The European Commission said in October that it would introduce in 2010 "ambitious legislation to regulate derivatives," including giving regulators the ability to set position limits.

The rules may require over-the-counter transactions to be processed, or cleared, through a third-party clearinghouse. The proposal is due out in July, Michel Barnier, the European Union's financial services commissioner, said at a May 17 briefing in Brussels. If passed, the proposal would be binding on all 27 member states of the EU, including Germany, France and the U.K.

CFTC Oversight
The over-the-counter derivatives market has escaped the CFTC's reach since the first interest-rate swap was traded in 1981. The transactions fell outside a law requiring that all futures be traded on regulated exchanges.

Three decades later, the U.S. over-the-counter derivatives market has grown to $300 trillion and remains unregulated, Gensler said in an April 12 speech at Columbia University in New York. The lack of regulation allowed institutions to build up enormous risk that ultimately threatened the U.S. financial system, he said.

If approved by the CFTC, the limits would apply to physically settled and cash-settled futures in light, sweet crude oil, Henry Hub natural gas, and New York Harbor gasoline and No. 2 heating oil. The contracts are traded on the New York Mercantile Exchange and the Intercontinental Exchange Inc. in Atlanta.

Swaps Impact
Swaps dealers would no longer receive confidential hedge exemptions that allow them to exceed position limits, and instead would need "limited risk management exemptions" that would be reviewed monthly by the commission and made public after six months, the commission said.

Swaps dealers like Goldman Sachs Group Inc. and JP Morgan Chase & Co. would no longer receive confidential hedge exemptions that allow them to exceed position limits, and instead would need "limited risk management exemptions" that would be reviewed monthly by the commission and made public after six months, the commission said.

Eoin Treacy's view Increased regulation of commodity and particularly energy trading has been inevitable since oil prices spiked to almost $150 in 2008. The imposition of limits on position sizing could have far reaching effects for investors in commodity ETFs because of the large passive long positions these funds hold.

I suspect any potential impact will have a great deal to do with how the term 'individual trader' is defined. The US Oil Fund has a market cap of $2 billion, thousands of investors and a large passive long position in oil futures. It is hard to imagine how it could avoid limits on position sizing but if it does so, then various investment banks active in the swaps market will follow a similar route, so how the fund negotiates the proposed regulatory changes will be worth keeping an eye on.