CFTC "new and better" findings

Am I going crazy or did I actually read the following comments from a CFTC commissioner?

From Bloomberg -

The U.S. Commodity Futures Trading Commission will issue a “new and better report” next month bolstering the case for regulation of swaps dealer and index investors in markets it oversees, Commissioner Bart Chilton said today.

If the CFTC has the same data, how are they going to get a better report? There is no question that index players are more significant. They did not exist before. The issue is whether their activities caused distortion in price. This would suggests that contracts where they trade were pushed out of line with contracts not traded by index players. That evidence has not been apparent.

One of the regulatory objectives of the CFTC is to ensure there is not market manipulation. So where is the market manipulation caused form these players. It is not easy to find distortions and manipulation in the markets and clearly there have been cases in the past but most have been focused on what happens in the delivery month. The index players are usually out of the delivery month contract because of index rolls so the chance of manipulation near delivery is minimized.

The August report “will be better and we will not try to spin it and say speculators had no role, like we did last year,” Chilton said in an interview today on Bloomberg Television. Chilton said he can’t prejudge what the report will say.

So is he is saying that the report last year was not truthful? Of course, speculators have a role. You cannot imagine what price volatility would be like if there were only commercial users or hedgers. What happens if everyone wants to protect their exposures and short futures without any speculators. The price would fall excessively. This could not be sustained so there would be no futures market. The question is whether speculators create distortions. The report last year was referring to whether the speculators moved the market in ways that caused inefficiencies or welfare distortions.

From Wall Street Journal -

But that analysis was based on "deeply flawed data," Bart Chilton, one of four CFTC commissioners, said in an interview Monday.

So what does it mean to say that the data is "deeply flawed"? The CFTC collects the data. If there is flawed data why have there not been proposals to right this data injustice? What new data is now available. One hopes that this new data is available for others to analyze.

From Bloomberg -

Chilton said today the agency hasn’t already decided to put position limits in place. The agency will “strike the right balance to make sure that markets operate efficiently and avoid fraud or abuse,” he said.

Chilton, who dissented from the commission’s report last year, said today that “many will have a greater degree of confidence” in the new report.

Who are these many? The ones who want more regulation? Where was the outcry from academics and statisticians on the last report?

“If we have it my way, we will not go slow” and will “have something by the end of the year,” Chilton said.

Does this sound like the comments of a man who has an open mind? If there is new evidence that draws new conclusions, I look forward to reading about it, but it is appropriate to tease the market with what may be the conclusions without providing facts. Remember that he is controlling regulation on some of the most important markets in the world.

The right balance is to conduct analysis and make careful observations about market behavior. After this analysis is completed, a careful set of alternatives have to be crafted so the identified problem can be solved without some unintended consequences. There is no question that the composition of players in the markets has changed, but that does not lead to the conclusion that they have created a market distortion.