© 2015 CME Group. All rights reserved. 

February 26, 2015 EEMAC Panel 2

Thomas LaSala MD, CRO CME Group
© 2015 CME Group. All rights reserved. 

• A CME Group department with offices in Chicago & New York

• Approximately 180 employees

• Market Surveillance 56 employees --20 NY staff committed for Energy & Metals

• Monitor reported large trader positions (90% of OI) and physical market prices, fundamentals 

and news

• Detect, deter and prevent market manipulation

• Ensure (real-time) that price aberrations in the futures or physical markets are not caused by the 

market power of large traders

• Ensure orderly liquidation of contracts

• Review compliance with CFTC & exchange imposed position limits

• Review requests for hedge and other types of position limit exemptions

• Review positions exceeding position accountability levels

• Review Exchange for Related Position (EFRP) transactions

• Monitor deliveries in cooperation with CME Clearing

CME Group Market Regulation Resources & 

Responsibilities

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• Exchanges administer Accountability across the Curve

• Exchanges have a long history of managing exemptions to spot limits

DCM Practices & Experience Continue to be Effective

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• POSITION ACCOUNTABILITY

• Allows Exchange to get detailed information from a position holder

• Gives the Exchange the authority to require the participant not increase their position or 

to order liquidation of a position.

• Position Accountability levels are set at NYMEX to maximize regulatory flexibility, 

affording the SRO ability to act on positions across the curve of futures months which 

extend up to 10 years.

• Internal OI assessments going out the curve as to when to begin applying concentration 

metrics (foster liquidity, but do not compromise integrity due to concentration).

• Applicable on F/E or futures only basis (lessons learned-Amaranth) 

• Accountability Thresholds are purposely set low.

Position Accountability

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• The absolute size of the position relative to the size of open interest in the relevant 

contract;

• The nature of customer's business (e.g. speculator/traditional hedger/swap dealer);

• The size of the position relative to other position holders/comparable entities;

• The type of position (e.g. outright, intra-commodity spread, inter-commodity spread)

• The location of the position on the curve (e.g. expiration, nearby or deferred month);

• Market fundamentals (i.e. congested market, unusual basis or spread relationships);

• The position relative to the historical position levels for the account in question as well as 

the accounts history of managing their position;

• Participant exhibits abrupt position accumulation or uncharacteristic behavior in the 

marketplace.

Items Considered in Applying Position Accountability 

Rules

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• Summary of 2014 

Exchange Administered Accountability has been 

Effective in Ensuring Properly Functioning, Orderly 

Markets 

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ACCOUNTABILITY LEVELS 6,000 10,000 5,000 5,000

Front Month Natural Gas Crude Oil RBOB Heating Oil

Largest Position Range

6,123.497 -

51,515.794

10,066.017 -

62,421.836

5,019.979 -

15,374

5,023.135 -

17,347.689

Largest Position Percentage of OI 

Range 1.81% - 18.95% 1.80% - 11.12% 3.81% - 15.32% 3.57% - 14.52%

Average Percentage of OI 6.18% 3.94% 6.70% 7.66%

Number of Participants 30 18 16 11

12,000 20,000 7,000 7,000

All Month Natural Gas Crude Oil RBOB Heating Oil

Largest Position Range 12,225.429 - 92,214

20,165.113 -

77,904.546 7,020 - 18,004 7,049.424 - 31,212

Largest Position Percentage of OI 

Range 0.93% - 8.35% .84% - 3.41% 2.14% - 5.67% 1.62% - 11.16%

Average Percentage of OI 2.88% 1.75% 3.13% 3.77%

Number of Participants 24 22 16 10
© 2015 CME Group. All rights reserved. 

• 559.A. Bona Fide Hedging Position

• A customer must demonstrate that it’s futures position represents a substitute for positions to be taken at a 

later time in a physical market channel, is economically appropriate to the reduction of risk for their commercial 

business and arises from a change in the value of the participants current or anticipated assets or liabilities. 

Covers positions hedging ownership, fixed-price purchases and fixed-price sales of the same cash commodity 

and a person’s unfilled anticipated requirements of the same cash commodity for that month and for the next 

succeeding month pursuant to CFTC Regulation §1.3(z). 

• 559.B. Risk Management Position

• Risk management positions are defined as futures and options positions which are held by or on behalf of an 

entity or an affiliate of an entity which typically buys, sells or holds positions in the underlying cash market, a 

related cash market, or a related over-the-counter market and for which the underlying market has a high 

degree of demonstrated liquidity relative to the size of the positions and where there exist opportunities for 

arbitrage which provide a close linkage between the futures or options market and the underlying market in 

question. Covers positions hedging floating price purchases and sales, cross-commodity purchases, sales, and 

inventory, anticipatory exposures and OTC bilateral swaps. Exemptions related to indexed positions in the overthe-counter market may include corresponding commodity index-based futures and options and/or individual 

commodity futures and options used as components in replicating an index. 

• 559.C. Arbitrage and Spread Position

• The Market Regulation Department may grant exemptions from the position limits for arbitrage, intracommodity 

spread, intercommodity spread, and eligible option/option or option/futures spread positions. A customer can 

apply for exemptions using NYMEX physical against certain related NYMEX financially settled contracts. ICE 

contracts that clear as Futures can be used, provided they are also highly correlated. 

Existing NYMEX Hedge Exemption Rules:

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Exemptions In Core Energy Markets For Commercial Participants

Exemption Type CL HO RB NG Total Open

Hedge 3 4 2 1 10

Hedge/Risk 14 21 24 14 73

Hedge/Risk/ARB 3 4 2 3 12

Hedge/ARB 0 0 0 0 0

Risk 8 3 6 0 17

Risk/ARB 1 0 0 0 1

ARB 9 5 5 22 41

Totals: 38 37 39 40 154 (85 unique entities)

• As of 2-23-15 & Additionally note 16 Additional COMEX, 4 NYMEX Metals & 140 Other Energy & Power

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• A specified size is approved. Not open ended.

• CMEG can order freeze of position irrespective of whether position represents bona fide 

hedge. 

• CMEG can order liquidation down to the position limit irrespective of whether position 

represents bona fide hedge. 

• CMEG can request information at any time.

• While exemptions are approved on an annual basis, once an exemption is in place, 

market regulation can review and take the actions described above on a case by case 

basis based on market conditions or other relevant factors.

Key Components Of Any Approval

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• Commercial Users effectively utilize such exemptions in the spot month today. 

• NYMEX effectively manages such exemptions.

• Restricting activity such as cross hedging in the spot period, anticipatory merchandising 

or imposing minimum correlations for cross hedging will inhibit the price discovery 

process.

• Reductions in commercial activity in the price discovery process will have a negative 

impact on liquidity and will likely add to price volatility, decreasing the efficiency of the 

market(s) and ultimately negatively impacting consumers. 

Restricting Risk Management Exemptions Will 

Negatively Effect Markets

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© 2015 CME Group. All rights reserved. 

Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of 

a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders 

should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one 

trade because they cannot expect to profit on every trade. All references to options refer to options on futures.

Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the 

meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s 

value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use 

funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because 

they cannot expect to profit on every trade.

Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates.

CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago

Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New 

York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity 

Exchange, Inc. KCBOT, KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas City, Missouri, Inc. All other 

trademarks are the property of their respective owners. 

The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for 

any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should 

not be considered investment advice or the results of actual market experience. 

All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchange rules. Current rules should be 

consulted in all cases concerning contract specifications.

Copyright © 2015 CME Group. All rights reserved.

Disclaimer