Reed Smith Client Alerts

On January 1, 2023, speculative position limits became applicable to certain over-the-counter swaps (in addition to exchange-traded futures) for the first time in the United States. Specifically, these new limits apply to swaps that are “economically equivalent” to any futures contracts or options on futures contracts subject to federal position limits. However, market participants face uncertainty as to which swaps are considered “economically equivalent” (and thus subject to position limits), and some are concerned that the scope may be broader than many initially believed.

Position limits

“Speculative” position limits are caps imposed on each trader’s positions in a given futures contract during the end of trading for a given delivery month (i.e., the “spot month”). These limits are generally intended to prevent excessive speculation and the potential for manipulation, as well as unnatural price fluctuations. In November 2020, the Commodity Futures Trading Commission (CFTC) voted to finalize regulations to expand the types of products subject to such limits from certain agricultural futures contracts (as had previously been the case) to also include certain energy and metals futures contracts.1

In the same rulemaking, and after proposing to do so several times, the CFTC also expanded position limits to cover swaps that are “economically equivalent” to the futures and options on futures that are themselves subject to the CFTC’s position limits. However, the CFTC decided to delay the compliance date for economically equivalent swaps until January 1, 2023 because “exchanges cannot view market participants’ positions in swap positions across the various places they trade, including on competitor exchanges.”2