Comment Text:
Dear Mr. Stawick
David A. Stawick
Secretary
Commodity Futures Trading Commission
Three Lafayette Center 1155 21st Street, NW
Washington, DC 20581
RE: Dodd-Frank Wall Street Reform Act
Mr. Stawick,
You have a crucial job in developing the rules to implement the Dodd-Frank financial reform law. The CFTC must act to express the intention and spirit of this landmark legislation. I am especially focused on the distortion of commodity markets (and especially food commodities), which have been rocked by unusual volatility in recent years. This reform bill, in the wake of the financial crisis, is our best chance to restore order back to these important markets by limiting excessive speculation.
I believe the following points should be kept in mind as you go forward:
Definition of “commercial risk”
This is at the heart of your challenge. The new law clearly intends to limit this definition to traders with a genuine need to use commodity markets to manage their risks with actual physical commodities. There can be no justification for expanding the definition to include financial risks for banks and hedge funds; that would empty the exercise of defining the category meaningless.
Position Limits
Dodd-Frank learly states that the Commission shall set position limits to diminish, eliminate or prevent ‘excessive speculation.’ I urge the Commission to define limits that will address not only manipulation, but also excessive speculation, which will require a stricter approach.
Exchange Traded Notes and Funds and swap-based Index Funds
I am especially concerned about the influence of these instruments on commodity markets and ask the Commission to establish stricter limits for these types of speculative instruments.
Ownership of trading facilities
According to a statement by the Office of the Comptroller of the Currency, the five largest banks currently control 96 percent of derivatives activity. It is important to prevent these or any other class of business from collectively owning majority stakes in clearinghouses and other trading facilities. The CFTC must establish both a meaningful limit on individual ownership and a limit on collective ownership if the proposed rule is to have the intended effect of limiting conflicts of interest, assuring transparency and open competition, and preventing clearinghouses and exchanges from catering solely to the interests of a few large participants in the financial community.
High frequency trading
Computerized/algorithm-based trading, including high-frequency trading appears to have a growing effect on commodity markets, so I support the Commission carrying out in-depth studies of their impacts, and urge you to consider whether these types of investments should have any place in important commodity markets at all.
Thank you for your consideration,
Sincerely,
Soren Ambrose
900 N. Lake Shore Drive
Apt. 1207
Chicago, IL 60611
