CFTC reproposes position limits rule

December 5, 2016 02:27 PM
Commission also approves final rule on aggregation of positions

The U.S. Commodity Futures Trading Commission (CFTC) 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). 

CFTC Chairman Timothy Massad says, "I did not want to finalize a rule that the Commission may choose not to implement."

He points out that he spoke with Commissioner J. Christopher Giancarlo who thought having a new proposal was important instead of just making this a final rule. He called the propsoal very balanced and highlighted many changes from the previous rule proposed in 2013 and also amendments to that made in May.

He pointed out several differences in the new proposal. The limits are different, we refined the definition of bona fide hedger and exchanges will be allowed to provide conditional exemptions with CFTC approval.

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 that are established in good faith prior to the effective date of the initial limits that would be established by final regulations. 

Commissioner Sharon Y. Bowen commented saying, "CFTC staff has worked laboriously with market users and the exchanges we regulate to craft a rule that will protect investors from disruptive practices and manipulation, while simultaneously allowing our markets to serve their critical price-discovery function."

Reproposed regulations require and accept practices for Designated Contract Markets (DCMs) and Swap Execution Facilities (SEFs) 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.  

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, they are expected to have updated reporting requirements under part 19 of the CFTC’s regulations.  

Bowen says, "I would also like to thank Chairman Massad and Commissioner Giancarlo on their commitment to this important rule and look forward to its finalization in the near future."

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