This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Position-Limits Rule Toothless: Opinion

No one knows what it is that the Occupy Wall Street protesters actually want, if anything, to get them to go home.

But take one look at the rules for position limits that the Commodity Futures Trading Commission has rolled out for a vote on Tuesday and you know that their instincts that the game is fixed are right on the money.

This latest part of Dodd-Frank regulation is attempting to help limit the financial speculation that drove oil prices up during 2008 and are responsible for the more than $3.50 a gallon national gasoline average that we are experiencing today.

But Dodd-Frank has become a farce. The legislation was designed to end systemic risk. It was hoped to end moral hazard. It was written to curb speculation in markets that were never designed to be bet on.

But it has morphed into a political and legal dance between liberals looking to put a financial genie impossibly back into a bottle and a conservative group who never really admitted to anything functionally going wrong in the markets in the first place and an aversion to government meddling in business practices anywhere.

Let's have a closer look at the position limits rule. In my book, "Oil's Endless Bid" , I discussed extensively about the specific tools available to the CFTC in trying to curb speculation, reaching the conclusion that position limits were, at best, a weak hatchet hacking up a body where a scalpel was required.

Still, very strong position limits could have some effect in limiting some financial speculative participants in the oil markets. This rule won't do even much of that. It allows a healthy 25% of deliverable contracts as a limit in the spot month, and 2,500 contracts plus 2.5% of whatever open interest above 25,000 for back months.

For the cash-settled markets at the ICE, a trader could hold five times that amount of front month contracts. Even as weak as these limits are, most funds looking to accumulate size in oil will likely look outside the futures markets anyway, relying upon the OTC swaps market.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.95 0.00%
FB $78.99 0.00%
GOOG $537.90 0.00%
TSLA $226.03 0.00%
YHOO $42.51 0.00%

Markets

DOW 18,024.06 +183.54 1.03%
S&P 500 2,108.29 +22.78 1.09%
NASDAQ 5,005.3910 +63.9670 1.29%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs