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[Federal Register Volume 76, Number 17 (Wednesday, January 26, 2011)]
[Proposed Rules]
[Pages 4752-4777]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1154]

[[Page 4751]]

Vol. 76

Wednesday,

No. 17

January 26, 2011

Part II

Commodity Futures Trading Commission

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17 CFR Parts 1, 150 and 151

Position Limits for Derivatives; Proposed Rule

Federal Register / Vol. 76 , No. 17 / Wednesday, January 26, 2011 / 
Proposed Rules

[[Page 4752]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 150 and 151

RIN 3038-AD15 and 3038-AD16

Position Limits for Derivatives

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (``Dodd-Frank Act'') requires the Commodity 
Futures Trading Commission (``Commission'' or ``CFTC'') to establish 
position limits for certain physical commodity derivatives. The 
Commission is proposing to simultaneously establish position limits and 
limit formulas for certain physical commodity futures and option 
contracts executed pursuant to the rules of designated contract markets 
(``DCM'') and physical commodity swaps that are economically equivalent 
to such DCM contracts. In compliance with the requirements of the Dodd-
Frank Act, the CFTC is also proposing aggregate position limits that 
would apply across different trading venues to contracts based on the 
same underlying commodity. The Commission is proposing to establish 
position limits in two phases: The first phase would involve adopting 
current DCM spot-month limits, while the second phase would involve 
establishing non-spot-month limits based on open interest levels as 
well as establishing Commission-determined spot-month limits. The 
proposal includes exemptions for bona fide hedging transactions and for 
positions that are established in good faith prior to the effective 
date of specific limits that could be adopted pursuant to final 
regulations. This notice of rulemaking also proposes new account 
aggregation standards, visibility regulations that are similar to 
current reporting obligations for large bona fide hedgers, and new 
regulations establishing requirements and standards for position limits 
and accountability rules that are implemented by registered entities. 
The Commission solicits comment on any aspect of the proposal. The 
Commission also solicits comment on particular issues throughout the 
preamble.

DATES: Comments must be received on or before March 28, 2011.

ADDRESSES: You may submit comments, identified by RIN numbers 3038-AD15 
and 3038-AD16, by any of the following methods:
     Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
     Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as mail above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow instructions for submitting comments.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the Commission to consider information 
that is exempt from disclosure under the Freedom of Information Act, a 
petition for confidential treatment of the exempt information may be 
submitted according to the procedure established in Sec.  145.9 of the 
Commission's regulations (17 CFR 145.9).
    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from http://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Stephen Sherrod, Acting Deputy 
Director, Market Surveillance, (202) 418-5452, ssherrod@cftc.gov, or 
Bruce Fekrat, Senior Special Counsel, Office of the Director, (202) 
418-5578, bfekrat@cftc.gov, Division of Market Oversight, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Position Limits for Physical Commodity Futures and Swaps

A. Background

    The Commodity Exchange Act (``CEA'' or ``Act'') of 1936,\1\ as 
amended by Title VII of the Dodd-Frank Act,\2\ includes provisions 
imposing clearing and trade execution requirements on standardized 
derivatives as well as comprehensive recordkeeping and reporting 
requirements that extend to all swaps, as defined in CEA section 
1a(47). Newly amended section 4a(a)(1) of the Act authorizes the 
Commission to extend position limits beyond futures and option 
contracts to swaps traded on a DCM or swap execution facility 
(``SEF''), swaps that are economically equivalent to DCM futures and 
option contracts with position limits, and swaps not traded on a DCM or 
SEF that perform or affect a significant price discovery function 
(``SPDF'') with respect to regulated entities. Further, new section 
4a(a)(5) of the Act requires aggregate position limits for swaps that 
are economically equivalent to DCM futures and option contracts with 
CFTC-set position limits. Similarly, new section 4a(a)(6) of the Act 
requires the Commission to apply position limits on an aggregate basis 
to contracts based on the same underlying commodity across: (1) DCMs; 
(2) with respect to foreign boards of trade (``FBOTs''), contracts that 
are price-linked to a DCM or SEF contract and made available from 
within the United States via direct access; and (3) SPDF swaps.
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    \1\ 7 U.S.C. 1 et seq.
    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
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    Sections 4a(a)(2)(B) and 4a(a)(3) of the Act charge the Commission 
with setting spot-month, single-month and all-months-combined limits 
for DCM futures and option contracts on exempt and agricultural 
commodities \3\ within 180 and 270 days, respectively, of the Dodd-
Frank Act's enactment.\4\ In this notice of rulemaking, the Commission 
is proposing to establish limits required by Congress in amended CEA 
section 4a in two phases, which could involve multiple final 
regulations or different implementation dates.\5\ In the first

[[Page 4753]]

transitional phase the Commission proposes to establish spot-month 
position limits at the levels currently imposed by DCMs. This first 
phase would include related provisions, such as proposed regulation 
151.5, pertaining to bona fide hedging, and proposed Sec.  151.7, 
pertaining to account aggregation standards. During the second phase 
the Commission proposes to establish single-month and all-months-
combined position limits and to set Commission-determined spot-month 
position limits.
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    \3\ Section 1a(20) of the Act defines the term ``exempt 
commodity'' to mean a commodity that is not an excluded commodity or 
an agricultural commodity. Section 1a(19) defines the term 
``excluded commodity'' to mean, among other things, an interest 
rate, exchange rate, currency, credit risk or measure, debt or 
equity instrument, measure of inflation, or other macroeconomic 
index or measure. Although the term ``agricultural commodity'' is 
not defined in the Act, CEA section 1a(9) enumerates a non-exclusive 
list of agricultural commodities. The Commission issued a notice of 
rulemaking proposing a definition for the term ``agricultural 
commodity'' on October 26, 2010. 75 FR 65586. Although broadly 
defined, exempt commodity futures contracts are often viewed as 
energy and metals products.
    \4\ Section 737 of the Dodd-Frank Act, which amended section 4a 
of the Act, became effective on July 21, 2010.
    \5\ The Commission may implement the two phases in various ways. 
It may, for example, pursuant to this notice of proposed rulemaking, 
adopt a single final regulation with two implementation provisions, 
or it may adopt two separate final regulations.
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    As discussed in further detail below, phased implementation is 
possible because spot-month position limits are based on available 
information: DCMs currently set spot-month position limits based on 
their own estimates of deliverable supply. Spot-month limits can, 
therefore, be implemented by the Commission relatively expeditiously. 
In contrast, most non-spot-month position limits, as set by the 
Commission previously and as proposed herein, are based on open 
interest levels. Because the Commission was barred under the Commodity 
Futures Modernization Act of 2000 from collecting regular data or 
regulating most swaps markets, the Commission does not currently have 
the open interest and market structure data necessary to establish non-
spot-month position limits. The Commission has proposed regulations 
that would permit it to gather positional data on physical commodity 
swaps on a regular basis.\6\
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    \6\ See Position Reports for Physical Commodity Swaps, 75 FR 
67258, November 2, 2010 (proposing position reports on economically 
equivalent swaps from clearing organizations, their members and swap 
dealers).
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    Because the Commission will not be able to implement a 
comprehensive system for gathering swap positional data for some time, 
this notice of proposed rulemaking does not propose to determine the 
numerical non-spot-month position limits for exempt and agricultural 
commodity derivatives resulting from the application of the open 
interest formulas in proposed Sec.  151.4. Rather, this notice of 
rulemaking provides for the determination of such limits when the 
Commission receives data regarding the levels of open interest in the 
swap markets to which these limits will apply.
    The Commission anticipates fixing initial position limits pursuant 
to the formulas proposed herein through the issuance of a Commission 
order. As proposed, CFTC-set position limits after the transitional 
period would be re-calculated every year based on the formulas set 
forth in proposed Sec.  151.4, subject to any changes to the formulas 
that may be proposed and adopted based on the Commission's surveillance 
of the markets for referenced contracts. In this regard, as discussed 
in further detail below, the proposed position visibility regulations, 
which would effectuate reporting requirements that are similar to 
current reporting requirements for large bona fide hedgers, may 
facilitate evaluating the efficacy and appropriateness of the proposed 
position limit framework if adopted.

B. Statutory Authority

1. Section 4a of the Act
    The Dodd-Frank Act preserves the Commission's broad authority to 
set position limits. Thus, for example, section 4a(a)(1) of the Act 
expressly permits the Commission to set ``different limits for, among 
other things, different commodities, markets, futures, or delivery 
months * * *'' Under new CEA section 4a(a)(7), the Commission also has 
authority to exempt persons or transactions from any position limits it 
establishes.
    New section 4a(a)(3) of the Act expressly directs the Commission to 
set such limits at levels that would serve, to the maximum extent 
practicable, in its discretion:

    (i) To diminish, eliminate, or prevent excessive speculation as 
described under this section;
    (ii) To deter and prevent market manipulation, squeezes, and 
corners;
    (iii) To ensure sufficient market liquidity for bona fide 
hedgers; and
    (iv) To ensure that the price discovery function of the 
underlying market is not disrupted.\7\
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    \7\ 7 U.S.C. 6a(a)(3).

This provision incorporates the Commission's historical approach to 
setting limits, and is harmonious with the congressional directive in 
section 4a(a)(1) of the Act that the Commission set position limits to 
prevent or minimize price disruptions that could be caused by excessive 
speculative trading.
    Section 4a(a)(5) of the Act requires the Commission to develop, 
concurrently with position limits for DCM futures and option contracts, 
position limits for swaps that are economically equivalent to such 
contracts. Section 4a(a)(5) of the Act requires such position limits, 
when developed, to be adopted simultaneously.\8\ The defined term 
``referenced contract'' in proposed Sec.  151.1, through its reference 
to the core futures contracts listed in proposed Sec.  151.2 (``core 
referenced futures contracts'' or ``151.2-listed contract''), 
identifies the ``economically equivalent'' derivatives that would be 
subject to the concurrent development, simultaneous establishment and 
aggregate implementation requirements of CEA section 4a. Referenced 
contracts are defined as derivatives (1) that are directly or 
indirectly linked to the price of a 151.2-listed contract, or (2) that 
are based on the price of the same commodity for delivery at the same 
location(s) as that of a 151.2-listed contract, or another delivery 
location with substantially the same supply and demand fundamentals as 
the delivery location of a 151.2-listed contract.\9\ The second part of 
the definition of referenced contract therefore proposes to include 
derivatives that are settled to a price series that is not based on, 
but is nonetheless highly correlated to, the price of a 151.2-listed 
contract. Proposed Sec.  151.2, in turn, enumerates 28 core physical 
delivery DCM futures contracts that would be subject to the 
Commission's proposed position limit framework. Generally, the 151.2-
listed contracts were selected either because such contracts have high 
levels of open interest and significant notional value or because they 
otherwise may provide a reference price for a significant number of 
cash market transactions.\10\
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    \8\ Unlike swaps that are economically equivalent to DCM futures 
and option contracts with position limits, the Commission is not 
required to develop or establish position limits for SPDF swaps at 
the same time that it develops or establishes position limits for 
DCM futures and option contracts. The Commission intends to propose 
in a subsequent notice of rulemaking a process by which swaps that 
perform or affect a significant price discovery function with 
respect to regulated entities can be identified.
    \9\ 75 FR 67258, at 67260 (discussing the scope of directly and 
indirectly linked swaps).
    \10\ See 75 FR 67258, at 62758.
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    A primary mission of the CFTC is to foster fair, open and efficient 
functioning of the commodity derivatives markets.\11\ Critical to 
fulfilling this statutory mandate is protecting market users and the 
public from undue burdens that may result from ``excessive 
speculation.'' Specifically, section 4a of the Act, as amended by the 
Dodd-Frank Act, provides that:
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    \11\ See section 3 of the Act, 7 U.S.C. 5.

    ``Excessive speculation in any commodity under contracts of sale 
of such commodity for future delivery [(or swaps traded on or 
subject to the rules of a designated contract market or swap 
execution facility, or swaps that perform a significant price 
discovery function with respect to a registered entity)] * * * 
causing sudden or unreasonable fluctuations or unwarranted changes 
in the price of such commodity, is an undue and unnecessary burden 
on interstate commerce in such commodity. For the purpose of 
diminishing, eliminating, or preventing such

[[Page 4754]]

burden, the Commission shall * * * proclaim and fix such limits on 
the amount of trading which may be done or positions which may be 
held by any person * * * as the Commission finds are necessary to 
diminish, eliminate or prevent such burden. * * *'' \12\
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    \12\ Section 4a(a)(1) of the Act, 7 U.S.C. 6a(a)(1).

    Congress has declared that sudden or unreasonable price 
fluctuations attributable to ``excessive speculation'' create an 
``undue and unnecessary burden'' on interstate commerce and directed 
that the Commission shall establish limits on the amounts of positions 
which may be held as it finds necessary to ``diminish, eliminate, or 
prevent'' such burden. As the plain reading of the statutory text 
indicates, the prevention of sudden or unreasonable changes in price 
attributable to large speculative positions, even without manipulative 
intent, is a congressionally-endorsed regulatory objective of the 
Commission.
    The Commission is not required to find that an undue burden on 
interstate commerce resulting from excessive speculation exists or is 
likely to occur in the future in order to impose position limits. Nor 
is the Commission required to make an affirmative finding that position 
limits are necessary to prevent sudden or unreasonable fluctuations or 
unwarranted changes in prices or otherwise necessary for market 
protection. Rather, the Commission may impose position limits 
prophylactically, based on its reasonable judgment that such limits are 
necessary for the purpose of ``diminishing, eliminating, or 
preventing'' such burdens on interstate commerce that the Congress has 
found result from excessive speculation. A more restrictive reading 
would be contrary to the congressional findings and objectives as 
embodied in section 4a of the Act.\13\
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    \13\ Consistent with the congressional findings and objectives, 
the Commission has previously set position limits without finding 
that an undue burden of interstate commerce has occurred or is 
likely to occur, and in so doing has expressly stated that such 
additional determinations by the Commission were not necessary in 
light of the congressional findings in section 4a of the Act. In its 
1981 rulemaking to require all exchanges to adopt position limits 
for commodities for which the Commission itself had not established 
limits, the Commission stated:
    ``As stated in the proposal, the prevention of large and/or 
abrupt price movements which are attributable to the extraordinarily 
large speculative positions is a congressionally endorsed regulatory 
objective of the Commission. Further, it is the Commission's view 
that this objective is enhanced by the speculative position limits 
since it appears that the capacity of any contract to absorb the 
establishment and liquidation of large speculative positions in an 
orderly manner is related to the relative size of such positions, 
i.e., the capacity of the market is not unlimited.''
    Establishment of Speculative Position Limits, 46 FR 50938, Oct. 
16, 1981 (adopting then regulation 1.61 (now part of regulation 
150.5)).
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2. Legislative History and Discussion
    The relevant legislative history, including the congressional 
debates and studies preceding the enactment of the CEA, gives further 
evidence to the broad mandate conferred on the Commission pursuant to 
CEA section 4a. Throughout the 1920s and into the 1930s, a series of 
studies and reports found that large speculative positions in the 
futures markets for grain, even without manipulative intent, can cause 
``disturbances'' and ``wild and erratic'' price fluctuations. To 
address such market disturbances, Congress was urged to adopt position 
limits to restrict speculative trading notwithstanding the absence of 
``the deliberative purpose of manipulating the market.'' \14\ In 1936, 
based upon such reports and testimony, Congress provided the Commodity 
Exchange Authority (the predecessor of the Commission) with the 
authority to impose Federal speculative position limits. In doing so, 
Congress expressly acknowledged the potential for market disruptions 
resulting from excessive speculative trading and the need for measures 
to prevent or minimize such occurrence.\15\
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    \14\ See 7, U.S. Fed. Trade Commission, Report of the Federal 
Trade Commission on the Grain Trade: Effects of Future Trading 293-
94 (1926). For example, the Federal Trade Commission concluded:
    The very large trader by himself may cause important 
fluctuations in the market. If he has the necessary resources, 
operations influenced by the idea that he has such power are bound 
to cause abnormal fluctuations in prices. Whether he is more often 
right than wrong and more often successful than unsuccessful, and 
whether influenced by a desire to manipulate or not, if he is large 
enough he can cause disturbances in the market which impair its 
proper functioning and are harmful to producers and consumers.
    The FTC recommended that limits be placed on trading, 
particularly on the amount of open interest that could be held by 
any one trader. Similarly, based on its study of price fluctuations 
in the wheat market, the Department of Agriculture urged Congress to 
provide the Grain Futures Administration (GFA), which had been 
created by the Grain Futures Act, with the authority to impose 
position limits. See Fluctuations in Wheat Futures, S. Doc. No. 69-
135 (1st Sess. 1926); see also Speculative Position Limits in Energy 
Futures Markets: Hearing Before the U.S. Commodity Futures Trading 
Commission (July 28, 2009) (statement of Dan M. Berkovitz, General 
Counsel, U.S. Commodity Futures Trading Commission), available at 
http://www.cftc.gov/PressRoom/SpeechesTestimony/2009/berkovitzstatement072809.html.
    \15\ The report accompanying the 1935 bill that became the Act 
stated ``the fundamental purposes of the measure is to insure fair 
practice and honest dealing on the commodity exchanges and to 
provide a measure of control over those forms of speculative 
activity which too often demoralize the markets to the injury of 
producers and consumers and the exchanges themselves. H.R. Rep. No. 
74-421, at 1 (1935), accompanying H.R. 6772.
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    The basic statutory mandate in section 4a of the Act to establish 
position limits to prevent ``undue burdens'' associated with 
``excessive speculation'' has remained unchanged--and has been 
reaffirmed by Congress several times--over the past seven decades. In 
1974, when Congress created the Commission as an independent regulatory 
agency, it reiterated the purpose of the Act to prevent fraud and 
manipulation and to control speculation.\16\ In connection with another 
major overhaul of the Act, the Commodity Futures Modernization Act of 
2000, Congress expressly authorized exchanges to use position 
accountability as an alternative means to limit speculative positions. 
However, Congress did not alter the Commission's mandate in CEA section 
4a to establish position limits to prevent such undue burdens on 
interstate commerce. Then, in the CFTC Reauthorization Act of

[[Page 4755]]

