2015-24596

Federal Register, Volume 80 Issue 188 (Tuesday, September 29, 2015)

[Federal Register Volume 80, Number 188 (Tuesday, September 29, 2015)]

[Proposed Rules]

[Pages 58365-58382]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2015-24596]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 150

RIN 3038-AD82

Aggregation of Positions

AGENCY: Commodity Futures Trading Commission.

ACTION: Supplemental notice of proposed rulemaking.

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SUMMARY: On November 15, 2013, the Commodity Futures Trading Commission

(``Commission'' or ``CFTC'') published in the Federal Register a notice

of proposed modifications to part 150 of the Commission's regulations.

The modifications addressed the policy for aggregation under the

Commission's position limits regime for futures and option contracts on

nine agricultural commodities set forth in part 150. The Commission

also noted that if the Commission's proposed position limits regime for

28 exempt and agricultural commodity futures and options contracts and

the physical commodity swaps that are economically equivalent to such

contracts are finalized, the proposed modifications would also apply to

the position limits regime for those contracts and swaps. The

Commission is now proposing a revision to its proposed modification to

the aggregation provisions of part 150, which addresses when

aggregation is required on the basis of ownership of a greater than 50

percent interest in another entity.

DATES: Comments must be received on or before November 13, 2015.

ADDRESSES: You may submit comments, identified by RIN 3038-AD82, by any

of the following methods:

CFTC Web site: http://comments.cftc.gov. Follow the

instructions for submitting comments through the Comments Online

process on the Web site.

Mail: Send to Christopher Kirkpatrick, Secretary of the

Commission, Commodity Futures

[[Page 58366]]

Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,

Washington, DC 20581.

Hand Delivery/Courier: Same as Mail, above.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow instructions for submitting comments.

Please submit your comments using only one of these methods.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

www.cftc.gov. You should submit only information that you wish to make

available publicly. If you wish the Commission to consider information

that may be exempt from disclosure under the Freedom of Information Act

(``FOIA''), a petition for confidential treatment of the exempt

information may be submitted according to the procedures established in

Sec. 145.9 of the Commission's regulations, 17 CFR 145.9.

The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse or remove any or all of your

submission from www.cftc.gov that it may deem to be inappropriate for

publication, such as obscene language. All submissions that have been

redacted or removed that contain comments on the merits of the

rulemaking will be retained in the public comment file and will be

considered as required under the Administrative Procedure Act and other

applicable laws, and may be accessible under the FOIA.

FOR FURTHER INFORMATION CONTACT: Stephen Sherrod, Senior Economist,

Division of Market Oversight, (202) 418-5452, [email protected]; Riva

Spear Adriance, Senior Special Counsel, Division of Market Oversight,

(202) 418-5494, [email protected]; or Mark Fajfar, Assistant General

Counsel, Office of General Counsel, (202) 418-6636, [email protected];

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

Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

The Commission has long established and enforced speculative

position limits for futures and options contracts on various

agricultural commodities as authorized by the Commodity Exchange Act

(``CEA'').\1\ The part 150 position limits regime \2\ generally

includes three components: (1) The level of the limits, which set a

threshold that restricts the number of speculative positions that a

person may hold in the spot-month, individual month, and all months

combined,\3\ (2) exemptions for positions that constitute bona fide

hedging transactions and certain other types of transactions,\4\ and

(3) rules to determine which accounts and positions a person must

aggregate for the purpose of determining compliance with the position

limit levels.\5\

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\1\ 7 U.S.C. 1 et seq.

\2\ See 17 CFR part 150. Part 150 of the Commission's

regulations establishes federal position limits on certain

enumerated agricultural contracts; the listed commodities are

referred to as enumerated agricultural commodities. The Commission

has proposed to amend its position limits regime so that it would

extend to 28 exempt and agricultural commodity futures and options

contracts and the physical commodity swaps that are economically

equivalent to such contracts. See Position Limits for Derivatives,

78 FR 75680 (Dec. 12, 2013).

\3\ See 17 CFR 150.2.

\4\ See 17 CFR 150.3.

\5\ See 17 CFR 150.4.

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The Commission's existing aggregation policy under regulation 150.4

generally requires that unless a particular exemption applies, a person

must aggregate all positions for which that person controls the trading

decisions with all positions for which that person has a 10 percent or

greater ownership interest in an account or position, as well as the

positions of two or more persons acting pursuant to an express or

implied agreement or understanding.\6\ The scope of exemptions from

aggregation include the ownership interests of limited partners in

pooled accounts,\7\ discretionary accounts and customer trading

programs of futures commission merchants (``FCM''),\8\ and eligible

entities with independent account controllers that manage customer

positions (``IAC'' or ``IAC exemption'').\9\ Market participants

claiming one of the exemptions from aggregation are subject to a call

by the Commission for information demonstrating compliance with the

conditions applicable to the claimed exemption.\10\

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\6\ See 17 CFR 150.4(a) and (b).

\7\ See 17 CFR 150.4(c).

\8\ See 17 CFR 150.4(d).

\9\ See 17 CFR 150.3(a)(4).

\10\ See 17 CFR 150.3(b) and 150.4(e).

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B. Proposed Modifications to the Policy for Aggregation Under Part 150

of the Commission's Regulations

On November 15, 2013, the Commission proposed to amend regulation

150.4, and certain related regulations, to include rules to determine

which accounts and positions a person must aggregate (the ``2013

Aggregation Proposal'').\11\ Among other elements, the 2013 Aggregation

Proposal included a notice filing procedure, effective upon submission,

to permit a person in specified circumstances to disaggregate the

positions of a separately organized entity (``owned entity''), if such

person has between a 10 percent and 50 percent ownership or equity

interest in the owned entity.\12\ The notice filing would need to

demonstrate compliance with certain conditions set forth in the

proposed rule. Under the 2013 Aggregation Proposal, persons with a

greater than 50 percent ownership or equity interest in the owned

entity would have to apply on a case-by-case basis to the Commission

for permission to disaggregate, and await the Commission's decision as

to whether certain conditions specified in the proposed rule had been

satisfied and therefore disaggregation would be permitted.\13\

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\11\ See Aggregation, Position Limits for Futures and Swaps, 78

FR 68946 (Nov. 15, 2013). The 2013 Aggregation Proposal was

substantially similar to aggregation rules that had been adopted in

part 151 of the Commission's regulations in 2011, see Position

Limits for Futures and Swaps, 76 FR 71626 (Nov. 18, 2011) as

proposed to be amended in May 2012, see Aggregation, Position Limits

for Futures and Swaps, 77 FR 31767 (May 30, 2012).

In an Order dated September 28, 2012, the District Court for the

District of Columbia vacated part 151 of the Commission's

regulations, including those aggregation rules. See International

Swaps and Derivatives Association v. United States Commodity Futures

Trading Commission, 887 F. Supp. 2d 259 (D.D.C. 2012). The revised

position limit levels in amended section 150.2 were not vacated.

\12\ See 2013 Aggregation Proposal, 78 FR at 68958-59.

\13\ See id. at 68959-61.

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The 2013 Aggregation Proposal reflected the Commission's long-

standing incremental approach to exemptions from the aggregation

requirement for persons owning a financial interest in an entity. In

the 2013 Aggregation Proposal, the Commission reaffirmed its belief

that ownership of an entity is an appropriate criterion for aggregation

of that entity's positions, noting that section 4a(a)(1) of the CEA

provides that ``[i]n determining whether any person has exceeded such

limits, the positions held and trading done by any persons directly or

indirectly controlled by such person shall be included with the

positions held and trading done by such person.'' \14\ The Commission

explained that as early as 1957, the Commission's predecessor (the

Commodity Exchange Authority) issued determinations requiring that

accounts in which a

[[Page 58367]]

person has a financial interest be included in aggregation.\15\

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\14\ See id. at 68956, citing 7 U.S.C. 6a(a)(1).

\15\ See 2013 Aggregation Proposal, 78 FR at 68956, citing

Administrative Determination 163 (Aug. 7, 1957) (``[I]n the

application of speculative limits, accounts in which the firm has a

financial interest must be combined with any trading of the firm

itself or any other accounts in which it in fact exercises

control.''). The Commission's predecessor, and later the Commission,

provided the aggregation standards for purposes of position limits

in its regulation 18.01 (within the large trader reporting rules).

See Supersedure of Certain Regulations, 26 FR 2968 (Apr. 7, 1961).

In its Statement of Policy on Aggregation of Accounts and

Adoption of Related Reporting Rules, 44 FR 33839 (June 13, 1979)

(``1979 Aggregation Policy''), the Commission discussed regulation

18.01, stating:

Financial Interest in Accounts. Consistent with the underlying

rationale of aggregation, existing reporting Rule 18.10(a) a (sic)

basically provides that if a trader holds or has a financial

interest in more than one account, all accounts are considered as a

single account for reporting purposes. Several inquiries have been

received regarding whether a nomial (sic) financial interest in an

account requires the trader to aggregate. Traditionally, the

Commission's predecessor and its staff have expressed the view that

except for the financial interest of a limited partner or

shareholder (other than the commodity pool operator) in a commodity

pool, a financial interest of 10 percent or more requires

aggregation. The Commission has determined to codify this

interpretation at this time and has amended Rule 18.01 to provide in

part that, ``For purposes of this Part, except for the interest of a

limited partner or shareholder (other than the commodity pool

operator) in a commodity pool, the term `financial interest' shall

mean an interest of 10 percent or more in ownership or equity of an

account.''

Thus, a financial interest at or above this level will

constitute the trader as an account owner for aggregation purposes.

1979 Aggregation Policy, 44 FR at 33843.

The provisions concerning aggregation for position limits

generally remained part of the Commission's large trader reporting

regime until 1999 when the Commission incorporated the aggregation

provisions into rule 150.4 with the existing position limit

provisions in part 150. See Revision of Federal Speculative Position

Limits, 64 FR 24038 (May 5, 1999) (``1999 Amendments''). The

Commission's part 151 rulemaking also incorporated the aggregation

provisions in rule 151.7 along with the remaining position limit

provisions in part 151. See Position Limits for Futures and Swaps,

76 FR 71626 (Nov. 18, 2011).

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Regarding the threshold level at which an exemption from

aggregation on the basis of ownership would be available, the

Commission noted in the 2013 Aggregation Proposal that it has generally

found that an ownership or equity interest of less than 10 percent in

an account or position that is controlled by another person who makes

discretionary trading decisions does not present a concern that such

ownership interest results in control over trading or can be used

indirectly to create a large speculative position through ownership

interests in multiple accounts. As such, the Commission has exempted an

ownership interest below 10 percent from the aggregation

requirement.\16\

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\16\ See 2013 Aggregation Proposal, 78 FR at 68958.

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The Commission noted that while other of its rulemakings prior to

the 2013 Aggregation Proposal generally restricted exemptions from

aggregation based on ownership to FCMs, limited partner investors in

commodity pools, and independent account controllers managing customer

funds for an eligible entity, a broader passive investment exemption

has previously been considered but not enacted by the Commission.\17\

Further, the Commission reiterated its belief in incremental

development of aggregation exemptions over time.\18\ Consistent with

that incremental approach, in the 2013 Aggregation Proposal the

Commission considered the additional information provided and the

concerns raised by commenters on the May 2012 aggregation proposal and

proposed two new tiers of relief from the ownership criteria of

aggregation--relief on the basis of a notice filing, effective upon

submission, by persons holding an interest of between 10 percent and 50

percent in an owned entity, and relief on the basis of an application

by persons holding an interest of more than 50 percent in an owned

entity.\19\ Each of these procedures for relief in the 2013 Aggregation

Proposal is described briefly below.

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\17\ See id. at 68951, citing Exemptions from Speculative

Position Limits for Positions which have a Common Owner but which

are Independently Controlled and for Certain Spread Positions;

Proposed Rule, 53 FR 13290, 13292 (Apr. 22, 1988).

\18\ See 2013 Aggregation Proposal, 78 FR at 68951, citing

Aggregation, Position Limits for Futures and Swaps, 77 FR 31767,

31773 (May 30, 2012). This incremental approach to account

aggregation standards reflects the Commission's historical practice.

See, e.g., Exemptions from Speculative Position Limits for Positions

Which Have a Common Owner But Which are Independently Controlled and

for Certain Spread Positions; Final Rule 53 FR 41563, 41567 (Oct.

24, 1988) (the definition of eligible entity for purposes of the IAC

exemption originally only included CPOs, or exempt CPOs or pools,

but the Commission indicated a willingness to expand the exemption

after a ``reasonable opportunity'' to review the exemption.);

Exemption From Speculative Position Limits for Positions Which Have

a Common Owner, But Which Are Independently Controlled, 56 FR 14308,

14312 (Apr. 9, 1991) (the Commission expanded eligible entities to

include commodity trading advisors, but did not include additional

entities requested by commenters until the Commission had the

opportunity to assess the current expansion and further evaluate the

additional entities); and the 1999 Amendments (the Commission

expanded the list of eligible entities to include many of the

entities commenters requested in the 1991 rulemaking).

\19\ See 2013 Aggregation Proposal, 78 FR at 68958-61.

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1. Disaggregation Relief for Ownership or Equity Interests of 50

Percent or Less

Proposed rule Sec. 150.4(b)(2), as set out in the 2013 Aggregation

Proposal, would continue the Commission's longstanding rule that

persons with either an ownership or an equity interest in an account or

position of less than 10 percent need not aggregate such positions

solely on the basis of the ownership criteria, and persons with a 10

percent or greater ownership interest would still generally be required

to aggregate the account or positions.\20\ However, proposed rule Sec.

