In a Streetwise Professor blog post titled "The CFTC Puts a Little Less Rat in It," University of Houston Finance Professor Craig Pirrong stated that the CFTC's supplemental position limits proposal: "makes the regulation less bad. Sort of like a strawberry tart, without so much rat in it."
Professor Pirrong said that the proposal allows market participants to apply annually to an exchange or Swap Execution Facility ("SEF") for a non-enumerated bona fide hedge, which he acknowledged "help[s] hedgers escape limits intended to constrain speculators." He argued, the proposal "at most . . . mitigates a harm, and at a cost" by providing "no discernible benefit in terms of market stability or manipulation prevention (for which there are superior substitutes)." Professor Pirrong asserted that the proposal "imposes a heavy compliance burden on all market users, even those who would almost certainly never be constrained by the limit." As he explained in greater detail:
The bona fide hedging rule as originally proposed would have constrained risk transfer further [by limiting the exemption to only eight enumerated hedges], so basically expanding the universe of bona fide hedges removes a piece of rat or two from the tart. But it's still appalling.
Professor Pirrong emphasized that the supplemental proposal "stands as a rebuke" to those who criticized the CFTC's Energy and Environmental Markets Advisory Committee report on position limits, which maintained that the original bona fide hedge proposal was unduly restrictive.
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