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CFTC Seeks More Comments on Commodity Aggregation Changes

Joe Mont | January 9, 2014

The Commodity Futures Trading Commission will extend the comment period on proposed amendments to aggregation rules that accompanied new standards for position limits until Feb. 10.

The proposed amendment was published in the Federal Register on Nov. 15, 2013. On the same day the Commission announced the proposed amendment, it also adopted a proposal to establish speculative position limits for commodity futures, options contracts and physical commodity swaps. The other proposal, however, was not published in the Federal Register until Dec. 12. Because the deadline for comments period for both proposals was 60 days after publication, the CFTC agreed to extend the aggregation rule's comment period and provide parity.

The amendments would revise standards for when positions held by multiple parties must be aggregated to determine compliance with new position limits. The proposed rule, for example, allows an individual with an ownership interest between 10 percent and 50 percent to be treated as a separate entity, eligible for an exemption to the aggregation requirements if it can demonstrate trading independence or passive ownership. Exemptions also apply to “bona fide hedging positions.”

The position limits rule was among the most contentious issues the CFTC faced in 2013. The Dodd-Frank Act directed the it to impose limits on speculative positions in physical commodity futures and options contracts. The intent was to curb excessive speculation and out-sized holdings that could manipulate prices, cause marketplace instability, or create competitive imbalances.

The CFTC finalized a rule in October 2011 but, one year later and days before it was to go into effect, a legal challenge halted it. The lawsuit, filed in U.S. District Court in the District of Columbia by the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, argued that no determination was made, before the limits were imposed, and that the restrictions were either “necessary or appropriate.”  They also said the rule would “adversely impact commodities markets and market participants, including end-users, by reducing liquidity and increasing price volatility.” A judge agreed and the Commission voluntarily dismissed its pending appeal and moved forward with a revised proposal.

A review by the CFTC's Office of Chief Economist of 130 studies on the efficacy of position limits found that academics were divided almost evenly in their conclusions: one-third said limits work, one-third said they don't, and another third drew no specific conclusion. Proponents point to such events as the so-called “Silver Thursday” a collapse in silver prices, blamed on excessive speculation, that sent markets into a panic in March of 1980.

The rule will initially apply to 28 physical commodities, among them oil, gasoline, corn, wheat, cotton, sugar, silver, and platinum.