Federal Register / Vol. 77, No. 104 / Wednesday, May 30, 2012 / Proposed Rules 31767 

19Pet. at 18–21. 

20Pet. at 21. 

21Pet. at 21–25. 

22 Id. at 23, citing American-Arab AntiDiscrimination Committee (ADC), 2010 Legal 

Department: Legal and Policy Review, p. 1. 

23Pet. at 26, citing Alberto Davila and Marie 

Mora, Changes in Earnings of Arab Men in the U.S., 

Journal of Population Economics, 2005, vol. 18, 

issue 4, p. 588. 

24Pet. at 25–27. 

25Pet. at 29. 

26Pet. at 29–31. 

27Pursuant to 15 CFR 1400.1, the designation for 

eligibility under Executive Order 11625 will not 

establish eligibility for any other Federal or 

Federally-funded program. 

28See 15 CFR 1400.4. 

such government-sponsored programs: 

The National Security Entry Exit 

Registration System NSEERS, which 

required non-immigrants to register at 

ports of entry and targeted males from 

Arab nations; stricter travel guidelines; 

and ‘‘no-fly’’ lists which predominantly 

contained the names of ArabAmericans. According to the Petition, 

these restrictions hindered the ArabAmerican community’s freedom and as 

a result, their ability to contribute to a 

healthy American economy.19

B. Economic Discrimination 

According to the ADC Petition, ArabAmericans also face economic 

discrimination as employees and 

business owners. Citing instances where 

employees are continuously harassed 

because of their ethnicity and are 

subject to constant name-calling and 

racial profiling, the petition asserts that 

Arab-Americans either have to 

constantly deal with discrimination 

enforced by their employers, their 

fellow employees or customers that 

frequent their places of employment.20

The petition also notes that ArabAmericans have fewer job opportunities, 

a situation that has been exacerbated by 

the September 11 attacks and asserts 

that this fact is supported by a number 

of studies that highlight employment 

discrimination against Arab Americans 

as well as the high number of 

complaints the ADC receives yearly 

despite the time that has passed since 

9/11.21

According to the ADC Petition, the 

discrimination that Arab-American 

employees face has decreased their 

earnings.22 One study showed that the 

earning potential of Arab American men 

dropped considerably between 2000 and 

2002 as compared to U.S.-born nonHispanic white men.23 Their ability to 

positively contribute to the economy 

has also been significantly altered as a 

result of the increased instances of 

government-sponsored inspections of 

workplaces that may have hired 

individuals with suspected terrorist 

ties.24

Arab-American business owners and 

entrepreneurs also face economic 

discrimination. Individuals from the 

Arab-American community are unable 

to earn up to their potential as 

compared to their non-Hispanic white 

counterparts in similar industries. The 

Petition notes that while many ArabAmericans are educated and would 

contribute tremendously to the U.S. 

economy if they were able to enter into 

the market, they are held back because 

of their ethnic background. Also, many 

times Arab-Americans are confined 

solely to the small Arab-American 

communities in which they live because 

they face harassment if they attempt to 

expand their business. The Petition 

further asserts that Arab Americans 

receive few prime government contracts, 

as exemplified by a case study 

conducted in San Francisco between 

1992 and 1995.25 During that time 

period, Arab-Americans received no 

construction contracts despite 

representing a significant amount of the 

available professional service firms. 

This can be compared to LatinoAmericans, a group already included in 

the definition of ‘‘minority business 

enterprise,’’ who only received 1 

percent of professional service dollars 

despite representing 6 percent of the 

professional service firms.26

III. Objectives and Scope 

By categorizing Arab-Americans as 

‘‘socially and economically 

disadvantaged business concerns’’ 

under 15 CFR part 1400, the same the 

benefits granted to other socially and 

economically disadvantaged persons 

specified under Part 1400 will be 

available to Arab-American persons and 

businesses. Specifically, under 15 CFR 

part 1400, Arab-Americans will be 

eligible to qualify for MBDA programs 

and opportunities that help minority 

businesses overcome discrimination and 

prejudice as business owners.27

The comments received will be 

reviewed for applicability to the issues 

to be addressed. MBDA will consider 

only those comments that address the 

relevance of including Arab-Americans 

in the definition of those who are 

‘‘socially and economically 

disadvantaged.’’ Commenters should 

address the following issues in the 

context of the requirements of the 

applicable regulations.28 If any 

comments received meet the criterion, 

they will be included in the final 

decision. 

MBDA solicits general comments and 

comments on the Petition that address 

the following specific issues: 

A. Societal Discrimination 

1. Are there specific instances of 

social discrimination against ArabAmericans that occur over a sustained 

period of time, which results in 

significant social or economic 

disadvantage? 

2. Are there any additional 

characteristics specific to the ArabAmerican community, other than those 

described in the ADC Petition, that 

invoke societal discrimination? 

3. Is there evidence that demonstrates 

Arab-Americans have been subject to 

employment or educational 

discrimination? If so, please describe. 

4. Is there evidence that demonstrates 

that Arab-Americans have been denied 

access to organizations, groups, 

professional societies or other types of 

business opportunities in comparison to 

individuals who are not considered 

socially or economically disadvantaged? 

B. Economic Discrimination 

1. What evidence exists that 

demonstrates Arab-Americans have 

faced economic discrimination over a 

sustained period of time resulting in 

social or economic disadvantage? 

2. Please provide any specific 

information which demonstrates that 

Arab-Americans have experienced 

difficulty in obtaining access to capital, 

technical, or managerial resources as 

compared to individuals who are not 

considered socially or economically 

disadvantaged. 

3. Is there any additional evidence of 

denied opportunities for ArabAmericans to access to those things 

which would enable them to participate 

more successfully in the American 

economic system that is readily 

available to individuals not considered 

to be socially or economically 

disadvantaged? 

Josephine Arnold, 

Chief Counsel, Minority Business 

Development Agency. 

[FR Doc. 2012–12968 Filed 5–29–12; 8:45 am] 

BILLING CODE 3510–21–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 151 

RIN 3038–AD82 

Aggregation, Position Limits for 

Futures and Swaps 

AGENCY: Commodity Futures Trading 

Commission. 


srobinson on DSK4SPTVN1PROD with PROPOSALS
31768 Federal Register / Vol. 77, No. 104 / Wednesday, May 30, 2012 / Proposed Rules 

1See 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/DoddFrankAct/index.htm. 2Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

3 7 U.S.C. 1 et seq. 

4See Position Limits for Futures and Swaps, 76 

FR 71626, Nov. 18, 2011. 

5See 17 CFR 150 (1999). Prior to the Dodd-Frank 

Act rulemaking, the Commission administered 

position limits under Commission regulation 150, 

which established federal position limits on certain 

enumerated agricultural contracts. The position 

limits on these agricultural contracts are referred to 

as ‘‘legacy’’ limits, and the listed commodities are 

referred to as ‘‘enumerated’’ agricultural 

commodities. 

6See 17 CFR 151.4. 

7See 17 CFR 151.5. See also CEA section 4a(c)(1) 

& (2). 

8See 17 CFR 151.7. 

9See 76 FR at 71632; and 151.4(d). 

10 Id. See also Further Definition of ‘‘Swap,’’ 

‘‘Security-Based Swap,’’ and ‘‘Security Based Swap 

Agreement’’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping, 76 FR 29818, May 23, 

2011 (notice of proposed rulemaking). 

11See 76 FR 71637. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: On November 18, 2011, the 

Commodity Futures Trading 

Commission (‘‘Commission’’ or 

‘‘CFTC’’) published in the Federal 

Register a final rule and interim final 

rule, which establish a position limits 

regime for 28 exempt and agricultural 

commodity futures and options 

contracts and the physical commodity 

swaps that are economically equivalent 

to such contracts. In response to a 

petition for exemptive relief under the 

Commodity Exchange Act and certain 

comments to the Commission’s interim 

final rule for spot-month limits for cashsettled contracts, this notice proposes 

certain modifications to the 

Commission’s policy for aggregation 

under the position limits regime in 

CFTC regulations. 

DATES: Comments must be received on 

or before June 29, 2012. 

ADDRESSES: You may submit comments, 

identified by RIN number3038–AD82, 

by any of the following methods: 

• Agency Web Site: http:// 

www.cftc.gov. 

• 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 CFTC 

regulation 145.9 (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 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, Senior Economist, 

Division of Market Oversight, at (202) 

418–5452, ssherrod@cftc.gov; Neal 

Kumar, Counsel, Office of General 

Counsel, at (202) 418–5353, 

nkumar@cftc.gov, Riva Spear Adriance, 

Senior Special Counsel, Division of 

Market Oversight, at (202) 418–5494, 

radriance@cftc.gov, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Introduction 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).1 Title VII of the 

Dodd-Frank Act 2 amended the 

Commodity Exchange Act (‘‘CEA’’) 3 to 

establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating robust recordkeeping and realtime reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to, among others, all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

As amended by the Dodd-Frank Act, 

sections 4a(a)(2) and 4a(a)(5) of the CEA 

mandate that the Commission establish 

limits for futures and option contracts 

traded on a designated contract market 

(‘‘DCM’’), as well as swaps that are 

economically equivalent to such futures 

or options contracts traded on a DCM. 

This mandate directed the Commission 

to establish position limits on the 

expedited timeframe of 180 days from 

the date of enactment for exempt 

commodities and 270 days from the date 

of enactment for agricultural 

commodities. In response to the 

Congressional mandate, the Commission 

proposed and ultimately adopted final 

rules in part 151 regarding position 

limits for 28 physical commodity 

futures and option contracts (‘‘Core 

Referenced Futures Contracts’’) and 

physical commodity swaps that are 

economically equivalent to such 

contracts (collectively with Core 

Referenced Futures Contracts referred to 

as ‘‘Referenced Contracts’’).4

The regulations in the part 151 

position limits regime, consistent with 

the Commission’s historical approach to 

position limits,5 generally includes 

three components: (1) The level of the 

limits, which set a threshold that 

restricts the number of speculative 

positions that a person may hold in the 

spot-month, individual month, and all 

months combined,6 (2) an exemption for 

positions that constitute bona fide 

hedging transactions,7 and (3) rules to 

determine which accounts and positions 

a person must aggregate for the purpose 

of determining compliance with the 

position limit levels.8

The Commission published Part 151 

in the Federal Register in November of 

2011, but determined to phase in 

compliance with the new position limits 

regime.9 Specifically, 60 days after the 

Commission publishes a joint final 

rulemaking with the Securities and 

Exchange Commission (‘‘SEC’’) further 

defining the term ‘‘swap’’ in the Federal 

Register,10 the rules require market 

participants to comply with spot-month 

limits for the 28 physical commodities 

as well as non-spot month limits for the 

enumerated agricultural contracts. The 

Commission also established the spotmonth position limit levels for cashsettled contracts on an interim final 

basis and solicited comments on the 

appropriateness of such levels.11

Finally, for the remaining non-spot 

month limits (i.e., all commodities other 

than the enumerated agricultural 

commodities), the rules require 

compliance on the first calendar day of 

the third calendar month following a 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 77, No. 104 / Wednesday, May 30, 2012 / Proposed Rules 31769 

12See 151.4(d)(3). 

13The proposed rules in this release deal solely 

with the aggregation of accounts. 

14See 17 CFR 151.7(a) & (b). In addition, the 

Commission included a new aggregation provision 

for persons with positions in accounts with 

identical trading strategies. This provision applies 

even if a person does not control trading and has 

a less than 10 percent interest in an account. See 

17 CFR 151.7(d). 

15 17 CFR 151.7(c). 

16 17 CFR 151.7(e). 

17 17 CFR 151.7(f). 

18 17 CFR 151.7(g). 

19See 17 CFR 151.7(i). 

