SCENARIOS-What could the CFTC do on position limits?

WASHINGTON Dec 18 (Reuters) - The U.S. regulator of futures markets is expected to announce soon measures clamping down on excessive speculation in energy trading by restricting the investment positions of big players.

The Commodity Futures Trading Commission has said it would unveil its plan on "position limits" before winter, which begins on December 21. The following are possible scenarios for the outcome:

AGGREGATE POSITION LIMITS:

The CFTC could apply speculative limits not only to the spot market, or the expiring contract, but for all months and all monthly contracts combined. It also could set the limit across all exchanges in order to prevent investors from circumventing limits by building portfolios at multiple exchanges;

START HIGH, TIGHTEN OVER TIME:

The CFTC could err on the high side at first for position limits and fine-tune or ratchet down the position limits based upon the individual markets in the future. The agency has been careful, saying it did not want to restrict holdings so much that it drives traders to less transparent markets or overseas;

WHO WILL ENFORCE THE POSITION LIMITS?

There has been a disagreement at the CFTC and between the two major exchanges as to who is best positioned to enforce position limits: the agency itself or the exchanges.

CME Group (CME.O) has said the exchanges are the best positioned to determine position limits because they know their respective markets, have contacts with the participants and know their trading patterns. IntercontinentalExchange Inc (ICE.N) has asked the CFTC to take the lead.

CFTC Commissioner Michael Dunn has expressed concern whether the agency has the necessary experience and structure to set energy position limits. Commissioner Bart Chilton has favored the CFTC to enforce the limits;

WHO, IF ANYONE, SHOULD BE EXEMPT FROM THE LIMITS?

The CFTC could exempt some market participants from limits on holdings, a practice allowed for years. The so-called hedge exemptions most likely would apply to processors, distributors and businesses who intend to buy the commodity and who use futures to assure supply and lock in a price for it. The CFTC also could require the exemptions to be verifiable so they could check the exemptions are actually necessary;

WORKING WITH OTHER MARKETS:

The CFTC could work with other markets to adopt similar rules, but so far overseas markets appear to be reluctant to move as aggressively as the United States. For example, similar reform on position limits has been proposed in the European Union and is expected to be in place by the end of 2012. (Reporting by Christopher Doering; Editing by Christian Wiessner)