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e7-22681

  • [Federal Register: November 21, 2007 (Volume 72, Number 224)]

    [Proposed Rules]

    [Page 65483-65487]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr21no07-22]

    =============================================================

    -------------------------------------------------------------

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 150

    RIN 3038-AC140

    Revision of Federal Speculative Position Limits

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking.

    -------------------------------------------------------------

    SUMMARY: The Commodity Futures Trading Commission (``Commission'')

    periodically reviews the speculative position limits for certain

    agricultural commodities set out in Commission regulation 150.2

    (``Federal speculative position limits''). In this regard, the

    Commission has reviewed the existing levels for Federal speculative

    position limits and is now proposing to increase these limits for all

    single-month and all-months-combined positions in all commodities

    except oats, based on the formula set out in Commission Regulation

    150.5(c). In addition, the Commission is also proposing to aggregate

    traders' positions for purposes of ascertaining compliance with Federal

    speculative position limits when a designated contract market (``DCM'')

    lists for trading a futures contract that shares substantially

    identical terms with a Regulation 150.2-enumerated contract listed on

    another DCM, including a futures contract that is cash-settled based on

    the settlement prices for a futures contract that is already

    enumerated. The Commission is requesting comment on these rule

    amendments.

    DATES: Comments must be received on or before December 21, 2007.

    ADDRESSES: Comments should be submitted to David Stawick, Secretary,

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street, NW., Washington, DC 20581. Comments also may be sent by

    facsimile to (202) 418-5521, or by electronic mail to

    secretary@cftc.gov. Reference should be made to ``Proposed Revision of

    Federal Speculative Position Limits.'' Comments may also be

    [[Page 65484]]

    submitted by connecting to the Federal eRulemaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov

    and following comment submission instructions.

    FOR FURTHER INFORMATION CONTACT: Don Heitman, Attorney, Division of

    Market Oversight, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581, telephone (202)

    418-5041, facsimile number (202) 418-5507, electronic mail

    dheitman@cftc.gov; or Martin Murray, Economist, Division of Market

    Oversight, telephone (202) 418-5276, facsimile number (202) 418-5507,

    electronic mail mmurray@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    A. Introduction

    The Commission has long established and enforced speculative

    position limits for futures contracts on various agricultural

    commodities. The Commission periodically reviews these Federal

    speculative position limits, which are set out in Commission regulation

    150.2.\1\ In this regard, the Commission has reviewed the existing

    levels for Federal speculative position limits and is now proposing to

    increase these limits for all single-month and all-months-combined

    positions in all commodity markets enumerated in Commission regulation

    150.2, except Chicago Board of Trade (``CBT'') Oats, based on the

    formula set out in Commission Regulation 150.5(c). In particular, the

    Commission is proposing to increase levels for single-month and all-

    months-combined positions for CBT Corn, Soybeans, Wheat, Soybean Oil,

    and Soybean Meal; Minneapolis Grain Exchange (MGE) Hard Red Spring

    Wheat; Kansas City Board of Trade (KCBT) Hard Winter Wheat, and New

    York Board of Trade (NYBOT) Cotton No. 2. The spot month limits for all

    of these commodities would remain unchanged. In addition, the

    Commission is also proposing to aggregate traders' positions for

    purposes of ascertaining compliance with Federal speculative position

    limits when a DCM lists for trading a futures contract that shares

    substantially identical terms with a Regulation 150.2-enumerated

    contract listed on another DCM, including a futures contract that is

    cash-settled based on the settlement prices for a futures contract that

    is already enumerated.

    ---------------------------------------------------------------------------

    \1\ Regulation 150.2 imposes three types of position limits for

    each specified contract: A spot month limit, a single-month limit,

    and an all-months-combined limit. The Commission most recently

    adopted amendments to levels for Federal speculative position limits

    in 2005 (see 70 FR 24705 May 11, 2005).

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    B. Regulatory Framework

    Speculative position limits have been a tool for the regulation of

    the U.S. futures markets since the adoption of the Commodity Exchange

    Act of 1936. Section 4a(a) of the Commodity Exchange Act (Act), 7

    U.S.C. 6a(a), states that:

    Excessive speculation in any commodity under contracts of sale

    of such commodity for future delivery made on or subject to the

    rules of contract markets or derivatives transaction execution

    facilities causing sudden or unreasonable fluctuations or

    unwarranted changes in the price of such commodity, is an undue and

    unnecessary burden on interstate commerce in such commodity.

