On September 28, the United States District Court for the District of Columbia vacated the Commodity Futures Trading Commission’s revised position limit rules for futures and swaps. The revised rules, which were scheduled to become effective on October 12, would have expanded the scope of the federal position limits by establishing speculative limits for futures, options and swaps tied to 28 physical commodities.
The revised rules originated from Section 4a(a)(1) of the Commodity Exchange Act (CEA) as revised by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which allows the CFTC to establish position limits if it finds that they are necessary to diminish, eliminate or prevent excessive speculation. The CFTC interpreted this provision of the CEA as a Congressional mandate to impose position limits without a specific finding that such rules are necessary. he court disagreed, stating that the language of CEA Section 4a(a)(1) clearly and unambiguously requires the CFTC to make a finding of necessity prior to imposing position limits. The court’s decision does not affect the CFTC’s previously adopted position limit rules set forth in Part 150 of the CFTC’s regulations (which apply solely to futures contracts and options on futures contracts on grains and cotton) or exchange-set speculative position limits.
Following the decision, the Chicago Mercantile Exchange (CME), Chicago Board of Trade and New York Mercantile Exchange withdrew an exchange rule submission, which reflected changes necessary to conform to the CFTC’s vacated position limits rule and which had been scheduled to become effective on October 12.
ICE Futures U.S. (ICE) also withdrew portions of a previously submitted rule filing that were intended to conform to the vacated rule. Other amendments to the ICE position limit rules, relating to bona fide hedging exemptions, risk management exemptions and reporting requirements for contracts that are cash-settled based on a commodity or contract traded on another venue, were not withdrawn and will become effective on October 12.
The CME Market Regulation Advisory Notice is available here.
The ICE Exchange Notice is available here.
See description of the court’s decision below under “LITIGATION.”