20See 17 CFR 151.7(h). The exemption for federal 

law information sharing restrictions in regulation 

151.7(i), also requires that market participants 

submit an opinion of counsel that the sharing of 

information would cause a violation of federal law. 

21The aggregation petition was originally filed by 

the Working Group of Commercial Energy Firms; 

certain members of the group later reconstituted as 

the Commercial Energy Working Group. Both 

groups (hereinafter, collectively, the ‘‘Working 

Groups’’) wish to present one voice with respect to 

the petition. A copy of the aggregation petition can 

be found on the Commission’s Web site at 

www.cftc.gov/stellent/groups/public/ 

@rulesandproducts/documents/ifdocs/ 

wgap011912.pdf. 

22CEA section 4a(a)(7) specifically provides: 

‘‘The Commission, by rule, regulation, or order, 

may exempt, conditionally or unconditionally, any 

person or class of persons, any swap or class of 

swaps, any contract of sale of a commodity for 

future delivery or class of such contracts, any 

option or class of options, or any transaction or 

class of transactions from any requirement it may 

establish under this section with respect to position 

limits.’’ 7 U.S.C. 6a(a)(7). 

23See Commodity Markets Council (‘‘CMC’’) on 

March 9, 2012; Edison Electric Institute and the 

American Gas Association on March 1, 2012; and 

the Futures Industry Association (‘‘FIA’’) on March 

26, 2012. 

24See FIA on January 17, 2012 (‘‘CL–FIA’’); 

Atmos Energy Holdings (‘‘ATMOS’’) on January 17, 

2012 (‘‘CL–Atmos’’); Edison Electric Institute 

(‘‘EEI’’) on January 17, 2012 (‘‘CL–EEI’’); and 

American Gas Association (‘‘AGA’’) on January 17, 

2012 (‘‘CL–AGA’’). 

25The Commission initially proposed but did not 

adopt an exemption that would have permitted 

persons with an ownership or equity interest in a 

non-financial entity not to aggregate the positions 

or accounts of the non-financial entity provided the 

person filed an application demonstrating 

compliance with certain conditions. See Position 

Limits for Derivatives, 76 FR 4752, 4762–63, Jan. 26, 

2011. The Commission determined not to adopt this 

proposed exemption, but instead generally retained 

the Commission’s existing aggregation policy. See 

76 FR 71626. 

26Aggregation petition at 18. 

27 Id. at 24. 

28 Id. at 17. 

29See CL–FIA at 16–17; CL–Atmos at 5–6; and 

CL–EEI at 17–18. 

30CL–EEI at 17–18; and CL–Atmos at 5–6. 

31CL–FIA at 16–17; CL–EEI at 17–18; and CL– 

Atmos at 5–6. 

32CL–AGA at 2; CL–FIA at 16–17; CL–EEI at 17– 

18; and CL–Atmos 5–6. 

Commission order providing the 

numerical level of the non-spot month 

limits based upon a formula provided in 

part 151.12

As noted above, one of the three major 

components to the Commission’s 

position limits regime is determining 

which accounts and positions a person 

must aggregate.13 The final rule in 

regulation 151.7 largely adopted the 

Commission’s existing aggregation 

policy under regulation 150.4. The 

aggregation provisions generally require 

that unless a particular exemption 

applies, a person must aggregate all 

positions for which that person controls 

the trading decisions with all the 

positions for which that person has a 10 

percent or greater ownership interest in 

an account or position, as well as the 

positions of two or more persons acting 

pursuant to an express or implied 

agreement or understanding.14

Regulation 151.7 retained the scope of 

exemptions from aggregation that were 

contained in regulation 150.4, including 

the ownership interests of limited 

partners in pooled accounts,15

discretionary accounts and customer 

trading programs of futures commission 

merchants (‘‘FCM’’),16 and eligible 

entities with independent account 

controllers that manage customer 

positions (‘‘IAC’’ or ‘‘IAC 

exemption’’).17 Further, the Commission 

provided two additional exemptions for 

underwriters of securities,18 and where 

the sharing of information between 

persons would cause either person to 

violate federal law or regulations 

adopted thereunder.19 With the 

exception of the exemption for 

underwriters, market participants were 

required to file a notice with the 

Commission demonstrating compliance 

with the conditions applicable to each 

exemption.20

B. Aggregation Petition and Interim 

Final Rule Comments 

On January 19th, 2012 the 

Commission received a petition for 

interim relief from, among other things, 

part 151’s provision for aggregation of 

positions across accounts (hereinafter 

aggregation petition’’) 21 under CEA 

section 4a(a)(7) for purposes of part 

151.22 The Commission has also 

received letters that generally support 

the aggregation petition.23 In addition, 

several commenters opined on the 

aggregation rules in connection with the 

Commission’s request for comment on 

the interim final rule for spot-month 

position limits on cash-settled 

contracts.24 As further discussed below, 

the aggregation petition and certain 

interim final rule commenters argue that 

the Commission should clarify the 

exemption provided in regulation 

151.7(i) where the sharing of 

information would cause a violation of 

federal law and expand the exemption 

to include circumstances in which state 

or foreign law would prohibit the 

sharing of information necessary to 

comply with the aggregation standard. 

In addition, the aggregation petition and 

commenters request that the 

Commission create an aggregation 

exemption for owned non-financial 

entities.25 In this connection, some 

commenters argue that the Commission 

should only aggregate on the basis of 

control and not ownership. Finally, one 

commenter requests that the 

Commission expand the exemption 

provided in 151.7(g) for the ownership 

interests of broker-dealers connected 

with specific market-making activity. 

1. Exemption for Federal Law 

Restriction 

As noted above, section 151.7(i) 

provides an exemption from aggregation 

where the sharing of information 

between persons would cause either 

person to violate federal law. The 

aggregation petition seeks to clarify that 

the exemption would apply to potential 

violations of federal law,26 and also 

seeks to expand the exemption to apply 

to local, state, foreign and international 

law.27 According to the aggregation 

petition, the standard in the rule could 

be read as limited to per se violations 

of the law, but not cover ‘‘indicia of 

improper market activity.’’ 28 Further, 

market participants may not be able to 

rely on the exemption where they take 

certain action to avoid the ‘‘potential’’ of 

a violation. Moreover, the Working 

Groups argue that the filing of an 

opinion of counsel to claim the 

exemption may act as a disincentive for 

market participants to avail themselves 

of the exemption because an adverse 

opinion would harm the applicant. 

Similar to the petition, certain 

commenters to the interim final rule 

argue that the requirement that the 

sharing of information ‘‘would cause’’ a 

violation of federal law sets the bar too 

high to claim the exemption.29 In this 

connection, commenters opine that such 

a high standard makes it too difficult to 

obtain an opinion of counsel to reach 

the necessary conclusion.30 Therefore, 

several commenters argue that the 

Commission should clarify that the 

standard to claim the exemption is that 

the sharing of information presents 

either party with a reasonable risk of 

violating federal law.31 Commenters 

also believe that the Commission should 

expand this exemption to cover 

potential violations of state and foreign 

law.32 Finally, one commenter suggests 


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33CL–AGA at 5. 

34See Aggregation petition, pg. 5–16. 

35 Id. at Exhibit A. 

36 Id. at 7. The Working Groups cite to best 

practices issued by the Federal Trade Commission 

and the U.S. Department of Justice regarding 

antitrust guidelines (‘‘Antitrust Guidelines for 

Collaboration Among Competitors’’). Available at 

www.ftc.gov/os/2000/04/ftcdojguidelines.pdf. 

37 Id. at pg. 9. 

38 Id. at 10–16. 

39Similarly, according to the aggregation petition, 

the aggregation requirements impose significant 

compliance burdens where ownership interests may 

involve international companies, or where a 

corporate structure includes multiple levels of 

companies between a parent company and a child 

company with an account or position. 

40 Id. at 11. 

41 Id. 

42 Id. at 12–14. 

43 Id. at 14. 

44The Commission notes that although the 

aggregation petition describes the final position 

limit rules, including the aggregation requirements, 

as a ‘‘drastic departure from the status quo,’’ and 

seeks to differentiate between Commission and 

DCM rules regarding treatment of owned positions 

for purposes of aggregation, many current and past 

DCM rules require aggregation of the positions a 

person either owns or controls. See Board of Trade 

of the City of Chicago, Inc. (‘‘CBOT’’) Rule 559.D; 

Chicago Mercantile Exchange, Inc. (‘‘CME’’) Rule 

559.D; New York Mercantile Exchange, Inc. 

(‘‘NYMEX’’) Rule 559.D; ICE Futures U.S., Inc. 

(‘‘ICE US’’) Rule 6.12; Board of Trade of Kansas 

City, Missouri, Inc. (‘‘KCBT’’) Rule 2008.00; and 

Minneapolis Grain Exchange, Inc. (‘‘MGE’’) Rule 

7310. See also NYMEX Rule 9.35, MGEX Rule 7310 

and CBOT Rule 425.05 as examples of older rules 

requiring aggregation of the positions a person 

either owns or controls, which were in effect over 

the last 10 years. Furthermore, acceptable practices 

adopted by the Commission in August, 2001, 

provided DCMs with a safe harbor for position limit 

rules that aggregated positions a person owns or 

controls. See 66 FR 42256, 42280, August 10, 2001, 

Appendix B to Part 38, Core Principle 5. See also 

http://www.cftc.gov/files/foia/fedreg01/ 

foi010810a.pdf. 

45 Id. at 15. 46 Id. at Exhibit A. 47CL–FIA at 17–18; and CL–EEI at 16–17. 48CL–FIA at 18. See also CL–EEI at 16–17. 49CL–EEI at 16. 

that the Commission should remove the 

requirement to file an opinion of 

counsel to claim the exemption, which 

the commenter believes is 

burdensome.33

2. The Owned Non-Financial Entity 

Exemption and Aggregation Based on 

Ownership Generally 

As noted above, the proposed rules 

for part 151 proposed that a person with 

a 10 percent or greater ownership or 

equity interest in a non-financial entity 

need not aggregate the positions of the 

non-financial entity with his own 

positions, if the person filed an 

application with the Commission 

demonstrating compliance with certain 

conditions. This exemption was not part 

of the Commission’s previously existing 

aggregation policy for position limits on 

the enumerated agricultural contracts in 

part 150. Ultimately, the Commission 

determined to largely retain its existing 

aggregation policy with limited 

additional exemptions, and did not 

adopt the proposed owned nonfinancial entity exemption. 

According to the aggregation petition, 

the Commission’s failure to include an 

exemption for a person’s ownership 

interest in a non-financial entity will 

result in ‘‘serious adverse 

consequences’’ to the Working Groups 

participants, and represents a ‘‘drastic 

departure from current market 

practices.’’ 34 In light of these 

consequences, the aggregation petition 

includes a draft owned non-financial 

entity exemption for the Commission to 

incorporate into its aggregation policy. 

