Volatility within the commodities futures markets has dramatically increased since early 2005.  Traditional tools once used for price discovery functions are much less effective. Market fundamentals have drastically changed and the results have greatly impacted the way markets operate today.

Index funds play a major role in today’s volatility.  Currently, index funds operate under the definition of a commercial hedger.  Typically, this definition is reserved for entities that either produce or take delivery of the commodity.  Index funds should operate within the markets under the same purview as the traditional speculator, who is subject to necessary position limits, preventing these entities from manipulating the price of any commodity. 

ABA has been extremely aggressive in working with Congress and the Administration to address this issue. ABA strongly believes that the Commodity Futures Trading Commission (CFTC) must treat index funds as traditional speculators, ensuring that funds operate under necessary contract limits and cannot receive exemptions from these limits.

ABA Comments to CFTC Regarding Position Limit Proposal

ABA Press Release on CFTC Vote in Favor of Position Limits

What is the goal of the rulemaking?

The rulemaking establishes limits on positions in physical commodity futures contracts as well as swaps that are economically equivalent to those contracts, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and establish position limits and related standards for registered-entity set.  The position limits framework would enable the Commission to meet its statutory responsibility for setting limits in order to combat excessive speculation and manipulation while ensuring sufficient market liquidity and efficient price discovery.  

What will the rule do?

• The definition of a commercial hedger has been narrowed so that only true hedgers, such as farmers and bakers, would fit under this definition.
• Index funds will now have to invest under set limits.
• Position limits are increased:
  • Current single month contract limits is 5,000, increased to 9,000.  
  • Current all months contract limit is 6,500, increased to 12,000.

When does this rule go into effect?

The rule will go into effect 60 days after the term "swap" can be further defined by the CFTC.  Currently there is no timeline for making that determination.
 

CFTC FAQ on Position Limit Proposal

The CFTC is an independent agency with the mandate to regulate commodity futures and option markets in the United States. The CFTC's mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

www.cftc.gov