2008,\17\ Congress, among other things, expanded the Commission's 
authority to set position limits to significant price discovery 
contracts on exempt commercial markets.
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    \16\ S. Rep. No. 93-1131, 93rd Cong., 2d Sess. (1974).
    \17\ Food, Conservation and Energy Act of 2008, Public Law 110-
246, 122 Stat. 1624 (June 18, 2008).
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    Finally, as outlined above, pursuant to the Dodd-Frank Act, 
Congress significantly expanded the Commission's authority and mandate 
to establish position limits beyond futures and option contracts to 
include, for example, economically equivalent derivatives.\18\ Congress 
expressly directed the Commission to set limits in accordance with the 
standards set forth in sections 4a(a)(1) and 4a(a)(3) of the Act,\19\ 
thereby reaffirming the Commission's authority to establish position 
limits as it finds necessary in its discretion to address excessive 
speculation.\20\ As noted earlier, section 4a(a)(3) of the Act 
expressly sets forth the Commission's broad discretion in setting 
position limits under section 4a(a)(1), and the necessary 
considerations in setting such limits. Section 4a(a)(3) effectively 
incorporates the Commission's historical approach to setting 
limits,\21\ and is harmonious with the congressional directive in 
section 4a(a)(1) of the Act that the Commission set position limits in 
its discretion to prevent or minimize burdens that could be caused by 
excessive speculative trading.
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    \18\ Dodd-Frank Act, Public Law 111-203, 737, 124 Stat. 1376 
(2010). The Dodd-Frank Act amendments to section 4a of the Act 
became effective upon the date of enactment of the Dodd-Frank Act.
    \19\ Section 4a(a)(2) of the Act provides that the Commission, 
in setting position limits, must do so in accordance with the 
standards set forth in CEA section 4a(a)(1). 7 U.S.C. 6a(a)(2).
    \20\ Senator Lincoln (then the Chair to the Senate Agriculture 
Committee) stated that amended section 4a ``will grant broad 
authority to the [Commission] to once and for all set aggregate 
position limits across all markets on non-commercial market 
participants * * * I believe the adoption of aggregate position 
limits will help bring some normalcy back to our markets and reduce 
some of the volatility we have witnessed over the last few years.'' 
156 Cong. Rec. S5919 (daily ed. July 15, 2010) (statement of Sen. 
Lincoln).
    \21\ See 46 FR 50938.
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    Large concentrated positions in the physical commodity markets can 
potentially facilitate price distortions given that the capacity of any 
market to absorb the establishment and liquidation of large positions 
in an orderly manner is related to the size of such positions relative 
to the market and the market's structure and is, therefore, not 
unlimited.\22\ Concentration of large positions in one or a few 
traders' accounts can also create the unwarranted appearance of 
appreciable liquidity and market depth which, in fact, may not exist. 
Trading under such conditions can result in sudden changes to commodity 
prices that would otherwise not prevail if traders' positions were more 
evenly distributed among market participants.\23\ Position limits 
address these risks through ensuring the participation of a minimum 
number of traders that are independent of each other and have different 
trading objectives and strategies.
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    \22\ See Fluctuations in Wheat Futures, S. Doc. No. 69-135 (1st 
Sess. 1926); and 7 U.S. Fed. Trade Commission, Report of the Federal 
Trade Commission on the Grain Trade: Effects of Future Trading 293-
94 (1926); see also Thomas A. Hieronymus, Economics of Futures 
Trading 313 (1971) (``Limits on speculative positions have met with 
a high degree of trade acceptance and only recently has the size of 
some of the limits began to be called into question. The general 
notion is that no one man should be allowed to have such a position 
or trade in such volume that he could push the price around with his 
sheer bulk'').
    \23\ By way of illustration, after the silver futures market 
crisis during late 1979 to early 1980, commonly referred to as ``the 
Hunt Brothers silver manipulation,'' the Commission concluded that 
``[t]he recent events in silver suggest that the capacity of any 
futures market to absorb large positions in an orderly manner is not 
unlimited.'' Subsequently, the Commission adopted regulation 1.61, 
which required all exchanges to adopt and submit for Commission 
approval position limits in active futures markets for which no 
exchange or Commission limits were then in effect. More recently, 
Congress, in response to high prices and volatility in commodity 
prices generally, and energy prices in particular, extended the 
Commission's authority to set limits to significant price discovery 
contracts traded on exempt commercial markets. Food, Conservation 
and Energy Act of 2008, Public Law 110-246, 122 Stat. 1624 (June 18, 
2008).
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    The Commission currently sets and enforces position limits with 
respect to certain agricultural products. For metals and energy 
commodities, in 1981 the Commission began to require exchange-set 
limits, with a Commission approval process, for any active futures 
markets without existing Commission or exchange limits.\24\ This 
framework was significantly scaled back in 1991, after which the 
Commission began to approve exchange accountability provisions in place 
of position limits.\25\ Such accountability provisions took effect with 
respect to certain metals derivatives in 1992, and with respect to 
energy and soft agricultural derivatives in 2001. Currently, the 
Commission authorizes DCMs to set position limits and accountability 
rules to protect against manipulation and congestion and price 
distortions. The proliferation of economically-equivalent instruments 
trading in multiple trading venues, however, warrants extension of the 
Commission-set position limits beyond agricultural products to metals 
and energy commodities. The Commission anticipates that this market 
trend will continue as, consistent with the regulatory structure 
established by the Dodd-Frank Act, economically equivalent derivatives 
based on exempt and agricultural commodities are executed pursuant to 
the rules of multiple DCMs and SEFs and other Commission registrants. 
Under these circumstances, uniform position limits should be 
established across such venues to prevent regulatory arbitrage and 
ensure a level playing field for all trading venues. Because it has the 
authority to gather data and impose regulations across trading venues, 
the Commission is uniquely situated to establish uniform position 
limits and related requirements for all economically equivalent 
derivatives.\26\ A uniform approach would also encourage better risk 
management and could reduce systemic risk. Despite centralized clearing 
arrangements employed by DCMs to reduce systemic risk, a levered market 
participant can still take a very large speculative position across 
multiple venues. The proposed position limit framework would reduce the 
ability of such levered entities to take such positions and to cause 
systemic risk.
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    \24\ 46 FR 50938.
    \25\ See Speculative Position Limits--Exemptions from Commission 
Rule 1.61, 56 FR 51687, October 15, 1991; and Speculative Position 
Limits--Exemptions from Commission Rule 1.61, 57 FR 29064, June 30, 
1992.
    \26\ Because individual markets have knowledge of positions on 
their own facilities, it is difficult for them to assess the full 
impact of a trader's positions on the greater market.
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    As noted above, in setting position limits to guard against 
excessive speculation, the Commission, pursuant to the factors 
enumerated in section 4a(a)(3) of the Act, has endeavored to maximize 
the objectives of preventing excessive speculation, deterring and 
preventing market manipulation, and ensuring that markets remain 
sufficiently liquid so as to afford end users and producers of 
commodities the ability to hedge commercial risks and to promote 
efficient price discovery.

C. Public Comments in Advance of Commission Action

    As with other forthcoming notices of rulemaking proposing 
regulations to implement the Dodd-Frank Act, the Commission accepted 
public comments in advance of issuing this release. The Commission has 
received approximately 350 public comments as of December 16, 2010.\27\ 
The Commission has reviewed these comments and considered them in 
drafting the

[[Page 4756]]

proposed regulations. The majority of commenters submitted letters 
advocating the view that position limits should be set at one percent 
of the total annual world production for a given commodity. Several 
expressed views on a single issue, notably the importance of preventing 
market manipulation.
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    \27\ These comments may be accessed at http://www.cftc.gov/LawRegulation/DoddFrankAct/OTC_26_PosLimits.html.
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    The view most commonly expressed by certain other commenters, 
including the CME Group, Electric Power Supply Association, Futures 
Industry Association, Morgan Stanley, and National Gas Supply 
Association, was opposition to a provision that resulted in the 
``crowding out'' of speculative positions. A ``crowding out'' provision 
would have limited the ability of a trader that hedges or acts as a 
swap dealer to take on speculative positions once certain positional 
thresholds were exceeded.\28\ A concern raised by the commenters was 
related to the unintended consequence of excluding knowledgeable 
traders, or traders that needed to hold speculative positions, from the 
commodity derivatives markets. The Commission has determined to not 
propose a ``crowding out'' provision at this time.
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    \28\ See Federal Speculative Position Limits for Referenced 
Energy Contracts and Associated Regulations, 75 FR 4144, at 4146, 
January 26, 2010, withdrawn 75 FR 50950, August 18, 2010.
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    Several commenters addressed bona fide hedging exemptions to 
position limits. Some of these commenters, for example the CME Group, 
presented the view that the Commission should adopt a broad definition 
for bona fide positions that would cover ``all non-speculative'' 
positions. Morgan Stanley recommended that the Commission ``exercise 
its discretion to interpret [s]ection 4(a)(c)(2), including the term 
`economically appropriate', broadly to permit products and services 
similar to [risk management products offered by swap dealers] to 
qualify as bona fide hedging transactions or positions.'' The National 
Grain and Feed Association (``NGFA'') presented the view that the 
Commission ``should use its authority to grant hedge exemptions to 
financial institutions, index funds, hedge funds or other 
nontraditional participants in agricultural futures markets extremely 
sparingly and only if it can be demonstrated clearly that such 
exemptions will not harm contract performance for traditional 
hedgers.'' The NGFA further recommended that the Commission ```look 
through' swap transactions and allow hedge exemptions to be granted 
only for that portion of swap dealers' business where the swap dealers' 
counterparties are entities that otherwise would have qualified for a 
hedge exemption.'' The Commission has seriously considered these views 
on the bona fide hedging exemption in light of the express language of 
the Act. The Commission has accordingly determined to propose a 
definition of bona fide hedging in proposed Sec.  151.5(a)(1)(iv) that 
provides for an exemption for a non-bona fide swap counterparty only if 
such swap transaction or position represents cash market transactions 
and offsets its bona fide counterparty's cash market risks.
    Several commenters, including the CME Group, Electric Power Supply 
Association, Futures Industry Association, GDF Suez Energy, Morgan 
Stanley, and NextEra Energy Power Marketing, expressed concerns 
relating to the potential for overly strict account aggregation 
standards. The aggregation standards of the proposed regulations 
attempt to address some of these concerns by including exemptions for 
passive investments in independently controlled and managed commercial 
entities as well as exemptions for certain positions held with futures 
commission merchants and for traders that are passive pool 
participants. The law firm Akin Gump Strauss Hauer & Feld LLP, on 
behalf of a commodity trading advisor, specifically argued for the 
retention of the independent account controller exemption currently in 
force in part 150 of the Commission's regulations, echoing the views of 
numerous commenters to the January 2010 proposed rulemaking for 
position limits on certain energy contracts. As explained in more 
detail in the aggregation section of this preamble, the proposed 
regulations address the concern of not having an independent account 
controller exemption by establishing the owned non-financial entity 
exemption. Some commenters, for example the Electric Power Supply 
Association, Futures Industry Association and Morgan Stanley, argued 
that aggregation should be based solely on common control, with no 
consideration given to common ownership. At this time, the Commission 
does not see sufficient justification to change its longstanding 
approach of considering both control and ownership in its aggregation 
policy. The traditional ten percent ownership standard has proven to be 
a useful measure in conjunction with the control standard. In addition, 
the proposed owned non-financial entity exemption addresses situations 
in which the 10 percent ownership standard has been exceeded but a lack 
of common control over trading decisions and strategies warrants 
disaggregation.
    The CME Group also argued that position limits should not be 
imposed until the Commission has gathered sufficient data on the 
physical commodity swap markets. In order to address similar concerns, 
the Commission proposed regulations in November 2010 that are 
specifically designed to gather positional data on physical commodity 
swaps.\29\ The Commission anticipates the collection of positional data 
to begin during the third quarter of 2011. Furthermore, the Commission 
is proposing to fix specific position limits pursuant to formulas 
proposed herein (and making other aspects of the proposed regulations 
effective) only after collecting positional data on physical commodity 
swaps and through the issuance of a Commission order during the first 
quarter of 2012, unless the Commission determines that there are 
certain commodities for which data is sufficient to implement limits 
sooner.
---------------------------------------------------------------------------

    \29\ See 75 FR 67258.
---------------------------------------------------------------------------

    In addition to review and consideration of public comments, 
Commission staff has held 32 meetings with a variety of market 
participants, including bona fide hedgers, swap dealers, hedge funds 
and several industry groups, to discuss position limits and in 
particular to gather information about the potential impact of 
limits.\30\ The Commission has considered information obtained in these 
meetings in drafting the proposed regulations.
---------------------------------------------------------------------------

    \30\ The Commission has made public all meetings that Commission 
staff has held with outside organizations in connection with the 
implementation of the Dodd-Frank Act, including, for each meeting, a 
list of attendees and a summary of the meeting. This information may 
be accessed at http://www.cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/otc_meetings.html.
---------------------------------------------------------------------------

II. The Proposed Regulations

A. Spot-Month Position Limits

    The Commission proposes definitions in Sec.  151.3 that identify 
the spot month \31\ for referenced contracts in the same commodity that 
would be subject to the proposed position limit framework. These 
definitions reference the dates on which a spot month commences and 
terminates. The definitions for the spot period are based on existing 
spot-month definitions set forth by DCMs for 151.2-listed contracts. 
These periods, as defined by the Commission, would

[[Page 4757]]

continue into the delivery period for the core referenced futures 
contracts, which in turn determine the spot month for all referenced 
contracts in the same commodity.
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    \31\ The term ``spot month'' does not refer to a month of time. 
Rather, it is the trading period immediately preceding the delivery 
period for a physically-delivered futures contract and cash-settled 
swaps and futures contracts that are linked to the physically-
delivered contract. The length of this period may thus vary 
depending on the referenced contract, as described in proposed 
regulation 151.3.
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    With three exceptions, the 151.2-listed contracts with DCM-defined 
spot months are currently subject to exchange-set spot-month position 
limits.\32\ Proposed Sec.  151.4 would impose and aggregately apply 
spot-month position limits for the referenced contracts. Consistent 
with the Commission's longstanding policy regarding the appropriate 
level of spot-month limits for physical delivery contracts, these 
position limits would be set at 25 percent of estimated deliverable 
supply. The spot-month limits would be adjusted annually thereafter.
---------------------------------------------------------------------------

    \32\ The only contracts based on a physical commodity that 
currently do not have spot-month limits are the COMEX mini-sized 
gold, silver, and copper contracts that are cash-settled based on 
the futures settlement prices of the physical-delivery contracts. 
The cash-settled contracts have position accountability provisions 
in the spot month rather than outright spot-month limits. These 
cash-settled contracts have relatively small levels of open 
interest.
---------------------------------------------------------------------------

    The proposed deliverable supply formula narrowly targets the 
trading that may be most susceptible to, or likely to facilitate, price 
disruptions. The formula seeks to minimize the potential for corners 
and squeezes by facilitating the orderly liquidation of positions as 
the market approaches the end of trading and by restricting the swap 
positions which may be used to influence the price of referenced 
contracts that are executed centrally. Referenced contracts that are 
based on the price of the same commodity but where delivery is at a 
location that is different than the delivery location of a 151.2-listed 
contract would not be subject to the proposed Federal spot-month 
position limit. Because the potential incentive and ability to 
manipulate the spot-month delivery process to benefit a derivatives 
position providing for delivery at a different delivery location is 
less, Federal spot-month limits would apply only to futures, options 
and swaps that are directly price-linked to a 151.2-listed core 
referenced contract or that settle to a price series that prices the 
same commodity at the same delivery location. Finally, the proposed 
spot-month limits would apply on an aggregate basis, thereby subjecting 
these economically equivalent derivatives to the same spot-month 
limits, whether or not they are listed for trading on a DCM, cleared, 
or uncleared.
    Proposed Sec.  151.4 would apply spot-month position limits 
separately for physically-delivered contracts and all cash-settled 
contracts, including cash-settled futures and swaps. A trader may 
therefore have up to the spot-month position limit in both the 
physically-delivered and cash-settled contracts. For example, if the 
spot-month limit for a referenced contract is 1,000 contracts, then a 
trader may hold up to 1,000 contracts long in the physically-delivered 
contract and 1,000 contracts long in the cash-settled contract. A 
trader's cash-settled contract position would separately be a function 
of the trader's position in referenced contracts based on the same 
commodity that are cash-settled futures and swaps.\33\
---------------------------------------------------------------------------

    \33\ For purposes of applying the limits, a trader would convert 
and aggregate positions in swaps on a futures equivalent basis. 
Guidance on futures equivalency is provided in Appendix A to the 
Commission's proposed part 20 rulemaking on position reports for 
physical commodity swaps. 75 FR 67258, at 67269.
---------------------------------------------------------------------------

    The proposed spot-month position limit formula is based on the 
Commission's longstanding approach to setting and overseeing spot-month 
limits and is consistent with industry practice and the goals of 
preventing manipulation through corners or squeezes. Core Principles 3 
and 5 for DCMs address congressional concerns regarding potential 
manipulation of the futures market, and the Commission has typically 
evaluated compliance with these core principles in tandem. Core 
Principle 3 specifies that a board of trade shall list only contracts 
that are not readily susceptible to manipulation, while Core Principle 
5 obligates a DCM to establish position limits and position 
accountability provisions where necessary and appropriate ``to reduce 
the threat of market manipulation or congestion, especially during the 
delivery month.''
    In determining whether a physical delivery contract complies with 
Core Principle 3, the Commission considers whether the specified terms 
and conditions, considered as a whole, result in a deliverable supply 
that is sufficient to ensure that the contract is not conducive to 
price manipulation or distortion. In general, the term ``deliverable 
supply'' means the quantity of the commodity meeting a derivative 
contract's delivery specifications that can reasonably be expected to 
be readily available to short traders and saleable by long traders at 
its market value in normal cash marketing channels at the derivative 
contract's delivery points during the specified delivery period, 
barring abnormal movement in interstate commerce. The establishment of 
a spot-month limit pursuant to Core Principle 5 is made based on the 
analysis of deliverable supplies, and the Acceptable Practices for this 
Core Principle state that, for physically delivered contracts, the 
spot-month limit should not exceed 25 percent of the estimated 
deliverable supply. Likewise, the guidance for DCMs in Commission Sec.  
150.5(b) provides that for physical delivery contracts, the spot-month 
limit level must be no greater than 25 percent of the estimated spot-
month deliverable supply, calculated separately for each month to be 
listed.
    In Sec.  151.4, the Commission proposes spot-month limits, for not 
only referenced contracts that are futures but also referenced 
contracts that are economically equivalent swaps, that would, during 
the initial implementation period, be set at the spot-month limit 
levels determined by DCMs to be equal to 25 percent of estimated 
deliverable supply.\34\ In the second phase of implementation, these 
spot-month limits would be based on 25 percent of estimated deliverable 
supply as determined by the Commission, which could choose to adopt 
exchange-provided estimates or, for example, in the case of 
inconsistent estimates from exchanges, issue its own estimates. 
Pursuant to current exchange procedures for updating the spot-month 
limits, exchanges initially establish and periodically update their 
limits through rule amendments that are filed with the Commission under 
self-certification or approval procedures. As part of the initial 
filing, or in response to subsequent inquiries from the Commission, the 
exchanges provide information showing how the spot-month limits comply 
with the Commission's regulations and acceptable practices.
---------------------------------------------------------------------------

    \34\ For the ICE Futures U.S. Sugar No. 16 (SF) and Chicago 
Mercantile Exchange Class III Milk (DA), the Commission proposes to 
adopt the DCM single-month limits for the nearby month or first-to-
expire referenced contract as spot-month limits. These contracts 
currently have single-month limits which are enforced in the spot 
month.
---------------------------------------------------------------------------

    With respect to the existing spot-month limits that currently are 
in effect for referenced contracts, the Commission notes that, 
irrespective of the manner in which a rule amendment is filed (by self-
certification or for approval), Commission staff currently evaluates 
the limits for compliance with the requirements of Core Principle 5 and 
the criteria set out in the Commission's Acceptable Practices. For 
physically delivered contracts, staff evaluates the information 
supplied by the exchange and other available information regarding the 
underlying commodity to ensure that the spot-month limit does not 
exceed 25 percent of the estimated deliverable supplies. For cash-
settled