The draft exemption is similar, but not 

identical to, the owned non-financial 

entity exemption that the Commission 

proposed but did not adopt as part of its 

final rule.35

The aggregation petition suggests that 

without an owned non-financial entity 

exemption, the rules would force 

information sharing and the 

coordination of trading between entities, 

which would be contrary to existing 

best practices for antitrust 

compliance.36 Given the conflict with 

such practices, the Working Groups 

argue that compliance with the position 

limits rules may create liability under 

the antitrust laws. The Working Groups 

also argue that the aggregation rules, as 

adopted by the Commission, are 

contrary to certain industry best 

practices that ‘‘go beyond the letter of 

the law or applicable regulations in 

order to ensure that activities of 

unregulated entities are kept separate 

from activities of regulated entities to 

the greatest extent possible.’’ 37

The aggregation petition also opines 

that the information sharing between 

persons necessary to comply with the 

position limits would impose significant 

costs that would impact the physical 

and derivatives markets.38 According to 

the Working Groups, entities with 

complex corporate structure 

arrangements that include established 

information barriers to ensure 

compliance with other regulatory 

requirements will face significant costs 

to monitor positions on an intra-day 

basis, notwithstanding the current lack 

of control over such trading.39 In this 

case, the Working Groups claim that 

aggregation will significantly impact 

holding companies and firms that invest 

in commercial firms, particularly in the 

context of ‘‘passive investment.’’ Such 

firms will have to monitor the 

commercial firm for compliance with 

position limits and ‘‘insert itself into the 

management of the firm.’’ 40 In addition, 

according to the Working Groups, the 

aggregation of futures, cleared swaps 

and bilateral swaps across entities on a 

real time basis requires technology that 

does not yet exist.41 The aggregation 

petition also points to concerns 

surrounding allocation and reporting of 

positions, sharing of information on 

physical inventories, and information 

sharing for the unwinding of accounts.42

The Working Groups assert that the 

position limit rules represent a ‘‘drastic 

departure from the status quo.’’ 43

According to the aggregation petition, 

the Commission’s position limits 

previously only applied to agricultural 

commodity futures and options on 

futures, and DCM position limits 

applied to futures on energy and metals 

commodities.44 However, the 

Commission’s new position limits rules 

will apply to swaps for the first time. 

Further, the Working Groups contend 

that DCMs previously provided 

‘‘aggregation exemptions that provided 

the flexibility necessary for commercial 

enterprises to manage their position 

limit obligations across entities without 

undue burden.’’ 45 In addition, the 

aggregation of accounts across 

commercial firms could lead to 

decreased liquidity and competition in 

the energy derivatives market. 

In light of these changes, the Working 

Groups believe that the Commission 

should provide relief in the form of an 

owned non-financial entity exemption. 

The aggregation petition includes a draft 

owned non-financial entity exemption 

that follows the Commission’s prior 

proposed exemption with some 

modifications.46

Similar to the aggregation petition, 

commenters to the interim final rule 

request that the Commission adopt an 

owned non-financial entity 

exemption.47 FIA and EEI argue that 

without such an exemption, market 

participants would have to aggregate all 

positions held by any entity in which it 

has a ten percent ownership interest, 

even if such interest is passive without 

control over trading. According to FIA, 

such a consequence would ‘‘have an 

unnecessary and profoundly negative 

impact on users of Referenced 

Contracts, and their affiliates with no 

corresponding benefit to the stability or 

integrity of the market.’’ 48 EEI also 

argues that the owned non-financial 

entity exemption would provide 

commercial firms the same aggregation 

relief as eligible entities that rely on the 

independent account controller 

exemption.49

Several commenters also address the 

requirement that persons aggregate 


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50See e.g., CL–FIA at 15; CL–EEI at 1–2, 14–15; 

CL–Atmos at 3–5; and CL–AGA at 1–3. 

51See e.g., CL–EEI at 14–15. 

52CL–FIA at 6, 16. 

53CL–FIA at 16. 

54The Commission notes that the proposed 

expansion of this exemption includes a proposed 

technical change to regulation 151.7(i). The 

proposed technical change specifies that the 

‘‘notice’’ filing referenced in current regulation 

151.7(i) is a reference to the notice filing 

requirements set forth in regulation 151.7(h). In 

addition, the Commission has proposed a technical 

change to the FCM exemption in current regulation 

151.7(e). Proposed regulation 151.7(e)(4) is 

designed for ease of reference for market 

participants to follow the filing requirements in 

regulation 151.7(h), which requires persons 

claiming the FCM exemption in regulation 151.7(e) 

to file pursuant to regulation 151.7(h). Finally, the 

Commission is also proposing a technical change to 

the form and manner of filing for an aggregation 

exemption in regulation 151.10(b)(4). Specifically, 

this proposed change makes clear that a notice 

filing for an aggregation exemption is effective upon 

filing. 

based upon ownership of positions 

generally. These commenters 

recommend that the Commission only 

aggregate based on control, and not 

aggregate positions based upon an 

ownership interest in a position or 

account.50 According to these 

commenters, aggregation through an 

ownership interest, absent control of 

trading decisions, will impose 

significant burdens for entities to 

aggregate on an intra-day basis, may 

harm liquidity, and does not address the 

potential concerns about coordinated 

trading. Similar to the comments 

regarding the owned non-financial 

entity exemption, commenters submit 

that aggregating positions based solely 

on ownership creates substantial 

compliance burdens within the context 

of a complex corporate structure. In this 

connection, EEI suggests that the 

Commission not require an entity to 

aggregate owned positions if an entity 

could show the independence of trading 

decisions of the owned entity.51

3. Exemption for Underwriters 

As noted above, Commission rule 

151.7(g) includes an exemption from the 

ownership criteria for aggregation if the 

ownership interest: 

Is based on the ownership of securities 

constituting the whole or a part of an unsold 

allotment to or subscription by such person 

as a participant in the distribution of such 

securities by the issuer or by or through an 

underwriter. 

FIA submits that the Commission 

should clarify and expand this 

exemption to include an ownership 

interest based on the acquisition or 

disposition of securities acquired in 

connection with the trading or marketmaking activities of a broker-dealer 

registered with the SEC, or a comparable 

broker-dealer.52 FIA believes that 

aggregation based upon a 10 percent 

ownership interest should not be 

required if the broker-dealer acquires 

the interest—(1) In anticipation of 

demand, (2) as part of its normal 

market-making activity, or (3) as a result 

of a routine life cycle event, such as a 

stock distribution. Such ownership 

interests, according to FIA, do not 

present the same concerns about sharing 

transaction or position information that 

may facilitate coordinated trading.53

In response to the issues raised in the 

aggregation petition and comments to 

the interim final rule, the Commission 

has determined to propose 

modifications to certain position limits 

aggregation provisions. 

II. Proposed Rules 

A. Proposed Rules for Information 

Sharing Restriction 

The Commission is proposing to 

clarify that the scope of the exemption 

in regulation 151.7(i) includes a 

reasonable risk of a violation of federal 

law. The Commission intended to cover 

such risks in the final rule and is 

therefore proposing to amend regulation 

151.7(i) to make clear that the 

exemption includes circumstances in 

which the sharing of information would 

create a reasonable risk of a violation of 

federal law or regulations adopted 

thereunder. 

The proposed rules retain the 

requirement that market participants file 

an opinion of counsel to rely on the 

exemption in regulation 151.7(i). The 

opinion allows Commission staff to 

review the legal basis for the asserted 

regulatory impediment to the sharing of 

information, and is particularly helpful 

where the asserted impediment arises 

from laws and/or regulations that the 

Commission does not directly 

administer. Further, Commission staff 

will have the ability to consult with 

other federal regulators as to the 

accuracy of the opinion, and to 

coordinate the development of rules 

surrounding information sharing and 

aggregation across accounts in the 

future. The Commission also notes that 

the proposed clarification should 

address the concerns of commenters 

that obtaining an opinion of counsel 

could be difficult if the Commission 

read the existing standard to include 

only per se violations. 

With regard to comments that the 

exemption should permit persons to 

rely upon ‘‘best practices’’ or other 

‘‘guidelines,’’ the Commission notes that 

the proposed exemption applies to 

situations where the sharing of 

information creates a reasonable risk of 

violating federal law or regulations 

adopted thereunder. Whether a 

reasonable risk exists will depend on 

the interconnection of the applicable 

statute and regulatory guidance, as well 

as the particular facts and circumstances 

as applied to the statute and guidance. 

Notwithstanding the Commission’s facts 

and circumstances review of potentially 

conflicting federal law or regulations, 

the exemption in regulation 151.7(i) is 

effective upon filing of the notice in 

151.7(h) and opinion of counsel. These 

provisions authorize the Commission to 

request additional information beyond 

that contained in the notice filing, and 

the Commission may amend, suspend, 

terminate or otherwise modify a 

person’s aggregation exemption upon 

further review. As the Commission 

gains further experience with the 

exemption for federal law information 

sharing restriction in regulation 151.7(i), 

the Commission anticipates providing 

further guidance to market participants. 

1. Proposed Rules for Information 

Sharing Restriction—Foreign Law 

For the same reasons the Commission 

adopted the exemption for federal 

information sharing restrictions, the 

Commission proposes extending the 

exemption to the law of a foreign 

jurisdiction. In addition, similar to the 

clarification for the exemption for 

federal law information sharing 

restriction, the Commission is also 

proposing an exemption where the 

sharing of information creates a 

reasonable risk of violating the law of a 

foreign jurisdiction. However, the 

Commission remains concerned that 

certain market participants could 

potentially use the existing and 

proposed expansion of the exemption in 

regulation 151.7(i) to evade the 

requirements for the aggregation of 

accounts. In this regard, this proposed 

rule, consistent with the exemption for 

federal law information sharing 

restriction, includes the requirement to 

file an opinion of counsel specifically 

identifying the restriction of law and 

facts particular to the market participant 

claiming the exemption.54

The Commission notes that the 

aggregation petition references 

information sharing restrictions that 

arise from ‘‘international’’ law. The 

proposed rules include relief from 

aggregation for information sharing that 

could create a reasonable risk of 

violating the law of a foreign 

jurisdiction. The Commission seeks 

comment as to whether this proposal 

adequately addresses the concerns of 

market participants outlined in the 

interim final rule comments and the 


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55Aggregation petition at 24. 

56See e.g. 18 CFR 1c.1 & 1c.2. 

57Aggregation petition at 24. 

58 7 U.S.C. 6a. 

59Public Law 90–258, 82 Stat. 26 (1968). 

60See S. Rep No. 947, 90th Cong., 2 Sess. 5 

(1968). This senate report provides: 

Certain longstanding administrative 

interpretations would be incorporated in the act. As 

an example, the present act authorizes the 

Commodity Exchange Commission to fix limits on 

the amount of speculative ‘‘trading’’ that may be 

done. The Commission has construed this to mean 

that it has the authority to set limits on the amount 

of buying or selling that may be done and on the 

size of positions that may be held. All of the 

Commission’s speculative limit orders, dating back 

to 1938, have been based upon this interpretation. 

The bill would clarify the act in this regard * * *. 

Section 2 of the bill amends section 4a(1) of the 

act to show clearly the authority to impose limits 

on ‘‘positions which may be held.’’ It further 

provides that trading done and positions held by a 

person controlled by another shall be considered as 

done or held by such other; and that trading done 

or positions held by two or more persons acting 

pursuant to an express or implied understanding 

shall be treated as if done or held by a single 

person. 

61See Administrative Determination (‘‘A.D.’’) 163 

(Aug. 7, 1957) (‘‘[I]n the application of speculative 

limits, accounts in which the firm has a financial 

interest must be combined with any trading of the 

firm itself or any other accounts in which it in fact 

exercises control.’’). In addition, the Commission’s 

predecessor, and later the Commission, provided 

the aggregation standards for purposes of position 

limits in the large trader reporting rules. See 

Supersedure of Certain Regulations, 26 FR 2968, 

Apr. 7, 1961. In 1961, then regulation 18.01 read: 

‘‘(a) Multiple Accounts. If any trader holds or has 

a financial interest in or controls more than one 

account, whether carried with the same or with 

different futures commission merchants or foreign 

brokers, all such accounts shall be considered as a 

single account for the purpose of determining 

whether such trader has a reportable position and 

for the purpose of reporting.’’ 17 CFR 18.01 (1961). 

