Alert February 01, 2011

CFTC Proposes Position Limits for Physical Commodity Derivatives

The CFTC issued a rule proposal designed to implement provisions of Title VII of the Dodd-Frank Act that require it to establish position limits for certain physical commodity derivatives.  The proposal would simultaneously establish position limits and limit formulas for certain physical commodity futures and option contracts executed pursuant to the rules of designated contract markets (‘‘DCM’’) and for economically equivalent physical commodity swaps.  The proposal would also establish aggregate position limits that would apply across different trading venues to contracts based on the same underlying commodity.  The proposal includes exemptions for bona fide hedging transactions and for certain positions established prior to the adoption of final rules, new account aggregation standards, visibility regulations and new requirements and standards for position limits and accountability rules implemented by DCMs and swap execution facilities.  Comments must be received no later than March 28, 2011.