Intercontinental Exchange (ICE) has issued a statement regarding position limits and hedge exemptions in its energy markets in relation to the CME Group (CME) white paper. It appears that several elements of CME’s white paper proposal are flawed and potentially anti-competitive.
ICEs statements questions the causal link between speculative activity in futures markets and energy price levels made in CMEs white paper, “Excessive Speculation and Position Limits in Energy Derivatives Markets,” published on September 16, 2009 which also supported a hard position limits regime. The Commodity Futures Trading Commission (CFTC) has held hearings with a broad cross-section of participants to inform the discussion regarding appropriate position limits and the administration of hedge exemptions.
In light of the recent CFTC hearings, and in order to build market confidence, preserve customer choice and competition, ICE makes several recommendations in its statement. These suggestions include; a new position limit or accountability level regime established and administered by the CFTC, with the CFTC having sole authority to grant exemptions, which is hoped to offer greater confidence in market integrity. ICE believes any new position limit and accountability level regime should be aggregate, market-wide, in nature. In addition, the imposition of position limits and accountability levels is recommended to promote competition and customer choice by being market and exchange agnostic.
Beyond these critical points concerning the proper administrator of position limits and whether they should be applied market-wide, ICE continues to share its thoughts directly with the CFTC regarding other elements of CME’s white paper, including but not limited to, key distinctions between physical versus cash-settled contracts and enhancements to the existing accountability level regime.