The Commodity Futures Trading Commission (CFTC) is mulling over a so-called "position visibility regime" that could cost large energy and metals traders millions of additional dollars each year.

In addition to setting position limits, the agency is seeking to implement position visibility limits in an attempt to make the physical and derivatives portfolios of the largest traders of metals and energy, including oil and natural gas, visible to the CFTC.

If a trader would hold or control positions in the referenced contracts that exceed visibility limits specified by the CFTC, the trader would be required to submit additional information regarding its cash market and derivatives activity to the Commission, according to the Washington, DC-based Covington & Burlington law firm.

The CFTC estimates that its visibility level-related regulations would affect approximately 140 entities annually, resulting in $27.3 million in annual capital and start-up costs, and $2.4 million in annual labor costs.

"This measure will build on [the CFTC's] existing mechanisms to monitor the exchanges," said George Fatula, an associate with the law firm of Bracewell & Giuliana. "It's not a new rule; it's not giving any new powers to staff."

The CFTC's notice of proposed rulemaking on position limits and position visibility limits is expected to be published in the Federal Register Wednesday (see Daily GPI, Jan. 14). The Commission first proposed the position visibility reporting regime in December, but the details have just been released.

The CFTC's proposal establishes position limits in two phases for 28 core physical delivery contracts and their economically equivalent swaps. Specifically it would limit the amount of positions in futures and options contracts and economically equivalent swaps, other than bona fide hedge positions, that may be held by any entity in one of the 28 covered commodities, including crude oil, natural gas, heating oil and gasoline.

The proposal would set spot or front-month position limits at 25% of deliverable supply for a commodity, with a conditional spot-month limit of five times that amount for entities with positions exclusively in cash-settled contracts.

Nonspot month position limits (aggregate single-month and all-months-combined limits that would apply across classes, as well as single-month and all-months-combined position limits separately for futures and swaps) would be set for each referenced contract at 10% of open interest in that contract up to the first 25,000 contracts, and 2.5% thereafter.

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