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    The Final Rule: Updates to the CFTC’s Federal Position Limits

    Posted by Eliza Adriani on Feb 11, 2021

    The CFTC has established new rules for legacy contracts which are currently subject to Federal position limits, as well as introducing position limits for a new set of commodity futures contracts. 

    Following on from our first blog post in this series where we gave an overview of the changes brought about by the Final Rule, in part 2 of this blog we will specifically be looking at the newly outlined Federal spot month limits, as well as changes to non-spot month limits.

    Summary

    Historically, Federal position limits were only applicable to nine agricultural commodity contracts.1 The CFTC’s previous regulations also outlined separate position limit levels for each of these nine legacy contracts and established the maximum speculative positions that a person may hold in the spot, individual month and all-months combined.2 

    Under the Final Rule, new position limits levels will become effective on the 9 “non-legacy” contracts as of 15 March 2021. Meanwhile, 16 new “non-legacy” futures contracts will be subject to federal speculative position limits for the first time, with a compliance date set by the Federal register for Jan 1st 2022 for market participants. 

    Position limits apply to “referenced contracts” - a term used to include any of these 25 “core” referenced futures contracts and any contract that:

    (i) is directly or indirectly related to the price of a core referenced contract;

    (ii) has a pricing relationship with any one of these 25 core referenced futures contracts;

    (iii) is equal to an “economically equivalent swap”. 

    Legacy Agricultural 
    (Federal position limit levels during and outside the spot month)

    Non-Legacy Agricultural
    (Federal position limit levels only during the spot month)

    Metals
    (Federal position limit levels only during the spot month)

    Energy 
    (Federal position limit levels only during the spot month)

    CBOT Corn (C)

    CBOT Oats (O)

    CBOT Soybeans (S)

    CBOT Wheat (W)

    CBOT Soybean Oil (SO)

    CBOT Soybean Meal (SM)

    MGEX Hard Red Spring Wheat (MWE)

    ICE Cotton No. 2 (CT)

    CBOT KC Hard Red Winter Wheat (KW)

    CBOT Rough Rice (RR)

    ICE Cocoa (CC)

    ICE Coffee C (KC)

    ICE FCOJ-A (OJ)

    ICE Sugar No. 11 (SB)

    ICE Sugar No. 16 (SF)

    CME Live Cattle (LC)

    COMEX Gold (GC)

    COMEX Silver (SI)

    COMEX Copper (HG)

    NYMEX Platinum (PL)

    NYMEX Palladium (PA)

     

    NYMEX Henry Hub Natural Gas (NG)

    NYMEX Light Sweet Crude Oil (CL)

    NYMEX New York Harbor ULSD Heating Oil (HO)

    NYMEX New York Harbor 

    RBOB Gasoline (RB)

    Federal Spot Month Limits

    Federal spot month position limits apply in aggregate across exchanges and OTC swap markets. Cash-settled reference contracts must be treated and aggregated separately from physically-settled reference contracts for comparison with Federal position limits and you may not net cash-settled reference contracts with those that are physically settled. During the spot month, Federal position limits apply. The new Federal spot month position limits are equal to, or higher than, the current Federal and exchange-imposed spot month position limits for all 25 core referenced futures contracts and their associated referenced contracts. 

    The Federal spot month limits for each of these contracts is now set at or below 25% of estimated total deliverable supply:

    Core Referenced Futures Contract 

    2020 Final Rule Federal Spot Month Limit Level

    2020 Proposed
    Federal Spot Month Limit Level

    Existing Federal Spot Month Limit Level

    Existing Exchange-Set Spot Month Limit Level

    Legacy Agricultural Contracts

    CBOT Corn (C)

    CBOT Oats (O)

    CBOT Soybeans (S)

    CBOT Soybean Meal (SM)

    CBOT Soybean Oil (SO)

    CBOT Wheat (W)

    CBOT KC Hard Red Winter Wheat (KW)

    MGEX Hard Red Spring Wheat (MWE)

    ICE Cotton No. 2 (CT)

    1,200

    600

    1,200

    1,500

    1,100

    1,200


    1,200


    1,200


    900

    1,200

    600

    1,200

    1,500

    1,100

    1,200


    1,200


    1,200


    1,800

    600

    600

    600

    720

    540

    600


    600


    600


    300

    600

    600

    600

    720

    540

    600/500/400/300/220

    600


    600


    300

    Other Agricultural Contracts

    CME Live Cattle (LC)

    CBOT Rough Rice (RR)

    ICE Cocoa (CC)

    ICE Coffee C (KC)

    ICE FCOJ-A (OJ)

    ICE Sugar No. 11 (SB)

    ICE Sugar No. 16 (SF)

