On February 28, MFA, SIFMA AMG and AIMA jointly filed a comment letter with the CFTC on its reproposed position limits letter. In the letter, the Associations continue to raise serious concerns with the Commission’s proposed position limits framework, including its fundamental underpinnings. The Associations believe that regulatory policy, especially a policy as significant and with such a profound market impact as position limits, should be designed based on sound market and economic principles. Nevertheless, if the Commission determines to move forward with position limits, the Associations request that the Commission narrowly tailor the framework to achieve a specific market outcome, in a way that is designed to be minimally disruptive, practical, and not overly complicated to administer by market participants.
In the letter, the Associations urge the Commission to:
- Identify a clear standard of “excessive speculation” and incorporate that standard in its required necessity findings.
- Before imposing position limits on a core referenced futures contract, make a necessity finding specific to such core referenced futures contract and explain why position limits, and the levels at which they are fixed, are appropriate for each such contract. These steps should be supported by empirical evidence of the need for the position limits and the levels at which position limits are established, including substantive economic, data-based rationale.
- To the extent the Commission makes a necessity finding and determines that position limits are appropriate for a specific core referenced futures contract:
- Provide individual consideration to the contract’s economic characteristics and the market dynamics of the underlying commodity to appropriately tailor position limit levels to the contract. This determination should balance the Act’s goals of preventing excessive speculation, ensuring sufficient market liquidity for bona fide hedgers, and maintaining the price discovery function of the underlying market.
- Make an independent finding that limits on other than spot month contracts are needed to prevent excessive speculation.
- Delegate to exchanges the responsibility and authority to administer position limits and/or position accountability levels (in the case of non-spot months), including setting levels, monitoring for compliance, and granting or rejecting requests for exemptive relief.
- Exclude economically equivalent contracts from position limits at this time to provide more time for the Commission to obtain and carefully analyze higher quality data regarding the trading, liquidity and other market characteristics of economically equivalent contracts and to resolve interpretational and operational challenges caused by the Reproposal.
- Modify the proposed conditional spot month limit to permit market participants to hold cash-settled contracts five times the limit of the physical-delivery contract regardless of whether positions are held in the underlying physical-delivery contracts.
- With respect to exchange-granted, non-enumerated bona fide hedging exemptions and the Commission’s de novo review of such exemptions, provide a market participant with the opportunity to be heard by the Commission or its staff before the Commission takes action to modify or terminate the relevant exchange exemption applicable to such market participant, and provide for a more reasonable and less disruptive liquidation provision should the Commission take such action.
- Permit a risk management exemption involving swap exposure, including commodity index swaps.
- Revise the final aggregation rule to reduce compliance burdens and operational challenges.