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]

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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.

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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

[email protected] Reference should be made to ``Proposed Revision of

Federal Speculative Position Limits.'' Comments may also be

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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

[email protected]; or Martin Murray, Economist, Division of Market

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

electronic mail [email protected]

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.

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\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\

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\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.

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\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).

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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.

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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

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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.

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

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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]

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Single

Contract Spot month month All months

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Chicago Board of Trade

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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

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Minneapolis Grain Exchange

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

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New York Board of Trade

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

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Kansas City Board of Trade

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

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\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