Position Limits Regulation

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Dodd-Frank Timeline, Position Limits for Derivatives
Interim and Final Rule VACATED BY COURT ORDER Re-proposed Rule Issue Comment Deadline (reopen February 26, 2015)
November 18, 2011 September 28, 2012 November 5, 2013 March 28, 2015

Position limits are the predetermined position level (number of contracts allowable for holding) set by regulatory bodies -- such as the Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC) in the U.S. or by an exchange - for a specific futures or options contract. Contracts will have varying position limits and these limits can be set for individual expiration months, such as the spot month, and for all listed expiration months combined.[1]

Position limits are created for the purpose of maintaining stable and fair markets. Contracts held by one individual investor with different brokers may be combined in order to gauge accurately the level of control held by one party. "CFTC regulations require FCMs and clearing members to file with the CFTC, on a daily basis, reports on futures and/or options positions for each account holding a reportable position. Exchanges have similar reporting requirements. CFTC and exchange position reporting requirements apply to all accounts holding reportable positions and do not distinguish, for the purpose of determining who must report, between types of accounts, such as hedge or speculative. In determining CFTC reportable status, the total long or total short gross position in any one month in any one market on any one exchange is used."[2]

"In addition, FCMs, clearing members, and foreign brokers must file a special account identification report(CFTC Form 102) providing basic account background information. Individuals and business entities (so-called “large traders” for the purpose of this CFTC regulation) who hold reportable positions also must file, upon request of the CFTC, a Statement of Reporting Trader(CFTC Form 40) showing background information about the trader.[3]

The CFTC's position limits are imposed on traders classified as "non-commercials" (i.e. speculators). The Commission and exchanges may grant exemptions to their position limits for bona fide hedging, as defined in CFTC Regulation 1.3(z), 17 CFR 1.3(z). Hedges must reduce risk for a commercial enterprise and must arise from a change in the value of the hedger's (current or anticipated) assets or liabilities.[4]

Position limits are intended to protect futures markets from excessive speculation that could cause unreasonable or unwarranted price fluctuations and are sometimes referred to as "speculative position limits", or "speculative limits". The Commodity Exchange Act (CEA) authorized the Commodity Futures Trading Commission to impose limits on the size of speculative positions in futures markets. Core Principle 5, of Section 5(d) of the CEA, requires designated contract markets to adopt speculative position limits or position accountability for speculators, where necessary and appropriate, to reduce the potential threat of market manipulation or congestion, especially during trading in the delivery month.[5] Hedge positions as defined by the CFTC and exchanges, are generally exempt from position-limit requirements, but they are not exempt from CFTC and exchange reporting requirements.

"For many futures and options contracts the CFTC and exchanges place limits on the maximum size of market positions that any one trader or group of related traders may hold or control if the trader is not exempt from the requirement."[6] By law, the CFTC sets limits on the number of futures contracts in agricultural products like wheat, corn and soybeans that can be held by each market participant to protect the market against manipulation. But for other products, including energy commodities — crude oil, heating oil, natural gas, gasoline and other energy products — it is the futures exchanges themselves that set the position limits.[7] Exchanges only impose hard limits on energy products in the last three days of trading before a contract's expiration. The rest of the time, they impose accountability levels, which trigger additional oversight if exceeded.[8] Swaps dealers, although they are a huge group of speculators, are exempt from position limits because they are classified as commercials, even though they have no dealings in the physicals. The swaps dealers trade mostly on behalf of commodity index traders.[9]


In early 2010, The Commodity Futures Trading Commission held discussions on energy position limits. CFTC Chairman Gary Gensler said the agency is considering setting limits on energy contracts to limit disproportionate energy speculation. If the rule is put into place, it will apply to trading on regulated futures exchanges, derivatives transaction execution and electronic trading facilities. [10]

In a late-July 2010 interview with Reuters, CFTC Commissioner Bart Chilton said a new speculative position limit regime will also apply to metals and soft agricultural commodities, in addition to the energy market limits proposed in January. The regulator will use new authority granted in the Dodd-Frank Act to apply curbs to "all commodities of finite supply," Chilton said.[11]

In November 2010, CFTC's Gensler said the regulator would take up the issue of position limits at its December 1, 2010 meeting.[12]

In December, 2010, the CFTC began deliberation of position limits for derivatives at the CFTC Open Meeting, December 16, 2010. The issue was tabled until the following meeting, CFTC Open Meeting, January 13, 2011.

Documents Related to Position Limits at the January 13th, 2011 Meeting

Position Limits for Derivatives


Meeting on Energy Position Limits and Hedge Exemptions

Originally presented on January 14, 2010[13]:

  • Opening Statement by Chairman Gary Gensler
  • Statement by Dan Berkovitz, Office of General Counsel, CFTC
  • Presentation and Statement by Steve Sherrod, Division of Market Oversight, CFTC
  • Motion to accept staff report and publish proposed rule
  • Questions and Answer Session
  • Statement by Commissioner Scott O’Malia
  • Statement by Commissioner Bart Chilton
  • Statement by Commissioner Jill Sommers
  • Statement by Commissioner Michael V. Dunn
  • Closing Statement by Chairman Gary Gensler
  • Vote on Rule Making


  1. Guide Futures and Options, pg 228. The Institute for Financial Markets. Retrieved on July 29,2009.
  2. Guide to U.S. Futures Regulation, pg 16. The Institute for Financial Markets. Retrieved on July 29,2009.
  3. Guide to U.S. Futures Regulation, pg 16. The Institute for Financial Markets. Retrieved on July 29, 2009.
  4. Speculative Limits. CFTC. Retrieved on July 28, 2009.
  5. Speculative Limits. CFTC. Retrieved on December 17, 2008.
  6. Guide to U.S. Futures Regulation, pg 16. The Institute for Financial Markets. Retrieved on July 29, 2009.
  7. Energy trading limits considered by feds. Crain's Chicago Business. Retrieved on July 28, 2009.
  8. Gensler Pushes for Trading Curbs. The Wall Street Journal. Retrieved on July 28, 2009.
  9. Commodity Speculation: Over the Top?. Barron's. Retrieved on July 28, 2009.
  10. CFTC To Meet On Energy Position Limits on January 14. MarketWatch. Retrieved on February 25, 2010.
  11. CFTC's Chilton sees broader position limit rule. Reuters. Retrieved on July 30, 2010.
  12. CFTC sets sweeping rule timelines as clock ticks. Reuters. Retrieved on November 18, 2010.
  13. Meeting on Energy Position Limits and Hedge Exemptions. CFTC. Retrieved on January 14, 2010.

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