Securities Regulation Daily Wrap Up, CFTC NEWS AND SPEECHES—CFTC Commissioner Proposes “End-User Bill of Rights”, (May 1, 2013)

By Rodney F. Tonkovic, J.D.

CFTC Commissioner Bart Chilton gave a keynote address before the National Energy Marketers Association in Washington, DC yesterday. The speech was given at the association’s Annual Restructuring Conference. This year, the conference’s theme was “How to serve the public interest using competitive markets.”

Chilton began by praising the reliability of the association’s members. The audience, he said, uses the markets as originally intended, that is “to mitigate risk and help with price discovery.” Chilton then noted that unreliable regulators were a part of the 2008 economic collapse. He then turned to the subject at hand: the Dodd-Frank Act and the categorical importance of its implementation.

Chilton first addressed what he described as the “financialization” of commodities markets by traders he referred to as “Massive Passives.” These investors, he said, are in it for the long haul; these are large funds that “put money in the markets and park it.” When there is too much Massive Passive liquidity on the buy side, he explained, prices cannot be based on the fundamentals of supply and demand, using the fluctuations in oil prices in 2008 as an example.

Dodd-Frank put in place speculative position limits, he said, but those limits are not in place yet. “We got lobbied, pressured, sued and screwed,” he remarked. Chilton then said that Congress, the President, traditional market participants, and the CFTC want the limits and that he would be surprised if a rule is not approved in May or June.

Chilton then identified another potential threat to hedging: high-frequency trading “Cheetahs.” He observed that many end-users have told him that Cheetahs are the new middlemen and that they are not even required to be registered, test their programs, or have “kill switches.” The CFTC, Chilton said, needs to ensure that end-users’ ability to hedge is not “stifled” by either Massive Passives or Cheetahs.

Finally, Chilton proposed an “End-User Bill of Rights,” which should include reasonable Dodd-Frank implementation. Dodd-Frank needs to be implemented quickly, but not chaotically, he said. Next, he called for the Commission to provide as much legal certainty as possible as the implementation period proceeds. He also emphasized the right to be heard. Here, Chilton proposed that the CFTC establish an End-User Advisory Committee that would meet on a regular basis.

RegulatoryActivity: CFTCNews CommodityFutures DoddFrankAct