Today, the U.S. Commodity Futures Trading Commission (CFTC), in a fairly unprecedented public hearing, approved publication of a proposed rule to set position limits for futures and option contracts in the major energy markets. The proposal would cover four energy commodity contracts: (1) the NYMEX Henry Hub natural gas contract; (2) the NYMEX Light Sweet crude oil contract; (3) the NYMEX New York Harbor No. 2 heating oil contract; and (4) the NYMEX New York Harbor gasoline blendstock (RBOB) contract. The rule would also apply to any other contract that is exclusively or partially based on the referenced contracts’ commodities and is deliverable at locations specified in the proposed regulations. Currently, these products are traded on two CFTC-regulated exchanges: (1) the New York Mercantile Exchange (NYMEX) and (2) the Intercontinental Exchange (ICE).

As indicated in the CFTC’s fact sheet and Q&A regarding the proposed rulemaking, the proposal seeks to build upon the CFTC’s experience in setting position limits for specified agricultural products. Another important aspect of the proposed rulemaking is the proposed exemptions for bona fide hedging and a new limited risk management exemption for swap dealers, in lieu of an exemption for a bona fide hedging transaction. According to the CFTC Q&A, the proposed rulemaking, if finalized, would likely affect approximately ten large traders. These large traders could seek and may qualify for exemptions.