Comment Text:
Christopher Kirkpatrick
Secretary of the Commission
U.S. Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Re: Position Limits for Derivatives (RIN 3038-AD99)
Dear Mr. Kirkpatrick:
The Moody Compress & Warehouse Company appreciates the opportunity to submit this comment letter in response to the Commodity Futures Trading Commission’s (“CFTC” or “Commission”) proposed rulemaking entitled “Positions Limits for Derivatives” (the “Proposal”).
Moody Compress & Warehouse Company supports the Commission’s efforts to issue a final position limits rule for several reasons. First, a final rule, provided some revisions are adopted, will provide certainty to firms like ours and all market participants. Second, the Commission’s revisions to the bona fide hedging exemptions align more with how the cotton market operates and how we conduct our business. Finally, although we broadly support the Proposal, we believe the Commission should consider several revisions, which are discussed further below, related to unfixed-price sales, deliverable supply estimates, and non-spot month limits.
I. Introduction
Moody Compress & Warehouse Company is an independent family owned company that has been in business since 1946 and it works closely with cotton merchants. It is in Galveston, Texas and is a Delivery Point for cotton tendered on the futures board. We understand the importance of supporting ACSA in this regard.
II. The Proposal
Moody Compress & Warehouse Company writes in support of the comment letter submitted by the American Cotton Shippers Association (“ASCA”). As a member of ACSA, we support its comments and other trade organizations to the extent those comments are consistent with those herein.
a. Risk Management Exemptions
We support the Commission’s revisions to the “Temporary Substitute Test” and the elimination of risk management exemptions for banks because outsized positions in physical commodity-focused indexes can have significant, adverse effects on futures market price dynamics.
b. Enumerated Hedges
Although we support and appreciate the Commission’s efforts to expand the list of enumerated hedges, we are concerned that the Proposal would not provide the exchanges the authority to grant hedge exemptions through the enumerated process that will allow merchants to properly manage calendar spread price risk and supply price risk associated with unfixed-price sales contracts. We recognize that there are multiple ways the Commission could address these risks associated with unfixed-price sales contracts, and we support the three methods outlined in ACSA’s letter: (1) Utilize Anticipatory Merchandising; (2) Modify the Definition for Hedges of Offsetting Unfixed-Price Cash Commodity Sales and Purchases; and (3) Create a New Enumerated Hedge Category
c. Deliverable Supply
We disagree with the Commission’s acceptance of the deliverable supply estimates for the U.S. Cotton No. 2 (“CT”) contract. Deliverable supply estimates should be considered in terms of a product’s quality and its legitimate, logistical availability for delivery. The estimates included in the Proposal do not reflect the cotton industry’s historical ability to deliver the physical commodity.
d. Federal Limits
We object to the proposed federal spot-month limit increase from 300 to 1,800 CT contracts and urges the Commission to maintain the current federal spot-month limit at 300 CT contracts. Moreover, we disagree with the Proposal’s increase of the non-spot limits for the nine legacy agriculture products. However, if the Commission decides to increase the non-spot limits for these products, the Commission should adopt lower single-month limits to prevent speculative activity from concentrating in a single contract month, which would likely jeopardize convergence.
e. Exchange-Set Position Limits
The appropriate level of volume and liquidity is necessary for the CT contract to play its vital role in the global cotton ecosystem. These factors should be taken into consideration before a revised exchange-set limit is established for the CT contract.
f. Form 304
We support the elimination of Form 204 and the proposed changes to Form 304; however, the Commission should go further with its plan regarding Form 304 and either: (1) eliminate Form 304 completely; or (2) if it has compelling reasons to continue collecting Form 304 data, stop publishing the data for public dissemination.
III. Conclusion
Thank you for the opportunity to provide comments on the Proposal. If you have any questions or concerns, please do not hesitate to contact me [email protected].
Sincerely,
Bragg Smith
President
Eugene B. Smith & Company, Inc.
d/b/a Moody Compress & Warehouse Company