The provisions concerning aggregation for 

position limits generally remained part of the 

Commission’s large trader reporting regime until 

1999 when the Commission incorporated the 

aggregation provisions into part 150.4 with the 

existing position limit provisions in part 150. See 

64 FR 24038, May 5, 1999. The Commission’s part 

151 rulemaking also incorporates the aggregation 

provisions in part 151.7 along with the remaining 

position limit provisions in part 151. See 76 FR 

71626, Nov. 18, 2011. 

aggregation petition, and as to whether 

those concerns are valid. The 

Commission specifically requests 

comment on the types of ‘‘international’’ 

law, if any, which could create 

information sharing restrictions other 

than the law of a foreign jurisdiction. 

Should the regulation 151.7(i) 

exemption include ‘‘international’’ law 

or is it sufficient to refer to the ‘‘law of 

a foreign jurisdiction’’? Alternatively, 

the Commission is considering a caseby-case approach through petitions 

submitted pursuant to CEA section 

4a(a)(7). Should the Commission adopt 

such a case-by-case approach? 

2. Proposed Rules for Information 

Sharing Restriction—State Law 

After consideration of the aggregation 

petition and the interim final rule 

comments the Commission is also 

proposing to establish an exemption for 

situations where information sharing 

restrictions could trigger state law 

violations. In addition, similar to the 

clarification for the exemption for 

federal law information sharing 

restriction, the Commission is also 

proposing that the state law information 

sharing restriction apply to situations 

where the sharing of information creates 

a reasonable risk of violating the state 

law. However, as noted above, the 

Commission remains concerned about 

the potential for evasion within the 

context of this exemption. In this regard, 

this proposed rule, consistent with the 

federal law information sharing 

restriction, includes the requirement to 

file an opinion of counsel specifically 

identifying the restriction of law and 

facts particular to the market participant 

claiming the exemption. 

The Commission solicits comments as 

to the appropriateness of extending the 

information sharing exemption to state 

law. Should the Commission provide for 

such an exemption? Alternatively, the 

Commission is considering a case-bycase approach through petitions 

submitted pursuant to CEA section 

4a(a)(7). Should the Commission adopt 

such a case-by-case approach and 

otherwise rely upon the preemption of 

state law in administering its 

aggregation policy? 

The Commission notes that the 

aggregation petition cites to Texas 

Public Utility Code Substantive Rule 

25.503, which provides that ‘‘a market 

participant shall not collude with other 

market participants to manipulate the 

price or supply of power.’’ 55 That 

provision applies to intra-state 

transactions and resembles regulations 

of the Federal Energy Regulatory 

Commission.56 In this regard, should the 

Commission limit application of the 

proposed exemption for state law 

information sharing restrictions to laws 

that have a comparable provision at the 

federal level? What criteria should the 

Commission use in identifying state 

laws that a person may rely upon for an 

exemption from aggregation? 

The Commission also solicits 

additional comment as to the types of 

state laws, including specific laws, 

which could create an information 

sharing restriction in conflict with the 

Commission’s aggregation policy. 

The Commission further notes that 

the aggregation petition seeks to extend 

the exemption to information sharing 

restrictions that arise from ‘‘local’’ 

law.57 However, neither the aggregation 

petition nor interim final rule 

commenters have provided examples, 

and the Commission is concerned that 

an exemption for local law would be 

difficult to implement due to the 

number of laws and/or regulations that 

would need to be considered and the 

vast numbers of localities that might 

issue such laws and/or regulations. 

The Commission solicits comment as 

to the appropriateness of extending the 

information sharing exemption to 

‘‘local’’ law. Commenters are asked to 

provide the scope of local law and 

identify any specific laws that create 

information sharing restrictions that 

would conflict with the Commission’s 

aggregation policy. What criteria could 

the Commission use in identifying local 

laws that a person may rely upon for an 

exemption from aggregation? Should the 

Commission adopt a case-by-case 

approach through petitions submitted 

pursuant to CEA section 4a(a)(7) and 

otherwise rely upon the preemption of 

local law in administering its 

aggregation policy? 

B. Proposed Rules—Ownership of 

Positions Generally 

The Commission continues to 

consider ownership an appropriate 

measure for aggregation. Section 4a(a)(1) 

of the CEA provides for the general 

aggregation standard with regard to 

position limits, and specifically 

provides: 

In determining whether any person has 

exceeded such limits, the positions held and 

trading done by any persons directly or 

indirectly controlled by such person shall be 

included with the positions held and trading 

done by such person; and further, such limits 

upon positions and trading shall apply to 

positions held by, and trading done by, two 

or more persons acting pursuant to an 

expressed or implied agreement or 

understanding, the same as if the positions 

were held by, or the trading were done by, 

a single person.58

Congress incorporated this provision 

into Section 4a as part of the CEA 

Amendments of 1968 (‘‘1968 Act’’).59

The legislative history to the 1968 Act 

indicates that Congress added this 

language to expressly incorporate prior 

administrative determinations of the 

Commodity Exchange Authority 

(predecessor to the Commission).60

Prior to the 1968 Act, administrative 

determinations as well as regulations of 

the Commodity Exchange Authority 

announced standards that included 

control of trading and the ownership of 

positions.61

In light of the language in section 4a, 

the legislative history and regulatory 

developments, the Commission has 


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62See e.g., Exemptions from Speculative Position 

Limits for Positions which have a Common Owner 

but which are Independently Controlled and for 

Certain Spread Positions, 53 FR 41563, 41564, Oct. 

24, 1988); and Exemption from Speculative Position 

Limits for Positions which have a Common Owner 

but which are Independently Controlled and for 

Certain Spread Positions, 55 FR 30926, July 30, 

1990. 

63See also, Exemptions from Speculative Position 

Limits for Positions which have a Common Owner 

but which are Independently Controlled and for 

Certain Spread Positions, 53 FR 13290, 13292, Apr. 

22, 1988. In response to two separate petitions, the 

Commission proposed the independent account 

controller exemption from speculative position 

limits, but declined to remove the ownership 

standard from its aggregation policy. 

64See also Revision of Federal Speculative 

Position Limits and Associated Rules, 64 FR 24038, 

24044, May 5, 1999 (‘‘[T]he Commission * * * 

interprets the ‘held or controlled’ criteria as 

applying separately to ownership of positions or to 

control of trading decisions.’’); and 53 FR 13290, 

13293 (1988). 

65The Commission codified this aggregation 

threshold in its 1979 statement of policy on 

aggregation, which was derived from the 

administrative experience of the Commission’s 

predecessor. See Statement of Policy on 

Aggregation of Accounts and Adoption of Related 

Reporting Rules, 44 FR 33839, 33843, Jun. 13, 1979. 

Note, however, rule 151.7(d) will separately require 

aggregation of investments in accounts with 

identical trading strategies. 

66See e.g., 53 FR 13290, 13292 (1988) (proposal). 

The 1988 proposal for the independent account 

controller rule requested comment on the 

possibility of a broader passive investment 

exemption, and specifically noted: 

‘‘[Q]uestions also have been raised regarding the 

continued appropriateness of the Commission’s 

aggregation standard which provides that a 

beneficial interest in an account or positions of ten 

percent or more constitutes a financial interest 

tantamount to ownership. This threshold financial 

interest serves to establish ownership under both 

the ownership criterion of the aggregation standard 

and as one of the indicia of control under the 1979 

Aggregation Policy. 

In particular, certain instances have come to the 

Commission’s attention where beneficial ownership 

in several otherwise unrelated accounts may be 

greater than ten percent, but the circumstances 

surrounding the financial interest clearly exclude 

the owner from control over the positions. The 

Commission is requesting comment on whether 

further revisions to the current Commission rules 

and policies regarding ownership are advisable in 

light of the exemption hereby being proposed. If 

such financial interests raise issues not addressed 

by the proposed exemption for independent 

account controllers, what approach best resolves 

those issues while maintaining a bright-line 

aggregation test?’’ 

67See 76 FR 71626, 71654. 

68See e.g., 53 FR 41563, 41567, Oct. 24, 1988 (the 

definition of eligible entity for purposes of the IAC 

exemption originally only included CPOs, or 

exempt CPOs or pools, but the Commission 

indicated a willingness to expand the exemption 

after a ‘‘reasonable opportunity’’ to review the 

exemption.); 56 FR 14308, 14312, Apr. 9, 1991 (The 

Commission expanded eligible entities to include 

commodity trading advisors, but did not include 

additional entities requested by commenters until 

the Commission had the opportunity to assess the 

current expansion and further evaluate the 

additional entities); and 64 FR 24038, May 5, 1999 

(The Commission expanded the list of eligible 

entities to include many of the entities commenters 

requested in the 1991 rulemaking). 

69The Commission notes that ownership and 

control are considered separately for the aggregation 

of accounts. As such, if the Commission were to 

adopt the proposed exemption outlined below, and 

a market participant qualified for the exemption, 

such person would nonetheless have to aggregate 

those same accounts or positions identified in the 

exemption if such person otherwise controlled 

trading, acted pursuant to an express or implied 

agreement or held positions in accounts with 

identical trading strategies. 

historically viewed, and continues to 

view, section 4a as requiring aggregation 

on the basis of either ownership or 

control.62 The Commission also believes 

that aggregation of positions across 

accounts based upon ownership is a 

necessary part of the Commission’s 

position limit regime.63 An ownership 

standard establishes a bright-line test 

that provides certainty to market 

participants and the Commission.64

Absent aggregation on the basis of 

ownership, the Commission would have 

to apply a control test in all cases, 

which poses significant administrative 

challenges to individually assess control 

across all market participants. Further, 

if the statute only required aggregation 

based on control, market participants 

may be able to use an ownership 

interest to circumvent aggregation in 

circumstances where an ownership 

interest is used to directly or indirectly 

influence control over the account or 

position. The Commission also notes 

that the ownership prong attributes a 

position to the beneficial owner of 

multiple accounts that amount to an 

unduly large position, which position 

limits are intended to prevent. 

Therefore, the proposed rules would 

continue to require aggregation based 

upon either ownership or control. 

Regarding a threshold level to 

aggregate on the basis of ownership, the 

Commission has generally found that an 

ownership or equity interest of less than 

10 percent in an account or position that 

is controlled by another person who 

makes discretionary trading decisions 

does not present a concern that such 

ownership interest results in control 

over trading or can be used indirectly to 

create a large speculative position 

through ownership interests in multiple 

accounts. As such, the Commission has 

traditionally viewed an ownership 

interest below 10 percent as not 

warranting aggregation.65 Commenters 

suggest that a similar analysis should 

prevail for an ownership interest of 10 

percent or more where such ownership 

represents a passive investment that 

does not involve control of the trading 

decisions of the owned entity. 

Commenters argue that under these 

conditions, such passive investments 

would present a reduced concern for 

trading pursuant to direct or indirect 

control, as well as a reduced risk for 

persons with positions in multiple 

accounts to hold an unduly large overall 

position. 

While prior Commission rulemakings 

have generally restricted exemptions to 

the ownership criteria to limited 

partners of commodity pools and 

independent account controllers 

managing customer funds for an eligible 

entity, the Commission has considered 

a broader passive investment 

exemption.66 Further, the Commission 

indicated in the part 151 final rule that 

the development of aggregation 

exemptions could occur over time.67

This incremental approach to account 

aggregation standards reflects the 

Commission’s historical practice.68

Consistent with that practice, the 

Commission has considered the 

additional information provided and the 

concerns raised by the aggregation 

petition and interim final rule 

commenters, and believes it appropriate 

to propose certain relief from the 

ownership criteria of aggregation.69

1. Disaggregation Relief for Owned 

Entities 

Proposed rule 151.7(b) continues the 

Commission’s longstanding rule that 

persons with an ownership or equity 

interest in an account or position of less 

than 10 percent need not aggregate such 

positions solely on the basis of the 

ownership criteria. Persons with a 10 

percent or greater ownership interest 

would still generally be required to 

aggregate the account or positions. 