    Accordingly, section 4a(a) provides the Commission with the

    authority to:

    Fix such limits on the amounts of trading which may be done or

    positions which may be held by any person under contracts of sale of

    such commodity for future delivery on or subject to the rules of any

    contract market or derivatives transaction execution facility as the

    Commission finds are necessary to diminish, eliminate, or prevent

    such burden.

    This longstanding statutory framework providing for Federal

    speculative position limits was supplemented with the passage of the

    Futures Trading Act of 1982, which acknowledged the role of exchanges

    in setting their own speculative position limits. The 1982 legislation

    also provided, under section 4a(e) of the Act, that limits set by

    exchanges and approved by the Commission were subject to Commission

    enforcement.

    Finally, the Commodity Futures Modernization Act of 2000 (``CFMA'')

    established designation criteria and core principles with which a DCM

    must comply to receive and maintain designation. Among these, Core

    Principle 5 in section 5(d) of the Act states:

    Position Limitations or Accountability--To reduce the potential

    threat of market manipulation or congestion, especially during

    trading in the delivery month, the board of trade shall adopt

    position limitations or position accountability for speculators,

    where necessary and appropriate.

    As outlined above, the regulatory structure is administered under a

    two-pronged framework. Under the first prong, the Commission

    establishes and enforces speculative position limits for futures

    contracts on a limited group of agricultural commodities. These Federal

    speculative position limits are enumerated in Commission regulation

    150.2, and apply to the following futures and option markets: CBT Corn,

    Oats, Soybeans, Wheat, Soybean Oil, and Soybean Meal; MGE Hard Red

    Spring Wheat; NYBOT Cotton No. 2; and KCBT Hard Winter Wheat. Under the

    second prong, individual DCMs establish and enforce their own

    speculative position limits or position accountability provisions,

    subject to Commission oversight and separate authority to enforce

    exchange-set speculative position limits approved by the Commission.

    Thus, responsibility for enforcement of speculative position limits is

    shared by the Commission and the DCMs.\2\

    ---------------------------------------------------------------------------

    \2\ Provisions regarding the establishment of exchange-set

    speculative position limits were originally set forth in CFTC

    regulation 1.61. In 1999, the Commission simplified and reorganized

    its rules by relocating the substance of regulation 1.61's

    requirements to part 150 of the Commission's rules, thereby

    incorporating within part 150 provisions for both Federal

    speculative position limits and exchange-set speculative position

    limits (see 64 FR 24038, May 5, 1999). Section 4a(e) of the Act

    provides that a violation of a speculative position limit set by a

    Commission-approved exchange rule is also a violation of the Act.

    Thus, the Commission can enforce directly violations of exchange-set

    speculative position limits as well as those provided under

    Commission rules.

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    II. Commission Speculative Position Limit Levels

    The Commission is proposing several revisions to the Federal

    speculative position limit levels found in regulation 150.2 based upon

    its experience in administering these limits and the open interest

    formula found in Commission Regulation 150.5. Under the proposed

    revisions, spot month limits would remain unchanged from the current

    levels, but every single-month and all-months-combined position limit,

    except for CBT Oats, would be increased based upon open interest data

    for the most recent calendar year (2006). For all-months-combined

    levels, the Commission proposes to amend the limits set forth in

    Regulation 150.2 to the maximum levels permitted under the open

    interest formula, and to adjust the single month limits to reflect the

    existing ratio of single month to all-months-combined levels. With

    respect to the single month limits, a strict application of the open

    interest formula contained in regulation 150.5 would have resulted in

    somewhat lower single month limits for some commodities and higher

    limits for others than those proposed below. However, the Commission

    believes that maintaining the existing ratios between single-month and

    all-months-combined speculative position limit levels is of benefit to

    the marketplace, and thus the Commission is proposing to establish

    single-month limits that are consistent with that

    [[Page 65485]]

    approach.\3\ The open interest formula does not justify an increase in

    the CBT Oats single month or all-months-combined limits, and the

    Commission does not propose any change in their levels at this time.

    ---------------------------------------------------------------------------

    \3\ The Commission used this more flexible approach when it last

    revised the Federal speculative position limits in 2005 (See 70 FR

    24705, May 11, 2005).