[[Page 4758]]

contracts, staff evaluates the information supplied by the exchanges 
and independently assesses the nature of the market underlying the 
cash-settlement calculation, including the depth and breadth of trading 
in that market, to determine the ability of a trader to exert market 
power and influence the cash-settlement price, with the aim of having a 
spot-month limit level that effectively limits a trader's incentive to 
exercise such market power.
    With respect to cash-settled contracts, proposed Sec.  151.4 
incorporates a conditional-spot-month limit that permits traders 
without a hedge exemption to acquire position levels that are five 
times the spot-month limit if such positions are exclusively in cash-
settled contracts and the trader holds physical commodity positions 
that are less than or equal to 25 percent of the estimated deliverable 
supply. The proposed limit maximizes the objectives, enumerated in 
section 4a(a)(3) of the Act, of deterring manipulation and excessive 
speculation while ensuring market liquidity and efficient price 
discovery by establishing a higher limit for cash-settled contracts as 
long as such positions are decoupled from large physical commodity 
holdings and the positions in physical delivery contracts which set or 
affect the value of cash-settled positions. The conditional-spot-month 
position limit generally tracks exchange-set position limits currently 
implemented for certain cash-settled energy futures and swaps. For 
example, the NYMEX Henry Hub Natural Gas Last Day Financial Swap, the 
NYMEX Henry Hub Natural Gas Look-Alike Last Day Financial Futures, and 
the ICE Henry LD1 swap are all cash-settled contracts subject to a 
conditional-spot-month limit that, with the exception of the 
requirement that a trader not hold large cash commodity positions, is 
identical in structure to the limit proposed herein.
    This proposed conditional spot-month position limit formula is 
consistent with Commission guidance. The Acceptable Practices for Core 
Principle 5 state that a spot-month position limit may be necessary if 
the underlying cash market is small or illiquid such that traders can 
disrupt the cash market or otherwise influence the cash-settlement 
price to profit on a futures position. In these cases, the limit should 
be set at a level that minimizes the potential for manipulation or 
distortion of the futures contract or the underlying commodity's price. 
With respect to cash-settled contracts where the underlying product is 
a physical commodity with limited supplies where a trader can exert 
market power (including agricultural and exempt commodities), the 
Commission has viewed the specification of a spot-month limit to be an 
essential term and condition of such contracts in order to ensure that 
they are not readily susceptible to manipulation, which is the Core 
Principle 3 requirement, and to satisfy the requirements of Core 
Principle 5 and the Acceptable Practices thereunder. In practice, for 
cash-settled contracts on agricultural and exempt commodities where a 
trader's market power is of concern, the practice has been to set the 
spot-month limit at some percentage of calculated deliverable supply. 
Limiting a trader's position at the expiration of cash-settled 
contracts diminishes the incentive to exert market power to manipulate 
the cash-settlement price or index to advantage a trader's position in 
the cash-settlement contract. Accordingly, the Commission has viewed 
the presence of a spot-month speculative limit as a key feature of such 
cash-settlement contracts, along with the design of the cash-settlement 
index, in ensuring that such contracts are not readily susceptible to 
manipulation and thus satisfy the requirements of Core Principles 3 and 
5.
    In view of the above, the Commission generally has required that, 
to comply with Core Principles 3 and 5, all futures contracts based on 
agricultural or exempt commodities, because they have finite supplies 
and are subject to price distortion and manipulation, must have a spot-
month limits, irrespective of whether the contract specifies physical 
delivery or cash settlement. In addition, the establishment of position 
limits on swaps is consistent with congressional guidance in the CFTC 
Reauthorization Act of 2008.\35\ That legislation amended the CEA by, 
among other things, adding core principles in new section 2(h)(7) 
governing swaps that were significant price discovery contracts traded 
on electronic trading facilities operating in reliance on the exemption 
in section 2(h)(3) of the Act. The 2008 legislation amended the Act to 
impose certain self-regulatory responsibilities with respect to such 
swaps through core principles, including a core principle that required 
the adoption of position limits or position accountability levels where 
necessary and appropriate. The CFTC Reauthorization Act, thus, 
recognized the appropriateness of treating certain swaps and futures 
contracts in the same manner, thereby authorizing the imposition of 
position limits on such swaps (which are cash-settled contracts).
---------------------------------------------------------------------------

    \35\ Food, Conservation and Energy Act of 2008, Public Law 110-
246, 122 Stat. 1624 (June 18, 2008).
---------------------------------------------------------------------------

    In order to facilitate the annual calculations of spot-month 
position limits, the Commission proposes to require each DCM that lists 
a referenced physical delivery contract to submit, on an annual basis, 
an estimate of deliverable supply to the Commission. This estimate 
would include supplies that are available through standard marketing 
channels at market prices prevailing during the relevant spot months. 
Deliverable supply would not include supplies that could be procured at 
unreasonably high prices or diverted from non-standard locations. 
Deliverable supply would also not include supply that is committed for 
long-term agreements and would therefore not be available to fulfill 
the delivery obligations arising from current trading. The Commission 
would consider the DCM's estimate in conjunction with analyzing its own 
data and reviewing position limit related DCM filings, and make a final 
determination as to deliverable supply. In making this determination, 
the Commission would weigh more heavily the highest monthly values of 
past deliverable supply, provided it did not occur in particularly 
unusual market conditions, over a reasonable time period to estimate 
the largest deliverable supply.
    The Commission invites comments on all aspects of its proposed 
spot-month position limit framework. For example, how broadly or 
narrowly should the Commission consider what constitutes deliverable 
supply? Should the Commission adopt the proposed conditional-spot-month 
limits or adopt a uniform spot-month limit? Alternatively, should the 
conditional-spot-month limit be set at a higher level relative to the 
level of deliverable supply? If so, why?

B. Non-Spot-Month Position Limits

1. Open Interest Formula
    While the Commission proposes to set spot-month limits in the 
transitional implementation period, the Commission would impose non-
spot-month position limits only in the second phase of implementation. 
In contrast to spot-month position limits which are set as a function 
of deliverable supply, the class and aggregate single-month and all-
months-combined position limits, as proposed, would be tied to a 
specific percentage of overall open interest for a particular 
referenced contract in the aggregate or on a per class basis. Under the 
proposed regulations, there are two classes of contracts in connection 
with

[[Page 4759]]

non-spot-month limits. One class is comprised of all futures and option 
contracts executed pursuant to the rules of a DCM. The second class is 
comprised of all swaps.
    In addition to an aggregate single-month and all-months-combined 
position limit that would apply across classes, the proposed 
regulations would apply single-month and all-months-combined position 
limits to each class separately. Class limits would ensure that market 
power is not concentrated in any one submarket, and that a trader is 
not flat in the aggregate while holding excessively large offsetting 
positions in any one submarket. Class and aggregate position limits 
based on a percentage of open interest may help prevent any single 
speculative trader from acquiring excessive market power. The formula 
proposed herein is intended to ensure that no single speculator can 
constitute more than 10 percent of a market, as measured by open 
interest, up to 25,000 contracts of open interest, and 2.5 percent 
thereafter.\36\
---------------------------------------------------------------------------

    \36\ See Revision of Federal Speculative Position Limits, 57 FR 
12766, April 13, 1992; and Revision of Federal Speculative Position 
Limits and Associated Rules, 64 FR 24038, at 24039, May 5, 1999.
---------------------------------------------------------------------------

    Proposed Sec.  151.4 proposes to use the futures position limits 
formula (the 10, 2.5 percent formula) to determine non-spot-month 
position limits for referenced contracts. The 10, 2.5 percent formula 
is identified in current Commission Sec.  150.5(c)(2). Given the level 
of open interest in the futures markets and the likely level of open 
swaps based on data available to the Commission, this formula would 
yield high position limits that nonetheless would prevent a speculative 
trader from acquiring excessively large positions and thereby would 
help prevent excessive speculation and deter and prevent market 
manipulation, squeezes, and corners. The resultant limits are purposely 
designed to be high in order to ensure sufficient liquidity for bona 
fide hedgers and avoid disrupting the price discovery process given the 
limited information the Commission has with respect to the size of the 
physical commodity swap markets.\37\
---------------------------------------------------------------------------

    \37\ See 57 FR 12766, at 12771.
---------------------------------------------------------------------------

    As discussed further below, for the agricultural futures contracts 
enumerated in current Sec.  150.2, the Commission is proposing legacy 
limits that would retain the all-months-combined limits for such 
contracts and would make the single-month limits equal to the all-
months-combined limits.
    The Commission emphasizes that market data can support a range of 
acceptable speculative position limits. The Commission currently 
obtains DCM futures and option positional data under parts 15 through 
19 and 21 of its regulations, which derive their statutory authority in 
significant part from sections 4a, 4g and 4i of the CEA. With regard to 
swaps, the Commission receives limited positional data for cleared 
swaps that are significant price discovery contracts under part 36 of 
its regulations and limited positional data on certain swaps that are 
cleared, but not traded, by registered derivatives clearing 
organizations. While the Commission requires additional, reliable, and 
verifiable swaps data to enforce the position limits proposed herein, 
the Commission believes that it has sufficient data to set the overall 
concentration-based percentages for the position limits. The Commission 
intends to finalize regulations that would provide it with 
comprehensive positional data on physical commodity swaps, and would 
use such data to fix numerical position limits through the application 
of the proposed open-interest-based position limit formula.\38\
---------------------------------------------------------------------------

    \38\ See 75 FR 67258.
---------------------------------------------------------------------------

    The trader visibility requirements of Sec.  151.6, as described 
below, establish levels that trigger reporting requirements similar to 
reports that certain hedgers currently submit pursuant to '04 reports 
under part 19 of the Commission's regulations. These reporting 
requirements aim to make the physical and derivatives portfolios of the 
largest traders in referenced contracts visible to the Commission. This 
information would generally allow the Commission to understand large 
traders' trading activities and to assess the appropriateness of the 
speculative position limits set forth in the proposed part 151. The 
Commission would then potentially be able to, among other things, more 
readily identify instances where a trader's large positions create an 
ability to manipulate the market and cause sudden price changes or 
distortions. Moreover, the position visibility-related reports could 
potentially enable the Commission to perform some econometric analyses 
of the impact of speculative positions on price formation in referenced 
contracts. The position visibility levels that trigger reporting 
obligations are not intended to function as safe harbors from any 
charge of manipulation or excessive speculation. Visibility levels are 
in no way intended to imply that positions at or near such levels 
cannot constitute excessive speculation or be used to manipulate prices 
or for other wrongful purposes.
    The Commission solicits comment as to whether the traditional 10, 
2.5 percent formula should be uniformly applied to all referenced 
contracts as is being proposed. If not, why? In particular, given that 
single-month and all-months-combined position limits are not currently 
in place for energy and metals markets, should the Commission consider 
setting limits initially on these commodities at some higher level, 
such as a 10, 5 percent formula based on open interest, in order to 
best ensure that hedging activities or price discovery are not 
negatively affected? With respect to class limits, the Commission 
specifically solicits comment on whether additional classes, such as 
separate class categories for cleared and uncleared swaps, should be 
adopted to ensure that large positions that result in excessive 
concentration of positions in a submarket are not acquired?
2. Calculation of Open Interest
    Under the proposed position limit framework, there are six possible 
non-spot-month position limits: Aggregate all-months-combined and 
single-month limits; futures class all-months-combined and single-month 
limits; and swaps class all-months-combined and single-month limits. In 
each case, single-month limits are proposed to equal all-months-
combined limit levels. The Commission is proposing this approach in 
order to lessen the complexity of the limits and hence compliance 
burdens. The Commission is also proposing this approach, which would 
result in higher single-month limits, to incorporate a calendar spread 
exemption within the single-month limits (including an across crop year 
spread exemption) and remove the calendar spread exemption which would 
no longer be needed.
    As discussed above, the Commission proposes to set non-spot-month 
position limits as a function of open interest. The general formula 
would set non-spot-month position limits as the sum of 10 percent of 
the first 25,000 contracts of open interest base and 2.5 percent of the 
open interest base beyond 25,000 contracts. All open interest base 
calculations would be derived from month-end open interest values. The 
open interest bases would be utilized to determine the average all-
months-combined open interest which, in turn, would be the basis for 
the six non-spot-month position limits. Under proposed Sec.  151.4(e), 
the average all-months-combined open interest would be the average of 
the relevant all-months open interest base for a calendar year. The 
open interest base levels would be

[[Page 4760]]

calculated in the same manner described in the Commission's January 
2010 release proposing position limits for certain referenced energy 
contracts.\39\
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    \39\ See 75 FR 4144, at 4153. A list of contracts that 
illustrate how open interest values would be calculated is available 
at http://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_26_PosLimits/index.htm. The list enumerates the types of referenced 
contracts' open interest that would roll up into a 151.2-listed 
contract's open interest for the purpose of determining overall open 
interest levels. Once swap open interest data for swaps that are 
referenced contracts is collected, the open interest value for such 
swaps would also be rolled up into the related 151.2-listed futures 
contract's open interest along with the open interest of other 
related referenced contracts.
---------------------------------------------------------------------------

    Cleared referenced swap contract open interest would be based on 
month-end open interest figures provided to the Commission by clearing 
organizations. The Commission proposes to determine the uncleared swap 
open interest based on the month-end average for the sum of swap dealer 
positions in all months in uncleared referenced swap contracts. In 
order to determine a swap dealer's position in all months in uncleared 
referenced swap contracts, the Commission would undertake a four-step 
process. First, the Commission would determine a single swap dealer's 
net exposure by counterparty by referenced contract month. Second, the 
Commission would add the swap dealer's net counterparty exposures in 
the same referenced contract month on an absolute basis to determine 
the swap dealer's open interest for the referenced contract single 
month. Third, the Commission would combine the swap dealer's positions 
in the referenced contract month in order to determine its contribution 
to the uncleared swap single-month open interest. Finally, the 
Commission would combine the swap dealer's positions in single 
referenced contract months. At month end, this sum would constitute 
that swap dealer's contribution to the uncleared referenced swap 
contract all-months open interest (and the aggregate all-months 
referenced contract open interest). For example, a swap dealer with the 
following referenced contract portfolio would contribute 2,000 
contracts to the all-months uncleared swap open interest, 1,000 from 
each counterparty, based on positions of 1,100, 500, and 400 contracts 
for the January, February, and March referenced single contract months 
respectively:

----------------------------------------------------------------------------------------------------------------
                                         Net position January    Net position February      Net position March
                                         referenced contract      referenced contract      referenced contract
----------------------------------------------------------------------------------------------------------------
Counterparty 1.......................                     -600                     -200                     -200
Counterparty 2.......................                     +500                     -300                     -200
----------------------------------------------------------------------------------------------------------------

3. Legacy Position Limits
    The proposed regulations would retain the all-months-combined 
position limits for enumerated agricultural commodities in current 
Sec.  150.2 as an exception to the general open interest based formula. 
The single-month limit would be increased to the same level as the 
legacy all-months-combined limit, with the elimination of the calendar 
month spread exemption.
    The Commission requests comment on whether the legacy position 
limits should be retained or treated as other derivatives are treated 
under this proposal, and if so, whether the levels should be increased, 
to the following amounts requested in an April 6, 2010 petition to the 
Commission by the Chicago Board of Trade \40\:
---------------------------------------------------------------------------

    \40\ CME Group Petition for Amendment of Commodity Futures 
Trading Commission Regulation (April 6, 2010), available at http://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_26_PosLimits/index.htm. The CME petition was premised on the 
Commission's past reliance on open interest levels for setting 
position limits and the increase in open interest levels of the 
contracts listed in the petition.

------------------------------------------------------------------------
                                                      Single      All
                     Contract                         month      months
------------------------------------------------------------------------
Corn (and Mini-Corn)..............................     20,500     33,000
Soybeans (and Mini-Soybeans)......................     10,000     15,000
Wheat (and Mini-Wheat)............................      9,000     12,000
Soybean Oil.......................................      6,500      8,000
------------------------------------------------------------------------

    If so adopted, should the limits on wheat at the Minneapolis Grain 
Exchange and the Kansas City Board of Trade also be increased to the 
level proposed for the wheat contract at the Chicago Board of Trade, 
consistent with the Commission's historical approach to setting limits 
for wheat contracts?

C. Exemptions for Referenced Contracts

    Proposed Sec.  151.5 establishes exemptions from position limits 
for bona fide hedging transactions or positions as directed by the 
Dodd-Frank Act specifically for exempt and agricultural commodities. 
The referenced contracts subject to the proposed position limit 
framework would be subject to the bona fide provisions of proposed 
Sec.  151.5 and would no longer be subject to Sec.  1.3(z), which would 
be retained only for excluded commodities. Sec.  1.47 and Sec.  1.48 
would be removed by this notice of proposed rulemaking.
    Section 4a(c)(1) of the Act authorizes the Commission to define 
bona fide hedging transactions or positions ``consistent with the 
purposes of the Act.'' By its terms, the section places no restriction 
on the Commission's ability to define bona fide hedging for swaps. 
Congress also directed the Commission, in amended CEA section 4a(c)(2), 
to adopt a definition for bona fide hedging transactions or positions 
for purposes of setting position limits pursuant to section 4a(a)(2), 
which refers only to futures contracts or options.\41\ A definition of 
bona fide hedging that would exclude swaps would deny a commercial end-
user the option of offsetting price risks with swaps (as opposed to 
futures) pursuant to a bona fide hedge exemption. Accordingly, pursuant 
to section 4a(c)(1) and (c)(2), the Commission is proposing a 
definition for bona fide hedging transactions and positions that would 
apply to all referenced contracts, including swaps, as opposed to 
referenced futures and option contracts only.
---------------------------------------------------------------------------

    \41\ The scope of contracts subject to position limits under 
section 4a(a)(2) includes physical commodity futures and options 
contracts traded on a DCM, other than excluded commodities.
---------------------------------------------------------------------------

    The statutory definition of a bona fide hedge in section 4a(c)(2) 
generally follows the existing definition in Commission Sec.  
1.3(z)(1), except: (1) The directive requires all bona fide hedging 
transactions and positions to represent a substitute for a physical 
market transaction; and (2) as discussed above, the directive provides 
an explicit exemption for a trader to reduce the risks of swap 
positions, provided the counterparty to the swap transaction would have 
qualified for a bona fide hedging transaction exemption or the risk 
reducing positions offset a swap that qualifies as a bona fide hedging 
transaction.
    The definition of bona fide hedging in Sec.  1.3(z) of the Act 
provides that a bona fide hedging transaction or position in a futures 
contract normally represents a substitute for a physical market

[[Page 4761]]

transaction; thus, the current definition is no longer consistent with 
amended CEA section 4a(c)(2). The plain text of the new statutory 
definition of bona fide hedging recognizes bona fide hedging for 
derivatives that are subject to this rulemaking only if such 
transactions or positions represent cash market transactions and offset 
cash market risks, as opposed to the acceptance of bona fide hedging 
transactions and positions as activity that normally, but not 
necessarily, represents a substitute for cash market transactions or 
positions.
    Proposed Sec.  151.5(a)(2) incorporates the current requirements of 
Commission Sec.  1.3(z)(2) for enumerated hedging transactions. 
Proposed Sec.  151.5(a)(2)(iv) also provides an exemption for agents 
contractually responsible for the merchandising of cash positions with 
a person who owns the commodity or holds the cash market commitment 
being offset. This agent provision is consistent with Commission Sec.  
1.3(z)(3) and Sec.  1.47.
    In this regard, should the Commission grant an exemption to an 
agent that is not responsible for the merchandising of the cash 
positions, but is linked to the production of the physical commodity, 
for example, if the agent is the provider of crop insurance?
    Proposed Sec.  151.5(b) establishes reporting requirements for a 
trader upon exceeding a position limit. The trader is required to 
submit information not later than 9:00 a.m. on the business day 
following the day the limits were exceeded. The reports would support 
hedgers' need for large referenced contract positions and would give 
the Commission the ability to verify the positions were a bona fide 
hedge.
    With respect to the frequency of filing such reports, should the 
Commission only require reports to be submitted either when a trader's 
position either first exceeds a limit or when a trader's hedging need 
increases, with a monthly summary while the trader's position remains 
in excess of the limit?
    Proposed Sec.  151.5(c) specifies application and approval 
requirements for traders seeking an anticipatory hedge exemption, 
incorporating the current requirements of Commission Sec.  1.48. As is 
the case under current Sec.  1.48, a trader's maximum sales and 
purchases shall not exceed the lesser of the approved exemption amount 
or the trader's current actual unsold anticipated production or current 
unfilled anticipated requirements. In addition, the proposed 
regulations require an anticipatory hedger to file a supplement to an 
application at least annually or whenever the anticipatory hedging 
needs increase beyond that in the most recent filing.
    Proposed Sec.  151.5(d) establishes additional reporting 
requirements for a trader that exceeds the position limits to reduce 
the risks of certain swap transactions, discussed above. Should the 
Commission only require such reports to be submitted when the trader's 
position either first exceeds a limit or the hedging need increases, 
with a monthly summary while the trader's position remains in excess of 
the limit?
    Proposed Sec.  151.5(e) specifies recordkeeping requirements for 
traders that acquire positions in reliance on bona fide hedge 
exemptions, as well as for swap counterparties for which a counterparty 
represents that the transaction would qualify as a bona fide hedging 
transaction. Swap dealers availing themselves of a hedge exemption 
would be required to maintain a list of such counterparties and make 
that list available to the Commission upon request. Proposed Sec.  
151.5(g) and (h) provide procedural documentation requirements for such 
swap participants.
    Proposed Sec.  151.5(f) requires a cross hedger to provide 
conversion information, as well as an explanation of the methodology 
used to determine such conversion information, between the commodity 
exposure and the referenced contracts used in hedging.
    Proposed Sec.  151.5(i) requires reports by bona fide hedgers to be 
filed for each business day, up to and including the day after the 
trader's position level is below the position limit that was exceeded.
    Proposed Sec.  151.5(j) provides that a swap counterparty with 
respect to bona fide hedging transactions may establish a position in 
excess of the position limits, offset that position, and then re-
establish a position in excess of the position limits. For example, 
this provision permits a swap participant who has reduced the risk of 
swaps using a position in futures contracts (that would otherwise 
violate a position limit) to offset those futures contracts and 
subsequently, if necessary, re-establish a position in excess of class 
position limits in another venue in order to once again reduce the risk 
of the swap transactions.

