Nov. 5, 2013
CME Group, the world's leading and most diverse derivatives marketplace, today released the following statement in response to the CFTC's new position limits proposal.
"CME Group supports position limits in our markets and always has. However, we do not believe the proposed rules, which require that federal position limits be set and implemented by the CFTC, are warranted or necessary, particularly outside of the spot months. The proposed conditional limit rules, which would allow a trader to hold up to 5 times the limit in a cash-settled version of a contract, are inconsistent with the remainder of the proposal, and are a potentially dangerous idea. At 125% of deliverable supply, the proposed conditional limits could increase the potential for price dislocation, especially in the final days of trading, and could damage the price discovery that occurs when a futures contract converges with the physical market the closer it gets to delivery. We are especially concerned about this 5 times higher limit for cash-settled contracts given the updated deliverable supply information that we recently provided to the CFTC. As just one example, based on our analysis of current data, under this proposed rule structure the limits for NYMEX Physical Crude Oil would increase by 500%.
At CME Group, we employ hard position limits, and we believe that exchanges, which are closest to the markets, are in the best position to manage limits. If implemented, these proposed rules could prevent people from hedging in the first place, or create the unintended consequence of pushing participants out of the best-regulated markets, into less-regulated markets that carry greater risk."
Example of Market Impact from CFTC Proposal:
To illustrate the negative impact the CFTC proposal could have on the marketplace, CME Group recently provided updated deliverable supply analyses for many of the markets that would be affected by the proposed federal structure and conditional limits. NYMEX Physical Crude Oil's updated spot limit of deliverable supply would be 12,000 contracts while under the CFTC's conditional limit proposal cash-settled crude oil would equate to 60,000 positions versus the current exchange spot limit in physically and cash- settled crude of 3,000.