Comment Text:
Gentlemen and Madam,
With all due respect for your positions of authority and though I am pleased to see that you are asking for additional public commentary on the issue of Position Limits, I have been some hesitant to taking the time to resubmit my commentary after your apparent disregard for it in all past attempts.
However, since this is an important issue for the protection of the general public (and I remind you that it is your primary mandate to protect the public from unfair and predatory practices of those who seek and/or who have distinct advantage over the public) I will take the time to make this commentary.
First, I do understand that this issue is to address position limits for all commodities, not one particular commodity, and therefore your consideration must be relevant to the basket of commodities traded in the open markets. As such, it is my opinion that any consideration of position limits must first address the quantitative unit measure of position limits.
Because the overall size of each commodity traded varies widely (ie annual worldwide production of a particular commodity) the unit measure of a position limit cannot be specified in terms of a number of contracts traded. Simply stated, this would create an imbalance relating to the position limit relative to the overall size of the produced commodity. A 10,000 contract position limit in oil versus say gold would result in a different percentage of the applied position limit to the overall annual production or supply of a commodity and therefore creating an imbalance.
The only intelligent solution therefore, is to measure position limits in terms of a percentage rather than a specified number of futures contracts. In this regard, a position limit specified in terms of a percentage would be consistent across all commodities traded.
Next, the actual percentage of the position limit should be low enough to prohibit any inherent or possible manipulative size accumulation of the overall position held by any investor, but not so low as to prohibit the ability of producers to effectively hedge their production. Legitimate hedging is a topic that should be looked at simultaneously as well.
After performing the basic math on several commodities it becomes apparent that a particular percentage or percentage range stands out as something that accomplishes both a protective measure against the accumulation of to large of a position (one that could result in an unfair or manipulative size) yet allows for legitimate protective hedging by those who seek to hedge. These position limits should be applicable to both long and short positions held in any particular commodity as to large of a position in either long or short can result in unfair and manipulative consequences.
The range would be 1% to 2% of annual production of any particular commodity.
To see a simple example of this, you need look no further than the positions currently held in the Silver market where one particular entity has held or currently holds a large enough number of short contracts to constitute 30% to 40% of the annual worldwide production of Silver. Furthermore, to see this excess and the abuse it creates, you need look no further than the trading activity on February 24th, 2011 (the latest perpetration of their ongoing criminal actions).
Had there been regulatory position limits established with the limits suggested herein, this party would have been unable to perform what has become its routine take down of the silver market targeting the investment stop loss triggers of those who hold speculative long positions, including individual investors.
This is not complicated math and the resulting suggestion of the range of percentages for establishing fair position limits is one that is quite obvious to anybody who understands the criminal actions that have been occurring.
You simply cannot continue to ignore this issue as it has become blatantly obvious to even the simple trader in the commodity markets that abuses exist to the detriment of the general public. Quite honestly, your credibility as a regulatory authority and as honest and forthright individuals is at stake here.
I respectfully submit this testimony for your review and consideration.
Regards,
Scott L. Mitchell