150.4(b)(2), as set out in the 2013 Aggregation Proposal, would

establish a notice filing procedure, effective upon submission, to

permit a person with either an ownership or an equity interest in an

owned entity of 50 percent or less to disaggregate the positions of an

owned entity in specified circumstances, even if such person has a 10

percent or greater interest in the owned entity.\21\ The notice filing

would have to demonstrate compliance with certain conditions set forth

in proposed rule Sec. 150.4(b)(2). Similar to other exemptions from

aggregation, the notice filing would be effective upon submission to

the Commission, but the Commission would be able to subsequently call

for additional information, and to amend, terminate or otherwise modify

the person's aggregation exemption for failure to comply with the

provisions of rule Sec. 150.4(b)(2). Further, the person would be

obligated to amend the notice filing in the event of a material change

to the circumstances described in the filing.

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\20\ For purposes of aggregation, the Commission continues to

believe that contingent ownership rights, such as an equity call

option, would not constitute an ownership or equity interest.

\21\ Under the 2013 Aggregation Proposal, and in a manner

similar to current regulation, if a person qualifies for

disaggregation relief, the person would nonetheless have to

aggregate those same accounts or positions covered by the relief if

they are held in accounts with substantially identical trading

strategies. See proposed rule Sec. 150.4(a)(2). The exemptions in

proposed rule Sec. 150.4 are set forth as alternatives, so that,

for example, the applicability of the exemption in paragraph (b)(2)

would not affect the applicability of a separate exemption from

aggregation (e.g., the independent account controller exemption in

paragraph (b)(5)). The revisions proposed here would not change

these aspects of the 2013 Aggregation Proposal.

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The Commission preliminarily based the 2013 Aggregation Proposal's

limit of 50 percent on the ownership interest in another entity on a

belief that the limit would be a reasonable, ``bright line'' standard

for determining when aggregation of positions is required, even where

the ownership interest is passive.\22\ The 2013 Aggregation Proposal

explained that majority ownership (i.e., over 50 percent) is indicative

of control, and this standard would address the Commission's concerns

about circumvention of

[[Page 58368]]

position limits by coordinated trading or direct or indirect influence

between entities. For these reasons, the Commission preliminarily

believed that aggregation based upon an ownership or equity interest of

greater than 50 percent would be appropriate to address the heightened

risk of direct or indirect influence over the owned entity.\23\

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\22\ See 2013 Aggregation Proposal, 78 FR at 68959.

\23\ See id.

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Referring to commenters who said that if an owned entity's

positions are aggregated with the owner's position, the aggregation

should be pro rata to the ownership interest, the Commission stated its

belief that a pro rata approach could be administratively burdensome

for both owners and the Commission.\24\ For example, the Commission

explained, the level of ownership interest in a particular owned entity

may change over time for a number of reasons, including stock

repurchases, stock rights offerings, or mergers and acquisitions, any

of which may dilute or concentrate an ownership interest. Thus, it may

be burdensome to determine and monitor the appropriate pro rata

allocation on a daily basis. Moreover, the Commission also noted that

it has historically interpreted the statute to require aggregation of

all the relevant positions of owned entities, absent an exemption. This

is consistent with the view that a holder of a significant ownership

interest in another entity may have the ability to influence all the

trading decisions of the entity in which such ownership interest is

held.

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\24\ See id.

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2. Disaggregation Relief for Ownership or Equity Interests of Greater

Than 50 Percent

The 2013 Aggregation Proposal also included a provision for

disaggregation relief for ownership or equity interests of greater than

50 percent, which was consistent with the Commission's preliminary view

that relief from the aggregation requirement should not be available

merely upon a notice filing by a person who has a greater than 50

percent ownership or equity interest in the owned entity. The

Commission explained that, in its view, a person with a greater than 50

percent ownership interest in multiple accounts would have the ability

to hold and control a significant and potentially unduly large overall

position in a particular commodity, which position limits are intended

to prevent. Also, as noted above, the Commission believed that in

general this ``bright line'' approach would provide administrative

certainty.\25\

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\25\ See id.

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Nonetheless, the Commission considered points raised by commenters

in this regard, and concluded that in some situations disaggregation

relief may be appropriate even for a person holding a majority

ownership interest, on the conditions that the owned entity is not

required to be, and is not, consolidated on the financial statement of

the person, the person can demonstrate that the person does not control

the trading of the owned entity, based on the criteria in proposed rule

Sec. 150.4(b)(2)(i), and both the person and the owned entity have

procedures in place that are reasonably effective to prevent

coordinated trading.\26\

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\26\ See id.

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The Commission acknowledged that to provide such relief in order to

address issues raised by commenters would represent a break by the

Commission from past practice, but it explained that it has authority

to provide such relief pursuant to section 4a(a)(7) of the CEA, which

authorizes the Commission to provide relief from the requirements of

the position limits regime.\27\

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\27\ See id.

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Consequently, the 2013 Aggregation Proposal included a provision

(proposed rule Sec. 150.4(b)(3)) that would permit a person with a

greater than 50 percent ownership of an owned entity to apply to the

Commission for relief from aggregation on a case-by-case basis. The

person would be required to demonstrate to the Commission that:

i. The owned entity is not required to be, and is not, consolidated

on the financial statement of the person,

ii. the person does not control the trading of the owned entity

(based on criteria in rule Sec. 150.4(b)(2)(i)), with the person

showing that it and the owned entity have procedures in place that are

reasonably effective to prevent coordinated trading in spite of

majority ownership,\28\

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\28\ The Commission pointed out that since this criterion

requires a person to certify that the person does not control

trading of its owned entity, the criterion could not be met by a

natural person or any entity, such as a partnership, where it is not

possible to separate knowledge and control of the person from that

of the owned entity.

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iii. each representative of the person (if any) on the owned

entity's board of directors attests that he or she does not control

trading of the owned entity, and

iv. the person certifies that either (a) all of the owned entity's

positions qualify as bona fide hedging transactions or (b) the owned

entity's positions that do not so qualify do not exceed 20 percent of

any position limit currently in effect, and the person agrees in either

case that:

[ssquf] If this certification becomes untrue for the owned entity,

the person will aggregate the owned entity for three complete calendar

months and if all of the owned entity's positions qualify as bona fide

hedging transactions for that entire time the person would have the

opportunity to make the certification again and stop aggregating,

[ssquf] upon any call by the Commission, the owned entity(ies) will

make a filing responsive to the call, reflecting the owned entity's

positions and transactions only, at any time (such as when the

Commission believes the owned entities in the aggregate may exceed a

visibility level), and

[ssquf] the person will provide additional information to the

Commission if any owned entity engages in coordinated activity, short

of common control (understanding that if there were common control, the

positions of the owned entity(ies) would be aggregated).

The Commission clarified that the proposed relief would not be

automatic, but rather would be available only if the Commission finds,

in its discretion, that the four conditions above are met. The proposed

rule would not impose any time limits on the Commission's process for

making the determination of whether relief is appropriately granted,

and relief would be available only if and when the Commission acts on a

particular request for relief.\29\

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\29\ See 2013 Aggregation Proposal, 78 FR at 68960.

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The Commission also explained that, under the 2013 Aggregation

Proposal, it would interpret factors such as the owned entity being a

newly acquired standalone business or a joint venture subject to

special restrictions on control, or two different owned entities

conducting operations at different levels of commerce (such as retail

and wholesale), to be favorable to granting relief from the aggregation

requirement.\30\ The Commission also noted that if a person with

greater than 50 percent ownership of an owned entity could not meet the

conditions in proposed rule Sec. 150.4(b)(3), the person could apply

to the Commission for relief from aggregation under CEA section

4a(a)(7).\31\ The Commission noted that CEA section 4a(a)(7) does not

impose any time limits on the Commission's process for determining

whether relief under that section is appropriate, nor does it prescribe

or limit the factors that

[[Page 58369]]

the Commission may consider to be relevant in determining whether to

grant relief.\32\

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\30\ See id.

\31\ See id. Section 4a(a)(7) of the CEA provides authority to

the Commission to grant relief from the position limits regime.

\32\ See id. The 2013 Aggregation Proposal also included amended

rule Sec. 150.1(e)(5) and proposed rule Sec. 150.4(b)(5) that

would allow managers of employee benefit plans (i.e., persons that

manage a commodity pool, the operator of which is excluded from

registration as a commodity pool operator under rule Sec.

4.5(a)(4)) to be treated as an IAC, on the condition that an IAC

notice filing is made as required under rule Sec. 150.4(c). See id.

at 68961. The aspects of the 2013 Aggregation Proposal related to

proposed rule Sec. Sec. 150.1(e)(5) and 150.4(b)(5) are not

affected by the revisions discussed herein.

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II. Proposed Rules

A. Proposed Revision To Allow for Relief to Owners of More Than 50

Percent of an Owned Entity Based on Notice Filing

In light of the language in section 4a of the CEA, its legislative

history, subsequent regulatory developments, and the Commission's

historical practices in this regard, the Commission continues to

believe that section 4a requires aggregation on the basis of either

ownership or control of an entity. The Commission also believes that

aggregation of positions across accounts based upon ownership is a

necessary part of the Commission's position limit regime.\33\ However,

the Commission is also mindful that, as discussed by commenters on the

2013 Aggregation Proposal, aggregation of positions held by owned

entities may in some cases be impractical, burdensome, or not in

keeping with modern corporate structures. Therefore, the Commission is

proposing a limited revision to the 2013 Aggregation Proposal that

would permit all owners of 10 percent or more of an owned entity (i.e.,

the owners of up to and including 100 percent of an owned entity) to

disaggregate the positions of the owned entity in the circumstances

specified in proposed rule Sec. 150.4(b)(2). All other aspects of the

2013 Aggregation Proposal, including the proposed criteria for

disaggregation relief and other aspects not discussed herein, remain

the same.

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\33\ See 1999 Amendments, 64 FR at 24044 (``[T]he Commission . .

. interprets the `held or controlled' criteria as applying

separately to ownership of positions or to control of trading

decisions.''). See also, Exemptions from Speculative Position Limits

for Positions which have a Common Owner but which are Independently

Controlled and for Certain Spread Positions; Proposed Rule, 53 FR

13290, 13292, (Apr. 22, 1988). In response to two separate

petitions, the Commission proposed the independent account

controller exemption from speculative position limits, but declined

to remove the ownership standard from its aggregation policy.

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The Commission has the authority to revise its proposed relief

under section 4a(a)(7) of the CEA, which authorizes the Commission to

provide relief from the requirements of the position limits regime. The

reasons for this proposed revision are discussed below.

B. Commenters' Views

Commenters on the 2013 Aggregation Proposal generally praised the

proposed relief for owners of between 10 percent and 50 percent of an

owned entity, but asserted that the proposed application procedures for

owners of a more than 50 percent equity or ownership interest were

unnecessary and inappropriate.\34\

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\34\ The comments on the 2013 Aggregation Proposal are available

on the Commission's Web site at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1427. Commenters also addressed

other aspects of the 2013 Aggregation Proposal, but since those

other aspects remain the same under this revision to the proposal,

it is unnecessary to address those comments at this time.

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A few commenters opposed providing aggregation relief for owners of

more than 10 percent of an owned entity. Better Markets, Inc. (``Better

Markets''), an organization that advocates for financial reform,

commented that allowing disaggregation of majority-owned subsidiaries

would ignore the clear language of CEA section 4a(a)(1) and ``would

allow traders to easily circumvent Position Limits by creating multiple

subsidiaries and dividing its positions among them.'' \35\ Better

Markets said the Commission must therefore not allow any disaggregation

relief for owners holding a more than 10 percent interest in an owned

entity.\36\ Occupy the SEC, another organization that advocates for

financial reform, said that the provision for relief for owners of more

than 50 percent of an owned entity should be removed because ``there

can be no plausible justification for exempting largely interconnected

firms from the position limits regime,'' and in any case the proposed

relief for greater than 50 percent owners would be of little use

because it ``adds a veritable gauntlet of conditions [in proposed rule

150.4(b)(3)] that few companies will be able to pass.'' \37\

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\35\ Better Markets, Inc. on February 10, 2014 (``CL-Better

Markets'') at 2-3.

\36\ CL-Better Markets at 3.

\37\ Occupy the SEC on August 7, 2014 at 5-6. Occupy the SEC did

not comment on the provision for disaggregation relief for owners

holding between a 10 percent and a 50 percent interest in an owned

entity.

Another commenter, Chris Barnard, said that he initially took a

negative view of providing relief for owners of more than 50 percent

of an owned entity, but concluded such relief was acceptable because

of the strength of the conditions in proposed rule Sec.

150.4(b)(3). Chris Barnard on January 16, 2014 at 1-2.

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The Futures Industry Association (``FIA''), a trade association,

commented that the Commission should permit majority-owned affiliates

to be disaggregated regardless of whether the entities are required to

consolidate financial statements.\38\ The FIA opined that conditioning

disaggregation of majority-owned affiliates on the lack of a

requirement for consolidated financial statements would be arbitrary,

because the accounting principles ``are wholly unrelated to the

question of actual control of day-to-day trading decisions and

positions.'' \39\ The FIA requested that the Commission amend the

proposal to allow a person to rebut the presumption of control of a

majority-owned affiliate solely by demonstrating that the person does

not control the trading and positions of the owned entity through,

among other things, effective procedures that prevent coordinated

trading.\40\ The FIA recommended that the Commission remove the

condition for each representative of the board of directors to certify

that he or she does not control the trading decisions of the owned

entity.\41\

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\38\ Futures Industry Association on February 6, 2014 (``CL-

FIA'') at 4, 8 and 10-11.