However, proposed rule 151.7(b)(1) 

establishes a notice filing procedure to 

permit a person in specified 

circumstances to disaggregate the 

positions of a separately organized 

entity (‘‘owned entity’’), even if such 

person has a 10 percent or greater 

interest in the owned entity. The notice 

filing would need to demonstrate 

compliance with certain conditions set 

forth in 151.7(b)(1)(i), and such relief 

would not be available to persons with 

a greater than 50 percent ownership or 

equity interest in the owned entity. 

Similar to other exemptions from 

aggregation, the notice filing would be 

effective upon submission to the 

Commission, but the Commission may 

subsequently call for additional 

information as well as reject, modify or 

otherwise condition such relief. Further, 

such person is obligated to amend the 

notice filing in the event of a material 

change to the circumstances described 

in the filing. 

The proposed criteria to claim relief 

under 151.7(b)(1) address the 

Commission’s concerns that an 


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70The Commission notes that the conditions for 

independence apply to the person filing the notice 

as well as the owned entity. In addition, for 

purposes of complying with the proposed 

conditions, such ‘‘person’’ shall include any entity 

that such person must aggregate pursuant to 

regulation 151.7. For example, if company A files 

a notice under proposed regulation 151.7(b)(1) for 

company A’s equity interest of 30 percent in 

company B, then company A must comply with the 

conditions for the exemption, including any entity 

with which company A aggregates positions under 

151.7. In this connection, if company A controls the 

trading of company C, then there must be 

independence between company B and company C 

for purposes of company A’s 151.7(b)(1) notice 

filing. 71See 17 CFR 151.7(f). 

72Aggregation petition at Exhibit A. 

73The Commission notes that the proposed 

condition barring the sharing of employees that 

control the owned entity’s trading decisions would 

include a prohibition on sharing of employees 

described in the aggregation petition (attorneys, 

accountants, risk managers, compliance and other 

mid-and back-office personnel), to the extent such 

employees are aware of the trading decisions of the 

person or the owned entity. 

74This condition is similar to a condition 

proposed in the aggregation petition. 

75The Commission remains concerned that a 

trading system, as opposed to a risk management 

system, that is not separately developed from 

another system can subvert independence because 

such a system could apply the same or similar 

trading strategies even without the sharing of 

trading information. 

ownership or equity interest of 10 

percent and above may facilitate or 

enable control over trading of the owned 

entity or allow a person to accumulate 

a large position through multiple 

accounts that could overall amount to 

an unduly large position. Essentially, 

the proposed rules amending the 

ownership criteria for aggregation across 

accounts establish a rebuttable 

presumption that persons with an 

ownership or equity interest of 10 

percent or greater must aggregate, but 

such persons may file for disaggregation 

relief if their ownership interest does 

not exceed 50 percent and they can 

demonstrate independence by meeting 

the criteria described below.70

Proposed rule 151.7(b)(1)(i)(A) 

conditions aggregation relief for the 

ownership interest in another entity on 

a demonstration that a person filing for 

disaggregation relief and the owned 

entity do not have knowledge of the 

trading decisions of the other. The 

Commission believes that where an 

entity has an ownership interest in 

another entity and neither entity share 

trading information, such entities 

demonstrate independence. In contrast, 

persons with knowledge of trading 

decisions of another in which they have 

an ownership interest are likely to take 

such decisions into account in making 

their own trading decisions, which 

implicates the Commission’s concern 

about independence and enhances the 

risk for coordinated trading. For 

purposes of this provision, the 

Commission does not consider 

knowledge of overall end-of-day 

position information to necessarily 

constitute knowledge of trading 

decisions, so long as the position 

information cannot be used to dictate or 

infer trading strategies. As such, the 

knowledge of end-of-day positions for 

the purpose of monitoring credit limits 

for corporate guarantees would not 

necessarily constitute knowledge of 

trading information. However, the 

ability to monitor the development of 

positions on a real time basis could 

constitute knowledge of trading 

decisions because of the substantial 

likelihood that such knowledge might 

affect trading strategies or influence 

trading decisions of the other. 

Proposed rule 151.7(b)(1)(i)(B) 

conditions aggregation relief on a 

demonstration that such person seeking 

disaggregation relief and the owned 

entity trade pursuant to separately 

developed and independent trading 

systems. Further, proposed rule 

151.7(b)(1)(i)(C) conditions relief on a 

demonstration that such person and the 

owned entity have, and enforce, written 

procedures to preclude the one entity 

from having knowledge of, gaining 

access to, or receiving data about, trades 

of the other. Such procedures must 

include document routing and other 

procedures or security arrangements, 

including separate physical locations, 

which would maintain the 

independence of their activities. The 

Commission has applied these same 

conditions in connection with the IAC 

exemption to ensure independence of 

trading between an eligible entity and 

an affiliated independent account 

controller.71 Such conditions have been 

useful in ensuring that trading is not 

coordinated through the development of 

similar trading systems, and that 

procedures are in place to prevent the 

sharing of trading decisions between 

entities. Similar to the IAC exemption, 

the proposed owned entity exemption 

in proposed rule 151.1(b)(1) would 

permit disaggregation if there is 

independence of trading between two 

entities. Thus the Commission proposes 

to include the above conditions, which 

are already applicable in the IAC 

context, and which should also 

strengthen the independence between 

the two entities for the owned entity 

exemption. 

Proposed rule 151.7(b)(1)(i)(D) 

conditions aggregation relief on a 

demonstration that such person does 

not share employees that control the 

owned entity’s trading decisions, and 

the employees of the owned entity do 

not share trading control with such 

persons. The Commission is concerned 

that shared employees with knowledge 

of trading decisions undermine the 

independence of trading between 

entities. Similar to the restriction on 

information sharing, the sharing of 

employees with knowledge of trading 

decisions presents a strong risk to the 

independence of trading between 

entities. In the aggregation petition, the 

Working Groups submit that entities 

should be permitted to share ‘‘attorneys, 

accountants, risk managers, compliance 

and other mid- and back-office 

personnel.’’ 72 At this time, the 

Commission questions, and seeks 

comment regarding, whether the sharing 

of such persons compromises 

independence because it would provide 

each entity with knowledge of the 

other’s trading decisions.73

Proposed rule 151.7(b)(1)(i)(E) 

conditions aggregation relief on a 

demonstration that the person and the 

owned entity do not have risk 

management systems that permit the 

sharing of trades or trading strategies 

with the other. This condition addresses 

concerns that risk management systems 

that permit the sharing of trades or 

trading strategies with each other 

present a significant risk of coordinated 

trading through the sharing of 

information.74 The Commission has not 

proposed a condition that the risk 

management system be separately 

developed from the risk management 

system of the owned entity, and the 

Commission seeks comment as to 

whether risk management systems that 

do not communicate trade information 

can maintain independence of trading 

between entities.75

Proposed rule 151.7(b)(1)(ii) 

conditions aggregation relief on a 

demonstration that such person does 

not have greater than a 50 percent 

ownership or equity interest in the 

owned entity. An equity or ownership 

interest above 50 percent constitutes a 

majority ownership or equity interest of 

the owned entity and is so significant as 

to require aggregation under the 

ownership prong of Section 4a(a)(1) of 

the CEA. This proposal would provide 

administrative certainty and would 

address concerns about circumvention 

of position limits by coordinated trading 

or direct or indirect influence between 

entities. To the extent that the majority 

owner may have the ability and 

incentive to direct, control or influence 

the management of the owned entity, 

the proposed bright-line test would be a 

reasonable approach to the aggregation 

of owned accounts pursuant to Section 


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Federal Register / Vol. 77, No. 104 / Wednesday, May 30, 2012 / Proposed Rules 31775 

76The Commission notes that aggregation based 

on ownership looks to a person’s equity interest 

regardless of voting control. By way of comparison, 

with a greater than 50 percent interest in voting 

shares, such person generally is required to 

consolidate the owned entity for purposes of the 

Generally Accepted Accounting Principles 

(‘‘GAAP’’). See Financial Accounting Standards 

Board Accounting Standards Codification Topic 

810, at paragraphs 810–10–15–8 and 10, available 

at https://asc.fasb.org/. See also Accounting 

Research Bulletin 51 at paragraph 3 and Statement 

of Financial Accounting Standard No. 94 at 

paragraph 2. The Commission believes that 

aggregation based upon an ownership or equity 

interest of greater than 50 percent, regardless of 

voting interest, is appropriate to address the 

heightened risk of direct or indirect influence over 

the owned entity. Further, unless a particular 

exemption applies, a person with a 50 percent or 

greater voting interest in an owned entity would 

likely be required to aggregate the positions of the 

owned entity on the basis of control. 

77The Commission reminds market participants 

that proposed regulation 151.7(b)(1) does not affect 

the applicability of a separate exemption from 

aggregation (e.g., the independent account 

controller exemption). 

78Where the provisions of regulation 151.7 

require a person to file a notice, entities cannot rely 

upon an exemption unless such entity has properly 

filed a notice in accordance with regulation 

151.7(h). 

79See 17 CFR 151.7(h)(1)(ii). Market participants 

should update the certification if the individual 

certifying compliance no longer works for the 

company. 

80 In this regard, the Commission clarifies that a 

material change would include, among other 

events, if the person making the original 

certification is no longer employed by the company. 

See also CEA § § 6(c)(2) and 9(a)(3). 

81The Commission notes that this list is not 

meant to be exhaustive of the factors that would 

indicate an exemption is warranted and should not 

be interpreted as being solely sufficient to claim the 

exemption because each filing is fact specific. As 

noted earlier, the Commission may demand 

additional information regarding the exemption 

within its discretion. 

4a(a)(1). A person with a greater than 50 

percent ownership interest in multiple 

accounts would have the ability to hold 

and control a significantly large and 

potentially unduly large overall position 

in a particular commodity, which 

position limits are intended to 

prevent.76

The proposed owned entity 

exemption and the clarification and 

expansion of the violation of law 

exemption address concerns raised in 

the aggregation petition and interim 

final rule comments. First, the 

clarification and extension of the 

violation of law exemption responds to 

concerns that market participants could 

face increased liability under state, 

federal and foreign law. While the 

aggregation petition and other 

commenters argue that an owned nonfinancial entity exemption would 

reduce the risk of liability under 

antitrust and other laws, the proposed 

clarification and expansion would allow 

market participants to avail themselves 

of the violation of law exemption in 

those circumstances where the sharing 

of information creates a reasonable risk 

of violating the above mentioned bodies 

of law. 

The proposed owned entity 

exemption applies to both financial and 

non-financial entities that have passive 

ownership interests. Market participants 

that qualify for the exemption can file 

a notice with the Commission 

demonstrating independence between 

entities and, thereafter, forgo the 

development of monitoring and tracking 

systems for the aggregation of accounts. 

The Commission seeks comment as to 

whether such passive interests present a 

significantly reduced risk of coordinated 

trading compared to owned entities that 

fail the criteria for the proposed 

exemption. In addition, the Commission 

specifically requests comment as to 

whether the proposed relief should be 

limited to ownership interests in nonfinancial entities. 

