Release: 4718-02
For Release: October 28, 2002

CFTC Provides Flexibility for Banks, Mutual Funds, Pension Plans, and Insurance Companies that Want to Use Single-Stock Futures

WASHINGTON, D.C. -- The Commodity Futures Trading Commission has proposed an amendment to its Rule 4.5 that would permit registered investment companies, insurance company separate accounts, bank trust funds, ERISA pension plans, and similar otherwise regulated entities to trade commodity interests with notional values not exceeding the liquidation value of their portfolios.

Currently, the rule permits these entities to trade commodity futures and options without having to register with the CFTC as commodity pool operators if they restrict their non-hedge trading to positions that do not require more than 5% of the liquidation value of the portfolio to be committed as margin or premium. Thus, the amendment would allow futures contracts with margins above traditional levels -- particularly security futures with their 20% margins -- to be utilized by these entities to the same general extent as other futures.

The Commission is also providing no-action relief to permit these entities to rely on the proposed alternate standard immediately. Neither the existing rule, the proposed amendment, nor the no-action relief in any way constrains the bona fide hedging activities of these entities.

Chairman James Newsome commented that “This is the latest step in our continuing implementation of the Commodity Futures Modernization Act. We were successful last year in providing rule modernization for exchanges. This year, working with the SEC, we were able to put in place rules for the upcoming launch of security futures. Now, we’re moving ahead with improvements for intermediaries. I’m particularly pleased to propose this rule amendment because I believe that -- by respecting and relying on the role of the Fed, the SEC, or other primary regulator of each of these entities -- the Commission is following the intent of Congress to reduce and avoid duplicative or unduly burdensome regulation.”

The proposed amendment to Rule 4.5 is being published in the Federal Register for a 45-day comment period and the no-action relief will remain in effect until the Commission takes final action on the proposal. Copies of the proposal, which includes the “no-action” position, can be obtained by contacting the Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581, (202) 418-5100 or by accessing the Commission’s website,