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

6 mins
Posted on Feb 11 2021 by Liam Driscoll

In part 2 of our CFTC blog series, we discuss changes made by the Final Rule to Federal position limits across spot month position limits as well as non-spot month position limits.

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. 

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