\39\ CL-FIA at 10.

\40\ CL-FIA at 10. The FIA commented that because the exemption

for majority-owned entities would be effective only after a

Commission determination, the Commission would have discretion on a

case-by-case basis to review facts and circumstances. CL-FIA at 10.

\41\ CL-FIA at 10-11.

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Other commenters said that the Commission should provide the same

disaggregation relief for owners of more than 50 percent of an owned

entity as is proposed to be provided for owners of 50 percent or less.

For example, the Asset Management Group of the Securities Industry and

Financial Markets Association said that the Commission should extend

``the owned entity exemption at proposed [rule] 150.4(b)(2) to include

all third party ownership interests (greater than 50 [percent]) that do

not involve actual common trading control.'' \42\ The Center for

Capital Markets Competitiveness of the U.S. Chamber of Commerce said

that the requirement in proposed rule Sec. 150.4(b)(3) to submit an

application to the Commission and await its approval would be

unworkable in practice and not provide any apparent regulatory

benefit.\43\

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\42\ The Asset Management Group of the Securities Industry and

Financial Markets Association on February 10, 2014 at 6. The

Coalition of Physical Energy Companies, on February 10, 2014 at 3-8,

also said that the ``Greater Than 50 Percent'' category should be

eliminated and such situations treated in accordance with proposed

rule Sec. 150.4(b)(2).

\43\ Center for Capital Markets Competitiveness of the U.S.

Chamber of Commerce on February 10, 2014 at 9. ICE Futures U.S.,

Inc., a designated contract market (``DCM''), agreed that the

requirements in proposed rule Sec. 150.4(b)(3) would be unworkable,

and suggested that the Commission should ``[a]t a minimum,'' revise

the rule to reflect an objective process for action within a

specified time. ICE Futures U.S., Inc. on February 10, 2014 at 3.

Similar comments were made by the American Gas Association on

February 10, 2014 at 5-11, the Commercial Energy Working Group on

February 10, 2014 at 2-8, the Managed Funds Association on February

10, 2014 at 9-15, and the Private Equity Growth Capital Council on

February 10, 2014 (``CL-PEGCC'') at 3-8.

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[[Page 58370]]

The Commodity Markets Council recommended that the Commission not

require aggregation based solely on ownership of legal entities, but

instead extend the IAC exemption to all separately organized companies,

whether or not they are affiliated.\44\ The Natural Gas Supply

Association (``NGSA'') recommended that the Commission leave the

current rules on aggregation in place unchanged, because ``[u]nder the

status quo, the Commission may bring enforcement action against an

investor if it directs or otherwise controls the trading of an owned

entity whose positions it claims it does not control.'' \45\

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\44\ Commodity Markets Council on February 10, 2014 (``CL-CMC'')

at 16-17. In a separate comment letter, the Commodity Markets

Council recommended that affiliated companies not be required to

aggregate their positions when (1) the companies are authorized to

control trading decisions on their own, (2) the owner maintains only

such minimum control as is consistent with its fiduciary

responsibilities to supervise diligently the trading of the owned

entity (or other applicable responsibilities), (3) the companies

actually trade independently, and (4) the companies have no

knowledge of each other's trading decisions. Commodity Markets

Council on July 25, 2014 (``CL-CMC II'') at 5-6.

\45\ Natural Gas Supply Association on February 10, 2014 (``CL-

NGSA'') at 39-43.

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MidAmerican Energy Holdings Company (``MidAmerican''), an energy

services company which is controlled by Berkshire Hathaway, Inc.

(``Berkshire''), commented that, absent aggregation relief for

majority-owned affiliates that are consolidated for accounting

purposes, the proposed position limits would impose ``serious

regulatory costs and consequences'' to establish an extensive

compliance monitoring and coordination program across independently

managed, disparate businesses, and would be contrary to policies,

procedures, systems, and controls established to provide functional and

legal separation for individual operating businesses.\46\ MidAmerican

explained that Berkshire and its industrial operating businesses are

generally managed on a decentralized basis, with no centralized or

integrated business functions and minimal involvement by Berkshire's

corporate headquarters in day-to-day business activities of MidAmerican

or Berkshire's other operating businesses.\47\ MidAmerican recommended

that the Commission provide for disaggregation upon a notice filing by

a group of majority-owned entities that meet the four criteria in the

proposal or, if the group does not meet all four criteria in the

proposal, provide for the group to rely on the submission of an

application for relief until the Commission has acted on the

application.\48\

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\46\ MidAmerican Energy Holdings Company on February 7, 2014

(``CL-MidAmerican'') at 1-2.

\47\ CL-MidAmerican at 2.

\48\ CL-MidAmerican at 3. MidAmerican recommended an application

for relief by majority-owned affiliates not meeting all four

criteria would need to rebut the assumption of control over

majority-owned subsidiaries and meet two conditions: (1) The

requirements applicable to entities with 50 percent or less common

ownership; and (2) The requirement that representatives of board

members of an entity covered by the relief request attest to the

absence of trading control. MidAmerican recommended that the

Commission consider the following factors that may rebut the

assumption of control over majority-owned subsidiaries: (1) Separate

trading accounts and broker relationships for each entity; (2)

periodic certification from an officer of the requesting entity that

the policies and procedures designed to prevent trading-level

control or coordination remain in place and are effective; (3) lack

of common guarantor and/or provision of independent credit support;

(4) lack of cross-default or cross-acceleration provisions in

trading contracts; (5) maintenance of separate identifiable assets;

(6) maintenance of separate lines of business (i.e., the business of

one entity is not dependent upon the other); and (7) any other

structural, legal, or regulatory barriers limiting control and

interdependencies among affiliated entities. CL-MidAmerican at 4-5.

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CME Group (``CME''), a holding company for a number of DCMs, stated

that the Commission did not identify any basis or justification for the

various features of the proposed aggregation regime.\49\ CME contended

that features of the 2013 Aggregation Proposal (regarding the owned

entity aggregation rules, the IAC exemption, and the ``substantially

identical trading strategies'' rule) are not in accordance with law,

arbitrary and capricious, an unexplained departure from the

Commission's administrative precedent, and not more permissive than

existing aggregation standards.\50\ The Commodity Markets Council and

the NGSA were also of the opinion that the 2013 Aggregation Proposal

was not supported by the Commission's administrative precedent.\51\ CME

and NGSA asserted that section 4a(a)(1) of the CEA provides no basis

for requiring aggregation of positions held by another person in the

absence of control of such other person.\52\ CME also stated that rule

Sec. 150.4(b) generally exempts a commodity pool's participants with

an ownership interest of 10 percent or greater from aggregating the

positions held by the pool.\53\ Finally, CME and NGSA contended that

two of the Commission's enforcement cases indicate that the Commission

has viewed aggregation as being required only where there is common

trading control.\54\

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\49\ CME Group on February 10, 2014 (``CL-CME'') at 9.

\50\ CL-CME at 2, 6, and 10-11. CME opined that under the

Commission's precedent, a 10 percent or more ownership or equity

interest in an account is an indicia of trading control, but this

precedent does not support a requirement for aggregation based on a

10 percent or more ownership or equity interest in an entity. CL-CME

at 11. CME reasoned that the Commission's use of the term

``account'' has never referred to an owned entity that itself has

accounts, that the 1979 Aggregation Policy suggests the Commission

contemplated a definition of ``account'' that means no more than a

personally owned futures trading account, and that the 1999

Amendments to the aggregation rules were focused on directly owned

accounts. CL-CME at 11-12.

\51\ The Commodity Markets Council said that under the

Commission's precedents ``[l]egal affiliation [between companies]

has been an indicium but not necessarily sufficient for position

aggregation.'' CL-CMC at 16.

NGSA said that the Commission has never specifically required

aggregation solely on the basis of ownership of another legal

person. CL-NGSA at 42. To support its view, NGSA said that the 1979

Aggregation Policy and the 1999 Amendments apply to only trading

accounts that are directly or personally held or controlled by an

individual or legal entity, the Commission's large trader rules

require aggregation of multiple accounts held by a particular

person, not the accounts of a person and its owned entities, and

regulation Sec. 18.04(b) distinguishes between owners of the

``reporting trader'' and the owners of the ``accounts of the

reporting trader.'' Id. at 42-43.

\52\ CL-CME at 5-6; CL-NGSA at 41. CME commented that the

Commission failed to consider the statutorily required factors,

because CME asserts it is false that prior rules required

aggregation of owned entity positions at a 10 percent ownership

level. CL-CME at 8.

NGSA contended that ``CEA section 4a(a)(1) only allows the

Commission to require the aggregation of positions on ownership

alone when those positions are directly owned by a person. The

positions of another person are only to be aggregated when the

person has direct or indirect control over the trading of another

person.'' CL-NGSA at 41.

\53\ CL-CME at 13. CME noted that 63 FR 38525 at 38532 n. 27

(July 17, 1998) (proposal to amend regulation 150.3 to include the

separately incorporated affiliates of a CPO, CTA or FCM as eligible

entities for the exemption relief of regulation 150.3) states:

``Affiliated companies are generally understood to include one

company that owns, or is owned by, another or companies that share a

common owner.'' CL-CME at 13 n. 52. CME also asserted that the term

``principals'' under regulation Sec. 3.1(a)(2)(ii) include entities

that have a direct ownership interest that is 10 percent or greater

in a lower tier entity, such as the parent of a wholly-owned

subsidiary. From these two provisions, CME concluded that the

corporate parent of a wholly-owned CPO would be affiliated with, and

a principal of, its wholly-owned subsidiary.

\54\ See CL-CME at 14-15, citing In the Matter of Vitol Inc. et

al., Docket No. 10-17 (Sept. 14, 2010), available at http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfvitolorder09142010.pdf (``In the Matter of Vitol'')

and In the Matter of Citigroup Inc. et al., Docket No. 12-34 (Sept.

21, 2012), available at http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enfcitigroupcgmlorder092112.pdf (``In the Matter of Citigroup'').

NGSA contended that In the Matter of Vitol was based on facts

that would be relevant only if common trading control was necessary

for aggregating the positions of affiliated companies. See CL-NGSA

at 43. NGSA did not discuss In the Matter of Citicorp.

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[[Page 58371]]

C. Revised Proposed Rule

In view of the points raised by commenters on the 2013 Aggregation

Proposal and upon further review of the matter, the Commission is

proposing to revise the proposal to delete proposed rule Sec. Sec.

150.4(b)(3) and 150.4(c)(2), and to change proposed rule Sec.

150.4(b)(2) so that it would apply to all persons with an ownership or

equity interest in an owned entity of 10 percent or greater (i.e., an

interest of up to and including 100%) in the same manner as proposed

rule Sec. 150.4(b)(2) would apply, before this revision, to owners of

an interest of between 10 percent and 50 percent. The Commission is

also proposing conforming changes in proposed rule Sec. 150.4(b)(7),

to delete a cap of 50 percent on the ownership or equity interest for

broker-dealers to disaggregate, and in proposed rule Sec.

150.4(e)(1)(i), to delete a delegation of authority referencing

proposed rule Sec. 150.4(b)(3).\55\ The entirety of the Commission's

aggregation-related proposed amendments to part 150, as set out in the

2013 Aggregation Proposal as revised herein, is set forth at the end of

this notice.

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\55\ The Commission also proposes to delete a cross-reference to

proposed rule Sec. 150.4(b)(3)(vii) in proposed rule Sec.

150.4(c)(1).

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The Commission finds merit in the comments of the FIA that

ownership of a greater than 50 percent interest in an entity (and the

related consolidation of financial statements) may not mean that the

owner actually controls day-to-day trading decisions of the owned

entity. The Commission believes that, on balance, the overall purpose

of the position limits regime (to diminish the burden of excessive

speculation which may cause unwarranted changes in commodity prices)

would be better served by focusing the aggregation requirement on

situations where the owner is, in view of the circumstances, actually

able to control the trading of the owned entity.\56\ The Commission

reasons that the ability to cause unwarranted changes in the price of a

commodity derivatives contract would result from the owner's control of

the owned entity's trading activity.

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\56\ The Commission notes in this regard that there may be

significant burdens in meeting the requirements of proposed rule

Sec. 150.4(b)(3) even where there is no control the trading of the

owned entity, as was suggested by the Center for Capital Markets

Competitiveness of the U.S. Chamber of Commerce, the Asset

Management Group of the Securities Industry and Financial Markets

Association and the other commenters. See supra nn. 42 and 43.

