The CFTC has finalized rules instituting position limits on futures and swaps contracts. These rules were created under the authority of section 737 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final regulations cover 28 physical commodity futures and swaps and all economically equivalent contracts, and will be implemented in two phases.
In this final rule-making, the Commission has established speculative position limits for 28-physical commodity futures contracts, including:
Nine “legacy” agricultural contracts (CBOT Corn, CBOT Oats, CBOT Soybeans, CBOT Soybean Meal, CBOT Soybean Oil, CBOT Wheat, ICE Futures U.S. Cotton No. 2, KCBT Hard Winter Wheat, MGEX Hard Red Spring Wheat).
Ten “non-legacy” agricultural contracts (CME Class III Milk, CME Feeder Cattle, CME Lean Hog, CME Live Cattle, CBOT Rough Rice, ICE Futures U.S. Cocoa, ICE Futures U.S. Coffee, ICE Futures FCOJ-A, ICE Futures U.S. Sugar No. 11, ICE Futures U.S. No. 16).
Four energy contracts (NYMEX Hub Natural Gas, NYMEX Sweet Light Crude, NYMEX NYH Gasoline Blendstock, NYMEX NYH Heating Oil).
The position limits are divided into two types: spot-month, and non-spot-month. The spot-month position limits will be set at 25% of deliverable supply. These are to be applied separately for physically-delivered contracts and cash-settled contracts in the same commodity. The Commission has specifically excepted NYMEX HH Natural Gas contracts. Cash-settled position and aggregate limits will be set at five-times the limits for the physical-delivery HH Gas contracts. These limits go into effect sixty days after the CFTC finalizes the further definition of “swaps”. Initially, limits will be based on levels currently used at each DCM. Agricultural contracts will be adjusted biennially, while energy and metals contracts will be adjusted annually.
Non-spot-moth position limits will be set using the 10/2.5% formula. A single trader can hold 10% of the contract’s first 25,000 of open interest, and 2.5% thereafter. The limits will be reset biennially based on two year open interest data. Open interest will be calculated as futures open interest + cleared swaps open interest + uncleared swaps open interest. These limits will go into effect for the nine “legacy” contracts listed above sixty days after the CFTC finalizes the further definition of “swap” at levels specified in the rule. For all other contracts, the limits will be made effective by Commission order after the collection of one year of interest data. These will be adjusted biennially.
Exemptions have been established for hedging operations and positions established in good faith before the initial limits effective date. The rule-making also preserves the independent account controller exemption. The Commission has included a visibility reporting regime in the rules to help it conduct a thorough market surveillance program.
The path to finalization was fraught with partisanship, squeaking by at 3 votes to 2. But Reuters Legal anticipates that position limits will not come into effect without a fight. Their market analyst predicts that industry groups may bring legal action in the conservative D.C. Circuit Court. The technical legal issue will center around the CFTC’s authority to impose position limits preemptively: “Does the commission need to show excessive speculation has caused sudden or unreasonable fluctuations or unwarranted changes in commodity prices and position limits are the only means of ‘diminishing, eliminating or preventing’ the burden on interstate commerce? Or has Congress given the commission an explicit instruction to impose them preemptively?” Alternately, position limits opponents may use another strategy that has worked against Dodd-Frank. The Chamber of Commerce was able to strike down one Dodd-Frank rule written by the SEC by arguing that the agency inadequately assessed the rule’s cost-benefit ratio.
FIA’s Head of Europe Bruce Savage gave remarks recently on FIA’s European engagement, cross border and MiFID at the QED event in Brussels. This represents Mr. Savage’s first formal remarks as FIA’...FIA welcomed more than 100 attendees from across the derivatives industry to its forum in Frankfurt on 24 September , where the impact of post-crisis reforms, new rules in Europe and international...Washington, D.C.—FIA today announced that 20 companies have been chosen to exhibit in the FIA Innovators Pavilion at the 35th Annual Futures and Options Expo , which will take place in Chicago on...(as prepared) Guten Morgen and welcome to FIA’s Frankfurt Forum . This city is the perfect gathering place for our industry, given its unique position in global finance. To begin...FIA submitted a letter to the SEC that raises concerns about the Options Clearing Corporation’s (OCC) proposed new capital management plan. In the letter, FIA raised issues about the lack of a...FIA’s Financial Management Committee submitted a petition for more flexibility for FCMs to invest customer funds in safe and liquid financial instruments under applicable CFTC rules. Specifically...FIA responded to both the CFTC and the SEC on ICE Clear Credit’s proposed rule amendments to allocate non-default losses for investment losses and custodial losses to clearing members.(Feed generated with FetchRSS) […]
The Committee on the Global Financial System (CGFS) and the Markets Committee have published two major reports on the implementation and implications of unconventional monetary policy tools (UMPTs) introduced by central banks in response to the financial crisis and its aftermath. […]
October 1-7, 2019 is World Investor Week, a global campaign to raise awareness about the importance of investor education and protection. U.S. securities regulators offer these key messages for Main Street investors. […]
The Board of Directors of the Bank for International Settlements (BIS) has appointed Ravi Menon as Chair of the BIS Asian Consultative Council (ACC) from 26 September 2019. Mr Menon is Managing Director of the Monetary Authority of Singapore. The term of appointment for the ACC Chairman is two years. (Press release, 18 September 2019) […]
Financial fraud routinely follows on the heels of disaster. Hurricanes and their aftermath are no exception. We are issuing this Alert to warn investors that investment scams may come your way touting stocks and other investments with the promise of huge gains in the wake of major hurricanes. […]
FINRA updated and is reissuing our 529 saving savings plan investor alert to highlight Jobs Act changes, and to remind investors to closely consider both their state of residency and the applicable fees—including fees associated with share classes—when making 529 investment decisions. […]
As an investor, you may have read about "Class A," "Class B," Class C", or other classes of mutual fund shares. If you are thinking about choosing one of these classes, it is important for you to understand the differences between them. FINRA regulates broker/dealers and their registered representatives, and we provide investors with information about securities products and services. […]