The CFTC recently proposed new regulations to set position limits for derivatives as required by Dodd Frank. The proposed regulations on position limits for derivatives call for CFTC administered limits on speculative positions in 28 core physical commodity contracts and their “economically equivalent futures, options, and swaps.
CFTC Chairman Gensler discussed the benefits of position limits, including promoting “the integrity of the price discovery function in the market by limiting the size of any one speculator’s footprint in the market.” He also noted that position limits can “further protect the markets and clearinghouses, as such limits diminish the possible burdens when any individual participant may need to sell or liquidate a position in times of individual stress.” CFTC Commissioner O’Malia dissented because “the proposal: (1) fails to utilize current, forward-looking data and other empirical evidence as a justification for position limits; (2) fails to provide enough flexibility for commercial end-users to engage in necessary hedging activities; and (3) fails to establish a useful process for end-users to seek hedging exemptions.”
The current proposal follows a court dismissal of a final rule adopted by the CFTC in October 2011 that was designed to address the direction of Congress in Dodd-Frank “to prevent any single trader from obtaining too large a share of the market to ensure that derivatives markets remain fair and competitive.” As Chairman Gensler explained in his opening statement “With a strong proposal ready for the Commission’s consideration today, we determined that the best path forward to expedite position limits implementation was to pursue the new rule and dismiss the appeal of the court’s ruling, subject to the Commission’s approval of this proposal.”
The proposal is available at More information on the proposal is available here. Click here to read Chairman Gensler's opening statement and here for Commissioner O'Malia's dissent.