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

The Commission has considered the views of Better Markets and other

commenters who warned that inappropriate relief from the aggregation

requirements could allow circumvention of position limits through the

use of multiple subsidiaries. However, the Commission believes that the

criteria in proposed rule Sec. 150.4(b)(2)(i), which must be satisfied

in order to disaggregate, will appropriately indicate whether an owner

has control of or knowledge of the trading activity of the owned

entity. The disaggregation criteria require that the two entities not

have knowledge of each other's trading and, moreover, have and enforce

written procedures to preclude such knowledge.\57\ And, in fact, as

noted in the 2013 Aggregation Proposal, the Commission has applied, and

expects to continue to apply, certain of the same conditions in

connection with the IAC exemption to ensure independence of trading

between an eligible entity and an affiliated independent account

controller. If the disaggregation criteria are satisfied, therefore,

the Commission preliminarily believes that disaggregation may be

permitted even if the owner has a greater than 50 percent ownership or

equity interest in the owned entity. Even in the case of majority

ownership, if the disaggregation criteria are satisfied, the ability of

an owner and the owned entity to act together to engage in excessive

speculation or to cause unwarranted price changes should not differ

significantly from that of two separate individuals.

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\57\ See 2013 Aggregation Proposal, 78 FR at 68961, referring to

regulation Sec. 150.3(a)(4) (proposed to be replaced by proposed

rule Sec. 150.4(b)(5)). Such conditions have been useful in

ensuring that trading is not coordinated through the development of

similar trading systems, and that procedures are in place to prevent

the sharing of trading decisions between entities.

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The Commission points out that finalization of proposed rule Sec.

150.4(b)(2), which would allow persons with ownership or equity

interests in an owned entity of up to and including 100 percent to

disaggregate the positions of the owned entity if certain conditions

were satisfied, would not mean that there would be no aggregation on

the basis of ownership. Rather, aggregation would still be the

``default requirement'' for the owner of a 10 percent or greater

interest in an owned entity, unless the conditions of proposed rule

Sec. 150.4(b)(2) are satisfied.\58\

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\58\ The Commission noted in the 2013 Aggregation Proposal that

if there were no aggregation on the basis of ownership, it would

have to apply a control test in all cases, which would pose

significant administrative challenges to individually assess control

across all market participants. See 2013 Aggregation Proposal, 78 FR

at 68956. Further, the Commission considered that if the statute

required aggregation only if the existence of control were proven,

market participants may be able to use an ownership interest to

directly or indirectly influence the account or position and thereby

circumvent the aggregation requirement. See id. On further review

and after considering the comments of the FIA and others, the

Commission believes that the disaggregation criteria in proposed

rule Sec. 150.4(b)(2)(i) provide an effective, easily implemented

means of applying a ``control test'' to determine if disaggregation

should be allowed, without creating a loophole through which market

participants could circumvent the aggregation requirement.

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Furthermore, satisfaction of the criteria of proposed rule Sec.

150.4(b)(2) would not mean that an owner and owned entity would be

entirely immune from aggregation in all circumstances. For example,

aggregation is and would continue to be required under both current

regulation Sec. 150.4(a) and proposed rule Sec. 150.4(a)(1) if two or

more persons act pursuant to an express or implied agreement; and this

aggregation requirement would apply whether the two or more persons are

an owner and owned entity(ies) that meet the conditions in proposed

rule Sec. 150.4(b)(2), or are unaffiliated individuals. The Commission

intends to continue to enforce the requirement of aggregation when two

persons are acting together pursuant to an express or implied agreement

regardless of whether the two persons are unaffiliated or if one person

has an ownership interest in the other.

In determining whether the criteria in proposed rule Sec.

150.4(b)(2) are an appropriate test for owners of more than 50 percent

of an owned entity, the Commission notes the comments of MidAmerican

regarding the relevant variances in corporate structures. MidAmerican

stated that there are instances where one entity has a 100 percent

ownership interest in another entity, yet does not control day-to-day

business activities of the owned entity. Also, in this situation the

owned entity would not have knowledge of the activities of other

entities owned by the same owner, nor would it raise the heightened

concerns, triggered when one entity both owns and controls trading of

another entity, that the owner would necessarily act in a coordinated

manner with other owned entities.

The Commission also appreciates that a requirement to aggregate the

positions of majority-owned subsidiaries could

[[Page 58372]]

require corporate groups to establish procedures to monitor and

coordinate trading activities across disparate owned entities, which

could have unpredictable consequences. The Commission recognizes that

these consequences could include not only the cost of establishing

these procedures, but also the impairment of corporate structures which

were established to insure that the various owned entities engage in

business independently. This independence may serve important purposes

which could be lost if the aggregation requirement were imposed too

widely.

Further, the Commission notes that for those corporate groups that

establish policies and controls to separate different operating

businesses, the disaggregation criteria in proposed rule Sec.

150.4(b)(2)(i) should be relatively familiar and easy to satisfy. That

is, the disaggregation criteria and their application to corporate

groups like MidAmerican's group are in line with prudent corporate

practices that are maintained for longstanding, well-accepted reasons.

The Commission does not intend that the aggregation requirement

interfere with these structures.\59\

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\59\ In the 2013 Aggregation Proposal, the Commission noted that

if the aggregation rules adopted by the Commission would be a

precedent for aggregation rules enforced by designated contract

markets and swap execution facilities, it would be even more

important that the aggregation rules set out, to the extent

feasible, ``bright line'' rules that are capable of easy application

by a wide variety of market participants while not being susceptible

to circumvention. See 2013 Aggregation Proposal, 78 FR at 68596, n.

103. The Commission believes that by implementing an approach to

aggregation that is in keeping with longstanding corporate

practices, the proposed revisions promote the goal of setting out

``bright line'' rules that are relatively easy to apply while not

being susceptible to circumvention.

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MidAmerican and the Commodity Markets Council proposed various

alternative criteria which could be used to determine whether the

positions of an owner and owned entity could be disaggregated.\60\

However, after considering these suggestions, the Commission does not

believe that the suggested criteria are significantly different from

the criteria in proposed rule Sec. 150.4(b)(2)(i) in the 2013

Aggregation Proposal. Also, some of the suggested criteria appear to be

suitable for particular situations, but not necessarily all corporate

groups.\61\ Overall, the Commission believes that the criteria in

proposed rule Sec. 150.4(b)(2)(i) are appropriate and suitable for

determining when disaggregation is permissible due to a lack of control

and shared knowledge of trading activities. \62\

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\60\ See, e.g., CL-MidAmerican at 4-5, CL-CMC II at 5-6.

\61\ For example, MidAmerican recommended factors such as

whether the owner and the owned entity have separate trading

accounts, separate assets, separate lines of business, independent

credit support and other specific indications of separation. See CL-

MidAmerican at 4-5. In the Commission's view, criteria such as these

are specific manifestations of the general principles stated in

proposed rule Sec. 150.4(b)(2)(i) that the owner and the owned

entity not have knowledge of the trading decisions of the other and

trade pursuant to separately developed and independent trading

systems. Similarly, whether the two entities do or do not have

separate assets or separate lines of business would not necessarily

indicate whether they are engaged in coordinated trading.

\62\ As stated in the 2013 Aggregation Proposal, the Commission

proposes that the criteria in proposed rule Sec. 150.4(b)(2)(i)

would be interpreted and applied in accordance with the Commission's

past practices. See, e.g., 1979 Aggregation Policy, 44 FR 33839

(providing indicia of independence); CFTC Interpretive Letter No.

92-15 (CCH ] 25,381) (ministerial capacity overseeing execution of

trades not necessarily inconsistent with indicia of independence);

1999 Amendments, 64 FR at 24044 (intent in issuing final aggregation

rule ``merely to codify the 1979 Aggregation Policy, including the

continued efficacy of the [1992] interpretative letter'').

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In response to the assertions of CME and NGSA, the Commission

reiterates its belief, as stated in the 2013 Aggregation Proposal, that

ownership of an entity is an appropriate criterion for aggregation of

that entity's positions, due in part to the direction in section

4a(a)(1) of the CEA that all positions held by a person should be

aggregated.

The Commission has explained that this interpretation is supported

by Congressional direction and Commission precedent from as early as

1957 and continued through 1999.\63\ For example, in 1968, Congress

amended the aggregation standard in CEA section 4a to include positions

``held by'' one trader for another,\64\ supporting the view that an

owner should aggregate the positions held by an owned entity (because

the owned entity is holding the positions for the owner). During the

Commission's 1986 reauthorization, points similar to those raised now

by CME and NGSA were considered and rejected. At that time, witnesses

at Congressional hearings suggested that ``aggregation of positions

based on ownership without actual control unnecessarily restricts a

trader's use of the futures and options markets,'' but the

Congressional committee did not recommend any changes to the statute

based on these suggestions.\65\

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\63\ See 2013 Aggregation Proposal, 78 FR at 68956.

\64\ See Pub. L. 90-258, Sec. 2, 82 Stat. 26 (1968). The Senate

Report accompanying the 1968 amendment stated that ``all of the

changes made by this section incorporate longstanding administrative

interpretations reflected in orders of the [Commodity Exchange]

Commission.'' S. Rep. No. 947, 90th Cong. 2d Sess. (1968) at page 5.

\65\ See H.R. Rep. No. 624, 99th Cong., 2d Sess. (1986) at page

43. The Report noted that:

During the subcommittee hearings on reauthorization, several

witnesses expressed dissatisfaction with the manner in which certain

market positions are aggregated for purposes of determining

compliance with speculative limits fixed under Section 4a of the

Act. The witnesses suggested that, in some instances, aggregation of

positions based on ownership without actual control unnecessarily

restricts a trader's use of the futures and options markets. In this

connection, concern was expressed about the application of

speculative limits to the market positions of certain commodity

pools and pension funds using multiple trading managers who trade

independently of each other. The Committee does not take a position

on the merits of the claims of the witnesses.

Id.

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In 1988, the Commission reviewed petitions by the Managed Futures

Trade Association and the Chicago Board of Trade which argued against

aggregation based only on ownership.\66\ In response to the petition,

however, the Commission stated that:

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\66\ The Managed Futures Trade Association petition requested

that the Commission amend the aggregation standard for exchange-set

speculative position limits in regulation Sec. 1.61(g) (now

regulation Sec. 150.5(g)), by adding a proviso to exclude the

separate accounts of a commodity pool where trading in those

accounts is directed by unaffiliated CTAs acting independently. See

Exemption From Speculative Position Limits for Positions Which Have

a Common Owner but Which Are Independently Controlled; Proposed

Rule, 53 FR 13290, 13291-92 (Apr. 22, 1988). The petition argued the

ownership standard, as applied to ``multiple-advisor commodity

pools, is unfair and unrealistic'' because while the commodity pool

may own the positions in the separate accounts, the CPO does not

control trading of those positions (the unaffiliated CTA does) and

therefore the pool's ownership of the positions will not result in

unwarranted price fluctuations. See id. at 13292.

The petition from the Chicago Board of Trade (which is now a

part of CME) sought to revise the aggregation standard so as not to

require aggregation based solely on ownership without control. See

id.

Both ownership and control have long been included as the

appropriate aggregation criteria in the Act and Commission

regulations. Generally, inclusion of both criteria has resulted in a

bright-line test for aggregating positions. And as noted above,

although the factual circumstances surrounding the control of

accounts and positions may vary, ownership generally is clear.

. . . In the absence of an ownership criterion in the

aggregation standard, each potential speculative position limit

violation would have to be analyzed with regard to the individual

circumstances surrounding the degree of trading control of the

positions in question. This would greatly increase uncertainty.\67\

\67\ See id. In response to the petitions, however, the

Commission proposed the IAC exemption, which provides ``an

additional exemption from speculative position limits for positions

of commodity pools which are traded in separate accounts by

unaffiliated account controllers acting independently.'' Id.

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Contrary to CME's and NGSA's contentions, the aggregation

[[Page 58373]]

requirement in CEA section 4a is not phrased in terms of whether the

owner holds an interest in a trading account. In fact, the word

``account'' does not even appear in the statute.\68\ CME and NGSA

incorrectly contend that the Commission has limited its interpretation

of the term ``account'' to include only a personally owned futures

trading account; the Commission has not. In 1986, for example, the

Commission considered a comment that the use of the term ``account''

means a direct interest in a specific futures trading account, and

rejected this view, writing that the Commission ``has generally

interpreted and applied these rules more broadly'' and that ``[t]o

conduct effective market surveillance and enforce speculative limits,

the Commission must know the relationship in terms of financial

interest or control between traders as well as that between a trader

and trading accounts.'' \69\ CME and NGSA also misread the 1999

Amendments, which specifically stated that ``the Commission. . .

interprets the `held or controlled' criteria as applying separately to

ownership of positions or to control of trading decisions .'' \70\ CME

misconstrues the 1999 amendments' reference to the Commission's large-

trader reporting system as being related to the aggregation rules for

the position limits regime.\71\ But the 1999 amendments are consistent,

because they included an explanation of situations in which reporting

could be required based on both control and ownership.\72\ And, CME's

citation to exemptions for aggregation for certain commodity pools \73\

simply prove too much--the reason these exemptions are in place is

because aggregation would be required due to ownership or control of

the commodity pools if the exemptions were not available.

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\68\ As noted above, section 4a(a)(1) of the CEA provides that

``In determining whether any person has exceeded such limits, the

positions held and trading done by any persons directly or

indirectly controlled by such person shall be included with the

positions held and trading done by such person.'' 7 U.S.C. 6a(a)(1).

\69\ See Reports Filed by Contract Markets, Futures Commission

Merchants, Clearing Members, Foreign Brokers and Large Traders;

Final Rule, 51 FR 4712, 4716 (Feb. 7, 1986) (referring to the use of

the term ``account'' in regulation 18.04, which required reports

relating to persons whose accounts are controlled by the reporting

trader and persons who have a financial interest of 10 percent or

more in the account of the trader) (emphasis added).

