On October 15, the Commodity Futures Buying and selling Fee adopted new guidelines on place limits. The brand new guidelines mark an vital step ahead in a decade-long journey to enact one of many remaining key provisions of Title VII of the Dodd-Frank Wall Avenue Reform and Shopper Safety Act of 2010 (Dodd-Frank). The Commissioners voted 3-2 in favor of the brand new guidelines, with Chairman Heath Tarbert and Commissioners Brian Quintenz and Daybreak Stump voting in favor and Commissioners Rostin Behnam and Dan Berkovitz dissenting.
As described in higher element under, the brand new guidelines (1) set forth federal place limits for 25 totally different futures contracts, (2) improve the roles performed by exchanges in setting limits and granting exemptions, (3) modify exemptions from federal place limits, and (4) eradicate Kind 204 (Assertion of Money Positions in Grains) and parts of Kind 304 (Assertion of Money Positions in Cotton).
Federal place limits for 25 futures contracts. The brand new guidelines modify present spot month, single month and all-months-combined place limits for 9 “legacy” futures contracts on sure agricultural merchandise and undertake new spot month place limits for 16 “non-legacy” futures contracts, together with further agricultural merchandise, and sure metals and vitality merchandise. There are not any single month or all-months-combined federal place limits for the 16 “non-legacy” futures contracts.
Below the brand new guidelines, place limits apply to any contract that’s immediately or not directly linked to, or that has a pricing relationship with, one of many 25 referenced futures contracts, together with economically equal swaps. All spot month limits are individually calculated with respect to cash-settled and bodily settled positions. In different phrases, within the spot month, an individual can internet positions inside however not throughout every settlement class. There isn’t any such distinction for non-spot month limits, so cash-settled and bodily settled positions may be netted in opposition to one another.
Change-set place limits and exemptions. Just like the prevailing regulatory framework, the brand new guidelines prohibit exchanges from adopting place limits which can be extra lenient than any restrict set for a similar futures contract on the federal degree. As well as, with respect to contracts with no federal restrict, the brand new guidelines present exchanges with higher flexibility in setting place limits or place accountability ranges by, amongst different issues, permitting the exchanges to undertake various approaches which can be “crucial and applicable to scale back the potential risk of market manipulation or value distortion of the contract’s or the underlying commodity’s value or index.” The brand new guidelines additionally enable the exchanges flexibility to grant exemptions from exchange-set place limits.
Exemptions from federal place limits. The brand new guidelines change the bona fide hedge exemption by, amongst different issues, increasing the listing of enumerated bona fide hedges. An enumerated bona fide hedge exemption is “self-effectuating” for federal place restrict functions, and a market participant that qualifies for an enumerated bona fide hedge wouldn’t be required to request prior approval from the CFTC with the intention to maintain a hedge place in extra of a federal place restrict. Nevertheless, the sensible good thing about this “self-effectuating” exemption is proscribed on condition that market contributors should have to request an exemption from the related change for any limits set by the change.
The CFTC additionally authorized an expedited regime for market contributors to exceed federal place limits for a non-enumerated bona fide hedging transaction or place. Below this regime, a market participant could select whether or not to use on to the Fee or, alternatively, apply not directly to the Fee by means of the relevant change. If any change approves the non-enumerated hedge exemption, the Fee will usually have ten days to reject the change’s dedication, after which the hedge exemption could be legitimate for each change and CFTC functions. Within the interim, as soon as an change approval a non-enumerated hedge exemption, a market participant might exceed the federal place limits in the course of the Fee’s 10 business-day assessment interval. If the Fee subsequently denies the exemption, the market participant must liquidate positions extra of the speculative place restrict inside a commercially cheap period of time.
The brand new guidelines additionally make clear that market contributors usually could hedge positions on a gross foundation or on a internet foundation, supplied that the market participant has finished so over time in a constant, non-evasive method.
Types 204 and 304. Below the brand new guidelines, hedgers are now not required to file Kind 204 or Components I and II of Kind 304 on a month-to-month foundation. As an alternative, the CFTC will receive the related money market place data from the related exchanges.
The brand new guidelines will change into efficient 60 days after publication within the Federal Register. Nevertheless, the brand new guidelines have a normal compliance date of January 1, 2022, and later compliance date of January 1, 2023 with respect to swaps-related necessities and the elimination of beforehand granted danger administration exemptions.
The publication of those closing place limits guidelines ends an extended effort by the CFTC to implement place limits guidelines pursuant to Dodd-Frank that started with publication of proposed and closing guidelines in 2011 that have been largely put aside by a federal district courtroom in September 2012.
Extra data, together with a hyperlink to the brand new place restrict guidelines, is on the market right here.