    ---------------------------------------------------------------------------

    In addition, with respect to the MGE and KCBT Wheat contracts, the

    Commission proposes to maintain parity with the levels proposed for CBT

    Wheat rather than establish different limits based on the open interest

    formula for each contract. The Commission first adopted this parity

    approach in an action to revise position limits in 1993.\4\ At that

    time the Commission concluded that the breadth and liquidity of the

    cash markets underlying the KCBT and MGE Wheat contracts justified

    setting these limits at parity with little risk of regulatory harm from

    such action.\5\ The Commission continues to believe that the breadth

    and liquidity of underlying cash markets, as well as continued growth

    in open interest, for the KCBT and MGE Wheat contracts support

    maintenance of these speculative position limit levels at parity with

    one another.\6\

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    \4\ See 58 FR 17973 (April 7, 1993).

    \5\ Id. at 17979.

    \6\ The Commission maintained parity between the CBT, MGE, and

    KCBT wheat contracts when it last revised the Federal speculative

    position limits in May, 2005.

    ---------------------------------------------------------------------------

    Finally, the Commission is also proposing to aggregate traders'

    positions for purposes of ascertaining compliance with Federal

    speculative position limits when a DCM lists for trading a futures

    contract that shares substantially identical terms with a Regulation

    150.2-enumerated contract listed on another DCM, including a futures

    contract that is cash-settled based on the settlement prices for a

    futures contract that is already enumerated. In this regard, when the

    Commission last amended regulation 150.2, it clarified its practice of

    aggregating traders' positions when a single DCM lists for trading two

    or more contracts with substantially identical terms based on the same

    underlying commodity characteristics, such as the CBT Corn and Mini-

    Corn futures contracts.\7\ At the time it adopted those clarifying

    amendments, the Commission noted, ``that should a DCM list a contract

    that shared substantially identical terms with a Regulation 150.2-

    enumerated contract listed on another DCM, the Commission could

    consider at that time whether to amend regulation 150.2 to likewise

    apply Federal limits to the newly-listed contract.'' Since then, the

    New York Mercantile Exchange (NYMEX) has listed for trading a Cotton

    futures contract that is cash-settled based on the settlement price for

    the NYBOT Cotton No. 2 futures contract. The Commission believes that

    aggregation of traders' positions in such circumstances is necessary to

    protect the integrity of the existing limits by removing the ability of

    a trader to flout the limits by taking a position in the non-encumbered

    market.

    Based on the criteria noted above, the Commission is proposing the

    following changes to the Federal speculative position limits (additions

    are underlined, and deletions are struck through).

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    \7\ 70 FR 24705, (May 11, 2005).

    [GRAPHIC] [TIFF OMITTED] TP21NO07.021

    [[Page 65486]]

    III. Related Matters

    A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the

    costs and benefits of its action before issuing a new regulation under

    the Act. By its terms, section 15(a) does not require the Commission to

    quantify the costs and benefits of a new regulation or to determine

    whether the benefits of the proposed regulation outweigh its costs.

    Rather, section 15(a) requires the Commission to ``consider the costs

    and benefits'' of the subject rule.

    Section 15(a) further specifies that the costs and benefits of the

    proposed rule shall be evaluated in light of five broad areas of market

    and public concern: (1) Protection of market participants and the

    public; (2) efficiency, competitiveness, and financial integrity of

    futures markets; (3) price discovery; (4) sound risk management

    practices; and (5) other public interest considerations. The Commission

    may, in its discretion, give greater weight to any one of the five

    enumerated areas of concern and may, in its discretion, determine that,

    notwithstanding its costs, a particular rule is necessary or

    appropriate to protect the public interest or to effectuate any of the

    provisions or to accomplish any of the purposes of the Act.

    The proposed rule amendments impose limited additional costs in

    terms of reporting requirements, particularly since entities trading in

    or holding large positions, which either approach or meet the

    speculative limits of the rules herein, already file large trader

    reports with the Commission. Moreover, the amendments proposed herein

    would increase Federal speculative position limits for some commodities

    and, to that extent, reduce the compliance costs associated with these

    speculative position limits. The countervailing benefits to any

    additional costs are that the continued inclusion of appropriate

    speculative limits will help to ensure the maintenance of competitive

    and efficient markets, protect the price discovery and risk shifting

    functions of those markets, and protect market participants and the

    public interest.

    B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,

    requires federal agencies, in proposing rules, to consider the impact

    of those rules on small businesses. The Commission believes that the

    proposed rule amendments to raise Commission speculative position

    limits would only impact large traders. The Commission has previously

    determined that large traders are not small entities for purposes of

    the RFA.\8\ Therefore, the Acting Chairman, on behalf of the

    Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the

    action taken herein will not have a significant economic impact on a

    substantial number of small entities. The Commission also notes in this

    regard that the proposed rules will raise speculative limit levels and

    thereby reduce the regulatory burden on all affected entities.

