CFTC Proposes Futures Rule - The Industry Spread

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.


CFTC Proposes Futures Rule

July 26, 2018
Christopher Giancarlo, CFTC chairman
Christopher Giancarlo, CFTC chairman

The Commodities Futures Trading Commission (CFTC) has proposed a rule for exchanges trading futures products.

“The Commodity Futures Trading Commission (CFTC) unanimously approved a proposal to update a rule impacting exchanges that list security futures products (SFPs).” The CFTC said in a statement. “The proposal has the potential to provide greater liquidity in SFP trading, which would facilitate risk management for entities using SFPs.

“The proposed rule would update an outdated security futures rule that has not kept pace with position limits on security options, which are under the jurisdiction of the Securities and Exchange Commission. The proposed updates would provide exchanges that list SFPs with greater discretion in setting limit levels, allowing the exchanges to provide a more effective risk management tool. This is the first update to the CFTC SFP position limits and position accountability requirements since they were originally issued in 2001.”

The proposed rule has been placed into the federal registrar. The proposed rule will do two things, according to the registrar.

  • increasing the default level of equity SFP position limits to 25,000 (100-share) contracts, from 13,500 (100-share) contracts
  • modifying the criteria for setting a higher level of position limits and position accountability levels. Rather than setting position limits based upon average trading volume and the number of shares outstanding in the underlying security or securities as provided for in the current rules, a designated contract market (“DCM”) listing an SFP would set a specific position limit level, generally equivalent to no more than 12.5 percent of estimated deliverable supply. In lieu of position limits, a DCM would be able to set position accountability levels when six-month total trading volume in the underlying security exceeds 2.5 billion shares and there are more than 40 million shares of estimated deliverable supply. In addition, the proposed amended position limit regulation would provide discretion to a DCM to apply limits to either a person’s net position or a person’s positions on the same side of the market. Finally, the Commission proposes criteria for setting position limits 2 on an SFP on other than an equity security, generally based on an estimate of deliverable supply.

SECThe federal register is the official journal of the federal government of the US that contains government agency rules, proposed rules, and public notice.

Now that the proposed rule has been entered into the register, there is a sixty-day comment period.

The proposed rule will update the Commodity Futures Modernization Act (CFMA) which became law on December 21, 2000.

“The CFMA removed a long-standing ban on trading futures on single securities and narrow-based security indexes3 in the United States. As amended by the CFMA, in order for a DCM to list SFPs, the SFPs and the securities underlying the SFPs must meet a number of criteria. One of the criteria requires that trading in the SFP is not readily susceptible to manipulation of the price of such SFP, nor to causing or being used in the manipulation of the price of any underlying security, option on such security, or option on a group or index including such securities,” the register noted.

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