While the owned non-financial entity 

exemption mentioned in the aggregation 

petition would permit disaggregation 

even if the owned entity is a wholly 

owned company, the Commission is 

concerned that an ownership interest 

greater than 50 percent presents 

heightened concerns for coordinated 

trading or direct or indirect influence 

over an account or position, and that 

permitting disaggregation at that level of 

ownership would be inconsistent with 

the statutory requirement to aggregate 

on the basis of ownership. Small 

ownership interests of less than 10 

percent do not warrant aggregation. A 

10 percent or greater ownership interest 

has served as a useful measure for 

aggregation, but the Commission has 

determined relief may be warranted for 

passive investments. However, for the 

reasons discussed above, an ownership 

interest greater than 50 percent requires 

aggregation because ownership at that 

level serves as a useful benchmark for 

the increased risk of direct or indirect 

influence over the trading of an owned 

entity. Because the circumstances 

facilitating control can be difficult to 

monitor, a facts and circumstances 

review would be difficult to administer 

by both market participants and the 

Commission. In addition, a person with 

a greater than 50 percent ownership 

interest in multiple accounts may have 

the ability to hold a significantly large 

and potentially unduly large overall 

position in a particular commodity, 

which position limits are intended to 

prevent. Therefore, the Commission 

proposes limiting the availability of the 

exemption to those having an 

ownership interest no greater than 50 

percent because such a bright-line rule 

would provide clarity to market 

participants and a useful tool for the 

Commission to simplify aggregation 

where there is an increased and 

substantial risk of coordinated trading.77

With regard to filing requirements for 

the exemption in regulation 151.7(b) (1), 

the Commission notes that market 

participants would be required to file in 

accordance with regulation 151.7(h).78

As such, market participants must file a 

notice with the Commission with a 

description of how they adhere to the 

criteria in regulation 151.7(b)(1) and a 

certification that the conditions are met. 

This certification, as well as any other 

certification made under regulation 

151.7(h), must come from a senior 

officer of the market participant with 

knowledge as to the contents of the 

notice.79 Therefore, the Commission is 

proposing to clarify in regulation 

151.7(h)(1)(ii) that such certification 

come from a senior officer. Further, 

regulation 151.7(h)(3) requires market 

participants to promptly update a notice 

filing in the event of a material change 

of the information contained in the 

notice filing.80

With regard to the type of material 

necessary to file a notice to claim an 

exemption under 151.7(b)(1), the 

Commission notes that each submission 

must be specific to the facts of the 

particular entity. The person claiming 

the exemption must provide specific 

facts that demonstrate compliance with 

each condition of relief. Such a 

demonstration should likely include an 

organizational chart including the 

ownership and control structure of the 

involved entities, a description of the 

risk management system, a description 

of the information-sharing systems 

(including bulletin boards, and common 

email addresses of the entities 

identified), an explanation of how and 

to whom the trade data and position 

information is distributed (including the 

responsibilities of the individual 

receiving such information), and the 

officers that receive reports of the trade 

data and position information.81

The Commission specifically requests 

comments as to the appropriateness of 

the owned entity exemption as well as 

the conditions applicable to the 

exemption. Should the Commission add 

additional criteria? If so, what criteria 

and why? Should the Commission 

require market participants to submit 

additional information to claim the 

exemption? If so, what information and 

why? With regard to the owned entity 

exemption, should the Commission alter 

the scope of the exemption? If so, how 

should it be altered and why? Further, 


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31776 Federal Register / Vol. 77, No. 104 / Wednesday, May 30, 2012 / Proposed Rules 

82Aggregation petition at 23. 

83For purposes of the discussion below, ‘‘highertier’’ entities include entities with a 10 percent or 

greater ownership interest in an owned entity. 

84See 15 U.S.C. 78o. 

85The Commission specifically notes that this 

proposed exemption would not apply to registered 

broker-dealers that acquire an ownership interest in 

securities with the intent to hold for investment 

purposes. 

86With regard to FIA’s request that the exemption 

include a broker-dealer’s ownership of securities in 

anticipation of demand or as part of routine life 

cycle events, the proposed rules would cover such 

activity if the activity was in the normal course of 

the person’s business as a dealer. 

87See 63 FR 38532. 

at what percent of ownership interest 

should a market participant no longer be 

able to claim the exemption proposed in 

regulation 151.7(b)(1), if any? Are there 

specific circumstances in which a 

higher percentage of ownership than 50 

percent would be appropriate to claim 

the exemption in regulation 151.7(b)(1) 

notwithstanding the concerns described 

above regarding coordinated trading, 

direct or indirect influence, and 

significantly large and potentially 

unduly large overall positions in a 

particular commodity? In addition, the 

Commission welcomes comment on the 

owned non-financial entity exemption 

set forth in appendix A of the 

aggregation petition as an alternative to 

the owned entity exemption proposed 

herein. 

2. Higher Tier Entities 

In connection with the Working 

Groups’ request for the Commission to 

include an owned non-financial entity 

exemption, the Working Groups also 

request that the Commission provide 

relief from the filing requirements for 

claiming the exemption. Specifically, 

the aggregation petition argues that if an 

entity files a notice and claims the 

owned non-financial entity exemption, 

then ‘‘every higher-tier company (a 

company that holds an interest in the 

company that submitted the notice) 

need not aggregate the referenced 

contracts of the owned non-financial 

entities identified in the notice.’’ 82

Thus, the Commission is proposing 

rules that provide relief to such ‘‘highertier entities’’ within the context of a 

corporate structure.83

Proposed rule 151.7(j) provides that 

higher-tier entities may rely upon a 

notice for exemption filed by the owned 

entity, and such reliance would only go 

to the accounts or positions specifically 

identified in the notice. For example, if 

company A has a 30 percent interest in 

company B, and company B has filed an 

exemption notice for the accounts and 

positions of company C, then company 

A may rely upon company B’s 

exemption notice for the accounts and 

positions of company C. Should 

company A wish to disaggregate the 

accounts or positions of company B, 

company A would have to file a 

separate notice for an exemption. 

The proposed rules also provide that 

a higher-tier entity that wishes to rely 

upon an owned entity’s exemption 

notice must comply with conditions of 

the applicable aggregation exemption 

other than the notice filing 

requirements. Although higher-tier 

entities need not submit a separate 

notice to rely upon the notice filed by 

an owned entity, the Commission notes 

that it may, upon call, request that a 

higher-tier entity submit information to 

the Commission, including the 

possibility of an on-site visit, 

demonstrating compliance with the 

applicable conditions. 

The Commission believes that these 

proposed rules, if adopted, should 

significantly reduce the filing 

requirements for aggregation 

exemptions. Further, the Commission 

does not anticipate that the reduction in 

filing will impact the Commission’s 

ability to effectively survey the proper 

application of exemptions from 

aggregation. The initial filing of an 

owned entity exemption notice should 

provide the Commission with sufficient 

information regarding the 

appropriateness of the exemption, while 

repetitive filings of higher-tier entities 

would not be expected to provide 

additional substantive information. 

However, the Commission again notes 

that higher-tier entities would still be 

required to comply with the substantive 

conditions of the exemption specified in 

the owned entity’s notice filing. 

C. Underwriting 

As noted above, Commission 

regulation 151.7(g) includes an 

exemption from aggregation where an 

ownership interest is in an unsold 

allotment of securities. FIA requests that 

the Commission expand the exemption 

to include situations where securities 

are owned in anticipation of demand as 

part of normal market-making activity, 

or as a result of a routine life cycle 

event, such as a stock distribution. 

The Commission believes that the 

ownership interest of a broker-dealer 

registered with the SEC, or similarly 

registered with a foreign regulatory 

authority,84 in an entity based on the 

ownership of securities acquired as part 

of reasonable activity in the normal 

course of business as a dealer is largely 

consistent with the ownership of an 

unsold allotment of securities covered 

by the underwriting exemption 

currently found in regulation 151.7(g). 

In both circumstances, the ownership 

interest is likely transitory and not to 

hold for investment purposes. 

Accordingly, the Commission is 

proposing an aggregation exemption in 

regulation 151.7(g) for such activity.85

However, the Commission notes that 

this exemption would not apply where 

a broker-dealer acquires more than a 50 

percent ownership interest in another 

entity because this would not be 

consistent with holding such a 

transitory interest for the purpose of 

market making and runs a higher risk of 

coordinated trading.86 Therefore, a 

broker-dealer that acquires more than 50 

percent ownership interest in another 

entity must aggregate that entity, in the 

absence of another aggregation 

exemption. 

The Commission requests comment 

on whether ownership of stock, by a 

broker-dealer registered with the SEC or 

similarly registered with a foreign 

regulatory authority, that is acquired as 

part of reasonable activity in the normal 

course of business as a dealer, without 

other ownership interests or indicia of 

control or concerted action, warrants 

aggregation. 

D. Independent Account Controller for 

Eligible Entities 

As noted above in section I.A of this 

release, section 151.7(f) provides an 

eligible entity with an exemption for the 

eligible entity’s customer accounts that 

are managed and controlled by 

independent account controllers. In the 

part 151 rulemaking, the Commission 

adopted the same definitions of eligible 

entity and independent account 

controller found in the Commission’s 

prior position limit regulations in 

regulation 150.1. The definition of 

eligible entity includes ‘‘the limited 

partner or shareholder in a commodity 

pool the operator of which is exempt 

from registration under § 4.13 of this 

chapter * * *.’’ However, with regard 

to a CPO that is exempt under 

regulation 4.13, the definition of an 

independent account controller only 

extends to ‘‘a general partner of a 

commodity pool the operator of which 

is exempt from registration under § 4.13 

of this chapter.’’ At the time the 

Commission expanded the IAC 

exemption to include regulation 4.13 

commodity pools, market participants 

generally structured such pools as 

limited partnerships.87

The Commission understands that 

today, not all regulation 4.13 

commodity pools are formed as 

partnerships. For example, regulation 


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88 7 U.S.C. 19(a). 

89As part of the proposed rules for part 151, the 

Commission proposed that persons with an 

ownership or equity interest in a non-financial 

entity need not aggregate the positions or accounts 

of the non-financial entity provided the person filed 

an application demonstrating compliance with 

certain conditions. See Position Limits for 

Derivatives, 76 FR 4752, 4762–63, Jan. 26, 2011. 90See Aggregation Petition at 19. 91 Id. at 10–16. 92 Id. at 11. 

93 Id. at 15. 

94 Id. at Exhibit A. 

95 Id. at 16–18. 

96 Id. at 23. 

97See CL–FIA at 15; CL-Atmos at 4–5; and CL– 

EEI at 14–15. 

98See e.g. CL–FIA at 15; CL–EEI at 1–2, 14–15; 

CL-Atmos at 3–5; and CL–AGA at 1–3. 

99See CL–FIA at 18 and CL–EEI at 16–17. 

100See CL–FIA at 15; CL–EEI at 14–15; and CLAtmos at 3. 

101See CL–EEI at 14–15; and CL-Atmos at 1–2. 

4.13 pools may be formed as limited 

liability companies and have managing 

members, not general partners. 

The Commission is proposing to 

expand the definition of independent 

account controller to include the 

managing member of a limited liability 

company. As such, regulation 4.13 

commodity pools established as limited 

liability companies would be accorded 

the same treatment as such pools 

formed as limited partnerships. The 

limitation of the exemption to general 

partners was based upon a market 

structure that, historically, did not 

generally include regulation 4.13 

commodity pools established as limited 

liability companies. In light of market 

developments since the Commission 

expanded IACs to include regulation 

4.13 pools as eligible entities, it may not 

be appropriate for there to be a 

distinction between limited 

partnerships and limited liability 

companies in this regard. As such, the 

Commission is proposing to amend the 

definitions of eligible entity and 

independent account controller in part 

151.1 to specifically provide for 

regulation 4.13 commodity pools 

established as limited liability 

companies. 

The Commission intends to 

coordinate the disposition of the 

petition with the implementation of 

position limits under part 151. To do so, 

among other things, the Commission has 

directed staff to promptly review 

comment letters as soon as practicable 

following close of the comment period. 

Further, in order to provide an orderly 

transition to the compliance dates 

specified in part 151.4, the Commission 

intends to finalize consideration of the 

petition prior to the first compliance 

date of part 151. 

