[ by Larry Goldfarb ]

As oil and other commodity prices continue to spike up, market participants are about to become familiar with the U.S. Commodity Futures Trading Commission (CFTC) new position limits on energy contracts like crude and natural gas which will come into affect on October 12.  The CFTC has taken an increasingly aggressive approach to enforcing the existing limits on agricultural items like cotton, wheat and soybeans.

In the last week alone, the CFTC has imposed civil monetary penalties and disgorgements totaling nearly $2.5 million on JPMorgan, Australia and New Zealand Bank, and a China-based individual, Weidong Ge, to settle accusations they breached federal speculative limits on cotton (all three respondents), wheat (ANZ) and soybean oil (Weidong Ge).  The CFTC's actions have targeted some of the largest and most prominent banks, brokers and hedge funds in the business.

Earlier in September, the Commission penalized Citigroup for breaking limits on wheat. In February, it took aim at hedge fund DE Shaw for violating limits on soybeans and corn. Last year it went after Merrill Lynch (cotton), Newedge (live cattle) and Daniels Trading (rough rice).

For energy, exchanges like CME Group and Intercontinental Exchange (ICE) set their own hard limits in the spot month and softer accountability levels for other months.  But the CFTC is set to begin enforcing federal limits on the spot month from October 12 and will introduce limits on other months and all months combined in future.

The upsurge in enforcement appears to be the result of a deliberate decision to get tougher and send a signal to market participants that both the Commission and exchanges will adopt a zero-tolerance approach to any trader whose position reach speculative levels.

For further details, go to [Reuters, 9/28/12].