Joint Letter on Position Limits
May 15, 2020
On May 15, MFA and AIMA submitted comments in support of the CFTC’s proposed rule on position limits. The Associations have commented on prior iterations of the Commission’s position limits proposals for the past decade and appreciate that the current proposal addresses many of their past concerns, including the need for the
Commission to make a necessity finding, using accurate deliverable supply data on which to base spot month position limits, clarifying the definition of linked contracts and economically equivalent swaps, and not adopting position limits outside the spot month (other than for the legacy agricultural contracts).
To further refine the proposed rules, the Associations recommend that the CFTC:
- direct exchanges to review deliverable supply estimates on a periodic basis and take appropriate action when current data indicates that position limit levels should be modified;
- immediately make effective the new spot month and non-spot month limits for the legacy agricultural contracts;
- clarify the scope of linked contracts and economically equivalent swaps;
- extend a market participant’s good faith determination of the status of an economically equivalent swap to cover all referenced contracts;
- re-define “spread transaction” to include intramarket and intermarket spread positions and include non-enumerated spread exemptions in the exchange approval process proposed in Regulation 150.9;
- confirm that it will make available a grace period to reduce a position in the event that a change to an option delta results in a breach of a position limit similar to the Proposal’s grace period for option assignments;
- adjust certain proposed limits; and
- remain vigilant in assuring that the revised scope of bona fide hedging transactions will not be abused to exert market power that results in artificial or non-economic prices.