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Position limits versus position management

Significant price moves increase the importance of effective position management.

ICE monitors open interest developments in its markets on an ongoing basis and sets accountability levels when it deems it necessary to prevent and address disorderly trading, support orderly pricing and settlement conditions, and ensure the efficiency of markets.

This process considers the positions held by position holders, and any risks these may present to market order, including: pricing and price trends in the relevant markets; the nature of the position holder; the positions in related markets; concentration; position development over time; seasonality; open interest; activity in related underlying financial instruments; participation in liquidity provider programmes; and the extent and quality of engagement with the exchange and response to inquiries.

During periods of high energy prices, some politicians have called for position limits. While this may help to prevent market manipulation by curtailing the ability of market participants to build up concentrated positions, applying inflexible position limits within legislation can prove counterproductive to well-functioning markets.

Our view at ICE is that it is better to leave exchanges to monitor trading in its markets and to take appropriate measures in response to market developments in real time, under the close supervision of our regulators.

Where there is no market failure or concentration of positions, there is generally no objective justification for applying position limits, which could distort market outcomes without any beneficial purpose.

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Position limits versus position management

Significant price moves increase the importance of effective position management. ICE monitors open interest developments in its markets on an ongoing basis and sets accountability levels.

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Looking back to the financial crisis of 2008/ 2009 provides a helpful case study. During this time, speculators were blamed for price rises in oil, usually with no evidence to support the claims.