CFTC Approves Position Limits Proposals

by Katten Muchin Rosenman LLP
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The Commodity Futures Trading Commission has proposed amendments to its existing speculative position limit regulations. The proposed amendments, which are being published in two separate releases, are being re-proposed by the CFTC in response to a 2012 court order that vacated the CFTC’s Part 151 Rules, which were adopted in 2011.  The first proposal would expand the scope of the CFTC’s current speculative position limits and establish federal speculative limits on 28 physical commodity futures contracts, as well as futures and swaps that are directly or indirectly linked to the price of those contracts or to the price of the same underlying commodity. The 28 contracts include nine “legacy” and ten non-“legacy” agricultural contracts, four energy contracts and five metal contracts. The proposal seeks to establish initial position limits at levels that are based on current futures exchange limits and deliverable supply estimates, with separate spot-month limits for physically delivered and cash-settled contracts. These preliminary limits would be periodically adjusted based on deliverable supply estimates for spot-month contracts and open interest calculations for non-spot-months. Bona fide hedging positions and positions established in good faith prior to the effective date of any final regulations would be exempt from these requirements.  

As discussed in detail in the Katten Client Advisory of November 7, 2013, the CFTC also issued a second proposal that addresses the manner in which market participants must aggregate their positions for purposes of determining whether they are in compliance with the CFTC’s position limit rules. Under the CFTC’s current rules, a trader is required to aggregate, for purposes of applying the speculative position limits, all positions in accounts in which the trader either (i) holds direct or indirect ownership of 10 percent or more, or (ii) controls trading by power of attorney or otherwise, subject to certain limited exceptions. The proposed rules retain but modify many of the existing exemptions to the aggregation requirements, including those for independent account controllers, passive pool participants and futures commission merchant customer trading programs. The CFTC proposal would create new disaggregation exemptions that may be available to persons who own 10 percent to 50 percent of another entity that holds positions that are subject to position limits, as well as a stricter exemption for persons who own more than 50 percent of another entity. Other proposed exemptions would address underwriting and broker-dealer activities and entities that may be prohibited by law from sharing position information.  

Each of the two CFTC rule proposals will be open for public comment for a period of 60 days following its publication in the Federal Register.  

The proposed position limits rules are available here

The proposed aggregation rules are available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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