This probably a noob question, but do these position limits (or any pre-existing ones) also limit the speed or rate at which you can purchase or sell your position? In other words, can JPM, HSBC, etc, exit their most or all of their position and pile into another one at a moment's notice? And if there is a limit is it a direct limit, or an indirect one (like all trading stops after X percentage change in a single day)?
I'm just trying to get an idea how quickly this situation can realistically turn around when it eventually happens (whether weeks, months, or years from now).
Your comments, FRiend?
First, position limits only ever apply in futures mkts. They do not apply in stock or bond mkts. Second, there are some futures mkts (currencies, e.g.) that do not and never have had position limits. Position limits were established, generally, in physical commodities at the beginning of the last century as a (very effective) means of preventing 'corners', which were quite a scandal at the time. See Frank Norris' book "The Pit" for a fictional but decently accurate description of the cornering process.
Now, regarding rapidity of trading. The big players DO have a speed advantage in futures mkt, but this advantage is somewhat diminished by the increasing popularity of e-trading. Assuming only the existence of a sufficient number of players in a particular market at a given moment, in theory JPM or whoever could liquidate a limit position in, say, crude (20,000 1000-bbl contracts) and turn around and put on a limit-size position in, say, coffee (used to be 10,000 37,500 lb contracts, don't know what it is now) in about a minute. Might be less by now, likely is. Ordinarily, however, a big player would NOT trade in this fashion, and would strongly prefer to "scale in" and "scale out" the orders, i.e. do a chunk at a time, X number of times so as not to move the market a lot.
The problem of tracking intra-day violations of position limits is and has been a tricky one for years. I knew several belly traders who, in the heyday of the belly pit, late '70s or so, routinely violated position limits during the day, but did get their positions back within limits by the close.
The 'situation', as you call it, will only ever turn around when position limits are enforced on everyone who is not a legitimate hedger. The notion that JPM and Goldman are legitimate hedgers because they run self-created "index" funds is a self-serving crock, no more and no less. CFTC should be disbanded for making this ruling.
Hope that answers your questions. If not, fire away, and I'll have another go.
FReegards!