More: http://www.businessweek.com/news/20...rove-new-limits-on-commodity-speculation.html
Bolded parts = F you JPM
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The top U.S. derivatives regulator voted today to curb trading in oil, wheat, gold and other commodities after a boom in raw-materials speculation, record- high prices and years of debate and delay.
The rule has been among the most controversial provisions of the Dodd-Frank financial overhaul, enacted last year, which gave the Commodity Futures Trading Commission the authority to limit trading in over-the-counter commodity swaps as well as exchange-traded futures. The proposal would limit the number of contracts a single firm can hold.
“Our duty is to protect both market participants and the American public from fraud, manipulation and other abuses,” Commission Chairman Gary Gensler said in support of the rule. “Position limits have served since the Commodity Exchange Act passed in 1936 as a tool to curb or prevent excessive speculation that may burden interstate commerce.”
The rule limits traders to 25 percent of deliverable supply in the month nearest to delivery. The spot-month limits apply separately to physically settled and cash-settled contracts. Deliverable supply will be determined by the CFTC in conjunction with the exchanges.
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Outside the spot month, the caps limit traders to 10 percent of the first 25,000 contracts of open interest and 2.5 percent thereafter.
“You want speculation or you don’t have any markets,” said Commissioner Bart Chilton in an interview today on Bloomberg TV. “There’s nothing wrong with speculators. It’s when it begins to get excessive. We’ve seen where you can have 30, 35, 40 percent plus in some markets with just one trader holding onto that concentration. That can impact markets.”
The commission estimates that the limits will affect 85 energy traders, 12 metals traders and 84 traders of certain agricultural contracts. The caps will go into effect 60 days after the agency defines the term “swap.” The agency declined to estimate when that will be. Limits outside the spot month are likely to go into effect in late 2012.
The rule calls for traders to aggregate their positions, a change that may affect large firms with multiple strategies. It also would tighten an exemption allowing so-called bona fide hedgers to exceed the caps.
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Limits will first apply to spot commodity markets 60 days after the CFTC passes a separate rule that legally defines swaps.
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With the limits soon going into effect, no institution is going to want to significantly add to short positions. Therefore, the only selling pressure that can drive silver lower from here will have to come from discouraged spec longs. But here's the rub: Spec longs peaked in early April near 50,000 contracts. In the subsequent decline from $48 to today's $32, we've lost over half of that spec long position. The latest CoT spec long total was just 23,571. How many more specs can be chased from silver to drive price substantially lower from here? 2,000? 5,000?. It's hard to say but this much I do know...get ready for more, even crazier volatility.
Why? There is really no other option. JPM et al need to force silver lower in the days and weeks ahead otherwise they will be faced with covering thousands of contracts at very steep losses. They must drive price lower just as they did three weeks ago. But with open interest and spec long positions so low, how can they get people to sell? The answer: Let the CME do the dirty work!
Remember, the CME allegedly raises margins only in response to volatility. IF The Cartel can create enough volatility, the CME will be forced to act. And, as we saw in April, margin hikes when combined with steep selloffs can create the conditions necessary to force spec longs out of the market. So, the formula from here is simple:
1) Violently manipulate silver to create unprecedented volatility.
2) Have the CME raise margins again in response to this volatility.
3) Use dips in price to hurriedly cover short positions.
4) If Cartel buying spikes price back up, this added volatility may inspire additional margin hikes.
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this is from Bart Chilton to me late this evening on the new position limits and exemptions:Explanation on Position Limits/Exemptions..Bart Chilton
The spot month limits go into effect in 60 days after we define swaps, which we are set to do on Nov. 1st.
The all month and aggregate limits (which will include swaps) is 12 months after the initial limits. We do not have swaps data (because that required a rule requiring reporting) so can't set those level yet, but the rule requiring that they will be set (and when and how) is now in place.
On exemptions, we will grant if it is proven that there is a legitimate business risk for each day of trading (a monthly report is mandated). The historical trading is one piece of what we may look at. However, that is not a loophole that automatically grants an exemption. If that were the case, we'd simply be allowing folks to do what they have done. That is clearly not what we have allowed.
B
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No word yet on when this might occur. I'm assuming 60 days = 60 business days = 12 weeks = 3 months.
The position limits is to commence on Jan 1.2012 with the spot month assuming the definition of swaps arrives on Nov 1.2011. The aggregate months will commence on Jan 1.2013.
Not sure how we missed this, but the CFTC officially defined "swaps" last Friday on November 18th, giving 60 days for traders to comply with the CFTC's new spot-month position limits.
Look for:
1. Continued massive short covering and silver smashes
2. Volume to begin to decrease in spot month contracts and massively increase in non spot-month contracts.
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The law, in its infinite wisdom and fairness, makes it just as illegal for the rich to beg for food and sleep under bridges as the poor....
The CME, NYMEX, and COMEX have issued a temporary waiver of the requirement that market participants file an updated application in order to exceed speculative position limits. The CME announced they have waived the reporting requirements through May 31st, 2012.
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Pathetic. Somebody must be totally panicking.The farce must go on...
