Comment Text:
I agree with your staff’s proposal on Silver position limits, and restricting exemptions to bona fide hedgers. Without these corrections to the market rules on Silver, the market is a sham and the CFTC will be an onlooker rather than a tough referee. I would ask you, however, to re-adjust the proposed formula. The current formula would result in a position limit of over 5,000 contracts for any single speculator, on an all-months-combined basis. This is way too high. It will give speculators too much dominance over real world producers and consumers.
Speculators can’t manipulate without a concentrated position. The only effective way to prevent concentration is by enacting legitimate speculative position limits. The key is to set the speculative position limits at the right level; not too high, so that speculators control the market, not too low as to restrict trading liquidity.
5,000 contracts is the equivalent of 25 million ounces of silver. There are only three mining companies in the world who produce more than 25 million ounces of silver a year. In addition, there are only a handful of silver consumers in the world who consume more than 25 million ounces a year. There are hundreds of important miners and consumers who produce or consume less than 25 million ounces of silver a year. Therefore, it makes no sense to empower any speculator who comes along with the ability to hold, long or short, more than the amounts most of the important world producers and consumers make or use in a year.
I would suggest the correct level for position limits in silver is 1250 contracts or 6.5 million ounces. That amount is still larger than what the vast majority of the world’s silver producers and consumers make or use in a year.
