CFTC Proposed Rule: Aggregation of Positions

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Gavel.png FINAL RULE DELAYED: On September 28, 2012, a Federal judge threw out the CFTC's position limits rule and sent it back to the commission for review. On November 5, 2013 the commission issued new proposed rules for position limits and aggregation of positions. [1]
Dodd-Frank Timeline, Aggregation for Position Limits for Futures and Swaps
Proposal Date Re-proposal Date Comment Deadline Reopened September 29, 2015)
May 30, 2012 November 15, 2013 November 13, 2015

On November 5, 2013, the CFTC unanimously approved a proposed rulemaking that would set the commission's policy for the aggregation of positions. The rule entered the Federal Register on November 15, 2013. The initial deadline for public comments was set for January 14, 2014, but was extended to February 10, 2014, to match the comment deadline for the CFTC Proposed Rule: Position Limits for Derivatives, November 2013. The comment period was reopened three times in 2014, and the most recent deadline is January 22, 2015. Comments may be filed HERE.

Background

At its October 18, 2011 open meeting, the CFTC issued its final rules on position limits for futures and swaps which established speculative position limits for 28 physical commodity futures contracts, and futures and swaps that are "economically equivalent" to those contracts. There are separate limits set for spot month (generally, 25 percent of deliverable supply), and non-spot-month (generally, 10 percent of open interest in the first 25,000 contracts and 2.5 percent thereafter).

On May 18, 2012, the CFTC approved a proposed rule that modifies the final rules on position limits to allow any person with a greater than 10 percent ownership or equity interest in an entity to disaggregate the owned entity’s positions under certain circumstances. The proposed rulemaking stems from a petition filed by the that seeks relief from the aggregation provisions in the final rules.

On September 12, 2012, a U.S. Federal Court vacated the rule On November 5, 2013, the CFTC approved a re-proposed rule on position limits, and also issued a new aggregation proposal that changed a few items from the original proposal.

Comments from both the 2012 and 2013 re-proposal can be viewed HERE.

Summary of the Rulemaking, September 2015

The original proposal would have always required aggregation if one entity owns greater than 50 percent of another entity. In the new proposal, an entity owning more than 50 percent may petition for an exemption if the owned entity is not consolidated on the company's financial statements, and that the two entities' trading decisions are not coordinated or jointly controlled. Such exemption would also require the submission certifying that such positions either qualify as bona fide hedging positions or do not exceed 20 percent of any position limit.[2]

If less than 50 percent, an entity may disaggregate positions, provided:

  • Trading is conducted in separate locations;
  • Risk management systems at the entity do not allow the sharing of trades or trading strategy;
  • Different traders are doing the trading; and
  • Information about individual trades or trading strategies are not shared between entities.

Any person with an ownership or equity interest in an entity (financial or non-financial) of between 10 percent and 50 percent may disaggregate the owned entity’s positions upon demonstrating independence of trading.

Additionally, the rulemaking:

  • Allows an exemption for accounts carried by an independent account controller (the new proposal would also allow managers of employee benefit plans to be treated as independent account controllers);
  • Clarifies that the exemption from aggregation for entities for whom sharing the requisite information would violate federal law applies when the sharing of information presents a “reasonable risk” of violating federal law and, in addition, expands that exemption to include state law and the law of foreign jurisdictions;
  • Expands the exemption from aggregation for the underwriting of securities to include ownership interests acquired through the market-making activities of an affiliated broker-dealer;
  • Extends filing relief to “higher-tier” entities; and
  • Allows commodity pools structured as limited liability companies to rely on the exemption from aggregation for Independent Account Controllers.[3]

Archived Webcast

Supplement to the Proposed Rule

On September 22, 2015, the CFTC approved a supplement to the aggregation rule proposal that would allow owners of a greater than 50 percent interest to follow the same procedure that would apply for owners of an interest between 10 and 50 percent, and be able to disaggregate the owned entity’s positions upon filing a notice with the commission stating that specified standards have been met.[4] The rule was approvied in seriatim by unanimous consent.

The supplement entered the Federal Register on September 29, 2015 and the deadline for public comment is November 13, 2015.

Related Document: Originally Proposed Rule; New Proposal, November 2013

References

  1. Judge throws out CFTC's position limits rule. Reuters. Retrieved on October 2, 2012.
  2. Statement of Support by Chairman Gary Gensler: Aggregation Provisions for Limits on Speculative Positions. CFTC. Retrieved on November 12, 2013.
  3. CFTC Approves Notice of Proposed Rulemaking Regarding Regulations on Aggregation for Position Limits for Futures and Swaps. CFTC. Retrieved on May 21, 2012.
  4. CFTC Approves Supplement to Proposed Rulemaking to Modify the Aggregation Provisions of Its Position Limit Rules. CFTC. Retrieved on September 30, 2015.

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