Live Blogging the CFTC Open Meeting
Stay tuned as we start live blogging the CFTC Open Meeting in 10 minutes. Send your thoughts and comments to us on twitter at #fmxlive. You can also leave your comments at the bottom of the blog.
July 7th Statement by Gary G. on Position Limits
What’ve we’ve been saying so far
As of 3:05
"Can swaps dealers do work around to avoid position limits?"
"yes" lol
we don't have authority to get inside the books of swap dealers. but we want to!!
spot analysis- if a player wants to get around the rule, they will get around the rule. will help reduce carelessness, not evil
Spot Analysis- basically exchanges do it better. Exchanges are a better model at overseeing risk and mkts will move to it.
many reasons, a major one is this. Exchanges have ability to force liquidation BEFORE there is a problem: they can prevent
it comes down to are the people overseeing the OI qualified. and exchanges are better than gov't
exchange systems are proactive. gov't are reactive
cme clearport is model to follow. OTC execution with exchange credit risk and reporting
one thing is clear to us. we don't think the gov't will fragment the clearing pool in the US any time soon.
that would enable more dark pools, and therefore grow the OTC mkts. Mifid changes in Europe did just that.
As of 2:40
news flash- govt does not have helicopters looking at oil tanker deliveries. I bet Phibro does tho!
moving into the transaprency part of the discussion. data reporting, electronic mkts etc
synopsis- there will be stricter position limits, accountability justification will be harder to receive an exemption for.
few current participants will be affected by this. exchanges still have drt on accountability, but the CFTC will be vigilant
CFTC does not think significant liquidity will migrate to other venues to avoid regulation have a good night
As of 2:30
Spot analysis- Gary G. Translated " This act will not stop the public from getting hosed by 147.00 Oil. In fact, i'm long oil!!!
Gray haired dude- what is the market share of OTC vs exchange listed futures?
"we don't know. Nor will we know , due to opaqueness and non standardized reporting"
Economist takes a crack at it " We are looking into it and we discovered that more liquidity down the curve is good. "
Spot Analysis- producers hedge 1 and 2 years out. credit risk encouraged them to move to exchanges at detriment to OTC
Economist is saying that OTC shrank as a product of greater liquidity in futures mkts.
spot analysis -in reality this is a self reinforcing liquidity cycle. credit risk created futures demand, which made for liquidity
continued- producers made a decision to hedge on credit worthy exchanges and walked away form bilateral swaps
result, producers hedge in futures 1 and 2 years out. banks lay off the risk in swaps mkts.
here is best part: he didn't answer the question, which was "how big are these 2 mkts relative to each other?"
As of 2:15
Silver market dominated by 1 large player... pretty sure he is referring to JP Morgan
rumors of 40% of OI. somewhere closer to 23% is stated by panel member. GREAT! "phone call to MR. Bunker Hunt!"
Spot analysis- big banks will either get more exemptions, create subsidiaries, or move their volumes to other venues.
Spot analysis- limits will probably help , but business will be driven away. ETFs will move shop across the street.
discussion of monthly calendar rolls by passive ETFs
is there an impact of ETF roll? DAMN right there is. contango increases ,and investors get front run by mechanical traders
seems to be a lot of worry by Gary G. that this will be perceived as a PRICE regulation act
"this is about concentration of markets and risk, NOT PRICE" ok we get it Gary
As of 2:00
Panel member raises loophole and entitlement traders above accountability levels? who could she mean?
"if you are essentially not effecting many players, how effective is the proposed regulation?"
2 points here. position limits vs. position reporting. how do you tell someone in violation to reduce their position.
response. aggregate is what matters, where they get out is up to them.
there will be limits on each regulated venue, limits on aggregate positions across venues and Netting limits
look out Gold and Silver "position limits should be established for all physical commodities of finite supply, although the...
this particular bill will not effect metals however.
As of 1:45
bottom line. OTC limits will become similar to exchange limits. Exchange limits will be further enforced to minimize...
set up question "why dont accountability levels work?"
answer: CFTC can step in if it feels accountability levels were innappropriate but did not
"amaranth was evil, they hid their positions on ICE"
Valid point made here: whe nposition limits were used. traders simply rolled their positions using EFS trades into unregulated...
Oh snap? will making position limits stronger make liquidity go to unregulated venues? asked by the gray haired dude
Spot analysis- liquidity pools may be fragmented from increased regulation
Spot analysis- they believe the price discovery process damage will be minimal
As of 1:38
why was amaranth, UNG and USO mentioned and not others? response- everybody already knew, and it makes us look good.
Gary G to Mr. Berkowitz: "Could you elaborate on interpretation of the acts historically?"
" Traditionally, we want to limit the concentration of positions"
so they are more interested in concentration of power and systemic risk
Goal of the act is to enable producers and users to get good price discovery.
Gary G. post 2001, What happened?
exemptions were created (unspoken, IBs were given these limit exceptions despite their lack of physical market business.)
exchanges post 2001 had drt to either enforce postion limits. or position accountability rules.
2001 nymex used its drt to permit accountability as opposed to hard position limits. (fyi, this is when GSCI took off as a fund)
basically if you can sell the enforcing body on WHY your position was so goddamn big, you could keep it
As of 1:28
fmx :
logged into the video conference. lovely music. classic elevator
Gary G.'s talking points from July: Aggregate Position limits, review hedge exemptions, improve transparency, start unicorn farm.
considering limits in silver and gold as well. no surprise here.
first up Dan Berkowitz- short history of position limits.
position accountability practice described as not limits, but giving exchanges drt to approve or deny adding to positions
mention of the GS exemption in position limits due to its clients taking positions
position accountability practice described as not limits, but giving exchanges drt to approve or deny adding to positions
mention of the GS exemption in position limits due to its clients taking positions
Next Up: (missed his name)essentially seeking to implement the Position limits formulas used on exchanges to the OTC markets.
2 tiered limits. Tier 1 aggregate on cash positions
due to similarity of OTC contracts in cash vs futures markets. they want aggregation of positions, not separation by venue traded
10 traders? but who were they
here comes the sale... "summon the Devil Brian Hunter" we would have curtailed his disaster if this was in place
UNG would have been effected (affected?) last year as well
"large Passive long only positions" describes ETFs and that ehy would be forced to justifyposition limit changes. essentially no...
Hurray!!! the proposal was seconded. the barn door has now been closed.