On the other hand, dissenting CFTC Commissioner Scott O'Malia said there isn't any empirical evidence that shows position limits "diminish, eliminate or prevent excessive speculation."
The new rules will cover 28 physical commodity futures and options contracts and physical commodity swaps when they take effect early next year, 60 days after the commission approves an official definition of the term "swaps."
Beyond just the financial industry, that the limits could affect their ability to legitimately offset business risk.
Time will tell whether the new rules prevent excessive speculation, as intended, without imposing greater costs. But a quick look at some research, early this year and late last year, appears to make a strong case for Commissioner O'Malia's dissent.
"Position limits are not helpful in curbing market manipulation," Muhammed Shahid Ebrahim of Bangor University (part of the UK's University of Wales system) writes in a working . According to Ebrahim, the results of his modeling indicate that the "binding constraints" imposed by position limits have the "unintentional effect" of a "degradation of the equilibria and augmenting power of the speculator and other agents."
"Instead of curtailing price swings, (position limits) could exacerbate them," he warns.
In a December 2010 paper, Bernard Lee. Shih-fen Cheng and Annie Koh of Singapore Management University, look back at the so-called equity market flash crash of the previous May 6, with an eye toward which controls, if any, would have prevented the brief but unusual drop that saw the Dow Jones Industrial Average tank 9% at one point.
Looking at position limits, Lee, Cheng and Koh ran their model on the assumption that position limits had been imposed, and found that the "markets in this simulation experienced a significant increase in violent 'up and down' shocks."
The question the authors pose to regulators is a salient one: "If certain prescriptive measures such as position limits have a low probability of meeting its policy objectives on a day like May 6, will there be any other more effective counter measures without unintended consequences?