\70\ See 1999 Amendments, 64 FR at 24043 and fn. 26 (referring

to rule 18.01 requirement of aggregation for reporting purposes when

a trader ``holds, has a financial interest in or controls positions

in more than one account'').

\71\ See CL-CME at 12, citing the 1999 Amendments, 64 FR at

24043.

\72\ The Commission stated that its ``routine large trader

reporting system is set up so that it does not double count

positions which may be controlled by one and traded for the

beneficial ownership of another. In such circumstances, although the

routine reporting system will aggregate the positions reported by

FCMs using only the control criterion, the staff may determine that

certain accounts or positions should also be aggregated using the

ownership criterion or may by special call receive reports directly

from a trader.'' 1999 Amendments, 64 FR at 24043 and fn. 26.

\73\ See CL-CME at 13, citing rule Sec. 150.4(b) and (c).

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Last, CME and NGSA misread the Commission's enforcement history,

which in fact does not contradict the Commission's traditional view of

aggregation of owned entity positions as being required on the basis of

either control or ownership. The first case cited by CME and NGSA did

not enforce the Commission's aggregation standard, but rather section

9(a)(4) of the CEA, which makes it unlawful for any person willfully to

conceal any material fact to a board of trade acting in furtherance of

its official duties under the Act.\74\ In this case, respondent

companies willfully failed to disclose to a DCM the true nature of the

relationship and the limited nature of the barriers to trading

information flow between two companies.\75\ Nowhere does the case speak

to whether aggregation standards may be applied based on either or both

of ownership or control.

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\74\ See In the Matter of Vitol at 2.

\75\ See id.

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

In describing the second case it cites, CME seems to have made

assumptions that never appear in the Commission's decision. The only

facts actually cited as relevant in this case were that a company and

its two wholly-owned subsidiaries acted as counterparties in over-the-

counter swaps contracts, engaged in futures trading, and held aggregate

net-long positions in excess of the Commission's all-months position

limits.\76\ Nowhere did the Commission find, as erroneously described

by CME, that the companies off-set the ``same risk acquired from

similarly situated counterparties.'' \77\ Nor did the Commission find,

as CME incorrectly asserts, that the subsidiaries traded as agents for

the corporate parent.\78\

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\76\ See In the Matter of Citigroup at 2-3. The Commission's

order specifically stated that ``The positions of Citigroup's

wholly-owned subsidiaries, including CGML, in December 2009 are

subject to aggregation pursuant to Commission Regulation Sec.

150.4(a)-(b).'' See id. at 2, n. 2.

\77\ See CL-CME at 15.

\78\ See id. Rather, the Commission's order found the parent

company liable for the violations of its wholly-owned subsidiaries

under section 2(a)(1)(B) of the CEA because the actions of the

wholly-owned subsidiaries occurred within the scope of their

employment, office, or agency with respect to the parent company.

See In the Matter of Citigroup at 4, citing CEA section 2(a)(1)(B)

and regulation 1.2.

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The Commission solicits comment on all aspects of the revision to

its proposed modification of rule 150.4 described herein. Commenters

are invited to address whether proposed rule Sec. 150.4(b)(2), as

revised, appropriately furthers the overall purposes of the position

limits regime while not creating opportunities for circumvention of the

aggregation requirement.

III. Related Matters

A. Considerations of Costs and Benefits

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

costs and benefits of its actions before promulgating a regulation

under the CEA or issuing certain orders. Section 15(a) further

specifies that the costs and benefits shall be evaluated in light of

the following 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 considers the costs and

benefits resulting from its discretionary determinations with respect

to the section 15(a) factors.

On November 15, 2013, the Commission proposed certain modifications

to its policy for aggregation under the part 150 position limits regime

(i.e., the 2013 Aggregation Proposal).\79\ The 2013 Aggregation

Proposal provided the public with an opportunity to comment on the

Commission's cost-and-benefit considerations of the proposed

amendments, including identification and assessment of any costs and

benefits not discussed therein. In particular, the Commission requested

that commenters provide data or any other information that they believe

supports their positions with respect to the Commission's

considerations of costs and benefits.

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\79\ See 2013 Aggregation Proposal, 78 FR at 68958-59.

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In this release, the Commission proposes to revise the 2013

Aggregation Proposal so that any person who owns 10 percent or more of

another entity would be permitted to disaggregate the positions of the

entity under a unified set of conditions and procedures. All other

aspects of the 2013 Aggregation Proposal, including the proposed

criteria for disaggregation relief, remain the same.

In the following, the Commission provides a general background for

the 2013 proposed amendments and the

[[Page 58374]]

current 2015 proposed revisions and discusses commenters' responses to

the 2013 Aggregation Proposal that are relevant to its considerations

of costs and benefits. The Commission further considers the expected

costs and benefits of the 2015 proposed revisions in light of the five

factors outlined in section 15(a).

Using the existing regulation 150.4 as the baseline for

comparison,\80\ the Commission considers in this section the

incremental costs and benefits that arise from the proposed 2015

revisions.\81\ That is, if the proposed 2015 revisions are not adopted,

the aggregation standards that would apply would be those described in

the Commission's existing regulation 150.4. The 2013 Aggregation

Proposal set forth the costs and benefits of the Commission's proposed

amendments of existing regulation 150.4. All aspects of the 2013

Aggregation Proposal's considerations of costs and benefits remain the

same other than those related specifically to the instant proposal to

allow persons owning 10 percent or more of another entity to

disaggregate the positions of the entity under a unified set of

conditions and procedures. Thus, while the existing regulation 150.4

serves as the baseline for this consideration of costs and benefits, we

also discuss as appropriate for clarity the differences from the 2013

Aggregation Proposal.

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\80\ 17 CFR 150.4.

\81\ As expressed throughout this preamble, all aspects of the

amendments as proposed in the 2013 Aggregation Proposal, except as

explicitly modified by the revisions discussed in this 2015 release,

remain the same.

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1. Background

As discussed in the preamble, the Commission's historical approach

to position limits in current part 150 generally consists of three

components: (1) The level of each limit, which sets a threshold that

restricts the number of speculative positions that a person may hold in

the spot-month, in any individual month, and in all months combined;

(2) an exemption for positions that constitute bona fide hedging

transactions and certain other types of transactions; and (3) standards

to determine which accounts and positions a person must aggregate for

the purpose of determining compliance with the position limit levels.

The third component of the Commission's position limits regime--

aggregation--is set out in regulation 150.4.\82\ Regulation 150.4

requires that unless a particular exemption applies, a person must

aggregate all positions for which that person: (1) Controls the trading

decisions, or (2) has at least a 10 percent ownership or equity

interest in an account or position; and in doing so the person must

treat positions that are held by two or more persons pursuant to an

express or implied agreement or understanding as if they were held by a

single person.\83\

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\82\ 17 CFR 150.4.

\83\ 17 CFR 150.4(b), (c), and (d).

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The 2013 Aggregation Proposal set forth conditions and procedures

to grant a person permission to disaggregate the positions of a

separately organized entity (``owned entity''). The permission or

exemption is dependent on the person's level of ownership or equity

interest in the owned entity. In the 2013 Aggregation Proposal, the

ownership or equity-interest levels were divided into two categories:

(1) A person with an interest of between 10 percent and 50 percent

would be permitted to disaggregate the positions, upon filing a notice

demonstrating compliance with certain requirements specified in the

proposed amendments; (2) a person with a greater than 50 percent

interest would have to apply on a case-by-case basis to the Commission

for permission, and await the Commission's decision as to whether

certain prerequisites enumerated in the 2013 Aggregation Proposal had

been met.\84\

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\84\ Note that no aggregation would be required if the ownership

or equity interest is below 10 percent.

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2. Comments on the 2013 Aggregation Proposal

In response to the 2013 Aggregation Proposal, several commenters

raised concerns about the costs and benefits associated with the

proposed changes to regulation 150.4. CME declared that the Commission

failed to consider adequately the costs and benefits of ``every

aspect'' of the 2013 Aggregation Proposal.\85\ Yet, for the most part,

commenters did not identify specific monetary costs or provide any

quantitative information to support their arguments. Instead, they made

the general statements that requiring owners without actual control to

aggregate positions would weaken the ability of largely passive

investors to provide capital investment and generate returns for their

beneficiaries,\86\ and that it would run contrary to certain

established corporate structures to provide functional and legal

separation for individual operating businesses.\87\

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\85\ CL-CME at 6. See also CL-MidAmerican at 1.

\86\ CL-SIFMA at 1.

\87\ CL-MidAmerican at 2.

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NGSA and PEGCC expressed concern over attendant compliance costs

for persons with greater than 50 percent interest in an owned

entity.\88\ NGSA and MidAmerican asserted that the proposal would

require new position-trading surveillance and compliance systems for

owned entities, and involve more intraday coordination.\89\ NGSA

identified another general cost: constraints on risk management

programs when an owned entity's commodity trading is restricted to 20

percent of positions.\90\ PEGCC characterized the exemption-application

process as unworkable because of the unlimited waiting period for

Commission review and approval.\91\ As a result, the Commission's

approach would create uncertainty for applicants and burden Commission

staff resources.\92\ Furthermore, during the waiting period, applicants

would have to expend costs to develop interim compliance programs.\93\

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\88\ CL-NGSA at 39; CL-PEGCC.

\89\ CL-NGSA at 39; CL-MidAmerican at 2.

\90\ CL-NGSA at 40.

\91\ CL-PEGCC at 4, 5.

\92\ CL-PEGCC at 4.

\93\ Id.

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Commenters also suggested alternatives to the exemption processes

proffered in the 2013 Aggregation Proposal. Several commenters advised

the Commission to accept a notice filing.\94\ PEGCC also recommended

that the Commission modify the certifications requirement for the

proposed greater than 50 percent ownership exemption. Instead of

producing certifications from the owner entity and board members, PEGCC

proposed that the Commission require a certification from the owner

entity only.\95\ They also recommended that the Commission eliminate

the grace period for seeking re-certification after the person loses

its greater than 50 percent ownership exemption for failing to meet a

condition.\96\ PEGCC remarked that the Commission had failed to provide

any rationale for the grace period, and stated that the person should

be able to apply for re-certification once it loses its status.\97\

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\94\ See, e.g., CL-PEGCC at 6.

\95\ CL-PEGCC at 7.

\96\ Id.

\97\ Id.

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3. The Current Proposal

The Commission is proposing to revise the 2013 Aggregation Proposal

to delete proposed rule Sec. 150.4(b)(3) and Sec. 150.4(c)(2), and to

change proposed rule Sec. 150.4(b)(2), so that the latter provision

would apply to all persons with an ownership or equity interest in an

owned entity of 10 percent or greater. More precisely, under these

proposed revisions, a person with at least a 10

[[Page 58375]]

percent interest would not be required to aggregate an owned entity's

positons, if such person files a notice attesting to no trading control

and implementation of firewalls to prevent access to relevant

information, among other conditions. The Commission is also proposing

conforming changes in other sections of proposed rule 150.4.\98\

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\98\ See earlier sections of this preamble for a discussion on

all proposed revisions to regulation 150.4.

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As discussed in Section III.A.2, commenters raised concerns and

suggested several alternatives for the exemptive category covering

owners with a greater-than-50-percent interest. The Commission

recognizes that the proposed amendments for this category in the 2013

Aggregation Proposal may impose burdens on certain market participants.

It has embraced some of the commenters' suggestions and revised the

requirements for those market participants seeking relief from the

aggregation obligations accordingly. The Commission welcomes comment on

all aspects regarding the cost-and-benefit considerations of the 2015

proposed revisions. Commenters are encouraged to suggest additional

alternatives that may result in a superior cost-and-benefit profile,

and provide support for their position both qualitatively and

quantitatively.

4. Costs and Benefits

As noted in the preamble, the Commission's general policy on

aggregation is derived from CEA section 4a(a)(1), which directs the

Commission to aggregate positions based on separate considerations of

ownership, control, or persons acting pursuant to an express or implied

agreement. The Commission's historical approach to its statutory

aggregation obligation has thus included both ownership and control

factors designed to prevent evasion of prescribed position limits. The

Commission continues to believe that these factors together constitute

an appropriate criterion for aggregation of that entity's positions.

The Commission believes that the revisions proposed herein would

maintain the Commission's historical approach to aggregation while

adding thoughtful exemptions to relieve market participants from

unnecessary burdens due to aggregation. Moreover, the proposed

exemptions would only apply under legitimate conditions. As a result,

the Commission's aggregation policy is more focused on targeting market

participants that pose an actual risk of engaging in the activities

which the position limits regime is intended to prevent.

a. Benefits

The primary purpose of requiring positions of owned entities to be

aggregated is to prevent evasion of prescribed position limits through

coordinated trading. The Commission recognizes, however, that an overly

restrictive or prescriptive aggregation policy may result in

unnecessary burdens or unintended consequences. Such unintended

consequences may take the form of reduced liquidity because imposing

aggregation requirements on owned entities that are not susceptible to

coordinated trading would unnecessarily restrict their ability to trade

commodity derivatives contracts. Moreover, as argued by some

commenters, requiring passive investors to aggregate the positions of

entities they own may potentially diminish capital investments in their

businesses,\99\ or interfere with existing decentralized business

structures.\100\ By providing exemptive relief to market participants

under legitimate circumstances--for instance, the demonstration of no

control over trading--potential negative effects on derivatives markets

would be reduced.

