Opening Statement of Commissioner Brian Quintenz before the CFTC Energy and Environmental Markets Advisory Committee

May 7, 2020

Thank you Commissioner Berkovitz for convening today’s meeting of the Energy and Environmental Markets Advisory Committee (EEMAC) to focus on one of the most significant rulemakings pending before the Commission:  position limits for derivatives.  I am interested in hearing from the Committee members, associate members and guest presenters about how the proposal can be improved to further promote credible, well-functioning derivatives and cash commodity markets and allow end-users to successfully manage and hedge their risks.  I would like to thank all of the presenters and members for their participation and engagement today.

A position limits rule, if done poorly, could directly affect the participants in America’s real economy perhaps more than any other area of the CFTC’s regulations.  Farmers, ranchers, energy producers, manufacturers, merchandisers, transporters, and other commercial end-users that use the derivatives market as a risk management tool to support their businesses would all feel the effects of reduced liquidity and more constraints on legitimate hedging activity.  I was pleased to support this position limits proposal because I thought it represented a significant improvement over prior proposals and elegantly balanced the Commission’s policy interests of promoting liquidity, deterring manipulation, squeezes, and corners, and ensuring the price discovery function of the underlying cash market is not disrupted.[1]  However, no proposal is perfect, and I am eager to learn from this Committee if specific improvements can be made to better accommodate current commercial hedging practices, make the proposal more workable, or address other concerns of the end-user community.

Given the significance of the 25 core referenced futures contracts to the health of their respective underlying cash markets, it is critical that the Commission establishes federal spot month limits that are appropriately tailored to each contract.  The proposed federal limits are generally higher than past exchange-set or federal limits, sometimes significantly so, because the proposal utilized current estimates of deliverable supply – numbers which had not been updated since 1992.  I am interested to hear from the presenters today about the process used to arrive at these new limits, including how revised deliverable supply estimates were further calibrated to establish limits tailored to individual contracts.

I am also interested to hear from this Committee and today’s presenters if the list of enumerated, self-effectuating bona fide hedge exemptions can be further clarified or expanded to encompass hedging practices frequently utilized in the energy sector today.  In particular, with respect to cross-commodity and anticipated merchandising hedges, I am interested in hearing if the proposal can be improved to provide greater certainty to market participants about what qualifies as an enumerated bona fide hedge.  I am also interested to hear from presenters about the exchange-centered process that will be used to adjudicate non-enumerated bona fide hedge exemption requests.  As part of their stewardship of their own position limits regimes, exchanges have long granted bona fide hedging exemptions in those markets where there are no federal limits.  As such, they have incredible expertise that the Commission can leverage to help facilitate the approval of exemptions for non-enumerated bona fide hedges.  I am interested to hear if there are ways this framework can be further streamlined, so that it provides market participants with timely responses to their requests.

In closing, I would like to reiterate my thanks to all of today’s panelists and the EEMAC membership for their participation, as well as Commissioner Berkovitz and Abigail Knauff for organizing this meeting.

-CFTC-