CFTC Finalizes New Limits

CFTC Addresses Bona Fide Hedging Concerns in Final Rule on Position Limits

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The Commodity Futures Trading Commission this week finalized a rule adopting new position limits on derivative contracts for 25 commodities including corn, soybeans and wheat. (CFTC logo)

OMAHA (DTN) -- The Commodity Futures Trading Commission adopted new and amended position limits on derivative contracts for 25 physical commodities, including corn, soybean and wheat futures contracts, in a rule finalized on Thursday.

When it comes to grain markets, the new rule expands spot-month position limits for corn, wheat and soybean futures contracts from 600 to 1,200 contracts. The limit applies only to speculative, or noncommercial, traders.

The rule also increases non-spot month position limits for those commodities. The CME Group will have authority to establish lower position limits on its exchange, which is a change from the proposed rule that was sought by groups like the National Grain and Feed Association.

CFTC has made numerous attempts at establishing a positions limits rule since Congress passed the requirement as part of 2008's Dodd-Frank financial reform legislation. The first attempt, although finalized by the commission in 2011, was struck down by a judge as being overly broad. The 2013 and 2016 proposed rules were never finalized over concerns about bona fide hedge exemptions.

"The approved rule has seen many significant changes over the decade-long process and is immeasurably improved for the grain, feed and processing industry from previous versions," NGFA said in its news release.

The rule CFTC finalized this week grants exchanges like CME broad authority to manage the hedge-exemption process, with CFTC retaining review authority.

The rule maintains bona fide hedging strategies for the grain, feed and processing industry, and enumerates new strategies that also count as bona fide hedges, such as unfilled anticipated requirements, anticipated merchandising, and unfixed price sales and purchases. Enumerated bona fide hedges do not require approval by the CFTC.

The new rule also streamlines the process for approving non-enumerated hedging strategies, giving exchanges the responsibility of initial approval. CFTC will then have a 10-day review period during which market participants may take the hedge position.

"Our expectation is that the rule will preserve the critically important hedging and risk-management strategies on which our industry has relied for years," NGFA Senior Vice President and Treasurer Todd Kemp said in a news release, "and will provide several additional important tools to assist our members as they work with U.S. agricultural producers to manage their market risk and optimize income. We deeply appreciate the willingness of CFTC to be open to NGFA-member companies concerns and input through the rulemaking process."

Nine grain futures contracts were already subject to position limits prior to the final rule.

DTN Lead Analyst Todd Hultman said he has mixed feeling about the rule.

"One on hand, it is good that the rule allows legitimate hedgers sufficient exemptions to carry out the hedging activities they depend on for their business. And I have no problem with the CFTC giving the CME authority to lower position limits when they deem necessary," he said. "On the other hand, it is unfortunate for grain producers that the limit on speculative positions is being increased, as noncommercials tend to increase bearish price pressures during times of grain surplus."

CFTC's commissioners voted 3-2 along party lines in 2019, to move the proposal forward.

Many elements of the rule will take effect for grain and oilseed futures 60 days after publication in the Federal Register, or in January 2021.

Todd Neeley can be reached at todd.neeley@dtn.com

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Todd Neeley