CFTC Proposed Rules on Position Limits on Physical Commodity Derivatives: CFTC Adopts Proposed Rule during Public Meeting to Impose Position Limits on Futures and Swaps on Physical Commodities

Sullivan & Cromwell LLP - January 19, 2011

On January 13, 2011, the Commodity Futures Trading Commission (the “Commission” or the “CFTC”) held its 9th public meeting in its Dodd-Frank Wall Street Reform Act (“Dodd-Frank”) rulemaking process, during which it voted 4-1 to approve the publication of proposed rules to impose position limits on 28 commodity futures and option contracts on exempt and agricultural commodities, and on “economically equivalent” swaps (the “Proposed Rule”). The CFTC had considered the Proposed Rule at its December 16, 2010 open meeting but CFTC Chairman Gary Gensler adjourned that meeting without holding a vote on the Proposed Rule. The Proposed Rule would, if adopted, enact position limits first on positions in the spot month and subsequently on positions in other months. It would also establish different limits for physically and cash settled derivatives, and would provide for hedge exemptions for physical commodity hedging and aggregation of positions under common ownership or control. The Proposed Rule will be published in the Federal Register for a 60 day comment period.