The U.S. derivatives markets regulator, the CFTC, sent a sobering message to market participants when it issued a fine of $1,500,000 to Tyson Foods for its failure to observe position limits in the futures market in August. The fine arose from numerous recordkeeping and reporting failures, with one notable mistake relating to aggregation errors.
Risks from Position Limits regulations are widespread
Tyson’s misfortunes demonstrate how misinterpreting Position Limits, or performing calculations required by said limits incorrectly, can bring about significant penalties. What is also telling, is the nature of Tyson’s business. Tyson is a food processor and its interactions in derivative markets are focused on a small subset of the futures markets in agricultural derivatives. If a focused operator like Tyson is able to get things significantly wrong trading in relatively few contracts, this shows the level of burden on, and risk to, firms trading a wider spectrum of derivative contracts across asset classes.
Position Limits on US Exchanges are getting more complex
Evidently, performing the often complicated calculations required to gauge if limits are observed stands as an operational challenge for firms. As far as trading on US exchanges is concerned, Position Limits regulations are about to become even more complex due to upcoming changes set out by the CFTC’s Final Rule due in January 2022. If you’d like to learn more about what is to come we have a dedicated webinar which you can download here.
If you’re interested in discussing the upcoming CFTC changes in more detail, please get in touch with us. If you would like to see how automation of Position Limits monitoring can help your firm save time and reduce operational risk, book a demo with us to see our service in action.