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\99\ SIFMA Letter at p. 1.

\100\ MidAmerican Letter at p. 2.

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The proposed 2015 revisions would also benefit market participants

by mitigating their compliance burdens associated with the aggregation

requirements as well as the position limits requirements more

generally. Under the proposed exemptions, eligible market participants

would not have to establish and maintain the infrastructure necessary

to aggregate positions across owned entities. Further, an eligible

entity with legitimate hedging needs and whose aggregated positions are

above the position limits thresholds in the absence of any exemption

would have the option of applying for an aggregation exemption instead

of applying for a bona fide hedging exemption.

Finally, under the proposed 2015 revisions, the same set of

exemption standards and procedures would apply to a person with any

level of ownership or equity interest in the owned entity being

considered--as long as the level is high enough to trigger the

aggregation requirements (i.e., at least 10 percent). This unified

exemptive framework facilitates legal clarity and consistency. It also

further mitigates the burdens facing market participants. Consider, for

example, a parent-holding company that has different levels of

ownership or equity interest in its various subsidiaries. Under the

proposed unified framework, such parent-holding company would not need

to establish and maintain multiple sets of systems for the purpose of

obtaining aggregation exemptions for each of these subsidiaries.

The Commission requests comment on its considerations of the

benefits of the proposed 2015 revisions. Commenters are specifically

encouraged to include both quantitative and qualitative assessments of

these benefits, as well as data or other information to support such

assessments.

b. Costs

To a large extent, market participants may already have incurred

many of the compliance costs associated with existing regulation 150.4.

The Commission and DCMs generally have required aggregation of

positions starting at a 10 percent interest threshold under the current

regulatory requirements of part 150 as well as the acceptable practices

found in the prior version of part 38. The Commission therefore

believes that market participants active on DCMs have already developed

systems for aggregating positions across owned entities.\101\

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\101\ The 10 percent threshold has been in place for the nine

agricultural contracts with federal limits for decades, and for

other contracts where limits were imposed by DCMs and enforced by

the Commission. See supra, note 15 (citing to the 1979 Aggregation

Policy, 44 FR at 33843, where the Commission codified its view that,

except in certain limited circumstances, a financial interest in an

account at or above 10 percent ``will constitute the trader as an

account owner for aggregation purposes'').

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The Commission anticipates there are two main types of direct costs

associated with the 2015 proposed revisions. First, there would be

initial costs incurred by entities as they develop and maintain systems

to determine whether they may be eligible for the proposed exemptions.

Second, there would be costs related to subsequent filings required by

the exemptions. In addition, some entities may also sustain direct

costs for modifying existing operational protocols--such as firewalls

and reporting schemes--to be eligible to claim an exemption. It is

difficult to quantify these direct costs because such costs are heavily

dependent on the individual characteristics of each entity's current

systems, its corporate structure, and its use of commodity derivatives,

among other attributes.

Should the Commission's other proposed amendments to the position

[[Page 58376]]

limits regime in part 150 be adopted as proposed,\102\ the aggregation

requirements would cover a greater set of commodity derivative

contracts. Part 150 applies currently to futures and options contracts

referencing nine commodities as stated in regulation 150.2. The other

2013 proposed amendments would expand the list, and would apply on a

federal level to commodity derivative contracts, including swaps, based

on an additional 19 commodities. This expansion would likely create

additional compliance costs for futures market participants because

they would have to broaden current procedures for aggregating futures

positions to include swaps positions, as well as for swaps market

participants, who would be required to develop and maintain systems to

comply with the aggregation rules. Further, exchanges would be required

to conform their aggregation policies to the Commission's aggregation

policy. However, the revisions proposed herein provide exemptive relief

from these requirements.

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\102\ See Position Limits for Derivatives, 78 FR 75680 (December

12, 2013).

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In accordance with the Paperwork Reduction Act, the Commission has

quantified the filing costs required to claim the proposed exemptions

discussed in Section III.C below. The Commission estimates that 240

entities will submit exemption claims for a total of 340 responses per

year. The 240 entities will incur a total burden of 6,850 labor hours

at a cost of approximately $822,000 annually to claim exemptive relief

under regulation 150.4, as proposed herein.\103\

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\103\ See Section III.C of this release for a more detailed

summary of the Commission's PRA burden estimates.

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The Commission requests comment on its consideration of the costs

imposed by the proposed 2015 revisions. Commenters are specifically

encouraged to submit both qualitative and quantitative estimates of the

potential costs, as well as data or other information to support such

estimates.

5. Section 15(a) Considerations

a. Protection of Market Participants and the Public

As pointed out above, the proposed aggregation exemptions would be

granted to an entity only upon demonstrating lack of trading control as

well as the implementation of information firewalls. These conditions

help to ensure that the effectiveness of the Commission's aggregation

policy is not jeopardized, thereby protecting the public.

b. Efficiency, Competition, and Financial Integrity of Markets

An important rationale for providing aggregation exemptions is to

avoid overly restricting commodity derivatives trading of owned

entities not susceptible to coordinated trading. As discussed above,

such trading restrictions may potentially result in reduced liquidity

in commodity derivatives markets, diminished investment by largely

passive investors, or distortions of existing decentralized business

structures. Thus, the proposed exemptions help promote efficiency and

competition, and protect market integrity by helping to prevent these

undesirable consequences.

c. Price Discovery

By avoiding overly restricting commodity derivatives trading of

those entities that are not susceptible to coordinated trading, the

proposed exemptions may help improve liquidity by encouraging more

market participation. This might improve the price discovery function

or it might have only a negligible effect on the price discovery

function of relevant derivative markets.

d. Risk Management

The imposition of position limits helps to restrict market

participants from amassing positions that are of sufficient size

potentially to cause sudden or unreasonable fluctuations or unwarranted

changes in the price of a commodity derivatives contract, or to be used

to manipulate the market price. The proposed exemptions would allow an

owner to disaggregate the positions of an owned entity in circumstances

where the Commission has determined that the positions are less of a

risk of disrupting market operation through coordinated trading. The

Commission believes that the proposed exemptions would not materially

inhibit the use of commodity derivatives for hedging, as bona fide

hedging exemptions are available to any entity regardless of

aggregation of positions and exemptions from aggregation.

e. Other Public Interest Considerations

As pointed out above, the proposed aggregation exemptions would

mitigate market participants' compliance burdens with the aggregation

requirements and the position limits requirements more generally. The

Commission has not identified any other public interest considerations

related to the costs and benefits of the proposed exemptive relief. The

Commission requests comment on any potential public interest

considerations, as well as data or other information to support such

considerations.

6. Section 15(b) Considerations

Section 15(b) of the CEA requires the Commission to consider the

public interest to be protected by the antitrust laws and to endeavor

to take the least anticompetitive means of achieving the objectives,

policies and purposes of the CEA, before promulgating a regulation

under the CEA or issuing certain orders. The Commission preliminarily

believes that the proposed exemptive relief will be consistent with the

public interest protected by the antitrust laws. The proposal would

broaden the availability of one category of relief from the aggregation

requirement to more owners and owned entities, retaining conditions

intended to address the Commission's concerns about circumvention of

position limits by coordinated trading or direct or indirect influence

between entities. The Commission requests comment on any considerations

related to the public interest to be protected by the antitrust laws

and potential anticompetitive effects of the proposal, as well as data

or other information to support such considerations.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') requires that agencies

consider whether the rules they propose will have a significant

economic impact on a substantial number of small entities and, if so,

provide a regulatory flexibility analysis respecting the impact.\104\ A

regulatory flexibility analysis or certification typically is required

for ``any rule for which the agency publishes a general notice of

proposed rulemaking pursuant to'' the notice-and-comment provisions of

the Administrative Procedure Act, 5 U.S.C. 553(b).\105\ The

requirements related to the proposed amendments fall mainly on

registered entities, exchanges, FCMs, swap dealers, clearing members,

foreign brokers, and large traders. The Commission has previously

determined that registered DCMs, FCMs, swap dealers, major swap

participants, eligible contract participants, SEFs, clearing members,

foreign brokers and large traders are not small entities for purposes

of the RFA.\106\ While the

[[Page 58377]]

requirements under the proposed rulemaking may impact non-financial end

users, the Commission notes that position limits levels apply only to

large traders. Accordingly, the Chairman, on behalf of the Commission,

hereby certifies, on behalf of the Commission, pursuant to 5 U.S.C.

605(b), that the actions proposed to be taken herein would not have a

significant economic impact on a substantial number of small entities.

The Chairman made the same certification in the 2013 Aggregation

Proposal,\107\ and the Commission did not receive any comments on the

RFA.

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\104\ 44 U.S.C. 601 et seq.

\105\ 5 U.S.C. 601(2), 603-05.

\106\ See Policy Statement and Establishment of Definitions of

``Small Entities'' for Purposes of the Regulatory Flexibility Act,

47 FR 18618, 18619, Apr. 30, 1982 (DCMs, FCMs, and large traders)

(``RFA Small Entities Definitions''); Opting Out of Segregation, 66

FR 20740, 20743, Apr. 25, 2001 (eligible contract participants);

Position Limits for Futures and Swaps; Final Rule and Interim Final

Rule, 76 FR 71626, 71680, Nov. 18, 2011 (clearing members); Core

Principles and Other Requirements for Swap Execution Facilities, 78

FR 33476, 33548, June 4, 2013 (SEFs); A New Regulatory Framework for

Clearing Organizations, 66 FR 45604, 45609, Aug. 29, 2001 (DCOs);

Registration of Swap Dealers and Major Swap Participants, 77 FR

2613, Jan. 19, 2012, (swap dealers and major swap participants); and

Special Calls, 72 FR 50209, Aug. 31, 2007 (foreign brokers).

\107\ See 78 FR 68973.

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C. Paperwork Reduction Act

1. Overview

The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501 et seq.,

imposes certain requirements on Federal agencies in connection with

their conducting or sponsoring any collection of information as defined

by the PRA. An agency may not conduct or sponsor, and a person is not

required to respond to, a collection of information unless it displays

a currently valid control number issued by the Office of Management and

Budget (``OMB''). Certain provisions of the proposed rules would result

in amendments to previously-approved collection of information

requirements within the meaning of the PRA. Therefore, the Commission

is submitting to OMB for review in accordance with 44 U.S.C. 3507(d)

and 5 CFR 1320.11 the information collection requirements proposed in

this rulemaking proposal as an amendment to the previously-approved

collection associated with OMB control number 3038-0013.

If adopted, responses to this collection of information would be

mandatory. The Commission will protect proprietary information

according to the Freedom of Information Act and 17 CFR part 145, titled

``Commission Records and Information.'' In addition, the Commission

emphasizes that section 8(a)(1) of the Act strictly prohibits the

Commission, unless specifically authorized by the Act, from making

public ``data and information that would separately disclose the

business transactions or market positions of any person and trade

secrets or names of customers.'' The Commission also is required to

protect certain information contained in a government system of records

pursuant to the Privacy Act of 1974.

On November 15, 2013, the Commission published in the Federal

Register a notice of proposed modifications to part 150 of the

Commission's regulations (i.e., the 2013 Aggregation Proposal). The

modifications addressed the policy for aggregation under the

Commission's position limits regime for futures and option contracts on

nine agricultural commodities set forth in part 150, and noted that the

modifications would also apply to the position limits regimes for 28

exempt and agricultural commodity futures and options contracts and the

physical commodity swaps that are economically equivalent to such

contracts, if such regimes are finalized. The Commission is now

proposing a revision to its 2013 Aggregation Proposal.

Specifically, the Commission is now proposing that all persons

holding a greater than 10 percent ownership or equity interest in

another entity could avail themselves of an exemption in proposed rule

Sec. 150.4(b)(2) to disaggregate the positions of the owned entity. To

claim the exemption, a person would need to meet certain criteria and

file a notice with the Commission in accordance with proposed rule

Sec. 150.4(c). The notice filing would need to demonstrate compliance

with certain conditions set forth in proposed rule Sec.

150.4(b)(2)(i)(A) through (E). Similar to other exemptions from

aggregation, the notice filing would be effective upon submission to

the Commission, but the Commission may call for additional information

as well as reject, modify or otherwise condition such relief. Further,

such person is obligated to amend the notice filing in the event of a

material change to the filing. The Commission now proposes to delete

rule Sec. 150.4(b)(3) from its proposal. This rule would have

established a similar but separate owned-entity exemption with more

intensive qualifications for exemption.

2. Methodology and Assumptions

It is not possible at this time to precisely determine the number

of respondents affected by the proposed revision to the 2013

Aggregation Proposal. The proposed revision relates to exemptions that

a market participant may elect to take advantage of, meaning that

without intimate knowledge of the day-to-day business decisions of all

its market participants, the Commission could not know which

participants, or how many, may elect to obtain such an exemption.

Further, the Commission is unsure of how many participants not

currently in the market may be required to or may elect to incur the

estimated burdens in the future.

These limitations notwithstanding, the Commission has made best-

effort estimations regarding the likely number of affected entities for

the purposes of calculating burdens under the PRA. The Commission used

its proprietary data, collected from market participants, to estimate

the number of respondents for each of the proposed obligations subject

to the PRA by estimating the number of respondents who may be close to

a position limit and thus may file for relief from aggregation

requirements.

