CFTC to Impose Position Limits on Derivatives on 28 Physical Commodities: CFTC Issues Final Rules to Impose Position Limits on Physical Commodity Futures, Options, Swaps and Swaptions

Sullivan & Cromwell LLP - November 7, 2011

The Commodity Futures Trading Commission (“CFTC”) adopted interim and final rules on positions limits applicable to option, futures, swap and swaption contracts related to 28 agricultural, metal and energy commodity contracts (the “Final Rules”). The Final Rules impose position limits on a spot-month basis as well as on an all-month and any-month basis. Exemptions are provided from these limits, including a narrow set for bona fide hedging transactions. The Final Rules also exempt certain preexisting positions. Market participants are required to aggregate their interests in commodity contracts across accounts and positions that they control or own, subject to limited exemptions. In addition, the Final Rules impose position visibility requirements with respect to energy and metal contracts. The Final Rules result in radical changes to the CFTC’s long-established position limit regime by, inter alia, taking over responsibility for position limits from the exchanges, expanding limits to include swaps, narrowing exceptions and expanding aggregation requirements.