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CFTC Eases Position Limit Rules on Aggregating Accounts

The Commodity Futures Trading Commission (CFTC) has proposed a supplement to a 2013 proposed rulemaking designed to clamp down on speculation in physical commodity futures and swaps, including oil and natural gas transactions.

CFTC approved a proposal related to aggregating accounts under the position limits rule almost two years ago (see Daily GPINov. 5, 2013). A second, related proposal adopted the same day 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. Among the 28 are 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. Among other things, the proposed rule calls for limits on speculative positions in commodity contracts and their "economically equivalent" futures, options and swaps, and it would establish speculative limits on referenced contracts effective 60 days after publication of a final rule.

The supplement, approved for public comment by the CFTC in a unanimous via seriatim vote Tuesday, revises how CFTC proposes to address situations when aggregation is required on the basis of ownership of a greater than 50% interest in another entity.

"Under the November 2013 aggregation proposal, owners of a greater than 50% interest would have to provide specified information and certifications in an application to the Commission, and wait for the Commission's approval before disaggregating the owned entity's positions," CFTC said.

"Under the supplement approved [Tuesday], owners of a greater than 50% interest would follow the same procedure that would apply for owners of an interest between 10% and 50%, and be able to disaggregate the owned entity's positions upon filing a notice with the Commission stating that specified standards have been met."

The proposal would allow participants with 50% or more interest in entities to file notices instead of going through the process of obtaining prior CFTC approval, according to Chairman Timothy Massad, a process the Commission uses in other areas.

"This should create a more practical, efficient rule," Massad said. "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."

Commissioner J. Christophe Giancarlo said he supports the proposed changes to the aggregation rules because they would make the position limits regime more workable, but he believes the proposals are "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. That means not displacing the everyday commercial judgment 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."

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, Giancarlo said.

 "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," he said.

The supplemental notice of proposed rulemaking will be open for public comment for 45 days after publication in the Federal Register. CFTC continues to consider the November 2013 proposal and the comments on it submitted during earlier comment periods.

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