On September 22, 2015, the Commodity Futures Trading Commission (“CFTC”) issued for public comment a supplement (the “Supplemental Aggregation Proposal”) to its proposed aggregation rules for position limits for related entities that were issued in November 2013. The Supplemental Aggregation Proposal, if adopted, will in many cases make it easier for closely affiliated entities to obtain an exemption from aggregation of their derivatives positions and, therefore, will permit affiliated entities to engage in a larger amount of overall trading. Under the Supplemental Aggregation Proposal, the key change from the 2013 proposed rules is that a market participant that owns greater than 50% of another entity would be allowed to obtain an exemption from aggregation with respect to positions of the owned entity by filing a notice that includes certifications regarding trading independence with the CFTC under the same process that market participants with 10% to 50% ownership interest are permitted to use. By contrast, under the 2013 aggregation proposed rules, in order to obtain an exemption for majority-owned entities, market participants would have been required to obtain affirmative approval from the CFTC and to provide certain additional certifications. The Supplemental Aggregation Proposal will be open for public comment for 45 days after publication in the Federal Register, which is forthcoming.

BACKGROUND -

Under the 2013 proposed rules, entities would presumptively be required to aggregate their positions for purposes of the CFTC’s position limit rules if one entity owned greater than 10% of another entity. However, the proposed rules included an exemption from such aggregation for entities that owned between 10% and 50% of another entity, provided that a notice filing containing certain certifications regarding trading independence was made to the CFTC. Entities that had a greater than 50% ownership interest in another entity would have been required to file an application for exemption with the CFTC and obtain the CFTC’s approval before entering into a transaction that, with aggregation, would exceed an applicable position limit. In addition to demonstrating trading independence, as required of 10% to 50% owned entities, entities with greater than 50% ownership interest would have been required to certify that the owned entity was not required to be, and was not, consolidated on the financial statements of the owner entity and that either all of the owned entity’s positions would qualify as bona fide hedging positions or the owned entity’s positions that did not qualify as bona fide hedging positions would not exceed 20% of any applicable position limit threshold in effect. Further, each representative of the owner entity on the owned entity’s board would have been required to attest that he or she did not control the trading decisions of the owned entity.