Position Limits Regulation - Comment Letter - Commodity Markets Council - March 28, 2015

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Position Limits for Derivatives
March 30, 2015

From the comment letter:

"The Commission should be mindful that examples of hedging transactions often over simplify how agricultural firms operate and manage risk in the derivatives markets (e.g., one-­‐to-­‐one hedging of purchase contracts and sales contracts). These simple examples, while informative of the enumerated hedges, should not constitute or dictate the criteria of such enumerated hedges. Hedging is often more complex. Agricultural firms often manage risk associated with large portfolios of cash and derivative positions, and come into the derivatives markets to manage operational aspects of their business that extend beyond fixed-­‐price risk. Accordingly, the definition of “bona fide hedging” must be robust enough to address the needs of such agricultural firms and not be constrained by an over-­‐simplified analysis of hedging."

"The proposal changes current CFTC rule 1.3(z), which states that enumerated hedges or bona fide hedges include, but “are not limited to,” a list of enumerated hedging transactions. The proposal lists permitted enumerated hedging transactions and provides little flexibility to market participants. Having a finite list is difficult for market participants who must manage risk because no one can be expected to understand or anticipate every type of hedge that can be done or that fits all markets or market participants"


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