    ---------------------------------------------------------------------------

    \8\ 47 FR 18618 (April 30, 1982).

    ---------------------------------------------------------------------------

    C. Paperwork Reduction Act

    When publishing proposed rules, the Paperwork Reduction Act of 1995

    (44 U.S.C. 3507(d)) imposes certain requirements on federal agencies

    (including the Commission) in connection with their conducting or

    sponsoring any collection of information as defined by the Paperwork

    Reduction Act. In compliance with the Paperwork Reduction Act, the

    Commission, through this rule proposal, solicits public comment to: (1)

    Evaluate whether the proposed collection of information is necessary

    for the proper performance of the functions of the agency, including

    the validity of the methodology and assumptions used; (2) evaluate the

    accuracy of the agency's estimate of the burden of the proposed

    collection of information including the validity of the methodology and

    assumptions used; (3) enhance the quality, utility and clarity of the

    information to be collected; and (4) minimize the burden of the

    collection of information on those who are to respond through the use

    of appropriate automated, electronic, mechanical, or other

    technological collection techniques or other forms of information

    technology, e.g., permitting electronic submission of responses.

    The Commission has submitted the proposed rule and its associated

    information collection requirements to the Office of Management and

    Budget. The proposed rule is part of two approved information

    collections. The burdens associated with these rules are as follows:

    Collection Number

    [3038-0009]

    Average burden hours per response: 3.

    Number of respondents: 2946.

    Frequency of response: On occasion.

    Collection Number

    [3038-0013]

    Average burden hours per response: 3.

    Number of respondents: 9.

    Frequency of response: On occasion.

    List of Subjects in 17 CFR Part 150

    Agricultural commodities, Bona fide hedge positions, Position

    limits, Spread exemptions.

    In consideration of the foregoing, pursuant to the authority

    contained in the Commodity Exchange Act, the Commission hereby proposes

    to amend part 150 of chapter I of title 17 of the Code of Federal

    Regulations as follows:

    PART 150--LIMITS ON POSITIONS

    1. The authority citation for part 150 is revised to read as

    follows:

    Authority: 7 U.S.C. 6a, 6c, and 12a(5), as amended by the

    Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.

    106-554, 114 Stat. 2763 (2000).

    2. Section 150.2 is revised to read as follows:

    Sec. 150.2 Position limits.

    No person may hold or control positions, separately or in

    combination, net long or net short, for the purchase or sale of a

    commodity for future delivery or, on a futures-equivalent basis,

    options thereon, in excess of the following:

    Speculative Position Limits \1\

    [In contract units]

    ------------------------------------------------------------------------

    Single

    Contract Spot month month All months

    ------------------------------------------------------------------------

    Chicago Board of Trade

    ------------------------------------------------------------------------

    Corn and Mini-Corn \2\........... 600 26,000 42,400

    Oats............................. 600 1,400 2,000

    [[Page 65487]]

    Soybeans and Mini-Soybeans \2\... 600 8,600 13,300

    Wheat and Mini-Wheat \2\......... 600 11,100 14,500

    Soybean Oil...................... 540 6,600 8,600

    Soybean Meal..................... 720 5,500 7,100

    ------------------------------------------------------------------------

    Minneapolis Grain Exchange

    ------------------------------------------------------------------------

    Hard Red Spring Wheat............ 600 11,100 14,500

    ------------------------------------------------------------------------

    New York Board of Trade

    ------------------------------------------------------------------------

    Cotton No. 2..................... 300 5,300 7,300

    ------------------------------------------------------------------------

    Kansas City Board of Trade

    ------------------------------------------------------------------------

    Hard Winter Wheat................ 600 11,100 14,500

    ------------------------------------------------------------------------

    \1\ For purposes of compliance with these limits, positions in a futures

    contract that shares substantially identical terms with a contract

    market enumerated herein, including a futures contract that is cash-

    settled based on the settlement price of an enumerated contract

    market, shall be aggregated with positions in the enumerated contract

    market.

    \2\ For purposes of compliance with these limits, positions in the

    regular-sized and mini-sized contracts shall be aggregated.

    Issued by the Commission this November 15, 2007, in Washington,

    DC.

    David Stawick,

    Secretary of the Commission.

    [FR Doc. E7-22681 Filed 11-20-07; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: November 21, 2007



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