CFTC Tweaks Aggregation Rules
The Commodity Futures Trading Commission is moving forward cautiously on position limits, one of the most difficult and controversial pieces of Dodd-Frank.
Under former CFTC Chairman Gary Gensler, the agency attempted to implement a new federal regime for position limits to complement the limits set by individual exchanges on commodity futures and extend position limits to economically equivalent swaps. The agency’s rule was struck down by the courts in November 2012, however and current CFTC Chairman Tim Massad is now attempting to fi nalize a new set of position limit rules.
On Sept. 22, the CFTC revised one part of the changes that it plans to make to its policy on position limit aggregation, which determines whether companies that are related to each other are required to combine their positions when calculating the size of their positions.
The new proposal modifies how the CFTC would address situations where one entity owns more than 50% of another entity. In most cases their positions would have to be combined, but companies may qualify for an exemption if they can show that they operate independently.
Under the new proposal, which the CFTC called a “supplement” to its previous aggregation proposal, companies would not have to apply to the CFTC for permission to disaggregate their positions. Instead they would be allowed to file a notice with the CFTC stating that they have met the standards required to show that they operate independently.
In announcing the supplementary proposal, Massad explained the purpose was to “simplify” the exemption process and create a “more practical, efficient rule.” Massad also noted that the CFTC continues to move forward on position limits and signaled that a revised fi nal rule may be coming soon.
“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,” Massad said. “We hope to have more to say about issues related to position limits in the coming months.”
CFTC Commissioner Chris Giancarlo, a Republican, voted in favor of the supplementary proposal and said it “better recognizes the varied corporate structures” of market participants. He also commented that doing away with the application process would ease the burden on the CFTC’s limited resources and encouraged market participants to comment on whether related companies should be allowed to share information about their positions for risk control purposes without triggering the aggregation requirement.
The proposed change to the aggregation policy was announced in conjunction with a meeting of the CFTC’s Agricultural Advisory Committee, which highlighted the concerns of agricultural end-users with the CFTC’s posi- tion limit plans and in particular the need for hedgers to receive exemptions from position limits. Under the current position limit regime, hedgers submit requests for exemptions to the exchanges. Officials from CME Group and ICE Futures U.S. discussed their processes for evaluating these requests and encouraged the CFTC to consider delegating this authority to the exchanges in the final position limit rules. Massad said that he was “open to considering” this idea.
