Commodity Position Limit Rules Should Be Based on a Finding of Necessity

Abstract

One hopes that the CFTC will carefully consider how necessary and appropriate the imposition of speculative position limits is, across commodity markets. This article argues that before making such a finding, the agency should (a) review the empirical evidence on the causes of both commodity price volatility and price spikes and (b) study how market participants have learned and responded to the Global Financial Crisis of five years ago.

Keywords: Commodity markets, hedgers, speculators, futures markets, risk, position limits

JEL Classification: G1, G11, G18