D. Position Visibility

    Based on its analysis of the proposed limits as applied to futures 
and option contract positions and cleared swaps for which the 
Commission has open interest data, the Commission does not anticipate 
that the number of traders with positions in referenced base and 
precious metals and referenced energy contracts, as further discussed 
below in the Cost-Benefit and Paperwork Reduction Act sections of this 
release, would constitute a significant segment of the affected 
markets, in contrast to the number of traders with positions in 
referenced agricultural contracts. Recognizing this, the Commission 
proposes to establish, in addition to the position limits discussed 
above, position visibility regulations for referenced contracts other 
than referenced agricultural contracts, pursuant to the Commission's 
authority to establish reporting requirements under section 4t of the 
Act, as added by the Dodd-Frank Act, and reporting requirements 
necessary for the establishment and enforcement of position limits 
under sections 4a and 8a(5) of the Act. The proposed visibility 
regulations would set position visibility reporting levels and 
establish reporting requirements for all traders exceeding those 
levels. The reporting regulations aim to make the physical and 
derivatives portfolios of the largest traders in referenced contracts 
visible to the Commission.
    The position visibility regime would improve the Commission's 
ability to monitor the positions of the largest traders in the markets 
for referenced base and precious metals and referenced energy contracts 
and the effects on the markets of those large positions and their 
associated physical commodity and derivatives portfolios. The data for 
referenced contracts and related portfolios that the Commission would 
receive pursuant to the position visibility regulations would allow the 
Commission to better analyze the nature of the largest traders' 
positions in referenced contracts.
    The Commission has set the visibility levels and its estimates on 
the number of traders they would capture based on data it currently 
receives on the futures and swaps markets. The Commission may revisit 
these levels as it begins to receive more data on the swaps markets. 
The Commission proposes to set the visibility reporting levels for 
referenced base and precious metals and referenced energy contracts 
where it anticipates approximately 20 unique owners over the course of 
a year would exceed such levels. Given their importance to the national 
economy, the Commission proposes to set visibility levels for the NYMEX 
Light Sweet Crude Oil (CL) and Henry Hub Natural Gas (NG) referenced 
contracts at a relatively lower level designed to capture approximately 
30 unique owners over the course of a year.
    Proposed Sec.  151.6 would require traders with positions above 
visibility

[[Page 4762]]

levels in referenced base and precious metals and energy commodities to 
submit additional information about cash market and derivatives 
activity, including data relating to substantially the same commodity, 
such as commodities that are different grades or formulations of the 
same basic commodity. Proposed Sec.  151.6(c) would require additional 
information, through a 402S filing, on a trader's uncleared swaps in 
substantially the same commodity. Proposed Sec.  151.6(d) would require 
the reportable trader to submit information about cash market positions 
in substantially the same commodity, as described in proposed Sec.  
151.5(b), through 404 and 404A filings.
    The Commission solicits comment on whether position visibility 
requirements should also be imposed on referenced agricultural 
contracts.

E. Aggregation of Accounts

    Proposed Sec.  151.7 would establish account aggregation standards 
specifically for positions in referenced contracts. Under the proposed 
standards, the Federal position limits in referenced contracts would 
apply to all positions in accounts in which any trader, directly or 
indirectly, has an ownership or equity interest of 10 percent or 
greater or, by power of attorney or otherwise, controls trading. These 
standards for aggregation are consistent with the standards delineated 
in the Acceptable Practice to DCM Core Principle 5 in Appendix B to 
part 38 of the Commission's regulations. Proposed Sec.  151.7 would 
also treat positions held by two or more traders acting pursuant to an 
express or implied agreement or understanding the same as if the 
positions were held by, or the trading of the positions were done by, a 
single trader. Proposed Sec.  151.7 would require a trader to aggregate 
positions in multiple accounts or pools, including passively managed 
index funds, if those accounts or pools had identical trading 
strategies.
    Proposed Sec.  151.7(c) establishes a limited exemption for 
positions in pools in which a person that is a limited partner, 
shareholder or similar person has an ownership or equity interest of 
between 10 percent and 25 percent, if the person does not have control 
over or knowledge of the pool's trading. Proposed Sec.  151.7(e) 
establishes a limited exemption for the positions of futures commission 
merchants in certain discretionary accounts, if they maintain only 
minimum control over trading in the relevant account and if the trading 
decisions of that account are independent from trading decisions in the 
futures commission merchants' other accounts. Finally, proposed Sec.  
151.7(f) establishes a limited exemption for entities to disaggregate 
the positions of an independently controlled and managed trader that is 
not a financial entity, defined as an owned non-financial entity, in 
which it has an ownership or equity interest of 10 percent or greater, 
and it provides a non-exhaustive description of indicia that 
demonstrate independent control and management to the Commission. In 
all three cases, the exemption would only become effective upon the 
Commission's approval of an application described in proposed Sec.  
151.7(g).
    In the aggregation standards currently in force in part 150 of the 
Commission's regulations, eligible entities (a broad group that 
includes banks, insurance companies, mutual funds, commodity pool 
operators and commodity trading advisors) are permitted to disaggregate 
positions pursuant to a self-executing independent account controller 
framework. Part 150 also provides expansive disaggregation provisions 
for commodity pool operators, limited partners and other pool 
participants as well as for futures commission merchants.
    These disaggregation exceptions may be incompatible with the 
proposed Federal position limit framework and used to circumvent its 
requirements. Given that the proposed framework sets high position 
levels that are reflective of the largest positions held by market 
participants, permits for the netting of positions for like referenced 
contracts within each applicable position limit, and includes a 
conditional-spot-month limit for cash-settled contracts and exemptions 
for bona fide hedging (either directly or as a result of the look-
through provision), allowing traders to establish a series of positions 
each near a proposed position limit, without aggregation, may not be 
appropriate. In addition, the self-executing nature of the exemptions 
creates an insufficient and inefficient verification regime and 
ultimately diminishes the Commission's ability to properly perform its 
market surveillance responsibilities.
    Thus, the proposed aggregation standards differ in several respects 
from the current standards in part 150. The proposed regulations would 
require aggregation for a passive pool participant with a 10 percent or 
greater ownership or equity interest (unless the pool operator had 
proper information barriers in place and the pool participant did not 
have control over the pool's trading decisions). By comparison, under 
current part 150, a passive pool participant would aggregate its 
positions only if it was also a principal or affiliate of the pool 
operator. The proposed regulations would require aggregation for any 
passive pool participant with a 25 percent or greater ownership or 
equity interest, with no possibility for disaggregation, whereas 
current part 150 only follows such an approach for pools with operators 
that are exempt from registration under Sec.  4.13. The proposed 
regulations would also require aggregation for positions in accounts or 
pools with identical trading strategies, which part 150 currently 
lacks, in order to prevent circumvention of the aggregation 
requirements by, for example, a trader seeking a large long-only 
position in a given commodity through specific positions in multiple 
pools.
    In addition, the proposed regulations do not retain the independent 
account controller exemption of part 150. The regulations proposed in 
January of 2010 to establish position limits for referenced energy 
contracts also did not include an independent account controller 
framework; they included only a very narrow exemption thereto for 
certain passive pool participants.\42\ Many commenters to the January 
2010 proposed regulations expressed opposition to such strict 
standards, arguing that they would force aggregation of positions in 
situations where meaningful control, management and information 
barriers demonstrated sufficient independence to warrant 
disaggregation. The current regulations address some of these concerns 
by establishing a limited exemption for owned non-financial entities.
---------------------------------------------------------------------------

    \42\ See 75 FR 4144, at 4146.
---------------------------------------------------------------------------

    The owned non-financial entity exemption would allow an entity to 
disaggregate (1) the positions of a non-financial entity in which it 
owns a 10 percent or greater ownership or equity interest from (2) its 
own directly held or controlled positions and the positions attributed 
to it (through the general 10 percent ownership standard or other 
aggregation requirements of the proposed regulations), if it can 
demonstrate that the owned non-financial entity is independently 
controlled and managed. This limited exemption aims to allow 
disaggregation primarily in the case of a conglomerate or holding 
company that merely has a passive ownership interest in one or more 
non-financial operating companies. In such cases, the operating 
companies may have complete trading and management independence and 
operate at such a distance from the holding company that it would not 
be

[[Page 4763]]

appropriate to aggregate positions. Two of the criteria proposed as 
indicia of independence are similar to those currently contained in 
part 150, namely the requirements that the entity have no knowledge of 
the owned non-financial entity's trading decisions (along with, in the 
proposed regulations, the reverse requirement that the owned non-
financial entity have no knowledge of the entity's trading decisions) 
and that the owned non-financial entity have written policies and 
procedures to protect such knowledge. Two other proposed indicia not 
found in current part 150, requiring separate employees and risk 
management systems, would provide further evidence of the owned non-
financial entity's independence. As mentioned above, the indicia 
described in proposed Sec.  151.7(f) are not meant to form an 
exhaustive list; under the proposed application process described in 
151.7(g), a departure from the self-executing exemption of part 150, 
the applying entity could describe for the Commission any other 
relevant circumstances that would warrant disaggregation.
    The Commission solicits comments on all aspects of its account 
aggregation regulations. In particular, the Commission solicits 
comments on the appropriateness of the definition of owned non-
financial entities and the criteria used to determine the independence 
of such entities. The Commission also solicits comments on whether and 
under what circumstances the Commission should grant exemptions from 
account aggregation under its exemptive authority under section 
4a(a)(7) of the Act.

F. Preexisting Positions and Exemptions

    Consistent with the good faith exemption in section 4a(b)(2) of the 
Act, the Commission will provide a limited exemption for positions in 
DCM contracts for future delivery or option contracts that are in 
excess of a position limit in proposed Sec.  151.2, provided that they 
were established in good faith prior to the effective date of a 
position limit set by rule, regulation or order. Such persons would not 
be allowed to enter into new, additional contracts in the same 
direction but could take up offsetting positions and thus reduce their 
total combined net position.\43\ Persons who established a net position 
below the speculative limit for a contract for future delivery prior to 
the enactment of a regulation would be permitted to acquire new 
positions. However, consistent with Commission practice, the Commission 
would calculate the combined position of a person based on any position 
established prior to enactment of a position limit rule, regulation or 
order plus any new position.
---------------------------------------------------------------------------

    \43\ The Commission understands that changes in option deltas 
could increase the net level of a person's pre-enactment position.
---------------------------------------------------------------------------

    In contrast to futures and option contracts, the proposed 
regulations would not apply position limits to Dodd-Frank Act pre-
effective date swaps. The Commission is proposing this broad exemption 
since swaps generally may be appreciably longer lived than futures 
contracts thereby giving rise to concerns that position limits 
affecting pre-effective date swaps may unnecessarily disrupt position 
hedging through swap positions. The Commission would allow pre-
effective date swaps to be netted with post-effective date swaps for 
the purpose of complying with position limits.
    The Commission has previously granted certain swap dealers hedge 
exemptions under current Sec.  1.47, without regard to the purposes or 
hedging needs of swap dealer counterparties. The Commission intends to 
permit such swap dealers to continue to manage the risk of a swap 
portfolio that exists at the time of implementation of the proposed 
regulations. No new swaps will be covered by the exemption.
    In this regard, the Commission seeks comment on what additional 
reporting requirements, if any, it should impose on swap dealers that 
were granted a hedge exemption.

G. Foreign Boards of Trade

    Proposed Sec.  151.8 would provide that the aggregate position 
limits in proposed Sec.  151.4 apply to a trader's positions in 
referenced contracts executed on, or pursuant to the rules of, a 
foreign board of trade, subject to the following conditions. First, the 
FBOT contract, agreement, or transaction must settle against the price 
of a contract executed or cleared pursuant to the rules of a registered 
entity. Second, the FBOT must make such linked contracts available to 
its members or other participants located in the United States by 
direct access to its electronic trading and order matching system.

H. Registered Entity Position Limits

    Proposed Sec.  151.11 requires registered entities \44\ to 
establish position limits for reference contracts that are at a level 
no higher than the position limits specified in proposed Sec.  151.4. 
Proposed Sec.  151.11(c) and (d)(1)(i) would require registered 
entities to follow the same account aggregation and bona fide exemption 
standards set forth by proposed Sec.  151.5 and Sec.  151.7 with 
respect to exempt and agricultural commodities.
---------------------------------------------------------------------------

    \44\ Relevant for these purposes, CEA section 1a(40), as amended 
by the Dodd-Frank Act, would define registered entity to include 
DCMs and SEFs.
---------------------------------------------------------------------------

    For excluded commodities,\45\ consistent with current DCM practice, 
registered entities would have the discretion to establish position 
accountability levels in lieu of position limits. Registered entities 
may impose position accountability rules in lieu of position limits 
only if either: The open interest in a contract is less than 5,000; or 
the contract involves a major currency; or involves an excluded 
commodity that has the following three characteristics: (1) An average 
daily open interest of 50,000 or more contracts, (2) an average daily 
trading volume of 100,000 or more contracts, and (3) a highly liquid 
cash market.
---------------------------------------------------------------------------

    \45\ See section 1a(19) of the Act.
---------------------------------------------------------------------------

    With respect to excluded commodities, consistent with the current 
DCM practice, registered entities may provide for exemptions from their 
position limits for ``bona fide hedging.'' The term ``bona fide 
hedging,'' as used with respect to excluded commodities, shall be 
defined in accordance with amended CFTC Sec.  1.3(z).\46\ Additionally, 
consistent with the current DCM practice, registered entities may 
continue to provide exemptions for ``risk-reducing'' and ``risk-
management'' transactions or positions consistent with existing 
Commission guidelines.\47\ Finally, though the Commission is removing 
the procedure to apply to the Commission for bona fide hedge exemptions 
for non-enumerated transactions or positions under Sec.  1.3(z)(3), the 
Commission will continue to recognize prior Commission determinations 
under that section, and registered entities may recognize non-
enumerated hedge transactions subject to Commission review.
---------------------------------------------------------------------------

    \46\ See Section 151.11(d)(1)(ii) of these proposed regulations. 
As explained in section C of this release, the definition of bona 
fide hedge transaction or position contained in section 4a(c)(2) of 
the Act does not, by its terms, apply to excluded commodities.
    \47\ See Clarification of Certain Aspects of Hedging Definition, 
52 FR 27195, Jul. 20, 1987; and Risk Management Exemptions From 
Speculative Position Limits Approved under Commission Regulation 
1.61, 52 FR 34633, Sept. 14, 1987.
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I. Delegation

    Proposed Sec.  151.12 delegates certain of the Commission's 
proposed part 151 authority to the Director of the Division of Market 
Oversight and to other employee or employees as designated by the 
Director. The delegated authority

[[Page 4764]]

extends to: (1) Determining open interest levels for the purpose of 
setting non-spot-month position limits; (2) granting an exemption 
relating to bona fide hedging transactions; and (3) providing 
instructions or determining the format, coding structure, and 
electronic data transmission procedures for submitting data records and 
any other information required under proposed part 151. The purpose of 
this delegation provision is to facilitate the ability of the 
Commission to respond to changing market and technological conditions 
and thus ensure timely and accurate data reporting. In this regard, the 
Commission specifically requests comments on whether determinations of 
open interest or deliverable supply should be adopted through 
Commission orders.

III. Related Matters

A. Cost-Benefit Analysis

    Section 15(a) of the Act requires that the Commission, before 
promulgating a regulation under the Act or issuing an order, consider 
the costs and benefits of its action. By its terms, CEA section 15(a) 
does not require the Commission to quantify the costs and benefits of a 
new regulation or determine whether the benefits of the regulation 
outweigh its costs. Rather, CEA section 15(a) simply requires the 
Commission to ``consider the costs and benefits'' of its action.
    CEA section 15(a) specifies that costs and benefits shall be 
evaluated in light of the following considerations: (1) Protection of 
market participants and the public; (2) efficiency, competitiveness, 
and financial integrity of futures markets; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations. Accordingly, the Commission could, in its discretion, 
give greater weight to any of the five considerations and could, in its 
discretion, determine that, notwithstanding its costs, a particular 
regulation was necessary or appropriate to protect the public interest 
or to effectuate any of the provisions or to accomplish any of the 
purposes of the Act.
    The proposed position limits and their concomitant limitation on 
trading activity could impose certain general but significant costs. 
Overly restrictive position limits could cause unintended consequences 
by decreasing speculative activity and therefore liquidity in the 
markets for the referenced contracts, impairing the price discovery 
process in these markets, and encouraging the migration of speculative 
activity and perhaps price discovery to markets outside of the 
Commission's jurisdiction. The outside spot-month position limits that 
would likely result from the application of the 10, 2.5 percent open 
interest formula, as proposed, are intended as high levels that 
speculators are likely to acquire in order to avoid disrupting or 
interfering with beneficial speculative trading.
    Congress has charged the Commission with establishing position 
limits on traders in certain physical commodity derivatives. In CEA 
section 4a(a)(3), Congress directed the Commission to establish such 
position limits in order to achieve, to the maximum extent practicable, 
in the Commission's discretion, the following objectives: To diminish, 
eliminate, or prevent excessive speculation; to deter and prevent 
market manipulation; while ensuring sufficient market liquidity for 
bona fide hedgers and protecting the price discovery function of 
commodity derivatives. Insofar as the provisions of the proposed part 
151 effectuate these goals, then the market and the public as a whole 
would benefit.
    In section 4a of the Act, Congress determined that excessive 
speculation in ``any commodity under contracts of sale of such 
commodity for future delivery * * * or swaps that perform a significant 
price discovery function with respect to regulated entities causing 
sudden or unreasonable fluctuations or unwarranted changes in the price 
of such commodity, is an undue and unnecessary burden on interstate 
commerce.'' In section 4a(a)(3) of the Act, Congress charged the 
Commission with the task of setting position limits designed to 
diminish, eliminate, or prevent ``excessive speculation.'' Accordingly, 
the speculative position limit framework established by the Commission 
would be expected to benefit the public and the markets regulated by 
the Commission by diminishing, eliminating, or preventing the undue 
burdens on interstate commerce that result from excessive speculation 
in markets regulated by the Commission.
    In addition, the proposed visibility levels and associated 
reporting requirements of proposed Sec.  151.6 would enable the 
Commission to better understand generally the portfolio compositions, 
including bona fide hedging needs, of the largest position holders of 
referenced contracts. This data would enable the Commission to 
determine whether to readjust the speculative position limits to 
continue to ensure the statutory objectives are met. Visibility reports 
would allow the Commission to have a better sense of the relative 
distribution of speculative versus non-speculative positions and 
activity, as well as the nature and effect of the largest speculative 
traders in referenced contracts.
    Section 4a(a)(3) of the Act also charges the Commission with 
setting position limits designed to ``deter and prevent market 
manipulation.'' The limitation on a trader's ability to take a very 
large position, not justified by a bona fide hedging need, may reduce a 
trader's ability to manipulate a market. By reducing a trader's ability 
to manipulate a market, a position limit regime would prevent 
manipulation and therefore avoid the resulting price distortions, 
economic harm, and misallocation of resources. In addition, the 
visibility levels and associated reporting obligations, as proposed in 
Sec.  151.6, would provide the Commission greater visibility into the 
portfolios of large speculative traders, thereby potentially 
facilitating early regulatory intervention when potential manipulative 
conduct or price distortions are detected.
    In addition to reducing the undue burdens arising from excessive 
speculation and manipulation, by reducing the ability of a market 
participant to gain very large speculative exposure in referenced 
contracts, proposed part 151 would encourage better risk management, 
reduce the likelihood of default, and may thereby reduce systemic risk. 
Although futures markets employ centralized clearing arrangements that 
reduce systemic risk, a very large speculative position taken by a 
levered participant across futures markets, other trading facilities, 
and in over-the-counter derivatives can result in a default risk not 
properly accounted for by any one trading venue or counterparty. The 
proposed regulations may therefore promote the financial integrity of 
the markets and protect the public by reducing systemic risk insofar as 
the provisions of the proposed part 151 would reduce the likelihood of 
such levered entities to generate systemic risk by either limiting 
their ability to amass a very large speculative position or by making 
such entities more visible to the Commission pursuant to proposed Sec.  
151.6.
    The Commission invites public comment on its cost-benefit 
considerations. Commenters are also invited to submit any data or other 
information that they may have quantifying or qualifying the costs and 
benefits of proposed part 151.

