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.
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 |
Non-Legacy Agricultural |
Metals |
Energy |
| 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 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 |
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
|
1,200 600 1,200 1,500 1,100 1,200
|
600 600 600 720 540 600
|
600 600 600 720 540 600/500/400/300/220 600
|
| 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
2,000
|
2,000
2,000
|
n/a
|
1,000
|
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.
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 |
Existing Federal |
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
11,900 (all-months-combined) |
57,800 2,000 27,300 16,900 17,400 19,300
|
33,000 2,000 15,000 6,500 8,000 12,000
|
33,000 2,000 15,000 6,500 8,000 12,000
|
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.
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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