On February 24, 2010, the U.S. Commodity Futures Trading Commission (“CFTC”) issued an order that simultaneously filed and settled charges against UBS AG (“UBS”) for exceeding the New York Mercantile Exchange’s (“NYMEX”) position limits on certain natural gas, heating oil and platinum futures contracts. Under the accepted Offer of Settlement, in which UBS does not admit or deny the CFTC’s findings, UBS agrees to pay a civil monetary penalty of $130,000.
UBS AG, an investment bank, is a publicly traded Swiss corporation based in Basel, Switzerland. While it is not registered with the CFTC, UBS is listed as a member of NYMEX. As such, it is subject to NYMEX’s rules, as well as CFTC jurisdiction since NYMEX is a designated contract market. Under NYMEX Rule 559, NYMEX established position limits regarding futures contracts for the current delivery month or “spot” month.
According to the CFTC’s order, UBS violated Section 4a(e) of the Commodity Exchange Act when it exceeded the NYMEX position limits on four contracts on more than one occasion from 2006 through 2008. While the CFTC did not state how much UBS exceeded the position limits, it did note that UBS’ cooperation was taken into account in settling the matter.
The CFTC’s fine comes at a time when the CFTC is considering implementing new position limits on energy futures contracts. On January 14, 2010, in a 4-1 vote, the CFTC issued a Notice of Proposed Rulemaking (“NOPR”) establishing energy position limits on regulated futures exchanges, derivatives transaction execution facilities, and electronic trading facilities. The NOPR applies to CFTC-regulated exchanges that trade four specific energy commodities, which is currently NYMEX and the Intercontinental Exchange. These four commodities are: (1) Henry Hub natural gas, (2) light sweet crude oil prices, (3) New York Harbor No. 2 heating oil, and (4) New York Harbor gasoline blendstock. The NOPR establishes speculative position limits based on formulas that calculate an all-months combined, single-month, and spot month limit. Currently, the NOPR is still in its 90-day comment period.
A copy of the CFTC’s order can be found at: http://www.cftc.gov/ucm/groups/public/@lrenforcementactions