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CFTC Proposes Combining Trades Under Position Limits Rule

Responding to pleas from commercial energy companies, the Commodity Futures Trading Commission (CFTC) Friday proposed to loosen restrictions on the aggregation of speculative trades under its position limits rule. Under the rule as initially stated companies would have to aggregate with its own all the trades of any entities in which it had more than a 10% interest.

Under its proposed modification Friday, the CFTC said companies would not have include in its aggregation the trades made by a company in which it held more than a 10% interest but less than 50%, provided there are protections and firewalls in place to ensure trading decisions are made independently of one another. The agency said it was responding to pleas from the Working Group of Commercial Energy Firms.

That group had said that to collect the information across many entities with only a peripheral relationship would impose a heavy burden, particularly on smaller commercial traders without sophisticated administrative systems. Also, the group claimed in most cases there were no combined trading operations or strategy with the peripheral groups, and, in fact, they had no idea what trading those other firms were doing.

Specifically, Friday's proposed rulemaking proposes that aggregation would always be required if one entity owns greater than 50% of another entity. It states where the ownership is less than 50% in order to be permitted to disaggregate:

Friday's proposed modification also:

In addition, it allows commodity pools structured as limited liability companies to rely on the exemption from aggregation for Independent Account Controllers.

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