CFTC reproposes position limits rule, approves aggregation of position rule

The U.S. Commodity Futures Trading Commission Dec. 5 voted unanimously to repropose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

In a separate vote, CFTC approved final aggregation regulations, which are a key component of the CFTC’s existing position limits regime. The reproposal will be open for public comment for 60 days after publication in the Federal Register.

In response to comments on a prior proposal published in December 2013 and on a supplemental proposal published in June 2016, the CFTC is reproposing limits on speculative positions in 25 core physical commodity futures contracts and their “economically equivalent” futures, options, and swaps (referenced contracts), and is deferring action on three cash-settled commodities.

The CFTC is also reproposing the definition of bona fide hedging position, as well as exemptions for bona fide hedging positions in physical commodities. Exemptions are being reproposed for, among other things, positions established in good faith prior to the effective date of the initial limits that would be established by final regulations.

In addition, the reproposed regulations include requirements and acceptable practices for Designated Contract Markets and Swap Execution Facilities for setting position limits for the 25 referenced contracts, as well as acceptable practices for exchange position limits or accountability rules in all other listed contracts, including excluded commodities. The reproposed regulations also permit exchange recognition of non-enumerated bona fide hedging positions, certain enumerated anticipatory hedge positions and granting of spread exemptions. The reproposal includes updated reporting requirements under part 19 of the CFTC’s regulations.

Finally, the reproposed regulations would delay any requirement for DCMs and SEFs that lack access to sufficient swap position information to establish position limits on swaps that are subject to a federal position limit.

“Congress directed us to implement a position limits rule to limit excessive speculation,” CFTC Chairman Timothy Massad said in a statement. “While speculators play a necessary and important role in our markets, position limits can prevent the type of excessive speculation by a few large participants that leads to corners, squeezes and other activity that can distort markets and be unfair to other participants. Position limits can also promote convergence without compromising market liquidity.

“There are many issues to consider in this rule, but position limits are not a new or untested concept. They have been in place in our markets for decades, either through federal limits or exchange-set limits, and they have worked well.

“There are two reasons why I am supporting issuing a reproposal. First, we have made many changes to the 2013 proposal we inherited that are reflected in today’s reproposal. Certain aspects have been previously proposed in separate pieces, and I believe the public would benefit from seeing the proposal in its entirety, to better understand how the various changes work together.

“Second, the commission is now in a time of transition. I do not want to adopt a final rule today that the commission would choose not to implement or defend next year. Our markets and the many end-users and consumers who rely on them are served best by having reasonable and predictable regulation. Uncertainty and inconsistency from one year to the next are not helpful.”

Senate Agriculture Committee Chairman Pat Roberts, R-KS, responded to the CFTC decisions in a statement saying, “Though I do not appreciate so-called ‘midnight rulemaking’ and certainly am not in favor of limiting farmers, ranchers, and end-users’ risk management tools, I am encouraged that the CFTC decided not to make the controversial parts of this rule final.

“With the new administration preparing to hit the ground running and critical issues remaining unresolved, I’m hopeful the CFTC will not take away valuable risk management tools for our farmers, ranchers and end-users. They need more tools—not less.”

House Agriculture Committee Chairman Mike Conaway, R-TX, said in a statement, “I want to thank Chairman Massad and his fellow commissioners for reproposing the position limits rulemaking. The Committee on Agriculture has heard repeatedly from end-users across the economy about the importance of getting this rule right. Today’s action will offer them the opportunity to refine this rule and ensure that it does not negatively impact their ability to manage their risks.”

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