[[Page 4765]]

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires that agencies consider the impact of their regulations on 
small businesses. The requirements related to the proposed amendments 
fall mainly on registered entities, exchanges, futures commission 
merchants, swap dealers, clearing members, foreign brokers, and large 
traders. The Commission has previously determined that exchanges, 
futures commission merchants and large traders are not ``small 
entities'' for the purposes of the RFA.\48\ Similarly, swap dealers, 
clearing members, foreign brokers and traders would be subject to the 
proposed regulations only if carrying or holding large positions. 
Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies, pursuant to 5 U.S.C 605(b), that the actions proposed to be 
taken herein would not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \48\ 44 U.S.C. 601 et seq.
---------------------------------------------------------------------------

C. Paperwork Reduction Act

1. Overview
    The Paperwork Reduction Act (``PRA'') \49\ imposes certain 
requirements on Federal agencies in connection with their conducting or 
sponsoring any collection of information as defined by the PRA. Certain 
provisions of the proposed regulations would result in new collection 
of information requirements within the meaning of the PRA. An agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless it displays a currently valid 
control number. The Office of Management and Budget (``OMB'') has not 
yet assigned a control number to the new collections associated with 
these proposed regulations. Therefore, the Commission is submitting 
this proposal to OMB for review in accordance with 44 U.S.C. 3507(d) 
and 5 CFR 1320.11. The title for this proposed collection of 
information is ``Part 151--Position Limit Framework for Referenced 
Contracts'' (OMB control number 3038-NEW).
---------------------------------------------------------------------------

    \49\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    If adopted, responses to this collection of information would be 
mandatory. The Commission will protect proprietary information 
according to the Freedom of Information Act and 17 CFR part 145, headed 
``Commission Records and Information.'' In addition, the Commission 
emphasizes that section 8(a)(1) of the Act strictly prohibits the 
Commission, unless specifically authorized by the Act, from making 
public ``data and information that would separately disclose the 
business transactions or market positions of any person and trade 
secrets or names of customers.'' \50\ The Commission also is required 
to protect certain information contained in a government system of 
records pursuant to the Privacy Act of 1974.\51\
---------------------------------------------------------------------------

    \50\ 7 U.S.C. 12(a)(1).
    \51\ 5 U.S.C. 552a.
---------------------------------------------------------------------------

    Under the proposed regulations, market participants with positions 
in referenced contracts, as defined in proposed Sec.  151.2, would be 
subject to the position limit framework established by proposed part 
151. Proposed part 151 prescribes reporting requirements for traders 
claiming compliance with the conditional spot-month position limit 
(proposed Sec.  151.4(a)(2)), reporting requirements for DCMs that list 
a referenced contract (proposed Sec.  151.4(c)), traders claiming a 
bona fide hedging exemption (proposed Sec.  151.5(b) and (c)), traders 
claiming a bona fide hedge that does not involve the same quantity or 
commodity as the quantity or commodity associated with positions in 
referenced contracts that are used to hedge risk (proposed Sec.  
151.5(f)), traders claiming a bona fide swap counterparty exemption 
(proposed Sec.  151.5(d)), traders with positions above a visibility 
level (proposed Sec.  151.6(a)), and entities seeking an exemption to 
mandatory account aggregation regulations (proposed Sec.  151.7(g)). In 
addition to these reporting requirements, proposed Sec.  151.5(e) and 
(g) specify recordkeeping requirements for traders who receive bona 
fide hedge exemptions, as well as for swap counterparties for which the 
transaction would qualify as a bona fide hedging transaction.
2. Information Provided and Recordkeeping Duties
    Proposed Sec.  151.4(a)(2) provides for a special conditional spot-
month limit for traders under certain conditions, including the 
submission of a certification that the trader meets the required 
conditions. These certifications would be filed within a day after the 
trader exceeds a conditional spot-month limit.
    The Commission anticipates that approximately one-hundred traders a 
year will submit conditional spot-month limit certifications. The 
Commission estimates that these one-hundred entities would incur a 
total burden of 2,400 annual labor hours resulting in a total of 
$189,000 in annual labor costs \52\ and $1 million in annualized 
capital and start-up costs \53\ and annual total operating and 
maintenance costs.
---------------------------------------------------------------------------

    \52\ The Commission staff's estimates concerning the wage rates 
are based on salary information for the securities industry compiled 
by the Securities Industry and Financial Markets Association 
(``SIFMA''). The $78.61 per hour is derived from figures from a 
weighted average of salaries and bonuses across different 
professions from the SIFMA Report on Management & Professional 
Earnings in the Securities Industry 2010, modified to account for an 
1800-hour work-year and multiplied by 1.3 to account for overhead 
and other benefits. The wage rate is a weighted national average of 
salary and bonuses for professionals with the following titles (and 
their relative weight): ``programmer (senior)'' (30% weight); 
``programmer'' (30%); ``compliance advisor (intermediate);'' (20%), 
``systems analyst;'' (10%); and ``assistant/associate general 
counsel'' (10%).
    \53\ The capital/start-up cost component of ``annualized 
capital/start-up, operating, and maintenance costs'' is based on an 
initial capital/start-up cost that is straight-line depreciated over 
five years.
---------------------------------------------------------------------------

    Proposed Sec.  151.4(c) requires that DCMs submit an estimate of 
deliverable supply by the 31st of December of each calendar year for 
each referenced contract that is subject to a spot-month position limit 
and listed or executed pursuant to the rules of the DCM. The Commission 
estimates that this proposed reporting regulation will affect 
approximately six entities annually resulting in a total marginal 
burden, across all of these entities, of 6,000 annual labor hours and 
$55,000 in annualized capital and start-up costs and annual total 
operating and maintenance costs.
    Proposed Sec.  151.5 sets forth the application procedure for bona 
fide hedgers and counterparties to bona fide hedging swap transactions 
that seek an exemption from the proposed Commission-set federal 
position limits for referenced contracts. If a bona fide hedger seeks 
to claim an exemption from position limits because of cash market 
activities, then the hedger would submit a 404 filing pursuant to 
proposed Sec.  151.5(b). The 404 filing would be submitted when the 
bona fide hedger claims an exemption or when its hedging needs 
increase. Parties to bona fide hedging swap transactions would be 
required to submit a 404S filing to qualify for a hedging exemption, 
which would also be submitted when the bona fide hedger claims an 
exemption or when its hedging needs increase. If a bona fide hedger 
seeks an exemption for anticipated commercial production or 
anticipatory commercial requirements, then the hedger would submit a 
404A filing pursuant to proposed Sec.  151.5(c). The 404A filing would 
be submitted at least ten days in advance of the date that transactions 
and positions would be established that would exceed a position limit. 
Further, on an annual basis or whenever a trader's anticipated hedge 
requirements exceed the amount of the most recent 404A filing,

[[Page 4766]]

whichever is earlier, the trader would be required to file a 
supplemental report updating the information provided in the most 
recent 404A filing. Traders hedging commercial activity (or hedging 
swaps that in turn hedge commercial activity) that does not involve the 
same quantity or commodity as the quantity or commodity associated with 
positions in referenced contracts that are used to hedge shall submit 
the conversion methodology and information along with the appropriate 
404, 404A, or 404S filing. The Commission anticipates that the 
compliance cost associated with all of these filings will be 
substantial, particularly in the case of the 404S filings, which may 
require the collection and storage of information on counterparties 
that firms have hitherto not conducted.
    The Commission estimates that these bona fide hedging-related 
reporting requirements would affect approximately two hundred entities 
annually and result in a total burden of approximately $37.6 million 
across all of these entities, of 168,000 annual labor hours resulting 
in a total of $13.2 million in annual labor costs and $25.4 million in 
annualized capital and start-up costs and annual total operating and 
maintenance costs. 404 filings proposed reporting regulations would 
affect approximately ninety entities annually resulting in a total 
burden, across all of these entities, of 108,000 total annual labor 
hours and $11.7 million in annualized capital and start-up costs and 
annual total operating and maintenance costs. 404A filings proposed 
reporting regulations would affect approximately sixty entities 
annually resulting in a total burden, across all of these entities, of 
6,000 total annual labor hours and $4.2 million in annualized capital 
and start-up costs and annual total operating and maintenance costs. 
404S filings proposed reporting regulations would affect approximately 
forty-five entities annually resulting in a total burden, across all of 
these entities, of 54,000 total annual labor hours and $9.5 million in 
annualized capital and start-up costs and annual total operating and 
maintenance costs.
    Proposed Sec.  151.5(e) specifies recordkeeping requirements for 
traders who claim bona fide hedge exemptions. These recordkeeping 
requirements include ``complete books and records concerning all of 
their related cash, futures, and swap positions and transactions and 
make such books and records, along with a list of swap 
counterparties.'' Proposed Sec.  151.5(g) and (h) provide procedural 
documentation requirements for those availing themselves of a bona fide 
hedging transaction exemption. These firms would be required to 
document a representation and confirmation by at least one party that 
the swap counterparty is relying on a bona fide hedge exemption, along 
with a confirmation of receipt by the other party to the swap. 
Paragraph (h) of Section 151.5 also requires that the written 
representation and confirmation be retained by the parties and 
available to the Commission upon request. The marginal impact of this 
requirement is limited because of its overlap with existing 
recordkeeping requirements under Sec.  15.03. The Commission estimates 
that bona fide hedging-related proposed recordkeeping regulations would 
affect approximately one-hundred and sixty entities resulting in a 
total burden, across all of these entities, of 40,000 total annual 
labor hours and $10.4 million in annualized capital and start-up costs 
and annual total operating and maintenance costs.
    Proposed Sec.  151.6 would require those traders with positions 
exceeding visibility levels in referenced base and precious metals and 
energy commodities to submit additional information about cash market 
and derivatives activity in substantially the same commodity. Proposed 
Sec.  151.6(b) would require the submission of a 401 filing which would 
provide basic position information on the position exceeding the 
visibility level. Proposed Sec.  151.6(c) would require additional 
information, through a 402S filing, on a trader's uncleared swaps in 
substantially the same commodity. Proposed Sec.  151.6(d) would require 
the reportable trader to submit information about cash market positions 
or anticipated commercial requirements or production in substantially 
the same commodity, as described in proposed Sec.  151.5(b) and (c), 
through a 404 or 404A filing, respectively. All of the proposed 151.6 
reports would be submitted on a monthly basis for as long as a trader 
exceeds a visibility level.
    The Commission estimates that visibility level-related proposed 
reporting regulations will affect approximately one-hundred and forty 
entities annually resulting in a total burden, across all of these 
entities, of 30,400 annual labor hours resulting in a total of $2.4 
million in annual labor costs and $27.3 million in annualized capital 
and start-up costs and annual total operating and maintenance costs. 
Proposed 401 filing reporting regulations would affect approximately 
one-hundred and forty entities annually resulting in a total burden, 
across all of these entities, of 168,000 total annual labor hours and 
$15.4 million in annualized capital and start-up costs and annual total 
operating and maintenance costs. Proposed 402S filing reporting 
regulations would affect approximately seventy entities annually 
resulting in a total burden, across all of these entities, of 5,600 
total annual labor hours and $4.9 million in annualized capital and 
start-up costs and annual total operating and maintenance costs. 
Proposed visibility level-related 404 filing reporting regulations \54\ 
would affect approximately sixty entities annually resulting in a total 
burden, across all of these entities, of 4,800 total annual labor hours 
and $4.2 million in annualized capital and start-up costs and annual 
total operating and maintenance costs. Proposed visibility level-
related 404A filing reporting regulations would affect approximately 
forty entities annually resulting in a total burden, across all of 
these entities, of 3,200 total annual labor hours and $2.8 million in 
annualized capital and start-up costs and annual total operating and 
maintenance costs.
---------------------------------------------------------------------------

    \54\ For the visibility level-related 404 and 404A filing 
requirements, the estimated burden is based on reporting duties not 
already accounted for in the burden estimate for those submitting 
404 or 404A filings pursuant to proposed regulation 151.5. For many 
of these firms, the experience and infrastructure developed 
submitting or preparing to submit a 404 or 404A filing under 
proposed regulation 151.5 would reduce the marginal burden imposed 
by having to submit filings under proposed regulation 151.6.
---------------------------------------------------------------------------

    Proposed Sec.  151.7 concerns the aggregation of trader accounts. 
Proposed Sec.  151.7(g) would provide for a disaggregation exemption 
for: (1) A limited partner, shareholder or similar person with an 
ownership or equity interest of between 10 percent and 25 percent in a 
pool, if the trader does not have control over or knowledge of a pool's 
trading; (2) futures commission merchants that meet certain independent 
trading requirements; and (3) an independently controlled and managed 
trader, that is not a financial entity, in which another entity has an 
ownership or equity interest of 10 percent or greater. In all three 
cases, the exemption would become effective upon the Commission's 
approval of an application described in proposed Sec.  151.7(g). These 
applications for exemptions would be submitted at the time a trader 
claims an exemption and within thirty calendar days of January 1 of 
each year following the initial application for exemption. The 
Commission estimates that these proposed reporting regulations will 
affect approximately sixty entities resulting in a total burden, across 
all of these entities, of 300,000 annual labor

[[Page 4767]]

hours and $9.9 million in annualized capital and start-up costs and 
annual total operating and maintenance costs.
3. Comments on Information Collection
    The Commission invites the public and other federal agencies to 
comment on any aspect of the reporting and recordkeeping burdens 
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission 
solicits comments in order to: (1) Evaluate whether the proposed 
collections of information are necessary for the proper performance of 
the functions of the Commission, including whether the information will 
have practical utility; (2) evaluate the accuracy of the Commission's 
estimate of the burden of the proposed collections of information; (3) 
determine whether there are ways to enhance the quality, utility, and 
clarity of the information to be collected; and (4) minimize the burden 
of the collections of information on those who are to respond, 
including through the use of automated collection techniques or other 
forms of information technology.
    Comments may be submitted directly to the Office of Information and 
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at OIRA-submissions@omb.eop.gov. Please provide the Commission with a copy of 
comments submitted so that all comments can be summarized and addressed 
in the final regulation preamble. Refer to the Addresses section of 
this notice for comment submission instructions to the Commission. A 
copy of the supporting statements for the collection of information 
discussed above may be obtained by visiting RegInfo.gov. OMB is 
required to make a decision concerning the collection of information 
between 30 and 60 days after publication of this release. Consequently, 
a comment to OMB is most assured of being fully considered if received 
by OMB (and the Commission) within 30 days after the publication of 
this notice of proposed rulemaking.

List of Subjects

17 CFR Part 1

    Brokers, Commodity futures, Consumer protection, Reporting and 
recordkeeping requirements.

17 CFR Part 150

    Commodity futures, Cotton, Grains.

17 CFR Part 151

    Position limits, Bona fide hedging, Referenced contracts.

    In consideration of the foregoing, pursuant to the authority 
contained in the Commodity Exchange Act, the Commission hereby proposes 
to amend chapter I of title 17 of the Code of Federal Regulations as 
follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    1. The authority citation for part 1 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 
13a-1, 16, 16a, 19, 21, 23, and 24, as amended by Title VII of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 
111-203, 124 Stat. 1376 (2010).

    2. Amend Sec.  1.3(z) as follows:
    a. Amend the heading in paragraph (z) by adding ``for excluded 
commodities'' after the phrase ``positions.''
    b. Amend paragraph (z)(1) introductory text by removing the phrase 
``transactions or positions in a contract for future delivery on any 
contract market, or in a commodity option'' after the phrase ``Bona 
fide hedging transactions or positions shall mean,'' and by adding, in 
its place, the phrase ``any agreement, contract or transaction in an 
excluded commodity on a registered entity, as that term is defined in 
Section 1a(40) of the Act.''
    c. Amend paragraph (z)(1) concluding text by removing ``and 
Sec. Sec.  1.47 and 1.48 of the regulations.''
    d. Amend paragraph (z)(2)(i) by removing the phrase ``commodity for 
future delivery on a contract market'' after ``Sales of any'' and by 
adding, in its place, the phrase ``agreement, contract or transaction 
in a excluded commodity on a registered entity.''
    e. Amend paragraph (z)(2)(i)(B) by removing the phrase ``future 
during the five last trading days of that future'' and by adding, in 
its place, the phrase ``agreement, contract or transaction during the 
five last trading days.''
    f. Amend paragraph (z)(2)(ii) by removing the phrase ``commodity 
for future delivery on a contract market'' after ``Purchases of any'' 
and by adding, in its place, the phrase ``agreement, contract or 
transaction in a excluded commodity on a registered entity.''
    g. Amend paragraph (z)(2)(ii)(C) by removing the phrase ``one 
future'' and by adding, in its place, the phrase ``agreement, contract 
or transaction.''
    h. Amend paragraph (z)(2)(iii) by removing the phrase ``for future 
delivery on a contract market'' after ``Offsetting sales and 
purchases'' and by adding, in its place, the phrase ``in any agreement, 
contract or transaction in a excluded commodity on a registered 
entity.''
    i. Amend paragraph (z)(2)(iii) by removing the phrase ``future 
during the five last trading days of that future'' and by adding, in 
its place, the phrase ``agreement, contract or transaction during the 
five last trading days.''
    j. Redesignate paragraph (z)(2)(iv) as paragraph (z)(2)(v).
    k. Amend newly redesignated paragraph (z)(2)(v) by removing the 
phrase ``for future delivery described in paragraphs (z)(2)(i), 
(z)(2)(ii) and (z)(2)(iii)'' and by adding, in its place, the phrase 
``described in paragraphs (z)(2)(i), (z)(2)(ii), (z)(2)(iii) and 
(z)(2)(iv).''
    l. Amend newly redesignated paragraph (z)(2)(v) by removing the 
phrase ``for future delivery'' after the phrase ``fluctuations in value 
of the position'' and by adding, in its place, the phrase ``in any 
agreement, contract or transaction.''
    m. Amend newly redesignated paragraph (z)(2)(v) by removing the 
phrase ``positions in any one future shall not be maintained during the 
five last trading days of that future'' and by adding, in its place, 
the phrase ``positions in any agreement, contract or transaction shall 
not be maintained during the five last trading days.''
    n. Add new paragraph (z)(2)(iv) and revise paragraph (z)(3) to read 
as follows:

Sec.  1.3  Definitions.

