Position Limits Regulation - White Papers
White papers, research and other reports addressing position limits regulation.
- 1 EEMAC’s 2015 Review and Consideration of the CFTC ’s Proposed Rule on Position Limits, February 2016
- 2 Finance Watch - Investing not Betting, April 2012
- 3 CME Group: Excessive Speculation and Position Limits in Energy Derivatives Markets
- 4 Irwin/Garcia/Good/Kunda (University of Illinois at Urbana-Champaign): Spreads and Non-Convergence in CBOT Corn, Soybean, and Wheat Futures:Are Index Funds to Blame?
- 5 EDHEC-Risk Institute: Has There Been Excessive Speculation in the US Oil Futures Markets?
- 6 References
EEMAC’s 2015 Review and Consideration of the CFTC ’s Proposed Rule on Position Limits, February 2016
'On February 25, 2016, the CFTC's Energy and Environmental Markets Advisory Committee (EEMAC) met to discuss, among other things, to discuss its report to the commission on the CFTC Proposed Rule: Position Limits for Derivatives, November 2013, which mandates new federal position limits for futures, options and swaps beyond the decades-old federal position limits for agricultural commodities and existing position limits set by U.S. futures exchanges.<ref>CFTC’s Energy and Environmental Markets Advisory Committee Releases Agenda for Upcoming Public Meeting. CFTC. Retrieved on February 25, 2016.</ref> The EEMAC report, which the committee approved by an 8-1 vote, the rule as proposed is unnecessary, could harm liquidity and would create numerous practical challenges.
April 2012 On April 24, 2012, Finance Watch, a Brussels-based international public interest group established in 2011 to counter financial industry lobbying, published a position paper that advocated a tough stance on MiFID II, and called for enhancements on the regulation of: <ref>Investing not Betting. Finance Watch. Retrieved on June 25, 2012.</ref>
- high-frequency trading;
- commodity derivatives speculation;
- over-the-counter derivatives, organised trading facilities (OTFs) and "dark pools;" and
- advisors to retail investors.
The position paper offers its key points, and makes several recommendations on the above topics.
To view the report, along with a summary of the report and its conclusions, click the link below.
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.<ref>Excessive Speculation and Position Limits in Energy Derivatives Markets. CME Group. Retrieved on December 3, 2010.</ref> 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."
Irwin/Garcia/Good/Kunda (University of Illinois at Urbana-Champaign): Spreads and Non-Convergence in CBOT Corn, Soybean, and Wheat Futures:Are Index Funds to Blame?
From the white paper:
"The purpose of this paper is to evaluate the role of index funds in the recent convergence problems of CBOT corn, soybean, and wheat futures contracts. The first part of the analysis demonstrates how large spreads in futures markets contribute to lack of convergence by uncoupling cash and futures markets. The second part of the analysis tests whether index fund trading expanded spreads in CBOT corn, soybean, and wheat futures. Statistical test results provide no evidence that rolling of positions by index funds or the initiation of large index positions in a “crowded market space” contribute to an expansion of the spreads. Since the statistical evidence does not support allegations that index funds are ultimately responsible for non-convergence problems in the three CBOT futures markets, other factors are examined that may have contributed to the rising spreads. A combination of CBOT contract storage rates that lagged market rates and a change in underlying supply and demand conditions that was common to all three grain futures markets appears to be the most promising avenue for explaining the large carry and attendant non-convergence."
From the white paper:
"This report makes it possible to examine whether, over the last three years, speculative position-taking in the exchange-traded oil derivatives markets has been excessive relative to commercial hedging needs. We use a traditional metric for evaluating speculative position-taking and find that this position-taking does not appear to be excessive over the past three years when compared to the scale of commercial hedging at the time."