20131104-205319.jpg

CFTC will be holding an open meeting to discuss and consider proposals on the position limits rules associated with the Dodd Frank Act. To listen in on the entire proceedings, you can either call in or subscribe to their webcast. Details are here.

The biggest part of the legislation pertains to the spot month limits. Per the FAQ:

“Spot-month position limits will be set at 25% of deliverable supply for a given commodity, with a conditional spot- month limit of five times that amount for entities with positions exclusively in cash-settled contracts.
Non-spot-month position limits (aggregate single-month and all-months-combined limits that would apply across classes, as well as single-month and all-months-combined position limits separately for futures and swaps) will be set for each referenced contract at 10 percent of open interest in that contract up to the first 25,000 contracts, and 2.5 percent thereafter.”

In addition to the limits themselves, there is also extensive rules around position aggregations, trying to reduce the loopholes created by spreading position to different legal entities with common ownership.

At the end of the day, the CFTC is trying to remove rampant speculation causing additional volatility in the near month markets. However, the commission may be going too far, reducing the benefits of speculative positions as a way for physical market participants to offload price risk. Let’s hope their findings create a healthy market response and increase liquidity.