Although the investigation found no evidence of direct manipulation by market participants, the influence of index and commodity funds in the market remains a problem. Cotton’s vulnerability to manipulation is greater than other agricultural commodities due to the overall size of traditional hedgers and the size of the exchange. In addition, there is a critical lack of transparency in over-the-counter trades.
The National Cotton Council remains concerned about the ability of the futures market to serve as an effective tool for hedging physical cotton.
The NCC supports CFTC’s decision in 2009 to disaggregate the Commitment of Traders report. However, more needs to be done to address the concerns of the industry. For example, hedge exemptions and eligibility for hedge margin levels should be limited to those actually involved in the physical handling of the agricultural commodity.
In addition, all contract and over-the-counter market participants should be subjected to speculative position limits. These changes, though not an exhaustive list, would largely be addressed with legislation currently being debated in Congress. However, absent legislative progress, CFTC should use their regulatory authority to initiate the much-needed changes. The continuing lack of confidence in the market must be addressed, and the industry will welcome the opportunity to work with the CFTC and Congress to take actions necessary to restore confidence in the important price discovery and hedging functions of the market.