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CFTC Moves Forward on New Position Limits Rule Aimed at Speculators

The Commodity Futures Trading Commission (CFTC) on Thursday voted to issue for public comment a supplement to its December 2013 position limits proposal aimed at limiting speculative trading in the swaps markets.

CFTC unanimously approved a motion to move forward with the supplement, which would modify procedures proposed for persons seeking exemptions from speculative position limits for non-enumerated bona fide hedging. The proposal would also define procedures for recognition of certain anticipatory bona fide hedge positions.

"The supplemental rule we have unanimously proposed today would ensure that commercial end-users can continue to engage in bona fide hedging efficiently for risk management and price discovery," said CFTC Chairman Timothy Massad. "It would permit the exchanges to recognize certain positions as bona fide hedges, subject to CFTC oversight.

"For years, exchanges have worked with the CFTC's general definition of a 'bona fide hedging position' to grant these exemptions to exchange-set limits. Under this supplemental proposal, they would do so for federal limits, subject to strict oversight by the CFTC."

In 2013, after withdrawing its appeal of a federal court decision that tossed a controversial final rule aimed at limiting speculative trading in the swaps markets, CFTC voted to propose new rules in place of the discarded position limits rule (see Daily GPINov. 5, 2013). The proposed rule would implement section 737 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, clamping down on speculation in 28 selected physical commodity futures and swaps, including four energy contracts: Nymex Henry Hub Natural Gas, Nymex Light Sweet Crude Oil, Nymex New York Harbor Gasoline Blendstock and New York Harbor Heating Oil.

The supplement would provide a new process for exchanges to recognize certain positions in commodity derivative contracts as non-enumerated bona fide hedges or enumerated anticipatory bona fide hedges, as well as to exempt from federal position limits certain spread positions, in each case subject to CFTC review. The proposal also includes corresponding changes to certain regulations proposed in 2013 regarding exemptions from position limits and exchange-set position limits to take into account this new process.

In connection with the changes, CFTC has proposed to further amend certain relevant definitions, including to clearly define the general definition of "bona fide hedging position" for physical commodities under the standards in Commodity Exchange Act section 4a(c). Separately, CFTC proposed to delay a requirement to establish and monitor position limits on swaps for designated market contacts and swap execution facilities that lack access to sufficient swap position information.

The supplemental notice of proposed rulemaking will be open for public comment for 30 days after publication in the Federal Register.

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