CFTC re-proposes position limits rule

Commodity Futures Trading Commission re-proposing limits on speculative positions in 25 core physical commodity futures contracts.

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

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

Congress directed CFTC to implement a position limits rule to limit excessive speculation; however, it has drawn concern from agricultural interests.

CFTC commissioners Sharon Bowen, Christopher Giancarlo and chairman Timothy Massad all took office in June 2014 and inherited a proposal that the commission had issued six months earlier. Massad said the commissioners have revised the proposed limits themselves in light of substantial work their staff has done to make sure they are based on the latest and best information as to estimated deliverable supply.

Giancarlo said his concern regarding earlier proposals has been that they would restrict bona fide hedging activity or harm America's agriculture and energy industries, which have been sorely affected by plummeting commodity prices and service provider consolidation.

“I have always been open to supporting a well-conceived and practical position limits rule that restricts excessive speculation. That is so long as it protects the ability of America's farmers, ranchers and processors to hedge risks of agricultural commodities and the ability of America's energy producers and distributors to control risks of energy production, storage and distribution,” Giancarlo said.

“That is why I believe it is so important to carefully consider the impact of this very complex rule on America's almost 9,000 grain elevators, 2 million family farms and 147 million electric utility customers,” Giancarlo said. “That is why I support putting out this rule as a proposal.”

In response to comments on a prior proposal published in December 2013, as well as on a supplemental proposal published in June 2016, CFTC is re-proposing 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.

CFTC is also re-proposing the definition of bona fide hedging position, as well as exemptions for bona fide hedging positions in physical commodities. Exemptions are being re-proposed 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.

In addition, the re-proposed regulations include requirements and acceptable 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 re-proposed regulations also permit exchange recognition of non-enumerated bona fide hedging positions, certain enumerated anticipatory hedge positions and the granting of spread exemptions. The re-proposal includes updated reporting requirements under part 19 of the CFTC regulations.

Finally, the re-proposed 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.

The House and Senate agriculture leaders also welcomed the re-proposal.

House Agriculture Committee chairman Michael Conaway (R., Texas) said the action will offer CFTC the opportunity to refine this rule and ensure that it does not negatively affect end users' ability to manage their risks.

“Though I do not appreciate so-called 'midnight rule-making' 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,” Senate Agriculture Committee chairman Pat Roberts (R., Kan.) said. “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.”

The National Grain & Feed Assn. (NGFA) also commended the commissioners on the action, which “will allow market participants a final review of this long and complex proposal before a final vote by the CFTC.”

NGFA added, “This action will provide reassurance to U.S. farmers, ranchers and agribusiness hedgers that the commission takes seriously the critically important risk management strategies addressed in the rule that must be maintained.”

CFTC is made up of five commissioners, but only three currently have been confirmed. When President-elect Donald Trump comes into office, he will have the opportunity to nominate two additional commissioners.

NGFA commended Massad on his service as CFTC chairman, saying, “He has been open and accessible, and he has made commendable efforts to learn about U.S. agriculture and agribusiness — the traditional users of U.S. futures markets. Chairman Massad's leadership resulted in regulatory improvements important to agricultural end users, and the NGFA wishes him the very best in future endeavors.”

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