At an open meeting on January 14, the Commodity Futures Trading Commission voted 4 to 1 (Commissioner Sommers dissenting) to propose rule amendments that would establish federal speculative position limits for futures and options contracts on Henry Hub natural gas, light sweet crude oil (West Texas Intermediate), New York Harbor No. 2 heating oil, and New York Harbor gasoline blendstock. The CFTC’s notice of proposed rulemaking would establish (1) exchange-specific all-months-combined and single-month limits for economically similar contracts in the same commodity that settle in the same manner (e.g., New York Mercantile Exchange (NYMEX) physically settled futures, options and calendar spreads on Henry Hub Natural Gas), (2) aggregate all-months-combined and single-month limits that apply across all reporting markets and all settlement methods (e.g., NYMEX physically and cash-settled Henry Hub Natural Gas contracts and IntercontinentalExchange (ICE) cash-settled Henry Hub Natural Gas Swap contracts), and (3) aggregate spot-month limits, consistent with exchange-set spot month position limits set by NYMEX and ICE for the affected commodities beginning with the February 2010 contract month. The federal limits would supplement existing exchange-set position limits and position accountability levels.
The CFTC’s proposed non-spot month position limits would be calculated based on open interest, while the proposed spot-month limits would be based on estimated deliverable supply, and would in each case be reset on an annual basis. The limits would not apply to basis contracts and diversified commodity index futures contracts.
The proposal includes a bona fide hedging exemption from the proposed position limits for traders hedging commercial risks, a limited risk management exemption for swap dealers, and an exemption for certain delta-adjusted positions. In addition, the proposal would require aggregation at the owner level, rather than permitting disaggregation for positions controlled by “independent account controllers.”
The CFTC has requested comment on its proposed rules, as well as numerous related issues, including (1) the potential application of the newly proposed position limit regime to various other commodities, including agricultural commodities, soft commodities and precious metals, (2) how pending legislation, which would permit the CFTC to set position limits for over-the-counter and certain foreign-listed instruments, should be taken into account in proposing federal speculative position limits, (3) whether large, passive, unleveraged and long-only positions in futures contracts should be subjected to different regulatory standards, and (4) the feasibility of a “look-through” exemption from speculative position limits for swap dealers (i.e., granting an exemption to swap dealers who are offsetting risks from swaps with counterparties that would have been entitled to a hedge exemption had they hedged their own exposure directly).
The comment period for the CFTC notice will end 90 days after the date of its publication in the Federal Register.
Information regarding the CFTC proposal, including links to the notice of proposed rulemaking and related documentation is available here.