Regulators and exchanges typically impose limits on the number of commodity positions any customer may maintain with the intent of controlling excessive speculation, deterring market manipulation, ensuring sufficient market liquidity for bona fide hedgers and to prevent disruptions to the price discovery function of the underlying market. These limits are intended as strict caps, with no one account or group of related accounts allowed to aggregate or maintain a position in excess of the stated limit. Outlined below is an overview of the various limit types, calculation considerations, enforcement and links for finding additional information.

I. POSITION LIMIT TYPES

Position limits generally fall into one of the following 4 categories:

1. All Months Limit - apply to the account holder's positions summed across all delivery months for a given contract (e.g. positions in CBOT Oat futures contract for the Mar, May, Jul, Sep and Dec delivery months combined).

2. Single Month Limit - apply to the account holder's positions in any given futures delivery month (e.g. positions in CBOT Oat futures contract for any of the Mar, May, Jul, Sep and Dec delivery months). Note that in certain instances, the limit may vary by delivery month.

3. Spot Month Limit - apply to the account holder's positions in the contract month currently in delivery. For example, the March contract month for a product having delivery months of March, June, September and December, while considered a nearby month at the start of the year, does not become a spot month contract for position limit purposes until the date it actually enters delivery. Most spot month limits become effective at the close of trading on the day prior to the First Notice Date (e.g., if the First Notice Date for a Dec contract is the last trading date of the prior month, then the spot month limit would apply as of the close of business on Nov 29th). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.

4. Expiration Month Limit - expiration month limits apply to the account holder's positions in the contract currently in its last month of trading.  Most expiration month limits become effective at the open of trading on the first business day of the last trading month.  If the contract ceases trading before delivery begins, then the expiration month may precede the delivery month. (e.g., if the last trade date for a Dec contract is Nov 30th, then the expiration month limit would apply as Nov 1st). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.

II. CALCULATION CONSIDERATIONS

- Position limits are determined by aggregating option and futures contracts. In the case of option contracts, the position is converted to an equivalent futures position based upon the delta calculations provided by the exchange.

- Positions in contracts with non-standard notional values (e.g. mini-sized contracts) are normalized prior to aggregation.

- Most limits are applied on a net position basis (long - short) although certain are applied on a gross position basis (long + short). For purposes of determining the net or gross position, long calls and short puts are considered equivalent to long futures positions (subject to the delta adjustment) and short calls and long puts equivalent to short futures positions.

- Limits are imposed on both an intra-day and end of day basis.

III. ENFORCING LIMITS

IB acts to prevent account holders from entering into transactions which would result in a position limit violation. This process includes monitoring account activity, sending a series of notifications intended to allow the account holder to self-manage exposure and placing trading restrictions upon accounts approaching a limit. Examples of notifications which are sent via email, TWS bulletin and Message Center are as follows:

1. Information Level - sent when the position exceeds 50% of the limit. Intended to inform as to the existence of the position limit and its level.

2. Warning Level - sent when the position exceeds 70% of the limit. Intended to provide advance warning that account will be subject to trading restrictions should exposure increase to 90%.

3. Restriction Level - sent when the position exceeds 90% of the limit. Provides notice that account is restricted to closing transactions until exposure has been reduced to 85%.

IV. ADDITIONAL INFORMATION

For additional information, including various exchange rules position limit thresholds by contract and limit type, please refer to the following website links:

CFE ( Rule 412) - http://cfe.cboe.com/publish/CFERuleBook/CFERuleBook.pdf

CME (Rule 559) - http://www.cmegroup.com/rulebook/CME/index.html

CME (CBOT Rule 559) - http://www.cmegroup.com/rulebook/CBOT/index.html

CME (NYMEX Rule 559) - http://www.cmegroup.com/rulebook/NYMEX/index.html

ELX Futures (Rule IV-11) - http://www.elxfutures.com/PDFs/Rulebooks/ELX-FUTURES-RULEBOOK.aspx

ICE US / NYBOT (Rules 6.26 to 6.28) - https://www.theice.com/publicdocs/rulebooks/futures_us/6_Regulatory.pdf

NYSE LIFFE (Rule 420) - http://www.nyseliffeus.com/rulebook

OneChicago (Rule 414) - http://www.onechicago.com/wp-content/uploads/rules/OneChicago_Current_Rulebook.pdf

Customer accounts domiciled under Interactive Brokers India Pvt. Limited,(IBI) are awarded different account protection services than our IB-LLC and IB-UK clients. There are two major exchanges, the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE), each one has established their own guidelines for investor grievances against exchange members and/or sub –brokers.

