Comment Text:
Dear Chairman Gensler and fellow Commissioners:
I urge you to approve the staff’s proposal on position limits, including limiting exemptions to bona fide hedgers. I would ask you, however, to readjust the proposed formula in silver. The current formula would result in a position limit of over 5,000 contracts for any single speculator, on an all-months-combined basis. 5,000 contracts is the equivalent of 25 million ounces of silver. This is too high of a threshold in light of the realities of the current world silver market.
There are only three mining companies in the world who produce more than 25 million ounces of silver per year and only a similar number of industrial consumers using more than that amount. Any speculator holding an amount of silver derivatives greater than what 99% of the world’s silver producers and consumers make or use in a year would have inordinate pricing power. The purpose of speculative position limits is to prevent such a circumstance.
While I, personally, do not trade silver futures or options, I do own and trade shares of SLV (the silver ETF), prices of which tend to track (typically within ½ of 1 percent, or less) its underlying NAV based on the current spot price. Over the past 3+ years, it’s been fairly obvious to me (and for as long as your agency has been supposedly “investigating” the silver futures market, it ought to be obvious to you as well) that spot (and hence, SLV) prices tend to be largely influenced by the action on the COMEX exchange, not the other way around as it’s supposed to be. Even though the largest COMEX commercial silver trader (widely assumed to be JPM) has roughly halved its net short position over the past 2+ years, the 4 largest commercial traders, after subtracting spreading positions, (per your own COT reports) still control over half the short side of the entire COMEX silver market. This level of concentration is inexcusable and potentially (if not in fact) highly manipulative. Fair and appropriate position limits in silver should be NO MORE than 1,500 contracts or 7.5 million ounces. The current proposed limit of over 5,000 contracts will not eliminate this potential for a mere handful of traders to exert undue influence on prices. The 1,500 contract limit is the correct amount and is still greater than any other current concentration in physical commodities traded on the COMEX.
Further, exemptions should only be granted to bona fide producers and users and, in such cases, should not exceed 100% of their own annual production or consumption (based on an average of the preceding “X” years). NO EXEMPTIONS should be granted to so-called “market makers” as commodities law makes NO PROVISION for “market makers”.
Please institute a 1500 contract (7.5 million ounce) position limit (all months combined) for silver.
Respectfully submitted,
Tom Zeinz
Columbus, OH
