Several industry associations provided commentary on a CFTC proposal to apply federal speculative position limits to 25 "core referenced futures contracts," including futures and options linked to those contracts and economically equivalent swaps.

As previously covered, the CFTC proposed applying speculative position limits to 16 agricultural commodities, five metals, and four energy commodities. With the exception of nine of the agriculture products, the federal limits would apply only during the spot month; however, the relevant exchanges (i.e., Chicago Board of Trade, Minneapolis Grain Exchange, Intercontinental Exchange, The Commodity Exchange and New York Mercantile Exchange, depending on the product) would be required to set non-spot month limits in the other contracts. The CFTC noted that the position limits would not apply to location basis contracts, commodity index contracts, swap guarantees or certain trade options.

The following summaries are of comment letters submitted by (i) the SIFMA Asset Management Group ("SIFMA AMG"), (ii) ISDA, (iii) the Managed Funds Association ("MFA") and Alternative Investment Management Association ("AIMA") and (iv) FIA. A full set of comment letters is available on the CFTC site.

SIFMA AMG

SIFMA AMG recommended several changes, including: (i) adding a "robust" necessity finding in all future position limits proposals; (ii) using an incremental approach in imposing position limits; and (iii) "codify[ing]" previously issued aggregation no-action relief. Additionally, SIFMA AMG commended the CFTC for providing a 12-month phase-in period for the final rule in order to provide market participants with enough time to establish compliance programs and related infrastructure.

ISDA

ISDA encouraged the CFTC to, among other things, take a "phased approach" to position limits and, in order to aid the implementation period, provide a timeline for offering support relating to (i) the "compliance burdens" of adopting a new ruleset and (ii) challenges relating to staffing and resources due to the economic impact of COVID-19.

MFA and AIMA

The MFA and AIMA advised the CFTC to make several adjustments to its proposal, including:

  • requiring exchanges to routinely examine deliverable supply estimates and respond accordingly when position limit levels should be updated;
  • making new spot month and non-spot month limits effective immediately for legacy agricultural contracts;
  • revising the scope of linked contracts and economically equivalent swaps to provide further clarifications;
  • updating market participants' good faith determination to extend to all referenced contracts concerning economically equivalent swaps;
  • adding to the definition of "spread transaction" (i) both intramarket and intermarket spread positions and (ii) non-enumerated spread exemptions in accordance with the proposed exchange approval process;
  • offering a grace period to reduce a position should a change in an option occur resulting in a position limit breach;
  • "adjust[ing] certain position limits"; and
  • ensuring that the revised scope of "bona fide" hedging transactions is not used to force artificial or non-economic prices.

FIA

FIA described the proposal as a "substantial improvement over prior proposals." That said, FIA offered comments on how to make the rule "more commercially practical and promote a smooth implementation process." Generally, FIA requested that various terms and requirements of the rule be better defined, that the definition of "bona fide" hedging be expanded, and that certain limits be set at a higher level. FIA also raised issues on the application of the position limit rule to persons acting outside the United States or cross-border transactions.

Primary Sources

  1. SIFMA AMG Comment Letter: Position Limits for Derivatives (RIN 3038-AD99)
  2. MFA, AIMA Comment Letter: Position Limits for Derivatives (RIN 3038-AD99)
  3. ISDA Comment Letter: Position Limits for Derivatives (RIN 3038-AD99)
  4. FIA Comment Letter: Position Limits for Derivatives (RIN 3038-AD99)
  5. CFTC: Submitted Comments for Proposed Rule 85 FR 11596

Originally published 20 May 2020

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