likewise one analyst states, we have seen that the open interest in the MAR silver is 50,848, yet the traded volume was 124,000 contracts! If shorting 1/3 the annual silver production (in any one month contract) was not enough, we have high frequency trading (HFT) to suppress the discovery price on option expirations and delivery dates. All these shortages can be documented yet the enormous commercial short positions still exist. Apparently, an infinite supply of physical silver can be created out of thin air, or if not thin air, though cash settlement.
Of recent, the Financial Industry Regulatory Authority (FINRA), implemented Rule 4320 which goes into effect on 2/28/11. It mandates a 13 day buy-in for open delivery failures and it applies to shares of non-reporting corporations. Another FINRA rule titled 2010-043 also takes effect on 2/28/11. It reinstates the “short sale exempt (SSE) marking requirements for trade reporting in the OATS system.” It appears FINRA which is the largest independent regulator for all securities firms doing business in the United States, means business. Does the CFTC mean business?
When I was 12 years old I was overweight. I weighed 235 pounds. Putting myself on a diet was serious business if I wanted to survive and carry on a healthy life. I succeeded in going from 235 to 135 and running (5) 26 mile marathons later on in life. At the same time, the silver market is serious. It requires that the big shorts be put on a diet. The commercial shorts have gotten way too big for their britches and their mother is killing them with providing them a daily diet of sugar coated favors. The diet to get them in shape requires that they limit themselves to 1500 contracts (or 7.5 million ounces) in any one month. To lose weight, I had to limit myself to 1500 calories a day if I wanted success. I’m sorry to say that eating 5000 calories a day would not have been a good plan for success, but apparently to appease the banks, we will allow them to become obese and permit them to ruin their health just satisfy their sugar fix. Facilitating commercial shorts to 5000 contracts in any one month or the equivalent of 1/3 of the annual silver production of the Worlds three largest silver mining companies is not a good way for commercial shorts to shed their proprietary trading activities. It is also not a good way for the commercial shorts to get into sound financial shape. I feel the honorable Paul Volker spoke out publicly against certain proprietary trading activities for a reason.
On this basis, please institute a 1500 contract (7.5 million ounce) position limit for silver.
It will not be long before the arbitrage between paper and physical precious metals has disastrous consequences. If 5000 contracts or higher is accepted as adequate, I feel the markets will eventually serve justice to the commercial shorts that are selling metal that they don’t have. It might be much more favorable for us all if justice is served by the regulators, and not the markets. The markets may not necessarily have a conscience. Maybe, the CFTC does?
Respectfully,
Jim Hanson