The Commission's estimates concerning wage rates are based on 2011

salary information for the securities industry compiled by the

Securities Industry and Financial Markets Association (``SIFMA''). The

Commission is using a figure of $120 per hour, which is derived from a

weighted average of salaries across different professions from the

SIFMA Report on Management & Professional Earnings in the Securities

Industry 2011, modified to account for an 1800-hour work-year, adjusted

to account for the average rate of inflation in 2012. This figure was

then multiplied by 1.33 to account for benefits \108\ and further by

1.5 to account for overhead and administrative expenses.\109\ The

Commission anticipates that compliance with the provisions would

require the work of an information technology professional; a

compliance manager; an accounting professional; and an associate

general counsel. Thus, the wage rate is a weighted national average of

salary for professionals with the following titles (and their relative

weight); ``programmer (average of senior and non-senior)'' (15%

weight), ``senior accountant'' (15%) ``compliance manager'' (30%), and

``assistant/associate general counsel'' (40%). All

[[Page 58378]]

monetary estimates have been rounded to the nearest hundred dollars.

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\108\ The Bureau of Labor Statistics reports that an average of

32.8% of all compensation in the financial services industry is

related to benefits. This figure may be obtained on the Bureau of

Labor Statistics Web site, at http://www.bls.gov/news.release/ecec.t06.htm. The Commission rounded this number to 33% to use in

its calculations.

\109\ Other estimates of this figure have varied dramatically

depending on the categorization of the expense and the type of

industry classification used (see, e.g., BizStats at http://www.bizstats.com/corporation-industry-financials/finance-insurance-52/securities-commodity-contracts-other-financial-investments-523/commodity-contracts-dealing-and-brokerage-523135/show and Damodaran

Online at http://pages.stern.nyu.edu/~adamodar/pc/datasets/

uValuedata.xls. The Commission has chosen to use a figure of 50% for

overhead and administrative expenses to attempt to conservatively

estimate the average for the industry.

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The Commission welcomes comment on its assumptions and estimates.

3. Collections of Information

Proposed rule Sec. 150.4(b)(2) would require qualified persons to

file a notice in order to claim exemptive relief from aggregation.

Further, proposed rule Sec. 150.4(b)(2)(ii) states that the notice is

to be filed in accordance with proposed rule Sec. 150.4(c), which

requires a description of the relevant circumstances that warrant

disaggregation and a statement that certifies that the conditions set

forth in the exemptive provision have been met. Previously proposed

rule Sec. 150.4(b)(3) (which the Commission is now deleting from the

proposal) would have specified that qualified persons may request an

exemption from aggregation in accordance with proposed rule Sec.

150.4(c). Such a request would be required to include a description of

the relevant circumstances that warrant disaggregation and a statement

certifying the conditions have been met. Persons claiming these

exemptions would be required to submit to the Commission, as requested,

such information as relates to the claim for exemption. An updated or

amended notice must be filed with the Commission upon any material

change.

In the 2013 Aggregation Proposal, the Commission estimated that 100

entities will each file two notices annually under proposed rule Sec.

150.4(b)(2), at an average of 20 hours per filing. Thus, the Commission

approximates a total per entity burden of 40 labor hours annually. At

an estimated labor cost of $120, the Commission estimates a cost of

approximately $4,800 per entity for filings under proposed rule Sec.

150.4(b)(2).

The Commission also estimated that 25 entities would each file one

notice annually under proposed rule Sec. 150.4(b)(3), at an average of

30 hours per filing. Thus, the Commission approximates a total per

entity burden of 30 labor hours annually. At an estimated labor cost of

$120, the Commission estimates a cost of approximately $3,600 per

entity for filings under proposed rule Sec. 150.4(b)(3).

For this proposed revision to the 2013 Aggregation Proposal, the

Commission estimates that the 25 entities that would have filed one

notice annually under proposed rule Sec. 150.4(b)(3) will instead file

those notices under proposed rule Sec. 150.4(b)(2). The burden for

each such filing would be reduced by 10 hours (i.e., 30 hours minus 20

hours) and $1,200 (i.e., 10 hours times $120 per hour).

Thus, while the Commission estimates that the effect of this

proposed revision will not change the number of entities making filings

or the number of responses in order to claim exemptive relief under

proposed rule 150.4 (so the estimate in the 2013 Aggregation Proposal

that 240 entities will submit a total of 340 responses per year will

remain the same),\110\ the total burden will be reduced to 6,850 labor

hours (from 7,100 labor hours) at a cost of approximately $822,000

(instead of $852,000) annually.

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\110\ In the 2013 Aggregation Proposal, the Commission estimated

that 75 entities would each file one notice annually under proposed

rule Sec. 150.4(b)(5) at an average of 10 labor hours and cost of

approximately $1,200 per filing, and that 40 entities would each

file one notice annually under proposed rule Sec. 150.4(b)(8) at an

average of 40 labor hours and cost of approximately $4,800 per

filing. These estimates remain unchanged.

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4. Information Collection Comments

The Commission invites the public and other federal agencies to

comment on any aspect of the reporting and recordkeeping burdens

discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission

solicits comments in order to: (1) Evaluate whether the proposed

collections of information are necessary for the proper performance of

the functions of the Commission, including whether the information will

have practical utility; (2) evaluate the accuracy of the Commission's

estimate of the burden of the proposed collections of information; (3)

determine whether there are ways to enhance the quality, utility, and

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

of the collections of information on those who are to respond,

including through the use of automated collection techniques or other

forms of information technology.

Comments may be submitted directly to the Office of Information and

Regulatory Affairs, by fax at (202) 395-6566 or by email at [email protected] Please provide the Commission with a copy of

comments submitted so that all comments can be summarized and addressed

in the final regulation preamble. Refer to the ADDRESSES section of

this document for comment submission instructions to the Commission. A

copy of the supporting statements for the collection of information

discussed above may be obtained by visiting RegInfo.gov. OMB is

required to make a decision concerning the collection of information

between 30 and 60 days after publication of this release. Consequently,

a comment to OMB is most assured of being fully considered if received

by OMB (and the Commission) within 30 days after the publication of

this notice of proposed rulemaking.

Finally, it should be noted that the following proposed amendments

to part 150 may require conforming technical changes if the Commission

also adopts any proposed amendments to its regulations regarding

position limits.\111\

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\111\ See Position Limits for Derivatives, 78 FR 75680 (December

12, 2013).

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List of Subjects in 17 CFR Part 150

Bona fide hedging, Position limits, Referenced contracts.

For the reasons discussed in the preamble, the Commodity Futures

Trading Commission proposes to amend 17 CFR part 150 as follows:

PART 150--LIMITS ON POSITIONS

0

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 Title VII

of the Dodd-Frank Wall Street Reform and Consumer Protection Act,

Pub. L. 111-203, 124 Stat. 1376 (2010).

0

2. Revise paragraphs (d) and (e)(2) and (5) of Sec. 150.1 to read as

follows:

Sec. 150.1 Definitions.

* * * * *

(d) Eligible entity means a commodity pool operator; the operator

of a trading vehicle which is excluded, or which itself has qualified

for exclusion from the definition of the term ``pool'' or ``commodity

pool operator,'' respectively, under Sec. 4.5 of this chapter; the

limited partner, limited member or shareholder in a commodity pool the

operator of which is exempt from registration under Sec. 4.13 of this

chapter; a commodity trading advisor; a bank or trust company; a

savings association; an insurance company; or the separately organized

affiliates of any of the above entities:

(1) Which authorizes an independent account controller

independently to control all trading decisions with respect to the

eligible entity's client positions and accounts that the independent

account controller holds directly or indirectly, or on the eligible

entity's behalf, but without the eligible entity's day-to-day

direction; and

(2) Which maintains:

(i) Only such minimum control over the independent account

controller as is consistent with its fiduciary responsibilities to the

managed positions and accounts, and necessary

[[Page 58379]]

to fulfill its duty to supervise diligently the trading done on its

behalf; or

(ii) If a limited partner, limited member or shareholder of a

commodity pool the operator of which is exempt from registration under

Sec. 4.13 of this chapter, only such limited control as is consistent

with its status.

(e) * * *

(2) Over whose trading the eligible entity maintains only such

minimum control as is consistent with its fiduciary responsibilities to

the managed positions and accounts to fulfill its duty to supervise

diligently the trading done on its behalf or as consistent with such

other legal rights or obligations which may be incumbent upon the

eligible entity to fulfill;

* * * * *

(5) Who is:

(i) Registered as a futures commission merchant, an introducing

broker, a commodity trading advisor, or an associated person of any

such registrant, or

(ii) A general partner, managing member or manager of a commodity

pool the operator of which is excluded from registration under Sec.

4.5(a)(4) of this chapter or Sec. 4.13 of this chapter, provided that

such general partner, managing member or manager complies with the

requirements of Sec. 150.4(c).

* * * * *

Sec. 150.3 [Amended]

0

3. Amend Sec. 150.3 as follows:

0

a. Remove the semicolon and the word ``or'' at the end of paragraph

(a)(3);

0

b. Add a period at the end of paragraph (a)(3); and

0

c. Remove paragraph (a)(4).

0

4. Revise Sec. 150.4 to read as follows:

Sec. 150.4 Aggregation of positions.

(a) Positions to be aggregated--(1) Trading control or 10 percent

or greater ownership or equity interest. For the purpose of applying

the position limits set forth in Sec. 150.2, unless an exemption set

forth in paragraph (b) of this section applies, all positions in

accounts for which any person, by power of attorney or otherwise,

directly or indirectly controls trading or holds a 10 percent or

greater ownership or equity interest must be aggregated with the

positions held and trading done by such person. For the purpose of

determining the positions in accounts for which any person controls

trading or holds a 10 percent or greater ownership or equity interest,

positions or ownership or equity interests held by, and trading done or

controlled by, two or more persons acting pursuant to an expressed or

implied agreement or understanding shall be treated the same as if the

positions or ownership or equity interests were held by, or the trading

were done or controlled by, a single person.

(2) Substantially identical trading. Notwithstanding the provisions

of paragraph (b) of this section, for the purpose of applying the

position limits set forth in Sec. 150.2, any person that, by power of

attorney or otherwise, holds or controls the trading of positions in

more than one account or pool with substantially identical trading

strategies, must aggregate all such positions.

(b) Exemptions from aggregation. For the purpose of applying the

position limits set forth in Sec. 150.2, and notwithstanding the

provisions of paragraph (a)(1) of this section, but subject to the

provisions of paragraph (a)(2) of this section, the aggregation

requirements of this section shall not apply in the circumstances set

forth in this paragraph.

(1) Exemption for ownership by limited partners, shareholders or

other pool participants. Any person that is a limited partner, limited

member, shareholder or other similar type of pool participant holding

positions in which the person by power of attorney or otherwise

directly or indirectly has a 10 percent or greater ownership or equity

interest in a pooled account or positions need not aggregate the

accounts or positions of the pool with any other accounts or positions

such person is required to aggregate, except that such person must

aggregate the pooled account or positions with all other accounts or

positions owned or controlled by such person if such person:

(i) Is the commodity pool operator of the pooled account;

(ii) Is a principal or affiliate of the operator of the pooled

account, unless:

(A) The pool operator has, and enforces, written procedures to

preclude the person from having knowledge of, gaining access to, or

receiving data about the trading or positions of the pool;

(B) The person does not have direct, day-to-day supervisory

authority or control over the pool's trading decisions;

(C) The person, if a principal of the operator of the pooled

account, maintains only such minimum control over the commodity pool

operator as is consistent with its responsibilities as a principal and

necessary to fulfill its duty to supervise the trading activities of

the commodity pool; and

(D) The pool operator has complied with the requirements of

paragraph (c) of this section on behalf of the person or class of

persons; or

(iii) Has, by power of attorney or otherwise directly or

indirectly, a 25 percent or greater ownership or equity interest in a

commodity pool, the operator of which is exempt from registration under

Sec. 4.13 of this chapter.

(2) Exemption for certain ownership of greater than 10 percent in

an owned entity. Any person with an ownership or equity interest in an

owned entity of 10 percent or greater (other than an interest in a

pooled account subject to paragraph (b)(1) of this section), need not

aggregate the accounts or positions of the owned entity with any other

accounts or positions such person is required to aggregate, provided

that:

(i) Such person, including any entity that such person must

aggregate, and the owned entity:

(A) Do not have knowledge of the trading decisions of the other;

(B) Trade pursuant to separately developed and independent trading

systems;

(C) Have and enforce written procedures to preclude each from

having knowledge of, gaining access to, or receiving data about, trades

of the other. Such procedures must include document routing and other

procedures or security arrangements, including separate physical

locations, which would maintain the independence of their activities;

(D) Do not share employees that control the trading decisions of

either; and

(E) Do not have risk management systems that permit the sharing of

trades or trading strategy; and

(ii) Such person complies with the requirements of paragraph (c) of

this section.

(3) [Reserved]

(4) Exemption for accounts held by futures commission merchants. A

futures commission merchant or any affiliate of a futures commission

merchant need not aggregate positions it holds in a discretionary

account, or in an account which is part of, or participates in, or

receives trading advice from a customer trading program of a futures

commission merchant or any of the officers, partners, or employees of

such futures commission merchant or of its affiliates, if:

(i) A person other than the futures commission merchant or the

affiliate directs trading in such an account;

(ii) The futures commission merchant or the affiliate maintains

only such minimum control over the trading in such an account as is

necessary to fulfill its duty to supervise diligently trading in the

account;

(iii) Each trading decision of the discretionary account or the

customer

[[Page 58380]]

trading program is determined independently of all trading decisions in

other accounts which the futures commission merchant or the affiliate

holds, has a financial interest of 10 percent or more in, or controls;

and

(iv) The futures commission merchant or the affiliate has complied

with the requirements of paragraph (c) of this section.