    600/300/200

    800

    4,900

    1,700

    2,200

    25,800

    6,400

    600/300/200

    800

    4,900

    1,700

    2,200

    25,800

    6,400

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    n/a

    600/300/200

    600/200/250

    1,000

    500

    300

    5,000

    n/a

    Metals Contracts

    COMEX Gold (GC)

    COMEX Silver (SI)

    COMEX Copper (HG)

    NYMEX Platinum (PL)

    NYMEX Palladium (PA)

    6,000

    3,000

    1,000

    500

    50

    6,000

    3,000

    1,000

    500

    50

    n/a

    n/a

    n/a

    n/a

    n/a

    6,000

    1,500

    1,000

    500

    50

    Energy Contracts 

    NYMEX Henry Hub Natural Gas (NG)

    NYMEX Light Sweet Crude Oil (CL)

    NYMEX New York Harbor ULSD Heating Oil (HO)

    RBOB Gasoline (RB)

    2,000


    6,000/5,000/
    4,000

    2,000


    2,000

    2,000


    6,000/5,000/
    4,000

    2,000


    2,000

    n/a


    n/a


    n/a


    n/a

    1,000


    3,000


    1,000


    1,000

     

    Federal Spot Month Limits on Natural Gas

    For the core NYMEX Henry Hub (NYMEX NG) contract and associated reference contracts, the Final Rule states that position limits apply to cash-settled reference contracts on a per-exchange and per-OTC swaps market basis, meaning that cash-settled positions should not be aggregated across different exchanges and the OTC swaps market. Market participants are permitted to hold up to 2,000 cash-settled NYMEX NG contracts on exchanges that offer trading in those contracts, which are currently NYMEX, IFUS, and Nodal, equating to 6,000 contracts across these exchanges. Market participants may also hold a position of 2,000 economically equivalent swaps in the OTC swaps markets along with 2,000 physically-settled reference contracts for a total position size of 10,000 contracts. 

    Non-spot month and all-months-combined position limits

    The Final Rule has set out new single non-spot month and all-months-combined position limits for the nine legacy contracts. These are also higher than, or equal to, the current Federal and exchange-set limits.

    For the 16 non-legacy contracts and their associated contracts, Federal non-spot month position limits are not applicable and they are only subject to exchange-imposed limits or accountability levels outside of the spot month.

    The following table shows the Federal non-spot month position limit levels - now set at 10% of open interest for the first 50,000 contracts, with an incremental increase of 2.5% of open interest thereafter. These apply on a futures-equivalent basis based on the size of the unit of trading of the relevant core referenced futures contract:

    Core Referenced Futures Contract 

    2020 Final Rule Federal Single Month and All-Months-Combined Limit Levels

    2020 Proposed Federal
    Single Month and All-Months-Combined Limit Levels

    Existing Federal
    Single Month and All-Months-Combined Limit Levels

    Existing Exchange-Set Single Month and All-Months-Combined Limit Levels

    CBOT Corn (C)

    CBOT Oats (O)

    CBOT Soybeans (S)

    CBOT Soybean Meal (SM)

    CBOT Soybean Oil (SO)

    CBOT Wheat (W)

    CBOT KC Hard Red Winter Wheat (KW)

    MGEX Hard Red Spring Wheat (MWE)

    ICE Cotton No. 2 (CT)

    57,800

    2,000

    27,300

    16,900

    17,400

    19,300


    12,000


    12,000


    5,950 (single month)

    11,900 (all-months-combined)

    57,800

    2,000

    27,300

    16,900

    17,400

    19,300


    12,000


    12,000

     
    11,900

    33,000

    2,000

    15,000

    6,500

    8,000

    12,000


    12,000


    12,000


    5,000

    33,000

    2,000

    15,000

    6,500

    8,000

    12,000


    12,000


    12,000


    5,000

     

    Evidently, the recent updates from the CFTC further increase the level of complexity around effectively monitoring position limits. If you’d like to hear us go into more detail on these changes and their ramifications, register to attend our webinar on Position Limits on Wednesday 3rd March. 

    PL_Webinar_2

    If you’d like to explore how automating your Position Limits monitoring can help you reduce operational risk and save time, you can book a demo here.

    For more information and regulatory alerts straight to your inbox, sign up to our monthly newsletter here.

     

    1The nine legacy agricultural contracts are Chicago Board of Trade Corn, Oats, Soybeans, Wheat, Soybean Oil, Soybean Meal, KC Hard Red Winter Wheat, ICE Cotton No. 2, and Minneapolis Grain Exchange Hard Red Spring Wheat.

    2 https://ecfr.federalregister.gov/current/title-17/chapter-I/part-150/section-150.2 

     

    Topics: CFTC