On January 14, 2010, the Commodity Futures Trading Commission (CFTC) held a public meeting to decide whether to issue a Notice of Proposed Rulemaking (NOPR) that would allow the CFTC to impose federal speculative position limits for futures and option contracts of certain energy commodities. By a vote of 4-1, with Commissioner Jill Sommers dissenting, the CFTC agreed to publish the NOPR. The purpose of the NOPR is to address concerns over volatile energy prices and excessive speculation in commodity markets.
The NOPR proposes to set aggregate and exchange-specific speculative position limits for futures and option contracts traded on the New York Mercantile Exchange (NYMEX) and the IntercontinentalExchange (ICE) for the following commodities: Henry Hub natural gas, light sweet crude oil (West Texas Intermediate), New York Harbor No. 2 heating oil, and the New York Harbor gasoline blendstock. Under the NOPR, the CFTC would have authority for the first time to directly regulate the position limits of energy commodities on NYMEX and ICE, which have always been regulated by the exchanges in the past. Specifically, the NOPR establishes aggregate limits that will apply to all-months-combined and single-month position limits that are aggregated across all contract classes and exchanges. Exchange-specific all-months-combined and single-month limits will apply to positions in economically similar contracts, including those that are for the same commodity and settle in the same manner. Lastly, the NOPR establishes aggregate spot-month limits for cash-settled contracts and physically delivered contracts. These limits would supplement position limits and position accountability rules currently imposed by NYMEX and ICE.
Finally, the NOPR creates certain exemptions from the speculative position limits for (1) bona fide hedging transactions where the trader is hedging commercial risk, (2) swap dealer risk management transactions, and (3) certain delta-adjusted positions. Those who obtain an exemption for bona fide hedging or swap dealer risk management will also be subject to certain reporting guidelines, in addition to persons who hold positions in contracts for commodities pursuant to conditional-spot-month position limits.
The CFTC has requested comments on the NOPR and a number of additional issues (pp. 64-70 of NOPR) regarding the application and the impact of speculative position limits. Comments are due by April 26, 2010.
Also of note is that President Obama is considering a proposal that would ban large banks from operating proprietary trading desks. This would mean that the many large investment banks could no longer trade financial products, including financial energy products which do not serve their clients' interests. In addition, the President is also seeking to restrict banks from investing in hedge funds and private companies and intends to enact new borrowing limits on banks.
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