May 18, 2012

CFTC Approves Notice of Proposed Rulemaking Regarding Regulations on Aggregation for Position Limits for Futures and Swaps

Washington, DC –The Commodity Futures Trading Commission (CFTC) today approved a notice of proposed rulemaking that would modify the CFTC’s aggregation provisions for limits on speculative positions. The proposed rulemaking would permit any person with a greater than 10 percent ownership or equity interest in an entity to disaggregate the owned entity’s positions, provided there are protections and firewalls in place to ensure trading decisions are made independently of one another.

This proposed rulemaking is in response to a January 19, 2012, petition of the Working Group of Commercial Energy Firms (WGCEF) filed under section 4a(a)(7) of the Commodity Exchange Act (CEA) seeking relief from the aggregation provisions of rule 151.7. The Commission invites the public and interested parties to comment on the proposed rule. The comment period will be open for 30 days after publication in the Federal Register.

Background

On November 18, 2011, the CFTC published in the Federal Register new part 151, which establishes a speculative position limits regime for 28 physical commodity derivative contracts. Those limits were established under section 4a of the CEA, as amended by the Dodd-Frank Act, which requires the Commission to establish speculative position limits for physical commodity futures and option contracts traded on a designated contract market (DCM), as well as economically equivalent swaps. Section 4a(a)(7) of the CEA gives the Commission authority to provide exemptions to any requirement the Commission establishes under section 4a with respect to speculative position limits.

Specifically, today’s proposed rulemaking:

• Proposes that aggregation would always be required if one entity owns greater than 50 percent of another entity.
• States that in order to be permitted to disaggregate –
• Trading must be conducted in separate locations;
• Risk management systems must not allow the sharing of trades or trading strategy;
• Different traders must be doing the trading;
• Information about individual trades or trading strategies may not be shared between entities.
• Provides additional protections by applying the independent Account Controller, which is in current law, for independently managed client accounts.
• Provides that 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;
• 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.

Last Updated: May 18, 2012