* * * * *
    (z) * * *
    (2) * * *
    (iv) Purchases or sales by an agent who does not own or has not 
contracted to sell or purchase the offsetting cash commodity at a fixed 
price, provided that the person is responsible for the merchandising of 
the cash positions which is being offset and the agent has a 
contractual arrangement with the person who owns the commodity or holds 
the cash market commitment being offset.
* * * * *
    (z)(3) Non-Enumerated cases. A registered entity may recognize, 
consistent with the purposes of this section, transactions and 
positions other than those enumerated in paragraph (2) of this section 
as bona fide hedging. Prior to recognizing such non-enumerated 
transactions and positions, the registered entity shall submit such 
rules for Commission review under section 5c of the Act and Sec.  40 of 
this chapter.
* * * * *

Sec.  1.47  [Removed and Reserved]

    3. Remove and reserve Sec.  1.47.

Sec.  1.48  [Removed and Reserved]

    4. Remove and reserve Sec.  1.48.

[[Page 4768]]

PART 150--[REMOVED AND RESERVED]

    5. Remove and reserve part 150.
    6. Add part 151 to read as follows:

PART 151--LIMITS ON POSITIONS

Sec.
151.1 Definitions.
151.2 Core referenced futures contracts.
151.3 Referenced contract spot months.
151.4 Position limits for referenced contracts.
151.5 Exemptions for referenced contracts.
151.6 Position visibility.
151.7 Aggregation of positions.
151.8 Foreign boards of trade.
151.9 Preexisting positions.
151.10 Form and manner of reporting and submitting information or 
filings.
151.11 Registered entity position limits.
151.12 Delegation of authority to the Director of the Division of 
Market Oversight.
Appendix A to Part 151

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

Sec.  151.1  Definitions.

    As used in this part--
    Basis contract means an agreement, contract or transaction that is 
cash settled based on the difference in price of the same commodity (or 
substantially the same commodity) at different delivery points;
    Calendar spread contract means a cash settled agreement, contract 
or transaction that represents the difference between the settlement 
price in one or a series of contract months of an agreement, contract 
or transaction and another contract month's or another series of 
contract months' settlement price for the same agreement, contract or 
transaction.
    Contracts of the same class mean referenced contracts based on the 
same commodity that are:
    (1) Futures or option contracts executed pursuant to the rules of a 
designated contract market; or
    (2) Cleared or uncleared swaps.
    Commodity index contract means an agreement, contract or 
transaction that is not a basis or spread contract, based on an index 
comprised of prices of commodities that are not the same nor 
substantially the same, provided that, a commodity index contract that 
incorporates the price of a commodity underlying a referenced 
contract's commodity which is used to circumvent speculative position 
limits shall be considered to be a referenced contract for the purpose 
of applying the position limits of Sec.  151.4.
    Core referenced futures contract means a futures contract that is 
listed in Sec.  151.2.
    Entity means a ``person'' as defined in section 1a of the Act.
    Excluded commodity means an ``excluded commodity'' as defined in 
section 1a of the Act.
    Financial entity means any entity that, regardless of any asset or 
capital threshold or any other condition in section 1a(18) of the Act, 
is an entity identified in section 1a(18)(A)(i) through (iv), (vi), 
(viii) through (x) and (B)(ii) of the Act.
    Futures contract class means referenced contracts that are based on 
the same commodity and are futures and option contracts executed 
pursuant to the rules of a designated contract market.
    Intercommodity spread contract means a cash-settled agreement, 
contract or transaction that represents the difference between the 
settlement price of a referenced contract and the settlement price of 
another contract, agreement, or transaction that is based on a 
different commodity.
    Owned non-financial entity means any entity that is not a financial 
entity and in which another entity directly or indirectly has a 10 
percent or greater ownership or equity interest.
    Referenced contract means, on a futures equivalent basis with 
respect to a particular core referenced futures contract, a futures 
listed in Sec.  151.2, or a referenced paired futures contract, option 
contract, swap or swaption, other than a basis contract or contract on 
a commodity index.
    Referenced paired futures contract, option contract, swap or 
swaption means, respectively, an open futures contract, option 
contract, swap or swaption that is:
    (1) Directly or indirectly linked, including being partially or 
fully settled on, or priced at a differential to, the price of any core 
referenced futures contract; or
    (2) Directly or indirectly linked, including being partially or 
fully settled on, or priced at a differential to, the price of the same 
commodity for delivery at the same location, or at locations with 
substantially the same supply and demand fundamentals, as that of any 
core referenced futures contract.
    Spot month means, for referenced contracts based on a commodity 
identified in Sec.  151.3, the spot month corresponding to the spot 
month of the core futures contract that overlies the same commodity.
    Spot-month, single-month, and all-months-combined position limits 
mean, for referenced contracts based on a commodity identified in Sec.  
151.3, the position limit corresponding to the position limit of the 
core futures contract that overlies the same commodity.
    Spread contract means either a calendar spread contract or an 
intercommodity spread contract.
    Swap means ``swap'' as defined in section 1a of the Act and as 
further defined by the Commission.
    Swap contract class means referenced contracts that are based on 
the same commodity and are swaps.
    Swaption means an option to enter into a swap or a physical 
commodity option.
    Swap dealer means ``swap dealer'' as that term is defined in 
section 1a of the Act and as further defined by the Commission.
    Trader means a person that, for its own account or for an account 
that it controls, makes transactions in referenced contracts or has 
such transactions made.

Sec.  151.2  Core referenced futures contracts.

    (a) Agricultural commodities. The core referenced futures contracts 
include:
    (1) ICE Futures U.S. Cocoa (CC) contract based on a trading unit of 
10 metric tons delivered at licensed warehouses in the Port of New York 
District, Delaware River Port District, Port of Hampton Roads, Port of 
Albany, or Port of Baltimore;
    (2) ICE Futures U.S. Coffee C (KC) contract based on a trading unit 
of 37,500 pounds delivered at the Port of New York District, the Port 
of New Orleans, the Port of Houston, the Port of Bremen/Hamburg, the 
Port of Antwerp, the Port of Miami, or the Port of Barcelona;
    (3) Chicago Board of Trade Corn (C) contract based on a trading 
unit of 5,000 bushels delivered at Chicago and Burns Harbor, Indiana 
Switching District, Lockport-Seneca Shipping District, Ottawa-
Chillicothe Shipping District, or Peoria-Pekin Shipping District;
    (4) ICE Futures U.S. Cotton No. 2 (CT) contract based on a trading 
unit of 50,000 pounds net weight delivered at Galveston, Texas; 
Houston, Texas; New Orleans, Louisiana; Memphis, Tennessee, or 
Greenville/Spartanburg, South Carolina;
    (5) Chicago Mercantile Exchange Feeder Cattle (FC) contract based 
on a trading unit of 50,000 pounds priced based on the CME Feeder 
Cattle Index or any other contract based on a sample of feeder cattle 
sales transactions in Colorado, Iowa, Kansas, Missouri, Montana, 
Nebraska, New Mexico, North

[[Page 4769]]

Dakota, Oklahoma, South Dakota, Texas, and Wyoming;
    (6) ICE Futures U.S. FCOJ-A (OJ) contract based on a trading unit 
of 15,000 pounds delivered at licensed warehouses in Florida, New 
Jersey, and Delaware;
    (7) Chicago Mercantile Exchange Lean Hog (LH) contract based on a 
trading unit of 40,000 pounds priced based on the CME Lean Hog Index;
    (8) Chicago Mercantile Exchange Live Cattle (LC) contract based on 
a trading unit of 40,000 pounds delivered at livestock yards in Wray, 
Colorado, Worthing, South Dakota; Syracuse, Kansas; Tulia, Texas; 
Columbus, Nebraska; Dodge City, Kansas; Amarillo, Texas; Norfolk, 
Nebraska; North Platte, Nebraska; Ogallala, Nebraska; Pratt, Kansas; 
Texhoma, Oklahoma; or Clovis, New Mexico;
    (9) Chicago Mercantile Exchange Class III Milk (DA) contract based 
on a trading unit of 200,000 pounds priced based on the USDA Class III 
price for milk;
    (10) Chicago Board of Trade Oats (O) contract based on a trading 
unit of 5,000 bushels delivered at Chicago Switching District, the 
Burns Harbor, Indiana Switching District, Minneapolis, St. Paul, 
Minnesota Switching Districts, Duluth Minnesota, or Superior, 
Wisconsin;
    (11) Chicago Board of Trade Rough Rice (RR) contract based on a 
trading unit of 200,000 pounds delivered at warehouses in the Arkansas 
counties of Craighead, Jackson, Poinsett, Woodruff, Cross, St. Francis, 
Lonoke, Prairie, Monroe, Jefferson, Arkansas, or DeSha;
    (12) Chicago Board of Trade Soybeans (S) contract based on a 
trading unit of 5,000 bushels delivered at Chicago and Burns Harbor, 
Indiana Switching District, Lockport-Seneca Shipping District, Ottawa-
Chillicothe Shipping District, Peoria-Pekin Shipping District, Havana-
Grafton Shipping District, or St. Louis-East St. Louis and Alton 
Switching Districts;
    (13) Chicago Board of Trade Soybean Meal (SM) contract based on a 
trading unit of 100 short tons shipped from plants located in the 
Central Territory, Northeast Territory, Mid South Territory, Missouri 
Territory, Eastern Iowa Territory, or Northern Territory;
    (14) Chicago Board of Trade Soybean Oil (BO) contract based on a 
trading unit of 60,000 pounds delivered at warehouses located in the 
Illinois Territory, Eastern Territory, Eastern Iowa Territory, 
Southwest Territory, Western Territory or Northern Territory;
    (15) ICE Futures U.S. Sugar No. 11 (SB) contract based on a trading 
unit of 112,000 pounds delivered at a port in the country of origin or 
in the case of landlocked countries, at a berth or anchorage in the 
customary port of export for the countries of Argentina, Australia, 
Barbados, Belize, Brazil, Colombia, Costa Rica, Dominican Republic, El 
Salvador, Ecuador, Fiji Islands, French Antilles, Guatemala, Honduras, 
India, Jamaica, Malawi, Mauritius, Mexico, Mozambique, Nicaragua, Peru, 
Republic of the Philippines, South Africa, Swaziland, Taiwan, Thailand, 
Trinidad, United States, and Zimbabwe;
    (16) ICE Futures U.S. Sugar No. 16 (SF) contract based on a trading 
unit of 112,000 pounds delivered at New York, Baltimore, Galveston, New 
Orleans, or Savannah;
    (17) Chicago Board of Trade Wheat (W) contract based on a trading 
unit of 5,000 bushels delivered at Chicago Switching District, the 
Burns Harbor, Indiana Switching District, the Northwest Ohio Territory, 
on Ohio River, on Mississippi River or the Toledo, Ohio Switching 
District, or the St. Louis-East St. Louis and Alton Switching 
Districts;
    (18) Minneapolis Grain Exchange Hard Red Spring Wheat (MWE) 
contract based on a trading unit of 5,000 bushels delivered at 
elevators located in Minneapolis/St. Paul, Red Wing, Duluth/Superior, 
Minnesota;
    (19) Kansas City Board of Trade Hard Winter Wheat (KW) contract 
based on a trading unit of 5,000 bushels delivered at elevators in 
Kansas City, Missouri/Kansas; Hutchinson, Kansas; Salina/Abilene, 
Kansas; or Wichita, Kansas.
    (b) Metals. The core referenced futures contracts include:
    (1) Commodity Exchange, Inc. Gold (GC) contract based on a trading 
unit of 100 troy ounces delivered at Exchange-licensed warehouses;
    (2) Commodity Exchange, Inc. Silver (SI) contract based on a 
trading unit of 5,000 troy ounces delivered at Exchange-licensed 
warehouses;
    (3) Commodity Exchange, Inc. Copper (HG) contract based on a 
trading unit of 25,000 pounds delivered at licensed warehouses;
    (4) New York Mercantile Exchange Palladium (PA) contract based on a 
trading unit of 100 troy ounces delivered at licensed warehouses; and
    (5) New York Mercantile Exchange Platinum (PL) contract based on a 
trading unit of 50 troy ounces pounds delivered at licensed warehouses.
    (c) Energy commodities. The core referenced futures contracts 
include:
    (1) New York Mercantile Exchange Light Sweet Crude Oil (CL) 
contract based on a trading unit of 1,000 U.S. barrels (42,000 gallons) 
delivered at the Cushing crude oil storage complex in Cushing, 
Oklahoma;
    (2) New York Mercantile Exchange New York Harbor No. 2 Heating Oil 
(HO) contract based on a trading unit of 1,000 U.S. barrels (42,000 
gallons) delivered at an ex-shore facility in New York Harbor;
    (3) New York Mercantile Exchange New York Harbor Gasoline 
Blendstock (RB) contract based on a trading unit of 1,000 U.S. barrels 
(42,000 gallons) delivered at an ex-shore facility in New York Harbor; 
and
    (4) New York Mercantile Exchange Henry Hub Natural Gas (NG) 
contract based on a trading unit of 10,000 million British thermal 
units (mmBtu) delivered at the Henry Hub pipeline interchange in Erath, 
Louisiana.

Sec.  151.3  Referenced contract spot months.

    (a) Agricultural commodities. For referenced contracts based on 
agricultural commodities, the spot month shall be the period of time 
commencing:
    (1) At the close of business on the business day prior to the first 
notice day for any delivery month and terminating at the end of the 
delivery month for the following contracts:
    (i) ICE Futures U.S. Cocoa (CC) contract;
    (ii) ICE Futures U.S. Coffee C (KC) contract;
    (iii) ICE Futures U.S. Cotton No. 2 (CT) contract;
    (iv) ICE Futures U.S. FCOJ-A (OJ) contract;
    (2) At the close of business three business days prior to the first 
trading day in the delivery month and terminating at the end of the 
delivery month for the following contracts:
    (i) Chicago Board of Trade Corn (C) contract;
    (ii) Chicago Board of Trade Oats (O) contract;
    (iii) Chicago Board of Trade Rough Rice (RR) contract;
    (iv) Chicago Board of Trade Soybeans (S) contract;
    (v) Chicago Board of Trade Soybean Meal (SM) contract;
    (vi) Chicago Board of Trade Soybean Oil (BO) contract;
    (vii) Chicago Board of Trade Wheat (W) contract;
    (viii) Minneapolis Grain Exchange Hard Red Spring Wheat (MW) 
contract;
    (ix) Kansas City Board of Trade Hard Winter Wheat (KW) contract;
    (3) At the close of business two business days after the fifteenth 
calendar day of the contract month or the first business day after the 
fifteenth should the fifteenth day be a non-business day and 
terminating at the end

[[Page 4770]]

of the delivery month for the following contracts:
    (i) ICE Futures U.S. Sugar No. 11 (SB) contract;
    (ii) ICE Futures U.S. Sugar No. 16 (SF) contract;
    (4) At the close of business on the business day immediately 
preceding the last five business days of the contract month and 
terminating at the end of the delivery month for the Chicago Mercantile 
Exchange Live Cattle (LC) contract;
    (5) At the close of business on the eleventh day prior to the last 
trading day and terminating on the last day of trading for the contract 
month for the following contracts:
    (i) Chicago Mercantile Exchange Feeder Cattle (FC) contract;
    (ii) Chicago Mercantile Exchange Class III Milk (DA) contract;
    (6) At the period commencing at the close of business on the fifth 
day prior to the last trading day and terminating at the end of the 
delivery month for the Chicago Mercantile Exchange Lean Hog (LH) 
contract.
    (b) Metals. The spot month shall be the period of time commencing 
at the close of business on the business day prior to the first notice 
day for any delivery month and terminating at the end of the delivery 
month for the following contracts:
    (1) Commodity Exchange, Inc. Gold (GC) contract; and
    (2) Commodity Exchange, Inc. Silver (SI) contract.
    (3) Commodity Exchange, Inc. Copper (HG) contract;
    (4) New York Mercantile Exchange Palladium (PA) contract; and
    (5) New York Mercantile Exchange Platinum (PL) contract.
    (c) Energy commodities. The spot month shall be the period of time 
commencing at the close of business three business days prior to the 
last day of trading in the underlying referenced futures contract and 
terminating at the end of the delivery period for the following 
contracts:
    (1) New York Mercantile Exchange Light Sweet Crude Oil (CL) 
contract;
    (2) New York Mercantile Exchange New York Harbor No. 2 Heating Oil 
(HO) contract;
    (3) New York Mercantile Exchange New York Harbor Gasoline 
Blendstock (RB) contract; and
    (4) New York Mercantile Exchange Henry Hub Natural Gas (NG) 
contract.

Sec.  151.4  Position limits for referenced contracts.

    (a) Spot-month position limits. Except as provided in paragraph (h) 
of this section for initial spot-month position limits, or as otherwise 
authorized by Sec.  151.5, no trader may hold or control positions, 
separately or in combination, net long or net short, in referenced 
contracts in the same commodity when such positions are in excess of:
    (1) For physical delivery referenced contracts, a spot-month 
position limit that shall be one-quarter of the estimated spot-month 
deliverable supply for a core referenced futures contract in the same 
commodity as fixed by the Commission pursuant to paragraph (c) of this 
section; or
    (2) For cash-settled referenced contracts, a spot-month position 
limit, equal to the level fixed by paragraph (a)(1) of this section, or 
a conditional-spot-month position limit, that is five times the spot-
month position limit fixed by paragraph (a)(1) of this section, 
provided that the trader:
    (i) For cash-settled contracts in the spot month, shall not hold or 
control positions exceeding the level of any single month position 
limit;
    (ii) Does not hold or control positions in the physical delivery 
referenced contract based on the same commodity that is in such 
contract's spot month;
    (iii) Does not hold or control cash or forward positions in the 
referenced contract's spot month in an amount that is greater than one-
quarter of the deliverable supply in the referenced contract's 
underlying commodity deliverable at the location or locations specified 
in the core referenced futures contract in the same commodity; and
    (iv) Has submitted a certification to the Commission, in the form 
and manner provided for in Sec.  151.10, that the trader meets the 
conditions of paragraphs (a)(2)(ii) and (iii) of this section.
    (b) Limited application of spot-month position limits. Spot-month 
position limits shall only apply to positions in physical delivery or 
cash settled referenced contracts with delivery locations that match 
the delivery locations of a core referenced futures contracts in the 
same commodity.
    (c) Deliverable supply.
    (1) For the purpose of applying the spot-month position limit or 
conditional spot-month-position limit in paragraph (a) of this section, 
the Commission shall set the levels of deliverable supply in accordance 
with the procedure in paragraph (h) of this section.
    (2) Each designated contract market shall submit to the Commission 
an estimate of deliverable supply by the 31st of December of each 
calendar year for each physical delivery referenced contract that is 
subject to a spot-month position limit and listed or executed pursuant 
to the rules of the designated contract market.
    (3) The estimate submitted under paragraph (c)(2) of this section 
shall be accompanied by a description of the methodology used to derive 
the estimate along with any statistical data supporting the designated 
contract market's estimate of deliverable supply.
    (4) In fixing spot-month position limits under paragraph (a)(1) of 
this section, the Commission shall rely on the estimate provided under 
paragraph (c)(2) of this section unless the Commission determines to 
rely on its own estimate of deliverable supply.
    (d) Non-spot position limits. Except as otherwise authorized in 
Sec.  151.5, no person may hold or control positions, separately or in 
combination, net long or net short, in referenced contracts in the same 
commodity when such positions, in all months combined (including the 
spot month) or in a single month, are in excess of:
    (1) An all-months-combined aggregate and single-month position 
limits, fixed by the Commission at 10 percent of the first 25,000 
contracts of average all-months-combined aggregated open interest, as 
calculated by the Commission pursuant to paragraph (e) of this section, 
with a marginal increase of 2.5 percent thereafter;
    (2) A class all-months-combined and single-month position limit, 
fixed by the Commission, for referenced contracts that are contracts of 
the same class, at a level equal to the all-months-combined aggregate 
position limit.
    (3) Legacy position limits. Except as otherwise authorized by Sec.  
151.5, no trader may hold or control positions, separately or in 
combination, net long or net short, in referenced contracts in the same 
commodity for the commodities enumerated below, when such positions, in 
all-months-combined or in a single-month, are in excess of the 
following position limits:

