Hedger costs set to outweigh CFTC position limit benefits

Author: | Published: 28 Oct 2011

The benefits of a Commodity Futures Trading Commission (CFTC) rule to finalise speculative position limits for 28 types of commodity futures and swaps contracts are unclear. But the cost to hedge funds is not.

Costs will be especially high for those hedgers who exceed a non-spot-month position visibility level in energy and metal contracts subject to the position limits rule. These hedgers will be required to file quarterly reports on their physical and swaps portfolios to the CFTC. The position visibility level threshold has not been determined.

Cadwalader Wickersham & Taft partner Paul Pantano said the position limits increase all the administrative burdens on hedgers.

Hedgers will have to comply with many additional reporting requirements, collecting and bucketing the required information is going to be more time consuming than government realizes, Pantano said. Additionally, if liquidity in the marketplace decreases, it’s going to be more...