On May 18, the Commodity Futures Trading Commission issued a notice of proposed rulemaking that would modify the CFTC’s aggregation provisions related to speculative position limits. The proposed rule would amend the rules establishing speculative position limits for physical commodity futures and option contracts traded on a designated contract market and economically equivalent swaps, which were published in the Federal Register on November 18, 2011. The comment period for the proposal will be open for 30 days following publication in the Federal Register.
Subject to certain exceptions, the CFTC’s position limit rules generally require a trader to aggregate positions in all accounts in which the trader directly or indirectly has a 10% or greater equity or ownership interest for purposes of applying speculative position limits. However, the proposed rule would, among other things, create a new “disaggregation” exemption under which a person with up to a 50% ownership or equity interest in another entity would not be required to aggregate the positions owned by such underlying entity if both parties: (1) do not have knowledge of each other’s trading decisions; (2) trade pursuant to separately developed and independent trading systems; (3) have written procedures that establish an information barrier between the two parties, including documented routing procedures, security procedures, and separate physical locations to maintain independence; (4) do not share employees that control trading decisions; and (5) do not share risk management systems.
The proposed rule would also expand the exemption from aggregation for the underwriting of securities to include ownership interests acquired through market-making activities of an affiliated broker-dealer. Finally, the proposal makes clear that passive investors in commodity pools structured as limited liability companies are eligible to rely on the “Independent Account Controller” disaggregation exemption to the same extent as passive investors in commodity pools that are structured as limited partnerships.
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