More: http://silverdoctors.blogspot.com/2011/12/cmecomex-grant-jpm-temporary-waiver-for.html
Video at link, Bart even mentions silver: http://www.cnbc.com/id/46668859Wall Street Blocking [Positon] Limits on Speculators: CFTC's Chilton
CFTC Defines ‘Swaps’, Triggering Implementation of Positions Limits
After nearly 9 months of delays (and as Bart Chilton informed SD readers at the end of May), the CFTC has finally defined the word Swaps, meaning the first portions of the commodities positions limits rule will go into effect 60 days from today.
The CFTC voted 4-1 for the definition of SWAPS, with BART CHILTON the lone vote against the rule. Chilton voted against the definition out of concern certain firms (ie JP Morgan) will side step the position limits by using forward contracts or swaps.
For those who missed it live, the full webcast of today’s meeting can be found at the link below:
http://onlinevideoservice.com/clients/cftc/archive.htm
Definition of “Swap” and “Security-Based Swap”
The Commissions believe that the definitions of “swap” and “security-based swap” in Title VII are detailed and comprehensive. However, as the Commissions did in the Proposing Release, the Commissions are clarifying in the final rules and interpretations that certain insurance products, consumer and commercial agreements, and loan participations are not swaps or security-based swaps.
Transactions that are Not Swaps or Security-Based Swaps
Insurance
The Commissions are issuing final rules and interpretations that would clarify that certain contracts, provided by certain entities, each meeting specified requirements would be considered insurance and not swaps or security-based swaps.
Final Rules
The final rules provide that certain transactions are swaps:
Foreign Exchange (“FX”) Forwards and FX Swaps:
These products are defined as swaps, subject to a determination by the Secretary of the Treasury, as permitted under Title VII, to exempt them.
If exempted by Treasury, the final rules reflect the provision of the statute that certain requirements will continue to apply, including reporting and business conduct standards.
o FX Products that are outside Treasury’s determination and are swaps (unless otherwise excluded by the statute):
Foreign Currency Options
Non-Deliverable Forwards in Foreign Exchange
Currency Swaps and Cross-Currency Swaps
o Forward Rate Agreements, notwithstanding their “forward” label, are swaps (unless otherwise excluded in the statute).
And here comes the Grandfather clause:
Grandfather for Existing Transactions
In response to comments, the Commissions are including a grandfather provision in the final rules, which provides that a transaction entered into on or before the effective date of the Product Definitions will be considered insurance and not fall within the swap and security-based swap definitions, provided that, at the time it was entered into, the transaction was provided in accordance with the Provider Test.
Guarantees of Swaps and Security-Based Swaps
In the Proposing Release, the Commissions requested comment on the treatment of guarantees of swaps and security-based swaps.
The Final Release includes an interpretation by the CFTC that a guarantee of a swap is an integral part of the swap, and therefore the term “swap” includes a guarantee of such swap, to the extent that a counterparty to a swap position would have recourse to the guarantor in connection with the position. The Commission will address the practical implications of this interpretation, including applicable reporting requirements, in a separate release.
The SEC interprets guarantees of security-based swaps to be securities under the federal securities laws; the SEC plans to address reporting requirements for guarantees of security-based swaps in a separate rulemaking.
Entire final rules on SWAPS can be found at the pdf below:
http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/fd_factsheet_final.pdf
Who were the two hold-outs that didn't like this rule, and how much were they paid for their votes?
The U.S. derivatives regulator on Tuesday reintroduced a plan to curb commodity market speculation, reviving a crucial Wall Street reform after a judge knocked down an earlier version of its rules on position limits.
The Commodity Futures Trading Commission proposal will set caps on the number of contracts that a single trader can hold in energy, metal and agricultural markets, a measure aimed at capping speculation that some blamed for the spike in raw material and food prices prior to the 2008 financial crisis.
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Still, the plan could prove to be far less rigorous than feared by markets, data provided by the world's largest futures exchange the CME Group Inc showed.
The maximum position traders would be allowed to hold could in some cases dramatically rise rather than become tighter, the numbers showed, in one specific contract almost 10 times as much as is currently the case.
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While the redrafted rule eases a major irritant for big banks by lowering the thresholds for aggregating positions, it threatens to create a new rift with commodity merchants such as Cargill Inc looking to hedge certain transactions.
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What the chart above shows is that after fluctuating around the low to mid $200 billion range for the past 5 years, in Q1 the amount of Commodities with a maturity of under 1 year exploded to a record $3.9 trillion!
Sadly, the OCC provides no actual explanation for why there was such an epic surge in commodity derivatives within the US banking system in the first quarter, so we decided to explore.
What we found is what those who have for years accused JPM of cornering the commodity markets, have known: because it is none other than JPMorgan's Commodity derivative book primarily in the <1 maturity bucket, which exploded from just $131 billion to a gargantuan and never before seen $3.8 trillion!
In fact as the chart below shows, while historically JPM has accounted for just over 50% of total commodity holdings among all US commercial banks, in the Q1 this number soared to a stratospheric 96% which by anybody's standards is the very definition of cornering the market!
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So in summary, this is what we do know:
- in Q1, JPM cornered the commodity derivative market, with a total derivative exposure of just over of $4 trillion, an increase ot 1,691% from just $226 billion in one quarter!
