Under the proposed rules non-spot-month position limits (aggregate single-month and all-months-combined limits) will be set for each referenced contract at 10% of open interest in that contract up to the first 25,000 contracts, and 2.5% thereafter.
That is for the exempt markets. The open interest formula was used in 2005 to set non-spot limits in agricultural markets and the proposal would retain what it calls "legacy limits" in these markets. Legacy limits are those set in 2005 based on 2004 open interest, and would set limits significantly below what they would be if they simply applied the formula based on 2010 open interest (see "Sitting at the kids’ table").
The proposal asks for comments on whether it would be better to adopt the same formula for other markets or to increase the limits to levels requested by the Chicago Board of Trade in an April 6, 2010 petition (that would still fall short of the formula based on 2010 open interest).
This drew a comment from Gresham Investment Management Chairman Henry Jarecki. Gresham operates a long-only commodity-strategy-based fund that previously had been given a No-Action letter from the CFTC granting it limited relief from spec limits. Jarecki wrote,
"This decision strikes me as illogical and unfair. …The proposal would, on one hand, maintain the status quo in the agricultural markets but, on the other, impose new limits in the energies and metals based on a formula that was introduced 18 years ago to set limits on agricultural commodities. …the proposal is unfair because it will put Gresham at a distinct disadvantage to its primary competitors: The large investment banks."
Jarecki says delays in implementation would allow the banks to continue on with their hedge exemption, which could force him to do business with competitors as he would have to enter the swaps market rather than execute in futures.
However, CFTC Commissioner Bart Chilton, perhaps the strongest advocate of limits, says he supports higher limits for agricultural futures, though does not necessarily support simply applying the formula the same way to ag markets.