While most people forgot about the clamor to limit speculation in commodities after the large sell off in commodities off all time highs in 2008 – the CFTC didn’t.

Via Reuters, we learn that the CFTC has proposed a new set of limits, while caving on some earlier rules. View article here: https://www.reuters.com/article/idUSNLLGNE6Q120101216

What does this mean for commodity markets? And by extension – managed futures? Good question(s).

A few ideas:

1. If the new rules force commodities trading offshore where limits don’t apply (Dubai could use some income), we may see less volume and liquidity in US futures exchanges, while growing volume in new up and coming foreign exchanges. The end result, less volume and liquidity on any one exchange = more volatility.

2. If previously undisclosed large block orders for swap trades which are in effect off exchange futures trades (the swaps usually have the exact same delivery tome, place, and contract specifications), from the likes of Calpers, Goldman Sachs, Winton?, etc. – are now forced onto a ‘platform’ or the exchange for all to see, expect some market moving action when these big boys come into the market. Will other speculators be willing to step in front of those freight train sized orders, or will they let prices shoot up. If the latter, this would mean more volatility.

3. Expect large players who don’t like these rules to change their stripes, either buying up commodity operations to qualify as a bona fide hedger, or changing the swap contract specifications just enough to not qualify as economically equivalent to the futures contract, or coming up with entirely new derivatives which don’t fall under the rule but achieve the same result they are after.

All in all, it seems that these rules may result in some higher volatility (if passed), which would be a good thing generally for managed futures and their long volatilty profile. But the better bet, probably,  is that these large players with billions on the line will figure out some way (offshore, new swaps/derivatives, fake hedgers) to skirt the rules.