Exclusive: CFTC lacks votes on position-limit plan
WASHINGTON (Reuters) - The U.S. futures regulator delayed a final vote on controversial measures to crack down on excessive speculation in commodity markets because it lacks the three votes needed for approval, sources familiar with the situation told Reuters on Wednesday.
The U.S. Commodity Futures Trading Commission announced on Tuesday it was delaying by another two weeks to October 18 its meeting to consider the long-awaited rule on position limits. It was the second time a vote had been postponed.
The disagreements hinge on some of the smaller, seemingly less-contentious elements of the plan, not on the areas in which the CFTC has yielded to industry complaints.
This may suggest that Chairman Gary Gensler does at least have in principle an agreement on the need to impose limits on energy and metals markets, something several commissioners have questioned.
Two sources familiar with the agency's rule-making said the CFTC commissioners and staff were working on ironing out a myriad of differences, including details of conditional limits -- which allow for a higher limit in the spot month in a cash-settled contract than in a physically deliverable contract -- as well as the timing of imposing the limits.
"He doesn't feel like he has the votes," one source familiar with the CFTC's thinking told Reuters.
The source said a vote on the plan that would limit the number of contracts any one speculative trader could hold in commodity markets could be delayed again if support was not found among the five agency commissioners before October 18.
An individual who lobbies on behalf of the financial industry and follows CFTC rule-making closely said there were "individual components" creating tension within the agency and so far there is no agreement on what the rule should look like.
"Gensler is trying to herd enough cats to get three votes," he said.
CFTC spokesman Steve Adamske declined to comment.
The commission is made up of three Democrats, the chairman and two additional members, along with two Republicans. The party affiliation could continue to play a major role in determining the scope of the rules and the speed at which the agency completes its rulemaking.
The commission has never presented a unified front on position limits, one of the most contentious pieces of the Dodd-Frank financial overhaul for big commodity traders.
In January, Republican Commissioner Jill Sommers opposed releasing the draft rule for public comment, while Democrat Michael Dunn and Republican Scott O'Malia expressed skepticism on how effective the rules would be. Gensler and Bart Chilton have been staunch supporters throughout.
Dunn, a commissioner with an agricultural background and an independent streak, has been widely seen as the key swing vote for ensuring passage, but he is due to step down as soon as his successor is confirmed by the Senate.
That leaves Mark Wetjen, 37, the Democrat who has been nominated by the White House to replace Dunn. The U.S. Senate has yet to set a date to confirm Wetjen, who is counsel and senior policy adviser to Senate Majority Leader Harry Reid.
He could be confirmed in time for the next rule-making meeting. While Wetjen is expected by many to vote along party lines, which could break the logjam on the position-limit plan, he has offered limited insight into his views on the financial reform rules that he will be tasked with helping to implement.
Last week, Reuters obtained a draft final rule on position limits that showed the CFTC was yielding to banks and other major traders on several key provisions.
The version also would have eliminated the proposed conditional limit. The CFTC cited comments that urged it to gain further experience with swaps to ensure adequate liquidity for bona fide hedging transactions and positions before imposing restrictive conditions on people holding both cash-settled and physical delivery referenced contracts.
The leak of the position limits draft was the latest sign of strife at the CFTC, further complicating efforts by the regulator working to finish a new regulatory framework for the $600 trillion over-the-counter derivatives market. The Dodd-Frank law required the CFTC to have position limits in place by mid-January.
Whistle-blowers also have expressed concern at the CFTC over how to craft a workable rule to crack down on speculation in oil markets and have asked the agency's inspector general to step in.
Those interviewed by Reuters said another reason for the delay could be the CFTC is taking more time to calculate and compare the costs and benefits of the position limits rule to protect themselves from potential legal challenges it and other regulators are bracing for.
"I wouldn't want to be the one be on this rule right now. It would be a very difficult thing to do," said Jim Overdahl, a vice president at National Economic Research Associates Inc, and a former chief economist at both the SEC and CFTC.
A recent federal appeals court ruling faulted the Securities and Exchange Commission for conducting a flawed economic analysis to support a rule to make it easier for shareholders to nominate directors to corporate boards, a process called "proxy access."
LAWMAKERS CALLING FOR ACTION
U.S. lawmakers have turned up the heat on the CFTC to impose the plan, believing volatile oil and gasoline prices have slowed the country's recovery.
In August, Senator Bernie Sanders, a staunch critic of oil speculators who has said the CFTC has failed to move fast enough on position limits, intentionally released oil-trading data that exposed the extensive positions speculators held in the run-up to record prices in 2008.
Meanwhile, the Senate's Permanent Subcommittee on Investigations said on Wednesday it would hold a hearing on October 6 to discuss excessive speculation and compliance with the Dodd-Frank Act. Gensler is scheduled to testify.
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