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Washington—The US Commodity Futures Trading Commission (CFTC) this week published a reproposal of rules concerning speculative position limits for derivatives, but the reproposal doesn’t include Class III milk futures.

As part of the so-called Dodd-Frank Act of 2010, Congress amended the Commodity Exchange Act’s (CEA) position limits provision, which since 1936 has authorized the CFTC to impose limits on speculative positions to prevent the harms caused by excessive speculation.

Pursuant to these amendments, the CFTC adopted a position limits rule in 2011. The agency was then sued over part of the rule, and a federal district court ruled that the agency had to rewrite part of the rule.

Under the original final rule, the CFTC established a position limits regime for 28 exempt and agricultural commodity futures and options contracts, including Class III milk futures, and the physical commodity swaps that are economically equivalent to such contracts.

The CFTC’s reproposal does not address three cash-settled contracts, including Class III milk as well as feeder cattle and lean hogs which, under a December 2013 position limits proposal, were included in the list of core ferenced futures contracts.

Commenters expressed the view that proposed limits based on an open interest formula would result in limit levels for dairy contracts that are too low and would restrict hedging use by limiting liquidity.

The CFTC responds that it is deferring the imposition of position limits on the Class III milk, feeder cattle and lean hogs contracts. Commenters had raised concerns with these cash-settled contracts and how they fit within the federal position limits regime.

While many of these concerns were raised in the context of the dairy industry, the CFTC said they apply to all three cash-settled core ferenced futures contracts. Concerns raised include: how to apply spot month limits in a contract that is cash-settled; the “five-day rule” for bona fide hedging; and the length of the spot month period.

Commenters contended that the CFTC’s rationale in its December 2013 position limits proposal focused on concerns with physical-delivery contracts, which the commenters believe do not apply to cash-settled core referenced futures contracts because there is no physical delivery process and because the contracts settle to government-regulated price series (through USDA).

Commenters were concerned that the CFTC’s “one-size-fits-all” approach discriminates against participants in dairy and livestock because the spot-month limit is effectively smaller compared to the separate spot-month limits for physical-delivery and cash-settled contracts in other commodities.

Several commenters suggested limit levels that do not follow the proposed formulae for determining levels for both spot and non-spotmonth limits due to the unique aspects of cash-settled core referenced futures contracts, including the relatively large cash market and trading strategies not found in other core referenced futures markets.

The CFTC, as part of the phased approach to implementing position limits on all physical commodity derivative contracts, has decided to defer action so that it may, at a later date: clarify the application of limits to cash-settled core referenced futures contracts; and consider further which method to use to determine a level for a spotmonth limit for a cash-settled core referenced futures contract.

The CFTC noted that its 2013 position limits proposal discussed spot-month limits primarily in the context of protecting the price discovery process by preventing corners and squeezes.