III. Related Matters 

A. Considerations of Costs and Benefits 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing an order.88 Section 15(a) 

further specifies that the costs and 

benefits shall be evaluated in light of the 

following five broad areas of market and 

public concern: (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. 

The proposed rules provide the public 

with an opportunity to comment on 

concerns raised in the aggregation 

petition and in comments on the interim 

final rule. The petitioner and the 

commenters seek clarification of certain 

provisions of the Commission’s 

aggregation policy, and seek to alter or 

expand exemptions from aggregation to 

include circumstances where there may 

be a low risk of coordinated trading. The 

Commission requests comment on all 

aspects of its consideration of costs and 

benefits, including identification and 

assessment of any costs and benefits not 

discussed herein. In addition, the 

Commission requests that commenters 

provide data and any other information 

or statistics that they believe supports 

their positions with respect to the 

Commission’s consideration of costs 

and benefits. 

1. Aggregation Petition and Other 

Comments 

As discussed in section I.B. of this 

release, the Commission received a 

petition seeking relief from certain 

aggregation provisions in the final rules, 

as well as several comments regarding 

aggregation in response to the interim 

final rule on cash-settled contract limits. 

Among other things, the aggregation 

petition requests that the Commission 

provide an aggregation exemption for 

owned non-financial entities similar to 

an exemption that the Commission 

proposed but did not adopt in its final 

rules.89

The aggregation petition states that 

compliance with the final rules’ 

aggregation requirements would require 

information sharing and coordination of 

trading that is contrary to current best 

practices.90 The aggregation petition 

contends that the aggregation rules may 

impede investment in commercial firms, 

impair liquidity and competition in 

energy derivatives markets, or cause 

firms to exit the market altogether.91

Further, the aggregation petition states 

that the aggregation rules necessitate the 

development and implementation of 

extensive and expensive information 

technology systems that can track 

positions across numerous affiliates, 

even if those affiliates currently trade 

independently of each other.92 The 

aggregation petition also submits that 

companies with an ownership position 

in a joint venture would have to divest 

their interest to avoid operational 

difficulties associated with aggregating 

positions.93 The petitioner contends 

that these asserted costs could be 

mitigated if the Commission were to 

adopt a variant of the owned nonfinancial entity exemption,94 clarify that 

the violation of law exemption applies 

to situations in which there is a 

‘‘reasonable risk’’ of violating the 

applicable law, expand the violation of 

law exemption to include possible 

violations of local, state, foreign, and 

international law,95 and adopt 

provisions relieving ‘‘higher-tier’’ 

entities of the filing requirement, as 

discussed above.96

Several commenters to the 

Commission’s interim final rule also 

suggest that the Commission adopt a 

version of the ‘‘owned non-financial 

entity’’ exemption; these commenters 

argue that even above 10 percent 

ownership, where there is no common 

control, there is no risk of coordinated 

trading and, therefore, no need for 

aggregation of positions.97 These 

commenters recommend that the 

Commission aggregate based on control, 

and not based on an ownership interest 

in a position or account.98 Commenters 

contend that aggregation of accounts in 

passive investments, where the owned 

entity is independently managed and 

controlled, will be costly and have a 

negative impact on markets and market 

participants.99 Commenters also claim 

that many businesses establish 

information barriers between affiliates, 

and that the final rules would require 

the destruction of those barriers in order 

to ensure compliance.100

As with the petitioners, commenters 

to the interim final rule also assert that 

the aggregation provisions impose 

significant operational challenges for 

entities and end-users in particular, 

requiring them to develop and maintain 

costly internal infrastructure 

mechanisms to ensure compliance.101

FIA estimates that for a large 

conglomerate, costs to comply with the 

final rule’s aggregation procedures 

could be high. In particular, FIA 

estimates that each entity could spend 

as much as $500,000 to $1,000,000 to 

identify all entities subject to 


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102See CL–FIA at 19–20. 

103See CL–EEI at 17–18; CL–AGA at 1–2; CL–FIA 

at 6; and CL-Atmos at 5. 

104See CL–AGA at 5. 

105See CL–FIA at 16. 

106As discussed in section II.D.1, at over 50 

percent ownership, the proposed ownership 

standard would mandate aggregation in order to 

give effect to the statutory requirement that 

positions ‘‘held’’ by a person must be aggregated, 

and because of a person’s ability to influence 

management and the concomitant heightened 

concerns about coordinated trading. The owned 

entity exemption does not impact the availability of 

the IAC, FCM, and federal, state, or foreign law 

information sharing restriction exemptions as found 

in regulation 151.7(h). However, as proposed, this 

exemption from the ownership criteria would not 

apply to investments in accounts with identical 

trading strategies. 

107They further contend that a lack of an owned 

non-financial entity exemption could increase 

liability for antitrust and other federal law and 

regulations. This concern is addressed by the 

proposed clarification discussed above, which 

provides that market participants may avail 

themselves of the violation of law exemption if the 

sharing of information creates a reasonable risk of 

a violation. 

108See 15 U.S.C. 78o. 

109The Commission specifically notes that this 

proposed exemption would not apply to registered 

broker-dealers that acquire an ownership interest in 

securities with the intent to hold for investment 

purposes. 

aggregation and to establish protocols 

for reporting all commonly owned and 

controlled positions in Referenced 

Contracts; as much as $1,000,000 to 

$1,500,000 to establish new information 

technology systems for consolidating 

and tracking aggregated position 

information; and approximately 

$100,000 for each entity subject to 

aggregation to report position 

information to its affiliates and/or 

controlling entities.102

With regard to the exemption for 

federal law information sharing 

restriction in regulation 151.7(i), several 

commenters also suggest that the 

Commission extend the exemption to 

include state and foreign 

jurisdictions.103 One commenter wrote 

that the provision in regulation 151.7(i) 

that requires an opinion of counsel to 

obtain such an exemption was too 

burdensome and should be revised.104

One commenter also suggests that the 

Commission extend the underwriting 

exemption in regulation 151.7(g) to 

include situations where a broker-dealer 

acquires positions for legitimate dealing 

reasons, such as in anticipation of 

increased demand, as part of its normal 

market-making activity, or as a result of 

a routine life-cycle event.105

2. Summary of the Commission’s 

Proposal 

Exemption for Violation of Laws. In 

the final part 151 rules, the Commission 

included an exemption from aggregation 

for those entities for whom sharing the 

requisite information would violate 

federal law. The Commission seeks to 

clarify that it always intended the 

exemption to apply in those 

circumstances in which the sharing of 

information presents a ‘‘reasonable risk’’ 

of violating the applicable law(s). 

As explained above, one commenter 

urged the Commission to drop the 

requirement that, to obtain the 

violation-of-laws exemption an entity 

must submit an opinion of counsel (as 

discussed in section II.C). Such an 

opinion allows the Commission to 

review the facts and circumstances 

supporting the claimed exemption, and 

thus the proposed rules would retain 

the requirement to submit an opinion of 

counsel. 

In light of the aggregation petition and 

comments on the interim final rule, the 

Commission is including in this 

proposal an expansion of the violationof-law exemption to include state law 

and the law of foreign jurisdictions. The 

existing rule allows entities who believe 

that the aggregation provisions would 

require them to violate state or foreign 

laws to seek an exemption on a case-bycase basis. The Commission seeks 

comment as to the scope of the 

proposed exemption. 

Proposed Owned Entity Exemption. 

Proposed rule 151.7(b)(1) provides that 

any person with an ownership or equity 

interest in an entity (financial or nonfinancial) of 10 percent or greater may 

disaggregate the owned entity’s 

positions upon demonstrating 

compliance with each of several 

specified indicia of independence.106

The proposed indicia are that such 

person and the owned entity: (1) Do not 

have knowledge of the trading decisions 

of the other; (2) trade pursuant to 

separately developed and independent 

trading systems; (3) have in place 

policies and procedures to preclude 

sharing knowledge of, gaining access to, 

or receiving data about, trades of the 

other; (4) do not share employees that 

control the trading decisions of the 

other; and (5) maintain a risk 

management system that does not allow 

the sharing of trade information or 

trading strategies between entities. In 

addition, such person’s ownership or 

equity interest in the owned entity 

cannot exceed 50 percent. 

The aggregation petition and several 

of the other commenters urge that the 

Commission should permit market 

participants to disaggregate accounts in 

situations where ownership of an 

account is passive, as they contend 

there is a less of a concern regarding 

coordinated trading.107 The aggregation 

petition and other commenters suggest 

that the Commission add an owned nonfinancial entity exemption, which they 

contend would incorporate such 

situations as well as alleviate potential 

negative impacts to liquidity and 

competition in both physical and 

derivatives markets. 

The Commission is proposing to 

permit disaggregation of entities where 

a person has no greater than a 50 

percent interest in the entity and meets 

certain other conditions. The proposed 

owned-entity exemption would apply to 

a person’s passive investments in either 

financial or non-financial entities. 

Those who qualify under this proposal 

would have to demonstrate that they 

meet all of its conditions. The 

Commission seeks comment as to 

whether the concerns suggested by the 

aggregation petition and other 

commenters are valid, whether this 

proposal meets those concerns, and 

whether the 50 percent limit and other 

conditions are appropriate. 

Expansion of the Underwriter 

Exemption. The Commission is also 

proposing to expand the exemption for 

the underwriting of securities that was 

adopted as regulation 151.7(g) to 

include ownership interests acquired 

through the market-making activities of 

an affiliated broker dealer. This 

proposal would exempt from 

aggregation ownership interests 

acquired as part of a person’s reasonable 

market-making activity in the normal 

course of business as a broker-dealer 

registered with the SEC or comparable 

registration in a foreign jurisdiction,108

so long as there is no other ownership 

interests or indicia of control or 

concerted action. The Commission 

intends for this proposal to apply to 

ownership interests that are likely 

transitory and not for investment 

purposes, and seeks comment as to 

whether such interests are at a low risk 

for the coordination of trading or 

whether this exemption could lead to 

evasion of applicable position limits.109

Proposed ‘‘Higher-Tier’’ Entity Filing 

Relief. The Commission also is 

proposing to extend filing relief to 

‘‘higher-tier’’ entities. As such, proposed 

regulation 151.7(j) provides that highertier entities may rely on exemption 

notices filed by owned entities. 

Commenters claim that such an 

exemption would reduce the burden of 

filing exemption notices by eliminating 

redundancies. The Commission seeks 

comment as to whether this proposal 

will in fact reduce the filing burden for 

claiming an exemption, and whether the 

proposal would affect the Commission’s 


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110The Commission’s general policy on 

aggregation is derived from CEA Section 4a(a)(1), 

which directs the Commission to aggregate based on 

separate considerations of ownership, control, or 

persons acting pursuant to an express or implied 

agreement. 

111The costs of filing the Notice included costs 

of filing an opinion of counsel as well as the other 

necessary information under § 151.7(h). 

112 76 FR 71626 at 71683. 113See section III.C.2 of this release. 

ability to oversee how exemptions are 

applied in the market. 

Independent Account Controller 

Exemption. As discussed above, the IAC 

exemption in regulation 151.7(f) 

previously included commodity pools 

exempt from registration under § 4.13 

that are structured as limited 

partnerships. The Commission is 

proposing to allow commodity pools 

structured as limited liability companies 

to rely on the IAC exemption. The 

Commission seeks comment as to 

whether there is any relevant distinction 

between limited partnerships and 

limited liability companies for purposes 

of this exemption. 

