On November 5, 2013, the Commodity Futures Trading Commission (CFTC) voted 3-1 to re-propose rules to establish speculative position limits for futures, options and economically equivalent swaps on certain agricultural, metal and energy commodities. The CFTC previously had adopted speculative position limit rules in October 2011 based on new authority provided under the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). However, just two weeks before the final rules were to become effective, the U.S. District Court for the District of Columbia vacated and remanded the CFTC rules.
More than one year after the district court’s decision, the CFTC has decided to propose substantially similar rules to the vacated rules. If finalized, the proposed rules would impose federal limits on speculative positions in each of 28 core referenced futures contracts (listed in Table 1 on page 14) as well as on speculative positions in futures, options and swaps that are directly or indirectly linked to the 28 core referenced futures contracts. The proposed CFTC position limits would not apply to commodity derivative contracts2 in excluded (i.e., non-physical) commodities. However, the proposed rules include a definition for bona fide hedging for excluded commodity derivative contracts — in addition to a bona fide hedging exemption and other exemptions for physical commodity derivatives — that the CFTC claims to be narrower in certain respects than the vacated rules and current bona fide hedging concept. In addition, the proposed rules would expand the circumstances in which a person must aggregate his positions with the positions held by another for purposes of determining compliance with position limits. The proposed rules also would establish requirements and acceptable practices for designated contract markets (DCMs) and swap execution facilities (SEFs) to set position limits and/or position accountability levels for contracts executed on their markets. This client alert summarizes the key aspects of the CFTC’s re-proposed position limits and aggre-gation rulemakings.
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