(5) Exemption for accounts carried by an independent account

controller. An eligible entity need not aggregate its positions with

the eligible entity's client positions or accounts carried by an

authorized independent account controller, as defined in Sec.

150.1(e), except for the spot month in physical-delivery commodity

contracts, provided that the eligible entity has complied with the

requirements of paragraph (c) of this section, and that the overall

positions held or controlled by such independent account controller may

not exceed the limits specified in Sec. 150.2.

(i) Additional requirements for exemption of affiliated entities.

If the independent account controller is affiliated with the eligible

entity or another independent account controller, each of the

affiliated entities must:

(A) Have, and enforce, written procedures to preclude the

affiliated entities from having knowledge of, gaining access to, or

receiving data about, trades of the other. Such procedures must include

document routing and other procedures or security arrangements,

including separate physical locations, which would maintain the

independence of their activities; provided, however, that such

procedures may provide for the disclosure of information which is

reasonably necessary for an eligible entity to maintain the level of

control consistent with its fiduciary responsibilities to the managed

positions and accounts and necessary to fulfill its duty to supervise

diligently the trading done on its behalf;

(B) Trade such accounts pursuant to separately developed and

independent trading systems;

(C) Market such trading systems separately; and

(D) Solicit funds for such trading by separate disclosure documents

that meet the standards of Sec. 4.24 or Sec. 4.34 of this chapter, as

applicable, where such disclosure documents are required under part 4

of this chapter.

(ii) [Reserved]

(6) Exemption for underwriting. A person need not aggregate the

positions or accounts of an owned entity if the ownership or equity

interest is based on the ownership of securities constituting the whole

or a part of an unsold allotment to or subscription by such person as a

participant in the distribution of such securities by the issuer or by

or through an underwriter.

(7) Exemption for broker-dealer activity. A broker-dealer

registered with the Securities and Exchange Commission, or similarly

registered with a foreign regulatory authority, need not aggregate the

positions or accounts of an owned entity if the ownership or equity

interest is based on the ownership of securities acquired in the normal

course of business as a dealer, provided that such person does not have

actual knowledge of the trading decisions of the owned entity.

(8) Exemption for information sharing restriction. A person need

not aggregate the positions or accounts of an owned entity if the

sharing of information associated with such aggregation (such as, only

by way of example, information reflecting the transactions and

positions of a such person and the owned entity) creates a reasonable

risk that either person could violate state or federal law or the law

of a foreign jurisdiction, or regulations adopted thereunder, provided

that such person does not have actual knowledge of information

associated with such aggregation, and provided further that such person

has filed a prior notice pursuant to paragraph (c) of this section and

included with such notice a written memorandum of law explaining in

detail the basis for the conclusion that the sharing of information

creates a reasonable risk that either person could violate state or

federal law or the law of a foreign jurisdiction, or regulations

adopted thereunder. However, the exemption in this paragraph shall not

apply where the law or regulation serves as a means to evade the

aggregation of accounts or positions. All documents submitted pursuant

to this paragraph shall be in English, or if not, accompanied by an

official English translation.

(9) Exemption for higher-tier entities. If an owned entity has

filed a notice under paragraph (c) of this section, any person with an

ownership or equity interest of 10 percent or greater in the owned

entity need not file a separate notice identifying the same positions

and accounts previously identified in the notice filing of the owned

entity, provided that:

(i) Such person complies with the conditions applicable to the

exemption specified in the owned entity's notice filing, other than the

filing requirements; and

(ii) Such person does not otherwise control trading of the accounts

or positions identified in the owned entity's notice.

(iii) Upon call by the Commission, any person relying on the

exemption paragraph (b)(9) of this section shall provide to the

Commission such information concerning the person's claim for

exemption. Upon notice and opportunity for the affected person to

respond, the Commission may amend, suspend, terminate, or otherwise

modify a person's aggregation exemption for failure to comply with the

provisions of this section.

(c) Notice filing for exemption. (1) Persons seeking an aggregation

exemption under paragraph (b)(1)(ii), (b)(2), (b)(4), (b)(5), or (b)(8)

of this section shall file a notice with the Commission, which shall be

effective upon submission of the notice, and shall include:

(i) A description of the relevant circumstances that warrant

disaggregation; and

(ii) A statement of a senior officer of the entity certifying that

the conditions set forth in the applicable aggregation exemption

provision have been met.

(2) [Reserved]

(3) Upon call by the Commission, any person claiming an aggregation

exemption under this section shall provide such information

demonstrating that the person meets the requirements of the exemption,

as is requested by the Commission. Upon notice and opportunity for the

affected person to respond, the Commission may amend, suspend,

terminate, or otherwise modify a person's aggregation exemption for

failure to comply with the provisions of this section.

(4) In the event of a material change to the information provided

in any notice filed under paragraph (c) of this section, an updated or

amended notice shall promptly be filed detailing the material change.

(5) Any notice filed under paragraph (c) of this section shall be

submitted in the form and manner provided for in paragraph (d) of this

section.

(d) Form and manner of reporting and submitting information or

filings. Unless otherwise instructed by the Commission or its

designees, any person submitting reports under this section shall

submit the corresponding required filings and any other information

required under this part to the Commission using the format, coding

structure, and electronic data transmission procedures approved in

writing by the Commission. Unless otherwise provided in this section,

the notice shall be effective upon filing. When the reporting entity

discovers errors or omissions to past reports, the entity shall so

notify the Commission

[[Page 58381]]

and file corrected information in a form and manner and at a time as

may be instructed by the Commission or its designee.

(e) Delegation of authority to the Director of the Division of

Market Oversight. (1) The Commission hereby delegates, until it orders

otherwise, to the Director of the Division of Market Oversight or such

other employee or employees as the Director may designate from time to

time, the authority:

(i) [Reserved]

(ii) In paragraph (b)(9)(iii) of this section to call for

additional information from a person claiming the exemption in

paragraph (b)(9)(i) of this section.

(iii) In paragraph (d) of this section for providing instructions

or determining the format, coding structure, and electronic data

transmission procedures for submitting data records and any other

information required under this part.

(2) The Director of the Division of Market Oversight may submit to

the Commission for its consideration any matter which has been

delegated in this section.

(3) Nothing in this section prohibits the Commission, at its

election, from exercising the authority delegated in this section.

Issued in Washington, DC, on September 23, 2015, by the

Commission.

Christopher J. Kirkpatrick,

Secretary of the Commission.

Note: The following appendices will not appear in the Code of

Federal Regulations.

Appendices to Aggregation of Positions Supplemental Notice of Proposed

Rulemaking--Commission Voting Summary, Chairman's Statement, and

Commissioner's Statement

Appendix 1--Commission Voting Summary

On this matter, Chairman Massad and Commissioners Bowen and

Giancarlo voted in the affirmative. No Commissioner voted in the

negative.

Appendix 2--Statement of Chairman Timothy G. Massad

As part of the Dodd-Frank Wall Street Reform and Consumer

Protection Act, Congress mandated that the CFTC adopt limits to

address the risk of excessive speculation in physical commodity

derivative contracts. In 2013, the Commission proposed these rules

on ``position limits.'' These proposed rules included guidelines to

determine which accounts and positions a person with an ownership

interest must aggregate to determine compliance. In addition, the

Commission separately proposed an exemption process from this

``aggregation'' requirement.

Today, we are proposing a simplification of that exemption

process. Instead of requiring a participant that has a 50 percent or

more interest in an entity to apply for and obtain prior approval

from the Commission, our proposal would rely on a notice filing. If

that participant files a notice attesting to the Commission that it

has no control over the trading of that entity, and that firewalls

are in place to prevent access to information, then it need not wait

for the CFTC's review and approval. This notice filing process is

similar to what the Commission uses in many other areas.

This should create a more practical, efficient rule. It is

important to note that the proposed change does not alter the

standard of when aggregation is required. Moreover, the Commission

retains its authority to call for additional information and modify

or terminate an exemption for failure to comply with the standard.

Today's proposed modification is part of our ongoing

consideration of the substantial public input the Commission

received on its 2013 position limits proposal. As we continue to

consider that input and work on a final rule, I want to underscore

that the Commission appreciates the importance and complexity of

these issues, and we intend to take the time necessary to get it

right. We hope to have more to say about issues related to position

limits in the coming months.

Appendix 3--Statement of Commissioner J. Christopher Giancarlo

I support these proposed changes to the aggregation rules

because I believe they make the position limits regime more

workable. However, this is just the first of many steps needed to

make the CFTC's approach to position limits less harmful to the risk

management activities of American farmers, energy producers,

manufacturers, risk-hedgers and trading institutions that do

business around the globe. We must avoid at all costs adopting

flawed government regulations that prevent our markets from

operating effectively at a time of plunging commodity prices.\1\

That means not displacing the everyday commercial judgement of

farmers and businesses with a small set of allowable hedging options

pre-selected by a Washington Commission with limited experience in

commercial risk management.

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\1\ See Ira Iosebashvili and Tatyana Shumsky, Investors Flee

Commodities, The Wall Street Journal, Jul. 20, 2015, available at

http://www.wsj.com/articles/investors-flee-commodities-1437434367;

See also Veronica Brown and Pratima Desai, Speculators Show Global

Commodities Rout Still Has Legs, Reuters, Jul. 27, 2015, available

at http://www.reuters.com/article/2015/07/27/us-markets-commodities-rout-idUSKCN0Q11TJ20150727.

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As I recently stated,\2\ the CFTC must change the proposed

requirement that a market participant aggregate trading positions

across subsidiaries over which it has no control or in which it may

only be invested on a short-term basis. The proposal from 2013

essentially requires a market participant to apply for permission

from the CFTC before it can disaggregate a position if the

participant owns more than fifty percent of an entity, even if it

has zero control or influence over that entity. This approach does

not reflect the realities of modern commerce in which global trading

firms may often have many unconnected subsidiaries that neither

communicate nor share trading strategies or market position

information.

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\2\ See Keynote Address by Commissioner J. Christopher

Giancarlo, 7th Annual Capital Link Global Commodities, Energy &

Shipping Forum, Sept. 16, 2015, available at http://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-8.

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I commend the CFTC staff for taking into account public comments

and putting forward a revised rule proposal that better recognizes

the varied corporate structures of contemporary market participants.

I am hopeful that today's proposal will serve as the basis for a

workable solution to the flawed approach to aggregation in the

previous proposal.

In addition, today's proposal would relieve the Commission of

the obligation to conduct a detailed, individualized inquiry into

the relationships of the owned entities of a majority-owner

applicant that seeks to disaggregate its trading positions across a

global corporate enterprise. I agree with commenters that

characterized the 2013 process as unworkable and a burden on

already-limited Commission resources.

Furthermore, this proposed reform appears considerably more

attentive to liquidity concerns than the 2013 proposal. By

permitting majority owners that lack trading control to file a

disaggregation notice with immediate effect rather than navigating a

case-by-case Commission approval process, the 2015 framework

significantly reduces barriers to disaggregation, thereby possibly

increasing market participation.

One area discussed at length in the current proposal is the

issue of control of a corporate entity. Specifically, I invite

public comment on whether there should be a removal of the

presumption of control of an entity for all minority ownership

interests. This would allow the exclusion now available to minority

owners with a stake below ten percent, while retaining the

presumption for interests exceeding fifty percent.

In addition, I am concerned that, by requiring an owner to

aggregate an owned entity's positions when its affiliates have risk-

management systems that permit the sharing of trades or trading

strategy, the proposed rule may stymie critical risk-mitigation

efforts. Owners and their affiliates may need to share information

regarding trades or trading strategy to verify compliance with

applicable credit limits as well as restrictions and collateral

requirements for inter-affiliate transactions, among other risk-

management and compliance-related objectives.\3\

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\3\ Letter from Walt Lukken, President and Chief Executive

Officer, Futures Industry Association, to Melissa Jurgens,

Secretary, CFTC (Feb. 6, 2014), at 8-9, available at https://secure.fia.org/downloads/Aggregation_Comment_Letter_020614.pdf.

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Accordingly, I invite public comment on whether the Commission

should consider modifying the current proposal to clarify that

owners and their affiliates may share such trading information as is

necessary for effective risk safeguards without forfeiting

[[Page 58382]]

eligibility for disaggregation. If the Commission remains concerned

that this accommodation will facilitate coordinated trading, it

might require affiliates sharing trading data to restrict

dissemination of the information to those responsible for compliance

and risk-management efforts, maintaining internal firewalls to

conceal the information from employees who develop or execute

trading strategies.

I also welcome public comment on whether the Commission should

consider modifying the proposed rule to clarify that an owner filing

a notice of trading independence in order to claim an exemption from

aggregation under this rule need only make subsequent filings in the

event of a material change in the owner's degree of control over its

subsidiary's positions. The text of the proposed rule does not

appear to require periodic filings following the initial notice of

trading independence, but the Commission's calculation of the

proposal's costs seems to assume that such filings will be made on

an annual basis.

I encourage the public to comment on my above concerns and

propose potential solutions if appropriate.

[FR Doc. 2015-24596 Filed 9-28-15; 8:45 am]

BILLING CODE 6351-01-P

 

Last Updated: September 29, 2015