Regulatory Stalemate: The Debate on the CFTC’s “Position Limit” Rule

As reported on 14 Sept 2011 (EST) by Reuters, CFTC’s proposed “position limit” rule has received much criticism from the investment community. The “position limit” rule aims to clamp down how many total contracts of commodities a speculative trader can control. The CFTC believes that the measure will help discourage excessive speculation. Critics however hold that the CFTC belief is not backed by sound economic analysis and are unconvinced about the impact of such rule. The rulemaking process of CFTC has also been under fire as the agency missed the Dodd-Frank deadline in finalizing the rule.

The agency in fact received whistle blowing reports from, allegedly, its own employees regarding the workability of the rule. Three of the five commissioners of the agency reportedly expressed skepticism as well. It is now widely expected that the approval date of this “position limit” rule may be pushed into early October from September.

Regulators have become much more uptight in light of recent volatility. The CFTC “position limit” rule in some ways seems to resonate with the SEC’s “large trader” rule (rule 13h-1 of SEA). Both of them target large traders whose ability to exercise investment leverage may, as regulators seem to believe, can upset the stability of markets and hence impede fragile economic recovery.

In the eyes of investors, the influx of rulemaking may lead to overregulation which offset investment incentives, which can also dampen baby-step recovery up to this day. The risks for investors lie in regulators’ possible intent to extend monitoring efforts beyond home borders, limiting investment options and causing unwanted complications.

The Reuters news report on “position limit” rule can be found here.

Sim Tee Yang Fined for false or misleading trading

On 22 June 2011, Singapore Law Watch reported that Sim Tee Yang had been fined $200,000 for trading CapitaMall Trust units and CapitaMall warrants against each other in 2005.

His fine followed his guilty plea last month to four counts of acts likely to create a false or misleading appearance.

Further details are available here.

SFC bans and fines Ricky Kwan Po Kit

On 5 July the Securities and Futures Commission (SFC) reported that it had banned Mr Ricky Kwan Po Kit, from re-entering the industry for five years from 2 July 2010 to 1 July 2015 and fined him $228,000.

The SFC found that Kwan operated a secret account in his brother-in-law’s name without proper disclosure to his employer, with some transactions generating a profit. In doing so, he placed himself in a position of serious conflict in breach of the General Principle 6 (conflicts of interest) of the Code of Conduct.

For further information please see Kwan Banned