------------------------------------------------------------------------
                                                             Position
                   Referenced contract                        limits
------------------------------------------------------------------------
Chicago Board of Trade Corn (C) contract................          22,000
Chicago Board of Trade Oats (O) contract................           2,000
Chicago Board of Trade Soybeans (S) contract............          10,000
Chicago Board of Trade Wheat (W) contract...............           6,500
Chicago Board of Trade Soybean Oil (BO) contract........           6,500
Chicago Board of Trade Soybean Meal (SM) contract.......           6,500
Minneapolis Grain Exchange Hard Red Spring Wheat (MW)              6,500
 contract...............................................
ICE Futures U.S. Cotton No. 2 (CT) contract.............           5,000

[[Page 4771]]

 
Kansas City Board of Trade Hard Winter Wheat (KW)                  6,500
 contract...............................................
------------------------------------------------------------------------

     (e) Aggregated open interest calculations. For the purpose of 
determining the speculative position limits in paragraph (d) of this 
section and in accordance with the procedure in paragraph (h) the 
Commission shall determine:
    (1) For determining aggregate and class all-month-combined and 
single-month position limits under paragraph (d) of this section, the 
average all-months-combined aggregate open interest, is the sum for a 
calendar year of values obtained under paragraphs (e)(2) and (e)(3) of 
this section, then divided by 12, for the twelve months prior to the 
effective date.
    (2) The all-months futures open interest is, at month end, the sum 
of all of a referenced contract's all-months-combined open futures and 
option contract (on a delta adjusted basis) open interests across all 
designated contract markets;
    (3) The all-months swaps open interest, at month end, the sum of 
all of a referenced contract's all-months-combined open swaps and 
swaptions open interest, combining, open interest attributed to cleared 
and uncleared swaps and swaptions, where the uncleared all-months-
combined swap open interest shall be the absolute sum of all swap 
dealers' net uncleared open swaps and swaptions exposures by 
counterparty and by single referenced contract month.
    (f) Netting of positions. (1) For referenced contracts in the spot 
month, a trader's positions in physical delivery and cash-settled 
contracts are calculated separately and traders can have up to the 
spot-month position limit in both the physically delivered and cash 
settled contracts unless the cash settled contract positions are held 
pursuant to the conditional-spot-month position limit.
    (2) For the purpose of applying non-spot-month position limits, a 
trader's position shall be combined and the net resulting position 
shall be applied towards determining the trader's aggregate single-
month and all-months-combined position.
    (3) For the purpose of applying non-spot-month class limits, a 
trader's position in contracts of the same class shall be combined and 
the net resulting position shall be applied towards determining the 
trader's class single-month and all-months-combined position.
    (g) Additional provisions. In determining or calculating all levels 
and limits under this section, a resulting number shall be rounded up 
to the nearest hundred contracts.
    (h) Process for fixing and publishing position limits. (1) With the 
exception of initial position limits, the Commission shall fix position 
limits under this part by January 31st of each calendar year;
    (2) The initial spot-month position limits for referenced contracts 
shall be as provided in Appendix A to this part.
    (3) The initial spot-month, single-month and all-months-combined 
position limits must be made effective pursuant to a Commission order 
and may be made on any date.
    (4) The Commission shall publish position limits on the 
Commission's Web site at http://www.cftc.gov prior to making such 
limits effective, and such limits, other than initial limits, shall 
become effective on the 1st day of March immediately following the 
fixing date and shall remain effective up until and including the last 
day of the immediately following February.

Sec.  151.5  Exemptions for referenced contracts.

    (a) Bona fide hedging transactions or positions.
    (1) Any trader that complies with the requirements of this section 
may exceed the position limits set forth in Sec.  151.4 to the extent 
that a transaction or position in a referenced contract:
    (i) Represents a substitute for transactions made or to be made or 
positions taken or to be taken at a later time in a physical marketing 
channel;
    (ii) Is economically appropriate to the reduction of risks in the 
conduct and management of a commercial enterprise; and
    (iii) Arises from the potential change in the value of--
    (A) Assets that a person owns, produces, manufactures, processes, 
or merchandises or anticipates owning, producing, manufacturing, 
processing, or merchandising;
    (B) Liabilities that a person owns or anticipates incurring; or
    (C) Services that a person provides or purchases, or anticipates 
providing or purchasing; or
    (iv) Reduces risks attendant to a position resulting from a swap 
that--
    (A) Was executed opposite a counterparty for which the transaction 
would qualify as a bona fide hedging transaction pursuant to paragraph 
(a)(1)(i) through (a)(1)(iii) of this section; or
    (B) Meets the requirements of paragraphs (a)(1)(i) through 
(a)(1)(iii) of this section. Notwithstanding the foregoing, no 
transactions or positions shall be classified as bona fide hedging for 
purposes of Sec.  151.4 unless such transactions or positions are 
established and liquidated in an orderly manner in accordance with 
sound commercial practices and the provisions of paragraph (a)(2) of 
this section have been satisfied.
    (2) Enumerated Hedging Transactions. The definition of bona fide 
hedging transactions and positions in paragraph (a)(1) of this section 
includes the following specific transactions and positions:
    (i) Sales of any commodity underlying referenced contracts which do 
not exceed in quantity:
    (A) Ownership or fixed-price purchase of the contract's underlying 
cash commodity by the same person; or
    (B) Unsold anticipated production of the same commodity, which may 
not exceed one year for referenced agricultural contracts, by the same 
person provided that no such position is maintained in any referenced 
contract during the five last trading days of that referenced contract.
    (ii) Purchases of referenced contracts which do not exceed in 
quantity:
    (A) The fixed-price sale of the contract's underlying cash 
commodity by the same person;
    (B) The quantity equivalent of fixed-price sales of the cash 
products and by-products of such commodity by the same person; or
    (C) Unfilled anticipated requirements of the same cash commodity, 
which may not exceed one year for referenced agricultural contracts, 
for processing, manufacturing, or feeding by the same person, provided 
that such transactions and positions in the five last trading days of 
any referenced contract do not exceed the person's unfilled anticipated 
requirements of the same cash commodity for that month and the next 
succeeding month.
    (iii) Offsetting sales and purchases in referenced contracts which 
do not exceed in quantity that amount of the same cash commodity which 
has been bought and sold by the same person at unfixed prices basis 
different delivery months of the referenced contract, provided that no 
such position is maintained during the five last trading days of any 
referenced contract.
    (iv) Purchases or sales by an agent who does not own or has not 
contracted to sell or purchase the offsetting cash commodity at a fixed 
price, provided that the person is responsible for the merchandising of 
the cash positions which is being offset and the agent has a 
contractual arrangement with the person who owns the commodity or

[[Page 4772]]

holds the cash market commitment being offset.
    (v) Sales and purchases in referenced contracts described in 
paragraphs (a)(2)(i), (a)(2)(ii), (a)(2)(iii), and (a)(2)(iv) of this 
section may also be offset other than by the same quantity of the same 
cash commodity, provided that the fluctuations in value of the position 
in referenced contracts are substantially related to the fluctuations 
in value of the actual or anticipated cash position, and provided that 
the positions shall not be maintained during the five last trading days 
of any referenced contract.
    (b) Information on cash market commodity activities. Any trader 
with a position that exceeds the position limits set forth in Sec.  
151.4 pursuant to paragraph (a) of this section shall submit to the 
Commission a 404 filing, in the form and manner provided for in Sec.  
151.10, containing the following information with respect to such 
position:
    (1) The cash market commodity hedged, the units in which it is 
measured, and the corresponding referenced contract that is used for 
hedging the cash market commodity;
    (2) The number of referenced contracts used for hedging;
    (3) The entire quantity of stocks owned of the cash market 
commodity that is being hedged by a position in a referenced contract;
    (4) The entire quantity of open fixed price purchase commitments in 
the hedged commodity outside of the spot month of the corresponding 
referenced contract;
    (5) The entire quantity of open fixed price purchase commitments in 
the hedged commodity in the spot month of the corresponding referenced 
contract;
    (6) The entire quantity of open fixed price sale commitments in the 
hedged commodity outside of the spot month of the corresponding 
referenced contract; and
    (7) The entire quantity of open fixed price sale commitments in the 
hedged commodity in the spot month of the corresponding referenced 
contract.
    (c) Anticipatory hedge exemptions. (1) Initial statement. Any 
trader who wishes to exceed the position limits set forth in Sec.  
151.4 pursuant to paragraph (a) of this section in order to hedge 
unsold anticipated commercial production or unfilled anticipated 
commercial requirements connected to a commodity underlying a 
referenced contract, shall submit to the Commission a 404A filing at 
least ten days in advance of the date that such transactions or 
positions would be in excess of the position limits set forth in Sec.  
151.4. The 404A filing shall be made in the form and manner provided in 
Sec.  151.10 and shall contain the following information with respect 
to such position:
    (i) The cash market commodity and units for which the anticipated 
production or requirements pertain;
    (ii) The dates for the beginning and end of the period for which 
the person claims the anticipatory hedge exemption is required, which 
may not exceed one year;
    (iii) The production or requirement of that cash market commodity 
for the three complete fiscal years preceding the current fiscal year;
    (iv) The anticipated production or requirements for the period 
hedged, which may not exceed one year;
    (v) The unsold anticipated production or unfilled anticipated 
requirements across the period hedged, which may not exceed one year;
    (vi) The referenced contract that the trader will use to hedge the 
unfilled, anticipated production or requirements; and
    (vii) The number of referenced contracts that will be used for 
hedging.
    (2) Approval. All or a specified portion of the unsold anticipated 
production or unfilled anticipated requirements described in these 
filings shall not be considered as offsetting positions for bona fide 
hedging transactions or positions if such person is so notified by the 
Commission within ten days after the Commission is furnished with the 
information required under this paragraph (c).
    (i) The Commission may request the person so notified to file 
specific additional information with the Commission to support a 
determination that the statement filed accurately reflects unsold 
anticipated production or unfilled anticipated requirements.
    (ii) The Commission shall consider all additional information filed 
and, by notice to such person, shall specify its determination as to 
what portion of the production or requirements described constitutes 
unsold anticipated production or unfilled anticipated requirements for 
the purposes of bona fide hedging.
    (3) Supplemental reports. Whenever the sales or purchases which a 
person wishes to consider as bona fide hedging of unsold anticipated 
production or unfilled anticipated requirements shall exceed the 
amounts in the most recent filing or the amounts determined by the 
Commission to constitute unsold anticipated production or unfilled 
anticipated requirements pursuant to paragraph (c)(2) of this section, 
such person shall file with the Commission a statement which updates 
the information provided in the person's most recent filing, and for 
instances anticipated needs exceed the amounts in the most recent 
filing, at least ten days in advance of the date that person wishes to 
exceed these amounts.
    (d) Additional information from swap counterparties to bona fide 
hedging transactions. All persons that enter into swap transactions or 
maintain swap positions pursuant to paragraph (a)(1)(iv) of this 
section shall also submit to the Commission a 404S filing not later 
than 9:00 a.m. on the business day following that to which the 
information pertains. The 404S filing shall be done in the form and 
manner provided for in Sec.  151.10 and shall contain the following 
information:
    (1) The commodity reference price for the swaps that would qualify 
as a bona fide hedging transaction or position;
    (2) The entire gross long and gross short quantity underlying the 
swaps that were executed in a transaction that would qualify as a bona 
fide hedging transaction, and the units in which the quantity is 
measured;
    (3) The referenced contract that is used to offset the exposure 
obtained from the bona fide hedging transaction or position of the 
counterparty;
    (4) The gross long or gross short size of the position used to 
offset the exposure obtained from a bona fide hedging transaction or 
position of the counterparty;
    (5) The gross long or gross short size of the position used to 
offset the exposure obtained from a bona fide hedging swap transaction 
or position that is in the spot month.
    (e) Recordkeeping. Traders who qualify for bona fide hedge 
exemptions for cash market positions, anticipatory hedging, and swaps 
opposite counterparties that would qualify as bona fide hedging 
transactions or positions shall maintain complete books and records 
concerning all of their related cash, futures, and swap positions and 
transactions and make such books and records, along with a list of swap 
counterparties, available to the Commission upon request.
    (f) Conversion methodology for swaps not involving the same 
commodity. In addition to the information required under this section, 
traders engaged in the hedging of commercial activity or positions 
resulting from swaps that are used for the hedging of commercial 
activity that does not involve the same quantity or commodity as the 
quantity or commodity associated with positions in referenced contracts 
that are used to hedge shall submit to the Commission a 404, 404A, or 
404S filing, as

[[Page 4773]]

appropriate, containing the following information:
    (1) Conversion information both in terms of the actual quantity and 
commodity used in the trader's normal course of business and in terms 
of the referenced contracts that are sold or purchased; and
    (2) An explanation of the methodology used for determining the 
ratio of conversion between the actual or anticipated cash positions 
and the trader's positions in referenced contracts.
    (g) Requirements for bona fide hedging swap counterparties. Upon 
entering into a swap transaction where at least one party is relying on 
a bona fide hedge exemption to exceed the position limits of Sec.  
151.4 with respect to such a swap:
    (1) The party not hedging a cash market commodity risk, or both 
parties to the swap if both parties are hedging a cash market commodity 
risk, shall:
    (i) Ask for a written representation from its counterparty 
verifying that the swap qualifies as a bona fide hedging transaction 
under paragraph (a)(1)(iv) of this section; and
    (ii) Upon receipt of such written representation from the 
counterparty, provide written confirmation of such receipt to the 
counterparty.
    (2) The party relying on the bona fide hedging exemption to enter 
into the swap transaction shall submit a written representation to its 
counterparty verifying that the swap qualifies as a bona fide hedging 
transaction, as defined in paragraph (a)(1)(iv) of this section.
    (h) The written representation and receipt confirmation described 
in paragraph (g) of this section shall be retained by the parties to 
the swap and provided to the Commission upon request.
    (i) Filing requirement for bona fide hedgers. Any party with cash 
market commodity risk relying on a bona fide hedging exemption to enter 
into and maintain a referenced contract position shall submit to the 
Commission a 404S filing, in the form and manner provided for in Sec.  
151.10, containing the information in paragraphs (b) and (c) of this 
section, for each business day on which such position was maintained, 
up to and including the day after the trader's position level is below 
the position limit that was exceeded.
    (j) Positions that are maintained. For a swap that satisfies the 
requirements of paragraph (a) of this section, the party to whom the 
cash market commodity risk is transferred may itself establish, lift 
and re-establish a position in excess of the position limits of Sec.  
151.4 provided that:
    (1) The party and its counterparty comply with the requirements of 
paragraphs (g) through (i) of this section; and
    (2) The party may only exceed such position limit to the extent and 
in such amounts that the qualifying swap directly offsets, and 
continues to offset, the cash market commodity risk of a bona fide 
hedging counterparty.

Sec.  151.6  Position visibility.

    (a) Visibility levels. A trader holding or controlling, separately 
or in combination, net long or net short, referenced contracts in the 
following commodities when such positions in all months or in any 
single month (including the spot month) are in excess of the following 
position levels, shall comply with the reporting requirements of 
paragraphs (b) through (d) of this section:

            Visibility Levels for Referenced Metals Contracts
------------------------------------------------------------------------
 
------------------------------------------------------------------------
New York Mercantile Exchange Copper (HG).....................      4,200
New York Mercantile Exchange Palladium (PA)..................        900
New York Mercantile Exchange Platinum (PL)...................      1,400
New York Mercantile Exchange Gold (GC).......................     10,700
New York Mercantile Exchange Silver (SI).....................      4,500
------------------------------------------------------------------------

            Visibility Levels for Referenced Energy Contracts
------------------------------------------------------------------------
 
------------------------------------------------------------------------
New York Mercantile Exchange Light Sweet Crude Oil (CL)......     22,500
New York Mercantile Exchange New York Harbor Gasoline              7,800
 Blendstock (RB).............................................
New York Mercantile Exchange Henry Hub Natural Gas (NG)......     21,000
New York Mercantile Exchange New York Harbor No. 2 Heating         9,900
 Oil (HO)....................................................
------------------------------------------------------------------------

     (b) Statement of trader exceeding visibility level. Upon acquiring 
a position in referenced contracts in the same commodity that reaches 
or exceeds a visibility level, a trader shall submit to the Commission 
a 401 filing for the position in a referenced contract, separately by 
futures, options, swaps, or swaptions that comprise the position in the 
form and manner provided for in Sec.  151.10, and shall containing the 
following information:
    (1) The date on which the trader's position initially reached or 
exceeded the visibility level;
    (2) Gross long and gross short positions on an all-months-combined 
basis (using economically reasonable and analytically supported 
deltas);
    (3) If the visibility levels are reached or exceeded in any single 
month, the contract month and the trader's gross long and short 
positions in the relevant single month (using economically reasonable 
and analytically supported deltas); and
    (4) If applicable, the trader shall also certify that they do not 
hold or control positions subject to the filing requirements of 
paragraphs (c) and (d) of this section.
    (c) Related uncleared swaps position report. Upon acquiring a 
position in referenced contracts in the same commodity that reaches or 
exceeds a visibility level, a trader shall submit to the Commission a 
402S filing for any uncleared swap positions that are based on 
substantially the same commodity as that which underlies the referenced 
contract. The 402S filing shall be done in the form and manner provided 
for in Sec.  151.10 and shall contain the following information for the 
date on which the trader's position initially reached or exceeded the 
visibility level:
    (1) By commodity reference price;
    (2) By swaps or swaptions;
    (3) By open swap end dates within 30 days, 90 days, one year or 
outside of one year from the date on which the trader's position 
initially reached or exceeded the visibility level; and
    (4) Gross long and gross short positions on a futures equivalent 
basis in terms of the referenced contract; or
    (5) With the express written permission of the Commission or its 
designees, the submission of a swaps portfolio summary statement 
spreadsheet in digital format, only insofar as the spreadsheet provides 
at least the same data as that required by the 402S filing, may be 
substituted for the reporting requirements of the 402S filing.
    (d) Any trader above a visibility level that holds or controls cash 
market commodity positions or has anticipated commercial requirements 
or unsold anticipated commercial production in the same or 
substantially the same commodity shall submit to the Commission 404 and 
404A filings respectively. Such 404 and 404A filings shall be done in 
the form and manner provided for in Sec.  151.10 and shall contain 
information regarding such positions as described in Sec.  151.5(b) and 
(c). Notwithstanding this requirement, a visible trader may 
alternatively, upon written permission by the Commission or its 
designees, submit in digital format a physical commodity portfolio

[[Page 4774]]

summary statement spreadsheet, provided that such spreadsheet contains 
at least the same data as that required by the 404 or 404A filing.
    (e) Reporting obligations imposed by regulations other than those 
contained in this section shall supersede the reporting requirements of 
paragraphs (b), (c), and (d) of this section but only insofar as other 
reporting obligations provide at least the same data and are submitted 
to the Commission or its designees at least as often as the reporting 
requirements of paragraphs (b), (c), and (d) of this section.

Sec.  151.7  Aggregation of positions.

