May 18, 2012
I support the Commission’s proposed rules that, among other things, expand the exemptions relating to information sharing restrictions, expand the circumstances under which market participants will not be required to aggregate positions, and reduce the reporting burdens on higher tier entities. I am pleased that we recognize that the final position limits rules issued on November 18, 2011 set forth an unworkable and overly restrictive approach to these issues.
Essentially, as they relate to “owned entities,” the proposed rules contain three “tiers” for purposes of aggregation. First, if the ownership interest is less than 10 percent, one need not aggregate positions with those of the owned entity. Second, if the ownership interest is between 10 percent and 50 percent, one must aggregate positions with those of the owned entity unless it can be shown that there is a lack of knowledge of, and control over, the trading of the owned entity. Third, if the ownership interest exceeds 50 percent, one must always aggregate positions with those of the owned entity, even if there is a lack of knowledge of, and control over, the trading of the owned entity.
I question whether a bright-line approach is the correct approach, and if it is, whether the line should be drawn at 50 percent. In the absence of knowledge of, and control over, trading of an owned entity, is there a real difference between owning 49 percent and owning 50 percent? I don’t think there is. In justifying 50 percent as the correct place to draw the line, the preamble to the proposed rules states, “such a bright-line rule would provide clarity to market participants and a useful tool for the Commission to simplify aggregation.” Providing clarity and certainty to market participants is important. However, if providing clarity and certainty results in a one-size-fits-all answer that fails to take into account the varying needs of a very diverse group of market participants, the clarity and certainty are of little use. Moreover, while it is important to establish an aggregation approach that the Commission can effectively administer, I hesitate to put too much weight on “simplifying” the approach if the simplified approach is needlessly restrictive.
In my dissent to the final position limits rules, I expressed concern that with regard to the 19 new reference contracts, the Commission was taking on “front-line oversight of the granting and monitoring of bona-fide hedging exemptions for the transactions of massive, global corporate conglomerates that on a daily basis produce, process, handle, store, transport, and use physical commodities in their extremely complex logistical operations.” My concerns apply equally to the issue of aggregation. We have limited experience as it relates to these new reference contracts, and no experience aggregating swaps into the overall calculations. In the face of such limited experience, our apparent certainty on where to draw lines is troubling.
Last Updated: May 18, 2012