1 January 2014
January 2014
A Legal Update from Dechert’s Global Commodities and Derivatives Group*
CFTC Proposes New Position Limits for Futures, Options, and Swaps and
Amended Aggregation Requirements
Introduction
The U.S. Commodity Futures Trading Commission (“CFTC”) has proposed a comprehensive set of
regulations imposing speculative position limits on exchange-traded futures and options contracts and
economically equivalent derivatives that reference 28 agricultural, metal, and energy commodities
(“Proposed Position Limit Rules”).1 On the same day, the CFTC proposed amendments to its existing
requirements for aggregating positions controlled by a single participant for the purpose of applying the
proposed position limits (“Proposed Aggregation Amendments”).2
This Dechert OnPoint discusses: (i) the recent history of the CFTC‟s position limits regime, (ii) the new
“Referenced Contracts” to which the position limits would apply and the proposed methodology for
determining the position limits, and (iii) the requirements for aggregating positions and the proposed
expanded circumstances under which aggregation is not required.
Statutory Mandate and 2011 and 2012 Position Limits Rules
The Commodity Exchange Act (“CEA”) directs the CFTC to set limits on trading in the commodity markets to
curb “excessive speculation” and protect the price discovery function of those markets.3 Because most
commodities (especially agricultural, metals, and energy) are of finite supply, it is possible that, if one trader
controls a significant part of the market, that trader could cause “sudden or unreasonable fluctuations or
unwarranted changes in the price of such commodity” that burden the cash commodity markets whose
participants use the derivative markets to manage risk. To that end, the CFTC uses position limits to limit the
number of positions any trader can hold in a particular contract for the same delivery period. Position limits
also play a role in the CFTC‟s efforts to prevent market manipulation.
The CEA grants the CFTC broad authority to impose speculative position limits. CFTC Regulation 150.2
currently establishes position limits with respect to futures and options contracts on certain enumerated
agricultural products (discussed below).
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) both
expanded the CFTC‟s jurisdiction to include surveillance and enforcement authority in the OTC markets and
1 Position Limits for Derivatives, 78 Fed. Reg. 75680 (proposed Dec. 12, 2013) (“2013 Position Limits Proposing
Release”).
2 Aggregation of Positions, 78 Fed. Reg. 68946 (proposed Nov. 15, 2013) (“2013 Aggregation Proposing Release”).
3 CEA Section 4a.
