On January 14th, the CFTC voted to propose for comment position limits for futures and option contracts in the major energy markets. In addition, the proposed rules would establish consistent, uniform exemptions for certain swap dealer risk management transactions, while maintaining exemptions for bona fide hedging. Energy Rule Fact Sheet. See also Questions and Answers.
As of now the CFTC enforces Federal position limits on certain agricultural commodities and under the current Commodity Exchange Act the CFTC has only the jurisdiction to impose position limits on futures contracts, i.e., commodity derivatives that typically trade on regulated exchanges. The CFTC decided to impose Federal position limits on energy contracts to: (1) reduce the likelihood of another sharp increase in energy prices; (2) respond to legislators' demands to put regulatory breaks on perceived excessive speculation in energy contracts; (3) promote transparency; (4) simplify position aggregation procedures; and (5) streamline the definitions and the process for obtaining exemptions from hard position limits. At this time the exchanges only impose "hard" position limits on trading during the spot month (i.e., delivery month) and apply "soft" accountability levels on all other months. Federal position limits will apply across all exchanges, to all economically similar contracts and with respect to all months, not only the spot months. Several CFTC commissioners have expressed concerns that imposing "hard" Federal position limits will drive the trading into the OTC market or entirely offshore. They suggested that better timing for this rule would be: (a) after the proposed derivatives bill (such as H.R. 4173) is enacted into law; (b) after the CFTC has jurisdiction to also impose position limits on OTC positions; and (c) after the U.S. reaches agreements with international regulators to prevent the trading in these energy contracts from moving offshore. Comments are due in 90 days.