CFTC Reproposes Position Limits Rules to Curb Commodities Speculation

CFTC re-proposed position limits on 25 physical commodity futures as well as swaps that are economically equivalent.

The U.S. Commodity Futures Trading Commission (CFTC) today has taken a significant step toward finalising its long-pending regulations on speculative futures and swaps positions, which aims at curbing speculation in certain commodity contracts.

CFTC has re-proposed a position limits rule, which was included in the 2010 Dodd-Frank law, on speculative positions in 25 core physical commodity futures contracts as well as swaps that are economically equivalent to such contracts. In an effort to be responsive to severe criticism of the limits proposal, it also deferred action on three cash-settled commodities.

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More specifically, the agency re-proposed a rule that allows traders to engage in bona fide hedging efficiently for risk management and price discovery. By rule, the exchanges are allowed to recognise certain positions as bona fide hedges, subject to CFTC oversight. It also recognizes that end users are treated differently than speculators in financial markets.

The re-proposed rules will be open for comment for 60 days after its publication in the Federal Register. Thus, the comment period will close on early February 2017.

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In a separate vote, the CFTC approved another rule addressing the circumstances under which market participants would be required to aggregate their positions with other persons under common ownership or control.

Announcing the revised proposal on Monday, CFTC Chairman Timothy Massad said Republican Commissioner J. Christopher Giancarlo, who is set to replace Massad once President-elect Donald Trump takes office, didn’t think it was appropriate to push ahead with a final version of the rule during the transition to new leadership.

“I am simply not willing to support a poorly designed and unworkable rule that ever after needs to be adjusted through a series of no-action letters and ad hoc staff interpretations and advisories that had become too common at the CFTC in prior years,” Giancarlo said in a statement.

The US regulator is also re-proposing the definition of bona fide hedging position to provide end users, such as farmers and airlines, the ability to hedge against unfavourable market moves without being impacted by the new position limits. The CFTC’s attempt to resolve this issue was reflected through offering exemptions for bona fide hedging positions in physical commodities.

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