    (a) Positions to be aggregated. The position limits set forth in 
Sec.  151.4 shall apply to all positions in accounts for which any 
trader by power of attorney or otherwise directly or indirectly holds 
positions or controls trading and to positions held by two or more 
traders acting pursuant to an expressed or implied agreement or 
understanding the same as if the positions were held by, or the trading 
of the position were done by, a single individual.
    (b) Ownership of accounts generally. For the purpose of applying 
the position limits set forth in Sec.  151.4, any trader holding 
positions in more than one account, or holding accounts or positions in 
which the trader by power of attorney or otherwise directly or 
indirectly has a 10 percent or greater ownership or equity interest, 
must aggregate all such accounts or positions.
    (c) Ownership by limited partners, shareholders or other pool 
participants. (1) Except as provided in paragraphs (c)(2) and (c)(3) of 
this section, a trader that is a limited partner, shareholder or other 
similar type of pool participant with an ownership or equity interest 
of 10 percent or greater in a pooled account or positions need not 
aggregate such pooled positions or accounts if:
    (i) The pool operator has, and enforces, written procedures to 
preclude the trader from having knowledge of, gaining access to, or 
receiving data about the trading or positions of the pool;
    (ii) The trader does not have direct, day-to-day supervisory 
authority or control over the pool's trading decisions; and
    (iii) The pool operator has complied with the requirements of 
paragraph (g) of this section and has received an exemption from 
aggregation on behalf of the trader or a class of traders from the 
Commission.
    (2) A commodity pool operator having ownership or equity interest 
of 10 percent or greater in an account or positions as a limited 
partner, shareholder or other similar type of pool participant must 
aggregate those accounts or positions with all other accounts or 
positions owned or controlled by the commodity pool operator.
    (3) Each limited partner, shareholder, or other similar type of 
pool participant having an ownership or equity interest of 25 percent 
or greater in a commodity pool must aggregate the pooled account or 
positions with all other accounts or positions owned or controlled by 
that trader.
    (d) Identical trading. For the purpose of applying the position 
limits set forth in Sec.  151.4, any trader that holds or controls the 
trading of positions, by power of attorney or otherwise, in more than 
one account, or that holds or controls trading of accounts or positions 
in multiple pools, with identical trading strategies must aggregate all 
such accounts or positions.
    (e) Trading control by futures commission merchants. The position 
limits set forth in Sec.  151.4 shall be construed to apply to all 
positions held by a futures commission merchant or its separately 
organized affiliates in a discretionary account, or in an account which 
is part of, or participates in, or receives trading advice from a 
customer trading program of a futures commission merchant or any of the 
officers, partners, or employees of such futures commission merchant or 
its separately organized affiliates, unless:
    (1) A trader other than the futures commission merchant or the 
affiliate directs trading in such an account;
    (2) The futures commission merchant or the affiliate maintains only 
such minimum control over the trading in such an account as is 
necessary to fulfill its duty to supervise diligently trading in the 
account;
    (3) Each trading decision of the discretionary account or the 
customer trading program is determined independently of all trading 
decisions in other accounts which the futures commission merchant or 
the affiliate holds, has a financial interest of 10 percent or more in, 
or controls; and
    (4) The futures commission merchant has complied with the 
requirements of paragraph (g) of this section and has received an 
exemption from aggregation from the Commission.
    (f) Owned non-financial entities. An entity need not aggregate its 
positions with the positions of one of its owned non-financial 
entities, as defined in Sec.  151.1, if it can sufficiently 
demonstrate, in an application for exemption submitted under paragraph 
(g) of this section, that the owned non-financial entity's trading is 
independently controlled and managed, indicia of which include:
    (1) The entity and its other affiliates have no knowledge of 
trading decisions by the owned non-financial entity, and the owned non-
financial entity has no knowledge of trading decisions by the entity or 
any of the entity's other affiliates;
    (2) The owned non-financial entity's trading decisions are 
controlled by persons employed exclusively by the owned non-financial 
entity, who do not in any way share trading control with persons 
employed by the entity;
    (3) The owned non-financial entity maintains and enforces written 
policies and procedures to preclude the entity or any of its affiliates 
from having knowledge of, gaining access to, or receiving information 
or data about its positions, trades or trading strategies, including 
document routing and other procedures or security arrangements; and
    (4) The owned non-financial entity maintains a risk management 
system that is separate from the risk management system of the entity 
and any of its other affiliates.
    (5) Any other factors the Commission may consider, in its 
discretion, that indicate that the owned non-financial entity's trading 
is independently controlled and managed.
    (g) Applications for exemption. (1) Entities seeking an exemption 
from the position limits established by the Commission pursuant to this 
section, shall file an initial application for an exemption providing 
as part of the application all information required by the Commission, 
including but not limited to information:
    (i) Describing the relevant circumstances that warrant 
disaggregation;
    (ii) Providing an independent assessment report on the operation of 
the policies and procedures described in Sec.  151.9(c)(1)(iii) for 
pool operators and Sec.  151.9(f)(3) for owned non-financial entities;
    (iii) Designating an office and employee(s) of the entity, with 
salaries and compensation that are independent of trading profits and 
losses, which shall be responsible for the coordination of aggregation 
rules and position limit compliance;
    (iv) Providing an organizational chart that includes the name, main 
business address, main business telephone number, main facsimile number 
and main e-mail address of the entity and each of its affiliates;
    (v) Providing the names of pertinent employees of the entity 
(trading, operations, compliance, risk

[[Page 4775]]

management and legal) and their work locations and contact information;
    (vi) Providing a description of all information-sharing systems, 
bulletin boards, and common e-mail addresses;
    (vii) Providing an explanation of the entity's risk management 
system;
    (viii) Providing an explanation of how and to whom the trade data 
and position information is distributed, including which officers 
receive reports and their respective titles; and
    (ix) A signature by a representative duly authorized to bind the 
entity.
    (2) An application shall be submitted within the time specified by 
the Commission and in the form and manner provided for in Sec.  151.10.

Sec.  151.8  Foreign boards of trade.

    The aggregate position limits in Sec.  151.4 shall apply to a 
trader with positions in referenced contracts executed on, or pursuant 
to the rules of a foreign board of trade, provided that:
    (a) Such referenced contracts settle against the price (including 
the daily or final settlement price) of one or more contracts listed 
for trading on a registered entity; and
    (b) The foreign board of trade makes available such referenced 
contracts to its members or other participants located in the United 
States through direct access to its electronic trading and order 
matching system.

Sec.  151.9  Preexisting positions.

    (a) The position limits set forth in Sec.  151.2 of this chapter 
may be exceeded to the extent that such positions remain open and were 
entered into in good faith prior to the effective date of any rule, 
regulation, or order that specifies a position limit under this part.
    (b) Swap and swaption positions entered into in good faith prior to 
the effective date of any rule, regulation, or order that specifies a 
position limit under this part may be netted with post-effective date 
swap and swaptions for the purpose of applying any position limit.
    (c) Swap and swaption positions entered into in good faith prior to 
the effective date of any rule, regulation or order that specifies a 
position limit under this part shall not be aggregated with positions 
in referenced contracts that were entered into after the effective date 
of such a rule, regulation or order.

Sec.  151.10  Form and manner of reporting and submitting information 
or filings.

    Unless otherwise instructed by the Commission or its designees, any 
person submitting reports under this section shall submit the 
corresponding required filings and any other information required under 
this part to the Commission as follows:
    (a) Using the format, coding structure, and electronic data 
transmission procedures approved in writing by the Commission; and
    (b) Not later than 9 a.m. on the next business day following the 
reporting or filing obligation is incurred unless:
    (1) A 404A filing is submitted pursuant Sec.  151.5(c), in which 
case the filing must be submitted at least ten days in advance of the 
date that transactions and positions would be established that would 
exceed a position limit set forth in Sec.  151.4;
    (2) A 404 or 404S filing is submitted pursuant to Sec.  151.5, in 
which case the filing must be submitted the day after a position limit 
is exceeded and all days the trader exceeds such levels and the first 
day after the trader's position is below the position limit;
    (3) The filing is submitted pursuant to Sec.  151.6 and not under 
any other part under this title, then the 401, 402S, 404, or 404A 
filing, or their respective substitutes as provided for under Sec.  
151.6(c)(5) and (d), shall be submitted after the establishment of a 
position exceeding a visibility level on the latter of either (i) 9 
a.m. five business day after such time or (ii) 9 a.m. the first 
business day of the subsequent calendar month. If the filing is 
submitted pursuant to Sec.  151.6 and not under any other part under 
this title, the filing trader shall be required to submit a 401, 402S, 
404, or 404A filing, or their respective substitutes, no more often 
than once per calendar month; or
    (4) An application for exemption renewal is filed pursuant to Sec.  
151.7(g)(1), in which case the filing shall be submitted within 30 
calendar days of January 1 of each year following the initial 
application for exemption.

Sec.  151.11  Registered entity position limits.

    (a) Generally. (1) Registered entities shall adopt, and establish 
rules and procedures for monitoring and enforcing spot-month, single-
month, and all-months-combined position limits with respect to 
agreements, contracts or transactions executed pursuant to their rules 
that are no greater than the position limits specified in Sec.  151.4.
    (2) For agreements, contracts or transactions with no Federal 
limits, or with respect to levels of open interest to which no Federal 
limits apply, registered entities that are trading facilities shall 
adopt spot-month, single-month and all-months-combined position limits 
based on the methodology in 151.4, provided, however, that a registered 
entity may adopt, notwithstanding the methodology in 151.4, single-
month or all-months-combined limit levels of 1,000 contracts for 
tangible commodities other than energy products and 5,000 contracts for 
energy products and non-tangible commodities, including contracts on 
financial products.
    (3) Securities futures products. Position limits for securities 
futures products are specified in Part 41.
    (b) Alternatives. For a contract that is not subject to a Federal 
position limit, registered entities may adopt position accountability 
rules with respect to any agreement, contract or transaction:
    (1) On a major foreign currency, for which there is no legal 
impediment to delivery and for which there exists a highly liquid cash 
market; or
    (2) On an excluded commodity that is an index or measure of 
inflation, or other macroeconomic index or measure; or
    (3) On an excluded commodity that meets the definition of section 
1.13(ii), (iii), or (iv) of the Act; or
    (4) On an excluded commodity having an average open interest of 
50,000 contracts and an average daily trading volume of 100,000 
contracts and a highly liquid cash market.
    (c) Aggregation. Position limits or accountability rules 
established under this section shall be subject to the aggregation 
standards of Sec.  151.7.
    (d) Exemptions. (1) Hedge exemptions. (i) For purposes of exempt 
and agricultural commodities, no designated contract market or swap 
execution facility bylaw, rule, regulation, or resolution adopted 
pursuant to this section shall apply to any position that would 
otherwise be exempt from the applicable Federal speculative position 
limits as determined by Sec.  151.5; provided, however, that the 
designated contract market or swap execution facility may limit bona 
fide hedging positions or any other positions which have been exempted 
pursuant to Sec.  151.5 which it determines are not in accord with 
sound commercial practices or exceed an amount which may be established 
and liquidated in an orderly fashion.
    (ii) For purposes of excluded commodities, no designated contract 
market or swap execution facility bylaw, rule, regulation or resolution 
adopted pursuant to this section shall apply to any transaction or 
position defined under Sec.  1.3(z); provided, however, that the 
designated contract market or swap execution facility may limit bona 
fide hedging positions which it determines are not in accord with sound 
commercial practices or exceed an amount which may be established and 
liquidated in an orderly fashion.

[[Page 4776]]

    (2) Procedure. Persons seeking to establish eligibility for an 
exemption must comply with the procedures of the designated contract 
market or swap execution facility for granting exemptions from its 
speculative position limit rules. In considering whether to permit or 
grant an exemption, a contract market or swap execution facility must 
take into account sound commercial practices and paragraph (d)(1) of 
this section apply principles while remaining consistent with Sec.  
151.5.
    (f) Other exemptions. Speculative position limits adopted pursuant 
to this section shall not apply to:
    (1) any position acquired in good faith prior to the effective date 
of any bylaw, rule, regulation, or resolution which specifies such 
limit; or
    (2) any person that is registered as a futures commission merchant 
or as a floor broker under authority of the Act, except to the extent 
that transactions made by such person are made on behalf of or for the 
account or benefit of such person.
    (g) Ongoing responsibilities. Nothing in this Part shall be 
construed to affect any provisions of the Act relating to manipulation 
or corners or to relieve any designated contract market, swap execution 
facility, or governing board of a designated contract market or swap 
execution facility from its responsibility under other provisions of 
the Act and regulations.

Sec.  151.12  Delegation of authority to the Director of the Division 
of Market Oversight.

    (a) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Market Oversight or such other employee 
or employees as the Director may designate from time to time, the 
authority:
    (1) In Sec.  151.4(e) for determining levels of open interest;
    (2) In Sec.  151.5 for granting exemptions relating to bona fide 
hedging transactions; and
    (3) In Sec.  151.10 for providing instructions or determining the 
format, coding structure, and electronic data transmission procedures 
for submitting data records and any other information required under 
this part.
    (b) The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which has been 
delegated in this section.
    (c) Nothing in this section prohibits the Commission, at its 
election, from exercising the authority delegated in this section.

                         Appendix A to Part 151
------------------------------------------------------------------------
                                                  Spot month
------------------------------------------------------------------------
                                      Current  federal       Current
              Contract                      limit        exchange  limit
------------------------------------------------------------------------
                         Agricultural Contracts
------------------------------------------------------------------------
Cocoa...............................  ................             1,000
Coffee..............................  ................               500
Corn................................               600               600
Cotton No. 2........................               300               300
Feeder Cattle.......................  ................               300
Frozen Concentrated Orange Juice....  ................               300
Lean Hogs...........................  ................               950
Live Cattle.........................  ................               450
Milk Class III......................  ................             1,500
Oats................................               600               600
Rough Rice..........................  ................               600
Soybeans............................               600               600
Soybean Meal........................               720               720
Soybean Oil.........................               540               540
Sugar No. 11........................  ................             5,000
Sugar No. 16........................  ................             1,000
Wheat (CBOT)........................               600               600
Wheat, Hard Red Spring..............               600               600
Wheat, Hard Winter..................               600               600
------------------------------------------------------------------------
                          Base Metals Contracts
------------------------------------------------------------------------
Copper Grade 1.............  ................             1,200
------------------------------------------------------------------------
                        Precious Metals Contracts
------------------------------------------------------------------------
Gold................................  ................             3,000
Palladium...........................  ................               650
Platinum............................  ................               150
Silver..............................  ................             1,500
------------------------------------------------------------------------
                            Energy Contracts
------------------------------------------------------------------------
Crude Oil, Light Sweet (``WTI'')....  ................             3,000
Gasoline Blendstock (RBOB)..........  ................             1,000
Natural Gas.........................  ................             1,000
No. 2 Heating Oil, New York Harbor..  ................             1,000
------------------------------------------------------------------------

[[Page 4777]]

    Issued by the Commission, this 13th day of January 2011, in 
Washington, DC.
David Stawick,
Secretary of the Commission.

Appendices to Position Limits for Derivatives--Commission Voting 
Summary and Statements of Commissioners

    Note:  The following appendices will not appear in the Code of 
Federal Regulations

Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn, Chilton 
and O'Malia voted in the affirmative; Commissioner Sommers voted in 
the negative.

Appendix 2--Statement of Chairman Gary Gensler

    I support the proposed rulemaking to establish position limits 
for physical commodity derivatives. The CFTC does not set or 
regulate prices. Rather, the Commission is directed to ensure that 
commodity markets are fair and orderly to protect the American 
public.
    When the CFTC set position limits in the past, the agency sought 
to ensure that the markets were made up of a broad group of market 
participants with a diversity of views. At the core of our 
obligations is promoting market integrity, which the agency has 
historically interpreted to include ensuring markets do not become 
too concentrated.
    Position limits help to protect the markets both in times of 
clear skies and when there is a storm on the horizon. In 1981, the 
Commission said that ``the capacity of any contract market to absorb 
the establishment and liquidation of large speculative positions in 
an orderly manner is related to the relative size of such positions, 
i.e., the capacity of the market is not unlimited.''
    Today's proposal would implement important new authorities in 
the Dodd-Frank Act to prevent excessive speculation and manipulation 
in the derivatives markets. The Dodd-Frank Act expanded the scope of 
the Commission's mandate to set position limits to include certain 
swaps. The proposal re-establishes position limits in agriculture, 
energy and metals markets. It includes one position limits regime 
for the spot month and another regime for single-month and all-
months combined limits. It would implement spot-month limits, which 
are currently set in agriculture, energy and metals markets, sooner 
than the single-month or all-months-combined limits. Single-month 
and all-months-combined limits, which currently are only set for 
certain agricultural contracts, would be re-established in the 
energy and metals markets and be extended to certain swaps. These 
limits will be set using the formula proposed today based upon data 
on the total size of the swaps and futures market collected through 
the position reporting rule the Commission hopes to finalize early 
next year. It is only with the passage and implementation of the 
Dodd-Frank Act that the Commission will have broad authority to 
collect data in the swaps market.
    It will be some time before position limits for single-month and 
all-months-combined can be fully implemented. In the interim, if a 
trader has a position that is above a level of 10 and 2\1/2\; 
percent of futures and options on futures open interest in the 28 
contracts for which the Commission is proposing position limits, I 
have directed staff to collect information, including using special 
call authority when appropriate, to monitor these large positions. 
Staff will brief the Commission and make any appropriate 
recommendations based upon existing authorities for the Commission's 
consideration during its closed surveillance meetings at least 
monthly on what staff finds.
    Collecting this data relating to large traders with positions in 
the futures markets above such levels or points of 10 and 2\1/2\; 
percent would give the Commission a better look into the market and 
help us identify potential concerns. For example, if a trader does 
not have a bona fide hedge exemption, we can look into the details 
of its position and its intentions. It may also give us additional 
information as to how the position limits in the proposed rulemaking 
would affect traders in these markets.
    These levels, or points, are the positions at which CFTC staff 
will brief the Commission under its existing authorities. They would 
not be a substitute for current position limits or accountability 
levels, and they should not be interpreted to be a level that will 
automatically trigger any additional regulatory action.

Appendix 3--Statement of Commissioner Bart Chilton

    I reluctantly concur in the Commission's approval of publication 
of notice of a proposed rulemaking on position limits for 
derivatives. I support the Commission's issuance of a position 
limits proposal, but I do not support the timing.
    I have said repeatedly that it is of paramount importance to 
adhere to the deadlines imposed by Congress in the Wall Street 
Reform and Consumer Protection Act of 2010. Position limits is one 
of the rulemakings with an earlier target date. The current proposal 
does not meet the statutory time limits of imposition of limits 
within 180 days from the date of enactment for energy and metal 
commodities and 270 days for agricultural commodities. The agency 
does not have the authority to delay these statutory deadlines.
    At the open Commission meeting of the agency on December 9, 
2010, the Chairman indicated an intent to move forward with two 
proposals on speculative position limits and to move 
``expeditiously'' to implement spot month limits. This bifurcation 
of spot and single month/aggregate rulemakings was a good attempt to 
meet the January deadline set by Congress. At the meeting on 
December 16, 2010, however, the Commission was presented with a 
single proposed rule, with a 60-day comment period, addressing spot, 
single month, and aggregate limits. Accordingly, it is now clear 
that spot month limits will not be implemented for many months, at 
best, and single month/aggregate limits--and the corresponding new 
bona fide hedging rule--may take more than a year to implement.
    We need to address excessive speculation in these markets now. 
We already have more speculative positions in the commodities 
markets than ever before. There are some who suggest that certain 
commodity prices are currently delinked from supply and demand 
fundamentals, and are being impacted by excessive speculation. 
Should these conditions worsen, I will not hesitate to continue to 
criticize the delay that the Commission's position limits proposed 
rulemaking exacerbates.
    I commend the position point agreement that the Chairman 
publicly directed the staff to undertake. This interim measure will 
give the agency a window into the ``largest of the large'' traders 
in our markets, and is an appropriate provisional effort as we 
transition to include the swaps market into our traditional 
surveillance systems.
    The Commission should have acted so as to implement position 
limits as directed by Congress, pursuant to the statutory deadlines. 
I am disappointed that it failed to do so, and I will continue to 
aggressively advocate for rules that will appropriately address 
excessive speculatio

.[FR Doc. 2011-1154 Filed 1-25-11; 8:45 am]
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