Comment Text:
March 25, 2011
Chairman Gensler and Commissioners:
I was privileged to serve as a Commissioner at the CFTC from late 1982 to early 1993. It is clear to me that the challenges you face today are more daunting than those the Commission of my era encountered. Derivatives were just emerging.
I firmly believe that the rulemaking before you on speculative limits is critical. Without meaningful limits on speculation for these instruments, there is no way to track market-impacting trading positions. Without that knowledge, how can the markets be regulated in a manner that will foster honest trading. Today, there are endless loopholes where positions can be hidden or disguised within various markets.
Sadly, in my day, the CFTC was viewed as a reluctant regulator. The Commission majority all too often chose, with the best of intentions and trust, to leave the care of the markets to those who used and abused them. I would add that the CFTC was not the only financial regulator to make that mistake. The result was Enron and a host of other scandals that did severe damage to our markets and to our economy. I believe that you, today’s Commission, are capable of avoiding such pitfalls. The rulemaking before you is a test of your resolve to take a positive step in controlling unbridled speculation.
Of course, those who prefer to operate in unfettered markets will be critical of you, if you approve these rules. You will be accused of destroying the derivatives industry and of driving markets overseas. The truth is that your affirmative action will make the markets stronger.
I am very proud of a landmark step that our agency did take while I was there. Over vehement industry objection, we mandated a meaningful audit trail for the exchanges we regulated. It is hard to believe, but when I came to the Commission in 1982, traders on futures exchanges only timed their trades to the nearest half hour! After a grueling process, we reduced that time to one minute. I recall the largest of the exchanges, as a part of its campaign to thwart our effort, created large buttons for their employees to wear that read: “Endangered Species—Ask the CFTC.” We survived and the markets were better for our action.
Now it is your turn.
Thank you.
Fowler West, former CFTC Commissioner
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