PETER J. CARINI

PJC GROUP OF NEW ENGLA~Q'eFV"~·f~jF;T.O., ..'! .

1 RADISSON PLAZA, SUITE 8tH 1.J_ r.; r I E SECHE L\RIAr

NEW ROCHELLE, NY 108<2010 DEC 9 Prl 12 lili

December 3, 2010

COMMENT

David Stawick, Secretary

U.S. Commodity Futures Trading Commission

Three Lafayette Centre

1155 21 sl Street, NW

Washington, D.C. 20581

Email: Secretary@cftc.gov

Fax: (202) 418-5521

Subject: Comments on Rulemakings Required by the Dodd-Frank Wall Street

Reform Act

Dear Secretary Stawick,

I am writing to urge the Commission and its staff to consider the following

comments on several key areas requiring rulemakings under Title VII of the DoddFrank Wall Street Reform Act.

This legislation seeks to reverse irresponsible deregulation of the

derivatives markets that has occurred over the past two decades. This

deregulation has resulted in opaque markets that cater to the needs of financial

speculators rather than bona-fide hedgers and consumers for which futures,

options and swaps were created in the first place.

For energy companies like mine that serve thousands of consumers and

playa vital role in the health and growth of the American economy, deregulation

and the absence of transparency, oversight and accountability has resulted in

diminished confidence in these markets. The resulting excess volatility and

speculation in commodities, including energy (e.g., crude oil, 'gasoline and home

heating fuels), skews the price discovery function of these markets, unhinges them

from concrete economic fundamentals such as supply and demand, creates a

difficult environment for hedgers seeking to manage price risk and subjects their

consumers to erratic and unwarranted price spikes.

Robust implementation and vigorous enforcement of the regulatory

initiatives under the Dodd-Frank Act is vital if the legislation is to have its desired

effects, including increased confidence, security and stability in the derivatives

markets while preserving market liquidity, competition, and hedging and price

discovery functions.
I. Definitions

1. Commercial Risk

The definition of commercial risk should be narrowly tailored to apply only to those

entities whose business activities expose them to risk from physical commodity

price fluctuations. Commercial risk should not include risks that are purely

financial in nature, including balance sheet risk.

2. Major Swap Participant

It was the intent of Congress to require that only large market participants be

captured under this definition. I am supportive of the exclusion for positions held

for hedging or mitigating commercial risk, but again, this should not be defined so

broadly as to create a new loophole for financial speculators to avoid requirements

under the new law.

3. Captive Finance Affiliates

The major swap participant definition also includes an exception for captive

finance affiliates. I similarly encourage the Commission not to allow the exception

to be abused or too broadly interpreted.

4. Swap

The legislative definition excludes forward delivery contracts (and options on such

contracts) for commodities that are intended to be physically settled. Any

exemption for forward delivery contracts and options should be limited to benefit

only bona fide commercial end-users.

II. Governance &Possible Limits on Ownership &Control - Swap Dealers

The CFTC must establish both a meaningful limit on individual ownership

and a limit on collective ownership if the proposed rule is to have the intended

effect of limiting conflict of interest, assuring transparency and open competition,

and preventing clearinghouses and exchanges from catering to the interests of a

few large participants in the financial community. This requires both a cap on

ownership for individual entities as well as a sector-wide aggregate cap on banks.

Ill. End-User Exception

The end-user exception should remain narrowly tailored to those

businesses that produce, refine, process, market or consume an underlying

commodity and counter-parties buying or selling a position to an end-user. Purely

financial risk, including broad terms such as balance sheet risk, should not be

considered legitimate commercial risk.

Furthermore, for any entity that is not a legitimate end-user as described

above, the exception should be limited so that it is in direct proportion with their

physical holdings, i.e. an investment bank or hedge fund cannot claim to be an

end-user and thereby obtain an exemption from speculative position limits or other
requirements or restrictions merely because it holds a few hundred thousand

barrels of inventory.

IV. New Registration Requirements for Foreign Boards of Trade (FBOTs)

I support the requirement that FBOTs register with the CFTC and make

their trading data available as well as requiring that they adopt position limits and

implement prohibitions on manipulation and excessive speculation. They should

also be subject to ownership caps as described above.

V. Anti-Manipulation & Disruptive Trading Practices

I strongly support prohibitions on insider trading based on nonpublic

information, strengthened prohibitions on manipulation, and new authority

provided to the CFTC under the Act that allows them to identify swaps that are

abusive by virtue of being potentially detrimental to either the stability of the

market or its participants. I urge the CFTC to be thorough in its interpretation and

enforcement of these new authorities.

I also encourage the Commission to scrutinize the use of

computerized/algorithm-based trading programs to determine if their application

and use in the commodities markets has a disruptive affect on market stability or

function.

VI. Position Limits, Aggregate Position Limits & the Bona Fide Hedging

Definition

I support enforcement of the strongest possible speculative position limits

as required under the Dodd Frank Act. Further, the Act requires that such limits

be established and enforced within 180 days from enactment for exempt

commodities (including energy commodities), not simply that the commission

promulgate formulae for such limits and then impose them at some later date, as

has been suggested.

Due to their passive approach to commodity trading, Exchange Traded

Funds and Notes (including index funds) treat finite commodities such as energy

as an asset class and a long-term investment rather than as vital resources to

American industries, businesses and consumers. I believe the Commission

should establish separate and more aggressive limits on the positions of

Exchange Traded Funds and Notes, including index funds.

I also have concerns regarding the bona fide hedging exemption that are

similar to my concerns regarding the definition of commercial risk and the end-user

exemption. Too broad of a definition would allow continued watering down of the

hedging exemption and provide additional incentives for financial speculators to

enter the market under the guise of legitimate hedgers, thereby evading position

limits and other requirements.

VI. Conclusion

American businesses and consumers are relying on CFTC Commissioners

and their staffs to read and vigorously enforce these rules in such a manner as to
restore confidence, stability and transparency to the derivatives markets -

especially in the energy commodities markets. Americans of all stripes are

depending on you to protect energy consuming businesses and individuals, as

well as the broader economy, from fraud, manipulation, and disruptive/abusive

trading practices and from excessive volatility, speculation and unwarranted price

spikes.

This legislation gives the Commission powerful tools in this regard, and I

hope that you will use them to their fullest extent.

Thank you in advance for your consideration.

Sil1 cerely,

/I~~

Peter J. Carini