7 U.S.C. § 6a — Excessive speculation

(a) Burden on interstate commerce; trading or position limits. Congress finds that "excessive speculation" — trading far more than needed for legitimate business reasons — in a commodity's futures contracts, or in swaps that significantly affect price discovery for regulated markets, causes sudden or unreasonable price swings. That's treated as an undue burden on interstate commerce. To reduce or prevent that burden, the Commission must, after notice and a hearing, set limits on how much trading any person (or group of people acting together) may do, or how large a position they may hold, in a commodity's futures contracts or in certain swaps. When checking whether someone has exceeded a limit, the Commission counts positions and trading by anyone that person directly or indirectly controls, and it treats two or more people acting under an agreement or understanding as if they were one person. The Commission can set different limits for different commodities, markets, contract months, or days remaining until trading ends, and it can set different limits for buying versus selling, or exempt transactions known as "spreads," "straddles," or "arbitrage" from the limits (with "arbitrage" in domestic markets meaning the same as "spread" or "straddle"; the Commission also gets to define "international arbitrage"). Beyond that general authority, the Commission must specifically set position limits — other than for genuine "bona fide hedge" positions — for physical commodities other than "excluded commodities," within 180 days after July 21, 2010 for exempt commodities, and within 270 days for agricultural commodities; in doing so, it must try to keep foreign boards of trade under comparably strict limits so price discovery doesn't just shift overseas. When setting these limits, the Commission must cap the number of positions someone can hold in the spot month, in each other month, and in total across all months, and it must try, as much as practical, to prevent excessive speculation, deter manipulation and market squeezes or corners, keep the market liquid enough for genuine hedgers, and protect the underlying market's price discovery function. In deciding whether a swap significantly affects price discovery for a regulated market, the Commission looks at price linkage (how much the swap relies on another contract's settlement price), arbitrage potential, how much market prices reference the swap's price, how much trading volume in the swap could materially affect the other contract, and any other relevant factors the Commission identifies by rule. The Commission must also set position limits — including aggregate limits, developed and put in place at the same time as the limits above — on swaps that are economically equivalent to regulated futures contracts or options. And it must set aggregate position limits across contracts on designated exchanges, certain foreign-board contracts that settle against a U.S. registered entity's prices, and swaps that significantly affect price discovery. Finally, the Commission can exempt any person, swap, contract, option, or transaction — in whole or with conditions — from any position-limit requirement it sets under this section. (b) Prohibition on trading or positions in excess of limits fixed by Commission. Once the Commission issues a limit-setting rule, regulation, or order, it must give at least ten days before the limit takes effect. After that, and until the rule is suspended, changed, or revoked, it's illegal to buy or sell more of a commodity in one business day than the Commission's daily trading limit allows, or to hold a net long or net short position larger than the Commission's position limit — except that the position limit doesn't apply to a position someone acquired in good faith before the rule took effect. (c) Applicability to bona fide hedging transactions or positions. None of these limits apply to transactions or positions that qualify as "bona fide hedging" — genuine risk-management trades, as the Commission defines that term consistent with this chapter's purposes. The Commission can define the term broadly enough to let producers, buyers, sellers, middlemen, and other users of a commodity hedge their real, anticipated business needs, for as long as an appropriate futures contract stays open on an exchange. For at least two years after January 11, 1983, the Commission also had to monitor and report to Congress on the trading activity of the largest hedgers in the cattle, hog, and pork belly markets. For contracts and options on physical commodities, a "bona fide hedging" transaction or position is one that either (A) substitutes for a transaction or position to be made or taken later in the physical market, is economically appropriate for reducing risk in running a business, and arises from a real change in the value of assets someone owns or expects to own, produce, process, or sell, liabilities someone owes or expects to incur, or services someone provides or expects to provide or buy; or (B) reduces risk attached to a swap position that either was made opposite a counterparty for whom the deal would itself qualify as bona fide hedging, or that itself meets the same standard. (d) Persons subject to regulation; applicability to transactions made by or on behalf of United States. This section applies to a registered futures commission merchant, introducing broker, or floor broker only when the trades in question are made for that person's own account or benefit — not when acting for someone else. And it doesn't apply at all to trades made by, for, or at the direction of the United States government or its authorized agencies. (e) Rulemaking power and penalties for violation. This section doesn't stop a contract market, derivatives transaction execution facility, other licensed or registered board of trade, or electronic trading facility from adopting its own bylaws, rules, or resolutions setting trading or position limits — but if the Commission has set limits under this section (or under section 6c for a commodity option), those self-imposed limits can't be set higher than the Commission's. Violating one of these approved bylaws, rules, or resolutions is itself a violation of this chapter; but the special penalty provision in section 13(a)(5) applies only to someone who knowingly violates such limits.