CFTC Adopts New Federal Position Limits and Amendments

The Commodity Futures Trading Commission, by a 3-2 vote on October 15, 2020, adopted amendments to Part 150 of the CFTC Regulations (Amendments). Part 150 currently imposes federal speculative position limits on nine futures contracts as well as options on such futures contracts (collectively, legacy agricultural contracts), and requires exchange position limits on those and other contracts. The most significant aspects of the Amendments include the establishment of new and amended federal position limits for 25 physical commodity derivatives contracts (which may include swaps) and the overhaul of certain exemptions from the position limits and the process to enable a market participant to rely on such an exemption.

As a result of these changes, and prior to the applicable compliance dates, any market participant – including asset managers – trading for fund, client or proprietary accounts in any of the 25 core referenced futures contracts and/or the other related futures, options and swaps that will now be subject to federal position limits as discussed in this OnPoint will need to consider whether the exposure created under those contracts might exceed the new and amended limits. Planning ahead for adjustments to relevant trading strategies may be necessary to ensure compliance with the limits.

Importantly, the Amendments do not impose federal non-spot month position limits for such contracts, other than the nine legacy agricultural contracts that historically have been subject to federal position limits. As a result, while federal position limits will include swaps for all 25 of the relevant contracts, those limits will apply only outside the spot month for the nine legacy agricultural contracts. Also, the Amendments do not impact the CFTC’s aggregation requirements applicable to market participants for purposes of the federal position limits or the related independent account controller exemption, as well as other exemptions from aggregation, currently set forth in Part 150.

The Amendments represent the culmination of a 10-year period of regulatory process that included a federal district court case vacating one of the CFTC’s rulemakings. The finalization of this rulemaking is a significant event that will provide certainty to relevant futures and swap market participants.

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