On October 15, the Commodity Futures Trading Commission (CFTC or the Commission) adopted final rules imposing speculative position limits in derivative contracts referencing 25 agricultural, metals and energy commodities (the Final Rules). These limits are the culmination of almost a decade of work from the Commission and its staff, including revising the rules after a federal court vacated its last attempt to expand speculative position limits in 2012.
The Final Rules are intended to “prevent excessive speculation” and broadly apply to positions in futures, options and economically equivalent swaps referencing the covered commodities (Covered Contracts). The Final Rules approach the exemption for bona fide hedges flexibly, to “accommodate potential future, unpredictable developments in commercial hedging practices.” This is in contrast to previous rule proposals, which were both more prescriptive and restrictive. The Final Rules also exempt certain recognized spread transactions.
Although the Final Rules have a relatively distant compliance date (January 1, 2022, for futures contracts in the 16 commodities not subject currently to federal limits and January 1, 2023, for economically equivalent swaps), market participants should familiarize themselves with the Final Rules and their exemptions because many participants and intermediaries will likely find it necessary to establish internal control procedures, which may require systems development in advance of the Final Rules’ compliance date. The Commission has long prioritized enforcement actions based on violations of existing federal and exchange-set position limits, and we expect this focus to continue with the adoption of this broadened speculative position limits regime.
