Position Limits for Derivatives

The Asset Management Group (AMG) of SIFMA provides comments to the Commodity Futures Trading Commission (CFTC) on a proposed rule on position limits for derivatives, RIN 3038–AD15 and 3038–AD16.  SIFMA AMG offers observations and recommendations about the proposal including:

• The CFTC should delay adoption of position limits until an “appropriateness” determination can be made.  Currently, there lacks sufficient evidence to suggest that speculation is affecting commodities markets.  Therefore, establishing any position limit may:

  -Shift trading to Foreign Boards of Trade unless there is coordination between U.S. and Foreign regulators on proposed rules;

  -Result in unintended consequences, such as decreased liquidity, increased volatility, and higher costs to end users.

• There is no evidence to suggest that speculation in the non spot month affects the commodities markets.  If any position limit is imposed, at the very least, non spot month contracts should be excluded.
• Positions held in separately managed accounts of an asset manager should not be aggregated for the purpose of imposing a position limit.  Holders of such positions may be a wide array of disparate owners with different investment considerations.

• Diversified, unleveraged funds and accounts that take passive, long-only positions, Registered Investment Companies, and Employee Retirement Income Security Act (ERISA) plans should be granted safe harbor treatment if a position limit regime is adopted.  These entities are subject to regulation and oversight that mitigates any risk of disruptive speculation.

SIFMA AMG provides supplemental comments to the CFTC on the proposal on June 20, 2011.