The CFTC proposed to increase position limits on security futures products ("SFPs").
The proposal would amend CFTC Rule 41.25, which, among other things, addresses the criteria that exchanges must apply when setting position limits on SFPs. The rule mandates position limits for SFPs based upon the average trading volume and number of shares in an underlying security or securities. (Notably, position limits on SFPs have not been adjusted upwards since the rule was introduced in 2001, whereas position limits on security options - under of the jurisdiction of the SEC - have been increased in that time.)
The proposed amendments are intended to provide exchanges with more flexibility in setting limits and level the regulatory playing field for SFPs and security options. In particular, the proposed amendments would:
- increase the default position limit level from 13,500 contracts to 25,000 contracts for equity SFPs;
- allow designated contract markets ("DCMs") to set position accountability levels when the total trading volume and the estimated deliverable supply exceed 2.5 billion shares and 40 million shares, respectively;
- alter the criteria for the position limit to the security with the lowest estimated deliverable supply (for physically delivered basket equity SFPs);
- provide DCMs with the autonomy to change the standard for "applying a position limit from a net position to a gross position on the same side of the market";
- establish criteria for setting position limits on SFPs that are not equity securities, generally based on an estimate of deliverable supply; and
- change the requirements for resetting the levels of position limits.
The CFTC noted that, to the extent that trading activity increases due to less restrictive position limits, price discovery and liquidity will be enhanced in the market for SFPs.
CFTC Commissioner Rostin Behnam issued a concurring statement expressing his approval of the proposed rule, but highlighted his concern about how it might impact the CFTC's position limits rules in Part 150 and any future amendments to them.
Comments on the proposal will be due 60 days following the date of its publication in the Federal Register.
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