Commissioner Chilton’s Response to Reader Emails

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aitakahashi

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Commissioner Chilton’s Response to Reader Emails

posted on Mar 31, 2009 05:32PM

this is bart chilton's response to the e-mails he has received about manipulation of the metals markets. as pointless as this gibberish is, the sad thing is that he is the only commissioner who has ever even bothered to respond. here is some of the mumbo-jumbo from his tortured response, and a link for the whole thing if you have a high tolerance for pain:

With specific regard to the commentary article from March 3rd that many have written to me about, I want to make several points.

First, the commentary refers to the concentration levels of the net shorts. These positions that the CFTC includes in our Commitment of Traders report (COT) do not take into consideration all the positions held by the shorts that maybe used to hedge positions that they have with their customers—e.g. swaps, physical forward positions, lease positions, option contracts, etc. Thus, it is not as if the short futures position represents the single position of a large trader, but rather represents a position taken as a result of looking at an aggregation of many trades—on and off-exchange.

Second, the commentary makes an attempt to calculate a “true net” concentrated short position for the top four largest net short traders. The calculation was based on the COT (dated February 24). The COT rep orted a concentration ra tio of 46.7% for the top four net short positions for futures only. Staff has examined the calculations and has noted that the basic premise of the commentary is to inflate the reported ratio of 46.7% to “72.5% to 76%.” It appears that this was basically accomplished by subtracting non-commercial and estimated commercial spread positions from the overall open interest (futures only). The main argument of the commentary to be that “four or fewer traders controlling 72.5% or more of either the long side or short side of any regulated commodity futures market is a de facto manipulation.”

Again, I called for the investigation and I want ensure we are protecting consumers, but we also need some reality here and not spin things out of proportion. Specifically, there is no strong reason to look at only the aggregate concentration percentage of the top four net short in isolation to determine whether or not there is a “manipulation.” Looking at the aggregate percentage of a group of independent large commercial owners in isolation does not imme diately imply there is manipulation unless there is some evidence that all of these four traders are acting in collusion and trading together to influence the direction of the market.

Don’t get me wrong, I am still concerned about concentration. That is why I think we need some mandatory hard cap position limits for traders. Currently we have only accountability levels. These levels (which can be abrogated, and in fact are run through frequently) merely mean that the traders above the accountability levels are looked at more carefully. I think we need to do more, and have said so publically. I have taken the liberty of also pasting a recent news article on this matter for you further information. It is interesting to note that all four of these commercial traders are members of the London Bullion Market Association and are established traders in the silver and other metal markets. The positions represent not only proprietary positions but also customer positions as well.