CMC Awaits CFTC Decision on Position Limits

After months of deliberation, the CFTC will vote on a final rulemaking tomorrow morning at 9:30 am ET.  CMC will be watching for resolution on these issues:

  • Bona Fide Hedge Definition
    • Will the Commission recognize anticipatory merchandizing transactions based on throughput and not fixed-capacity?
    • Will the Commission retain the current 30-day reporting regime or will it move to a daily reporting requirement?
  • Position Limits
    • How will the Commission handle the CME proposal for ag markets?
    • What will the effective date be?
    • Will long-term contracts be included in deliverable supply?
  • Class Limits
    • Will the CFTC allow netting of futures and swap positions?
  • Conditional Limits
    • Will the Commission address conditional limits in the final rulemaking or will it treat this issue differently?
    • Will ag markets and energy markets receive disparate treatment?
  • Aggregation
    • Beyond the independent controller exemption, are any additional exemptions made for subsidiaries of non-financial firms?

CMC Discussed Several Legislative and Regulatory Topics on our Members-only Policy Call

Earlier this week, on CMC’s members-only policy call, CMC staff and members discussed various legislative and regulatory topics, including joint initiatives taken by the SEC and CFTC on international swaps regulations, and conversations that the CMC is having with the CFTC on bona-fide hedging. Bona-fide hedging was the topic that members were most interested in discussing in greater detail.

CMC Meets with Sen. Scott Brown’s Staff

CMC met with Senator Scott Brown’s Legislative Director today. Although Sen. Brown (Republican – Massachusetts) does not sit on the Banking or Agriculture Committees, he is very interested in derivatives issues because many of his constituent firms in Massachusetts (especially financial companies) are heavy users of derivatives. Being a moderate Republican, he is also a very important swing vote in the Senate on several pieces of legislation. CMC discussed the following issues at a broad 30,000-foot level with the staffer: position limits and bona-fide hedging, and international co-ordination of derivatives regulations across various jurisdictions. Sen. Brown’s office is also very interested in forex swaps, and expressed an interest to continue an ongoing discussion with CMC on that topic.

CFTC swaps trading plan may stifle market-traders

* CFTC wants quote request to reach at least 5 groups

* Signal would move prices, scare off liquidity-banks

* SEC’s model would allow for more discretion-banks

* More time needed to phase in new SEFs rules-NFA
(Updates with additional comments and background on
international regulations)

By Roberta Rampton

WASHINGTON, March 8 (Reuters) – The U.S. futures regulator
risks stifling liquidity in swaps market by requiring traders
to ask for quotes from at least five market participants, major
banks said in a regulatory comment period that ends on

To shine light on the opaque over-the-counter derivatives
market, the Commodity Futures Trading Commission will require
many swaps to trade on new “swap execution facilities,” or
SEFs, one of the most contentious parts of the Dodd-Frank
financial reform law.

The CFTC has specified that “block trades” won’t have to
move through SEFs. But the CFTC sets the bar too high for block
trades, and few will qualify for the exemption, said Dexter
Senft, a managing director at Morgan Stanley (MS.N).

That means many large swaps would have to be executed on a
SEF, broadcast to at least five other traders, and reported
immediately after trading, forcing bid-ask spreads wider to
account for the market risk — or prompting some customers to
avoid the trades altogether, Senft said.

“To the extent that a customer’s intention to execute a
large trade is ‘signaled’ to more than one market participant,
the price of the relevant instrument will likely move adversely
to the customer,” Senft said.

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