Position Limits Regulation - White Paper - CME Group: Excessive Speculation and Position Limits in Energy Derivatives Markets

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September 2010

From the white paper:

"CME Group supports the CFTC’s mission to ensure that energy markets effectively serve their important economic functions for the benefit of all market participants. Although the evidence is clear that speculative position limits in the energy markets, beyond those already in place, are not warranted, we also recognize that confidence in the futures markets may be undermined by perceptions.[1] Therefore, CME Group is proposing the following recommendations:

  • Each regulated exchange should set position limits for all months combined, single months and the delivery period based on traditional considerations, focusing on its open interest and, at or near the delivery period, the deliverable supply.
  • Each exchange shall be responsible for administering its hedge exemption program for its markets subject to its existing exemption standards until such time as common exemption standards are established by the CFTC. Swap dealers and index funds will remain eligible for risk management exemptions to hedge bona fide exposure but be subject to position limits for their speculative proprietary trading.
  • The CFTC will establish a system for reporting of end-user OTC positions and, after gaining authority to impose aggregate limits that include OTC positions, be responsible for ensuring an end-user’s combined on-exchange and OTC speculative positions do not exceed the aggregate total market position limit.

"We are prepared to lead, but any steps taken to impose hard position limits must support the national policy of enhancing transparent markets and central counterparty clearing and prevent market participants from moving away from the best regulated, most transparent, safest marketplace to less regulated or even completely unregulated markets that are and will continue to be beyond the control of the Commission and Congress."



References

  1. Excessive Speculation and Position Limits in Energy Derivatives Markets. CME Group. Retrieved on December 3, 2010.

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