Dodd-Frank Act: Commodity Position Limits

Summary

This practice note outlines the Commodity Futures Trading Commission's (CFTC) position limits currently in effect and the recently adopted changes to implement applicable provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank Act"). Congress directed the CFTC to impose limits on the size of positions that may be held in the futures and swaps markets that the CFTC finds "are necessary to diminish, eliminate, or prevent" such burdens. Congress made it clear that these limits on speculative trading should not apply to positions established by commodity producers, merchants, or users to hedge their legitimate anticipated business needs—what the CEA terms "bona fide hedge transactions or positions." CEA Section 4a(c)(1) (7 U.S.C. § 6a(c)(1)). This note outlines the difference between the two, and whether the CFTC limits will apply to your clients.