What we don't know is:
- why did the OCC decide to effectively eliminate its gold derivative breakdown by lumping it with FX,
- why there was a 237% increase in the total amount of precious metals (which include gold) contracts in the quarter, from $22.4 billion to $75.6 billion
... a very dramatic decrease in bank gold derivative activity, as the impression most gold commentators give is that gold speculative derivative activity by banks is huge and increasing. A fair part of that decrease is the result of miners reducing their hedging (see here for a comparison of the miner hedge book versus OCC derivatives over time).
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On Tuesday I posted on the latest US Office of the Comptroller of the Currency’s (OCC) quarterly report and how it showed a reduction in total precious metal derivatives. I took Zero Hedge to task for jumping the gun on posting before seeking further information but now I have to admit I was guilty of that myself, the result being I was wrong to claim of a 29% reduction in precious metal derivatives.
Zero Hedge and I both made the same mistake, which was to assume that “precious metals” in Table 9 of the OCC’s report included gold, which I think is a reasonable assumption as “precious metals” is commonly understood to mean gold, silver, platinum and palladium. The OCC confirmed to me by email that Table 9 excludes gold and gave me a snapshot of a section of the call report where, at least to the banks filling out the form, it is clearly identified that the “precious metal” category should exclude gold.
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A small mercy is that we still have a continuing dataset for the white PMs (ie silver, platinum and palladium). Zero Hedge noted the 237% increase in this category, which is certainly unusual for these markets which are smaller and often less liquid than gold. A comparison of the Q4 and Q1 OCC reports reveals that 92% of the $53.1 billion increase in the notional value of white PM derivatives was attributable to Citibank, who increased from $3.9b to $53.0b.
In an email response to Nick Laird of Sharelynx.com who questioned this dramatic change, the OCC confirmed the figures were correct and provided the following screenshot of Citibank’s schedule RC-R as proof.
<img>
This reveals that almost all of the increase was in Citibank’s centrally cleared derivative contracts (circled in red) rather than in OTC markets (in green), which total $3,786m, very close to Citibank’s Q4 figure of $3,901m. That does make me wonder if the red figures are a fat finger and belong in a different row.
Bloomberg note that “Citigroup has been expanding in derivatives as it rebuilds trading businesses that suffered after the financial crisis led the firm to take a government bailout” and that it has “pursued a risk-managed expansion off of a low base to bring the firm in line with competitors” so maybe Citibank has been active in the white metals as part of this “rebuilding”. ...
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As to Citibank having a notional $53 billion worth of white PMs derivatives on their books, industry sources tell me that “Citibank are not that active in PGMs so if the figure is real, it would have to be silver and it would have to be something very unusual.” I have an email in to my precious metals contact at Citibank but he is on leave at the moment so no response at the time of this post. I’m not expecting a comment as Citibank declined to comment on the OCC report to Bloomberg, but I’ll post any update/explanation if I get it.
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So to summarize: as we reported first (and we would be delighted if other so called financial experts dedicated as much effort to digging through the primary data as they have to desperately try to disprove our article), JPM has indeed cornered the OTC commodity market, with its $4 trillion in "Other" commodity derivatives which amount to 96% of total. ...
However, another big question remains: just what is Citigroup - not, not JPMorgan - with the Precious Metals category.
Here is the chart showing Citigroup's Precious Metals (mostly silver now that gold is lumped in with FX), exposure over the past 4 years. Of note: the 1260% increase in Precious Metals derivative holdings in the past quarter, from just $3.9 billion to $53 billion!
<chart>
For those of a skeptical bent the proof can be found in Citi's own call report, which can be seen here as of March 31, 2015 vs December 31, 2014.
Another way of showing what Citi just did with the "Precious Metals" derivative category, is the following chart which shows Citi's total PM derivative exposure as a percentage of total.
<chart>
Soaring from just 17.4% to over 70%, there is just one word for what Citigroup has done to what the Precious Metals ex Gold (i.e., almost exclusively silver) derivatives market.
Cornering.
So, the question then is: just what is Citigroup doing with its soaring Precious Metals (excluding gold) exposure, and why is such a dramatic place taking place at precisely the time when not only JPM is cornering the entire "Other" Commodity derivatives market in the form of a whopping $4 trillion in derivatives notional, but in the quarter after none other than Citigroup itself was responsible for drafting the swaps push-out language in the Omnibus bill.
<img>
And also: how is it legal that JPM is solely accountable for 96% of all commodity derivatives while Citigroup is singlehandedly responsible for over 70% of all "precious metals" derivatives? Surely even by the most lax standards this is illegal, but what makes the farce even greater is that all of this taking place out of FDIC-insured entities!
The final question, which we are absolutely certain will remain unanswered, is whether any of these dramatic surges have anything to do with the recent move in precious metals prices, or rather the complete lack thereof, even as Europe is on the verge of its first member officially exiting the Eurozone, and China's stock market is suffering its worst market crash since 2008. Oh, and we almost forgot: with both JPM and Citi now well over 50% of the derivatives market in two critical categories, who is the counterparty!?
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