Financial Services Bulletin: Action At The CFTC

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CFTC Proposes New Position Limit Rules

On Tuesday, November 5, 2013, the Commodity Futures Trading Commission (the “CFTC”) proposed two sets of position limit related rules pursuant to Section 4a of the Commodity Exchange Act (the “CEA”), as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

Position Limits for Derivatives Proposal

The first set of proposed rules would establish speculative position limits for 28 exempt and agricultural commodity futures and option contracts, and physical commodity swaps that are “economically equivalent” to such contracts (as such term is used in section 4a(a)(5) of the CEA) under part 150 of the CFTC’s regulations.  In connection with establishing these limits, the proposed rules would also update certain relevant definitions; revise the exemptions from speculative position limits, including for bona fide hedging; and extend and update reporting requirements for persons claiming exemption from these limits.

The proposed rules would also create appendices to part 150 of the CFTC’s regulation that would (i) provide guidance on risk management exemptions for commodity derivative contracts in excluded commodities permitted under the proposed definition of bona fide hedging position; (ii) list core referenced futures contracts and commodities that would be substantially the same as a commodity underlying a core referenced futures contract for purposes of the proposed definition of basis contract; (iii) describe and analyze fourteen fact patterns that would satisfy the proposed definition of bona fide hedging position; and (iv) present the proposed speculative position limit levels in tabular form.  Finally, the proposed rules would also update certain CFTC rules, guidance and acceptable practices for compliance with Designated Contract Market core principle 5 and Swap Execution Facility core principle 6 in respect of exchange-set speculative position limits and position accountability levels.

Aggregation of Positions Proposal

The second set of proposed rules would modify the aggregation provisions of part 150 of the CFTC’s regulations.  If the first set of proposed rules are not finalized, the second set of proposed rules would apply to the position limits regimes for futures and option contracts on the nine agricultural commodities currently covered by part 150.  If both sets of proposed rules are finalized, the modifications proposed in the second set of proposed rules would also apply to the position limits regimes for the 28 exempt and agricultural commodity futures and options contracts and the physical commodity swaps that are economically equivalent to such contracts covered in the first set of proposed rules.

Read the CFTC press release

Read the CFTC Position Limits for Derivatives Proposal

Read the CFTC Aggregation of Positions Proposal

CFTC Issues Final Counter Party Collateral Rules

On Wednesday, November 6, 2013, the CFTC published in the Federal Register new final rules implementing statutory provisions enacted by Title VII of the Dodd-Frank Act.  The final rules impose certain requirements on swap dealers and major swap participants with respect to the treatment of collateral posted by their counterparties to margin, guarantee, or secure uncleared swaps.  The final rules also include revisions to CFTC regulations to ensure that, for purposes of subchapter IV of chapter 7 of the Bankruptcy Code, securities held in a portfolio margining account that is a futures account or a Cleared Swaps Customer Account constitute “customer property,” and owners of such account constitute “customers.”

Read the CFTC rules

Topics:  CFTC, Commodities Exchange Act, Dodd-Frank, Enforcement Actions, Title VII

Published In: General Business Updates, Finance & Banking Updates, Securities Updates

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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