National Stock Exchange of India (NSE)

The NSE has established an Investor Protection Fund with the objective of compensating investors in the event of defaulters' assets not being sufficient to meet the admitted claims of investors, promoting investor education, awareness and research. The Investor Protection Fund is administered by way of registered Trust created for the purpose. The Investor Protection Fund Trust is managed by Trustees comprising of Public representative, investor association representative, Board Members and Senior officials of the Exchange.

The Investor Protection Fund Trust, based on the recommendations of the Defaulters' Committee, compensates the investors to the extent of funds found insufficient in Defaulters' account to meet the admitted value of claim, subject to a maximum limit of Rs. 11 lakhs (1.1 million USD) per investor per defaulter/expelled member.

Bombay Stock Exchange (BSE)

Currently trading is not offered on the BSE by Interactive Brokers.

U.S. option exchanges have rules that distinguish between orders originating from public customers (i.e., not broker-dealers) whose trading behavior is deemed to be “Professional” (i.e., persons or entities trading in a manner more akin to a market maker than to a typical customer) and those whose trading behavior is not.  In accordance with these rules, any customer that is not a broker-dealer and averages more than 390 option orders (for its own beneficial account(s)) per day in U.S.-listed options in at least one month of a calendar quarter will be classified as Professional.

Orders submitted on behalf of Professional customers are treated the same as those of broker-dealers for purposes of execution priority and fees. 

Brokers are required to conduct a review on at least a quarterly basis to identify those customers who have exceeded the 390 order threshold for any month in that quarter, and such customers will be designated as Professional as of the next calendar quarter.

Order Counting

The definition of an order for these purposes varies slightly across exchanges, and customers seeking specific options counting rules (especially in connection with the use of algorithmic order types that might result in placing orders on both sides of the market under certain circumstances) should review the relevant exchange rulebooks and guidance. However, for purposes of options order counting, an order is generally defined as:

• A single order;
• A complex order of 8 or fewer option legs;
• Each option leg of a complex order of 9 or more option legs; or
• A parent order, even if that order is broken into multiple child orders on the same side/series by a broker for execution or routing purposes (except in connection with orders pegged to the NBBO, as discussed below). 

A customer-initiated cancelation and replacement (by any method, including, for example, as a result of Scale orders) of a parent order counts as a new order(s) according to the logic above (e.g., a cancel/replace of a single-leg order counts as one new order, whereas a cancel/replace of a nine-option-leg order counts as nine new orders). 

Orders Pegged to the NBBO/BBO

Note that for customers who use options orders pegged to the NBBO or BBO (such as, for example, relative orders or Pegged Volatility orders, or other parent order types designed to move with the NBBO/BBO), each cancel/replace of a child order based on a change in the NBBO/BBO constitutes an additional new order. Customers resting pegged orders in IBUSOPT for participation in RFQ auctions should also be aware that a pegged order will be treated as canceled and replaced each time such order participates in an RFQ auction in IBKR’s system (whether or not such order becomes an initiating order in an on-exchange auction). 

Account Aggregation

In calculating order totals, brokers must aggregate the options orders of all beneficially-owned accounts of the customer. IBKR aggregates options orders from an individual’s or entity’s account with those of related joint accounts, trust accounts, and organizational accounts.

Customers will be notified by IBKR upon a status change from a retail customer to a Professional customer. In addition, IBKR’s smart order router is designed to take exchange fees (including differences between professional and non-professional customer fees) into consideration when making routing decisions.

For additional details, please see the following links:

CBOE Regulatory Circular RG16-064

ISE 2014 RIC and 2016 RIC

NYSE AMEX 10-29

Rule 611, which is the Trade Through Exemption of SEC Regulation NMS, is very lengthy to cover in detail.  Parties interested in reading the rule in its entirely should type "SEC Rule 611" into an internet search engine.  This is the portion of the document that is pertinent to IB traders, in a nutshell:

Typically the trades involved are a multi-component trade involving orders for a security and a related derivative, or, in the alternative, orders for related securities, that are executed at or near the same time.  The SIA (Securities Industry Association) notes that the economics of a contingent trade are based on the relationship between the prices of the security and the related derivative or security, and that the execution of one order is contingent upon the execution of the other order. 

The bottom line is that when a trade is ruled R6 the SEC has granted a trade-through exemption.  This means that these execution reports do not affect the resting orders in-between the market at the time, and the R6 execution.  For example, the real market is quoting 10.50 at 10.51, and an execution is reported at 10.90.  This execution was given an R6 exemption.  A sell limit order at 10.75, an an example, would not be executed because the 10.90 execution was given an R6 status.