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CFTC Could Amend Aggregation Requirements

Joe Mont | May 21, 2012

On Friday, the Commodity Futures Trading Commission (CFTC) announced proposed rules that would ease requirements put in place last year as part of an effort to rein in commodity market speculation.

The proposal would ease aggregation provisions for limits on speculative positions. Currently traders are required to combine positions of companies in which they own a 10 percent or greater stake.

Under the new proposal any person with an ownership or equity interest in an entity (financial or non-financial) of between 10 percent and 50 percent may disaggregate the owned entity's positions upon demonstrating independence of trading.

In order to be permitted to disaggregate, trading must be conducted in separate locations; risk management systems must not allow the sharing of trades or trading strategy; different traders must be doing the trading; and information about individual trades or trading strategies may not be shared between entities.

The proposed rulemaking expands the exemption from aggregation for the underwriting of securities to include ownership interests acquired through the market-making activities of an affiliated broker-dealer. It also allows commodity pools structured as limited liability companies to rely on the exemption from aggregation for Independent Account Controllers.

This proposal is in response to a Jan. 19 petition of the Working Group of Commercial Energy Firms seeking an amendment to existing aggregation provisions.

On Nov. 18, 2011, the CFTC published in the Federal Register new part 151, which establishes a speculative position limits regime for 28 physical commodity derivative contracts. Those limits were established under section 4a of the Commodity Exchange Act (CEA), as amended by the Dodd-Frank Act, which requires the commission to establish speculative position limits for physical commodity futures and option contracts traded on a designated contract market, as well as economically equivalent swaps.

There will be a 30-day comment period prior to final rulemaking.