3. Consideration of Costs and Benefits 

It is the Commission’s goal that this 

proposal uphold part 151’s regulatory 

aims without diminishing its 

effectiveness. In so doing, the 

Commission adheres to its belief that 

aggregation represents a key element to 

prevent evasion of prescribed position 

limits and that its historical approach 

towards aggregation—one that 

appropriately blends consideration of 

ownership and control indicia—remains 

sound.110

The Commission seeks comment as to 

whether compliance with this proposal 

will reduce the costs market 

participants will incur to comply with 

the aggregation requirements of the final 

rules. In particular, how would the cost 

of filing a notice for disaggregation relief 

compare with the cost of developing 

systems necessary to aggregate the 

positions of owned entities under the 

current version of part 151? Note that, 

in the preamble to part 151, the 

Commission estimated that the filing of 

a Notice of Disaggregation would create 

certain costs for market participants.111

In particular, the Commission 

approximated that the aggregationrelated reporting requirements would 

affect ‘‘ninety entities, resulting in a 

total burden, across all these entities, of 

225,000 annual labor hours and $5.9 

million in annualized capital, start-up, 

total operating, and maintenance 

costs.’’ 112 The Commission has 

estimated the additional burden that 

may result from the proposed rules as 

part of its Paperwork Reduction Act 

calculations, and requests comment on 

those estimations.113 The Commission 

also seeks comment as to how many 

entities would be able to take advantage 

of the proposed exemption. 

Alternatively, how many entities would 

be able to take advantage of the owned 

non-financial entity exemption 

described in the aggregation petition? 

Because costs associated with the 

aggregation of positions are highly 

variable and entity-specific, the 

Commission requests that commenters 

submit data from which the 

Commission can consider and quantify 

the costs of the proposed rules. 

In assessing benefits, it is important 

for the Commission to determine 

whether the proposed rules will 

enhance the Commission’s ability to 

monitor compliance with position limits 

by focusing the Commission’s resources 

on those entities most at risk of 

coordinated trading through multiple 

accounts. The Commission seeks 

comment as to whether the proposed 

amendments to the Commission’s 

aggregation policy will result in lower 

costs for market participants without 

compromising the core purposes of the 

position limits regime. 

4. Section 15(a) Considerations 

As the Commission has long held, 

position limits are an important 

regulatory tool that is designed to 

prevent concentrated positions of 

sufficient size to manipulate or disrupt 

markets. The aggregation of accounts for 

purposes of applying position limits 

represents an integral component that 

impacts the effectiveness of those limits. 

In the final rule, the Commission 

implemented a policy for the 

aggregation of accounts that largely 

tracked its longstanding standards of 

aggregation, which were designed to 

prevent evasion of those position limits. 

The proposed rules would amend this 

policy to introduce and expand certain 

exemptions. The Commission intends 

for the proposed rules to preserve the 

important protections of the existing 

aggregation policy, but at a lower cost 

for market participants. The 

Commission requests comment on its 

consideration of the costs and benefits 

of the proposed rules in relation to each 

of the Section 15(a) factors discussed 

herein. 

a. Protection of Market Participants and 

the Public 

The Commission wants to ensure that 

the exemptions proposed in these rules 

will not lessen the protection of market 

participants and the public that the 

aggregation policy in the Final Rule 

provides. Given that the account 

aggregation standards are necessary to 

implement an effective position limit 

regime, it is important that the clarified 

and expanded exemptions of the 

proposed rules be sufficiently tailored to 

exempt from aggregation only those 

accounts that do pose a low risk of 

coordinated trading. The Commission 

believes that clarifying the scope of the 

violation of law exemption to include 

the risk of violating the applicable law 

more accurately informs market 

participants as to the standard for 

claiming the exemption. The proposed 

owned-entity exemption maintains the 

Commission’s historical presumption 

threshold of 10 percent ownership or 

equity interest and makes that 

presumption rebuttable only where 

several conditions indicative of 

independence are met. This exemption 

focuses on the conditions that impact 

trading independence. The Commission 

intends that any exemption it adopts 

would allow the Commission to direct 

its resources to monitoring those entities 

with a higher risk of coordinated trading 

and thus at a higher risk of 

circumventing position limits, without 

reducing the protection of market 

participants and the public that the 

Commission’s aggregation policy 

affords. 

Similarly, the Commission intends for 

the ‘‘higher-tier’’ entity exemption, and 

the expansion of the underwriting and 

IAC exemptions, to reduce costs for 

market participants without a 

compromise to the integrity or 

effectiveness of the Commission’s 

aggregation policy. 

The Commission welcomes comment 

regarding whether the proposed rules 

would impact protection of market 

participants and the public. 

b. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

The Commission wants to ensure that 

the exemptions proposed in these rules 

would fully preserve account 

aggregation as a tool to uphold the 

integrity of the part 151 position limit 

regime, which helps maintain the 

overall competitiveness and integrity of 

derivatives markets. The Commission 

seeks comment regarding whether the 

proposed rules would impact the 

efficiency, competitiveness, and/or 

financial integrity of futures markets. 

c. Price Discovery 

Similarly, the Commission wants to 

ensure that the exemptions proposed in 

these rules do not adversely impact the 

price discovery process, which the part 

151 position limit regime (including the 

account aggregation provisions in 


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114 44 U.S.C. 601 et seq. 

115See Policy Statement and Establishment of 

Definitions of ‘‘Small Entities’’ for Purposes of the 

Regulatory Flexibility Act, 47 FR 18618, Apr. 30 

1982. See also Special Calls, 72 FR 34417, Jun. 22, 

2007 (foreign broker determination). 

116 76 FR 71626, Nov. 18, 2011. 

117 44 U.S.C. 3501 et seq. 

118 7 U.S.C. 12(a)(1). 

119 5 U.S.C. 552a. 

§ 151.7) is designed to protect. The 

Commission welcomes comment as to 

whether the proposed rules would 

impact price discovery. 

d. Sound Risk Management 

The Commission wants to ensure that 

the exemptions proposed in these rules 

will not lessen the effectiveness of the 

sound risk management practices that 

the Final Rule promotes. The 

Commission welcomes comment as to 

whether the proposed rules would 

impact sound risk management 

practices. 

e. Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

related to the costs and benefits of the 

proposed rules. The Commission 

welcomes comment as to whether there 

are additional public interest 

considerations the Commissions should 

consider. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

the impact of their regulations on small 

businesses.114 The requirements related 

to the proposed amendments fall mainly 

on DCMs, swap execution facilities 

(‘‘SEF’’) that are trading facilities, FCMs, 

foreign brokers, and large traders. The 

Commission has previously determined 

that DCMs, FCMs, foreign brokers and 

large traders are not ‘‘small entities’’ for 

the purposes of the RFA.115 Further, in 

the Commission’s position limits 

rule,116 the Commission determined 

that SEFs, which includes SEFs that are 

trading facilities, are not ‘‘small 

entities’’ for purposes of the RFA. 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies, on 

behalf of the Commission, 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. 

C. Paperwork Reduction Act 

1. Overview 

The Paperwork Reduction Act 

(‘‘PRA’’) imposes certain requirements 

on Federal agencies in connection with 

their conducting or sponsoring any 

collection of information as defined by 

the PRA.117 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. Certain 

provisions of the proposed regulations 

would result in new collection of 

information requirements within the 

meaning of the PRA. The Commission 

seeks to supplement the control number 

assigned by the Office of Management 

and Budget (‘‘OMB’’) for part 151— 

Position Limits for Futures and Swaps 

(OMB control number 3038–0077). 

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. 

In January of 2012, the Commission 

received a petition requesting relief 

under section 4a(a)(7) of the CEA and 

clarification of certain aggregation 

requirements in regulation 151.7. In 

response to that petition, the 

Commission is proposing to clarify 

certain aspects of the aggregation 

standards, and to expand the scope of 

certain exemptions from aggregation. If 

adopted, responses to this collection of 

information would be mandatory to the 

extent persons wish to rely upon the 

exemptions contained within the 

proposed amendments to Commission 

regulation 151.7. 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 CEA strictly prohibits the 

Commission, unless specifically 

authorized by the CEA, 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.118 The Commission also is 

required to protect certain information 

contained in a government system of 

records pursuant to the Privacy Act of 

1974.119

Proposed rule 151.7(b)(1) establishes 

an exemption for a person to 

disaggregate the positions of a 

separately organized entity (‘‘owned 

entity’’). To claim the exemption, a 

person would need to meet certain 

criteria and file a notice with the 

Commission in accordance with 

regulation 151.7(h). The notice filing 

would need to demonstrate compliance 

with certain conditions set forth in 

regulations 151.7(b)(1)(i)–(vii). Similar 

to other exemptions from aggregation, 

the notice filing would be effective upon 

submission to the Commission, but the 

Commission may call for additional 

information as well as reject, modify or 

otherwise condition such relief. Further, 

such person is obligated to amend the 

notice filing in the event of a material 

change to the filing. 

The proposed rules also amend 

regulation 151.7(i), which provides an 

exemption from aggregation where the 

sharing of information between persons 

would cause either person to violate 

federal law. The proposed amendments 

clarify that the exemption would apply 

to a situation where the sharing of 

information creates a reasonable risk of 

a violation of federal law or regulations 

adopted thereunder, and not solely a per 

se violation. For the same reasons the 

Commission adopted the exemption for 

information sharing restrictions for 

federal law, the Commission expanded 

the exemption in regulation 151.7(i) to 

generally extend to the state law and the 

law of a foreign jurisdiction. The 

proposed rules also retain the 

requirement that market participants file 

a notice demonstrating compliance with 

the condition and an opinion of counsel 

that the sharing of information could 

create a reasonable risk of a violation of 

state or federal law or the law of a 

foreign jurisdiction. The opinion allows 

Commission staff to review the legal 

basis for the asserted regulatory 

impediment to the sharing of 

information, and is particularly helpful 

where the asserted impediment arises 

from laws and/or regulations that the 

Commission does not directly 

administer. Further, Commission staff 

will have the ability to consult with 

other federal regulators as to the 

accuracy of the opinion, and to 

coordinate the development of rules 

surrounding information sharing and 

aggregation across accounts in the 

future. 

The Commission is also proposing to 

amend the definitions of eligible entity 

and independent account controller in 

part 151.1 to specifically provide for 

regulation 4.13 commodity pools 

established as limited liability 

companies. These proposed 

amendments will likely expand the 

number of entities that can file for the 

independent account controller 

aggregation exemption. 

Finally, the proposed rules include 

relief from notice filings for ‘‘highertier’’ entities, which, under proposed 

regulation 151.7(j), may rely on the 

filings submitted by owned entities. A 

‘‘higher-tier’’ entity need not submit a 

separate notice pursuant to the notice 

filing requirements to rely upon the 

notice filed by an owned entity as long 

as it complies with conditions of the 

applicable aggregation exemption. 


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120The 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)’’ (60% weight), ‘‘compliance 

advisor (intermediate)’’ (20%), ‘‘systems analyst’’ 

(10%), and ‘‘assistant/associate general counsel’’ 

(10%). 

2. Reporting Burdens 

Proposed regulation 151.7(b)(1) 

specifies that qualified persons may file 

a notice claiming exemptive relief from 

aggregation. Proposed regulation 

151.7(b)(1)(vii) states that the notice is 

to be filed in accordance with regulation 

151.7(h), which requires a description of 

the relevant circumstances that warrant 

disaggregation and a statement that 

certifies that the conditions set forth in 

the exemptive provision have been met. 

Persons claiming the exemption would 

be required to submit to the 

Commission, as requested, such 

information as relates to the claim for 

exemption. An updated or amended 

notice must be filed with the 

Commission upon any material change. 

With regard to the existing filing 

procedure for claiming exemptions from 

aggregation, in the part 151 final rule 

the Commission estimated that ninety 

entities would incur a burden of 

225,000 annual labor hours as well as 

$5.9 million in annualized capital, startup, total operating, and maintenance 

costs. This estimate was based on each 

entity submitting one notice of 

disaggregation per year at a burden of 

2,500 labor hours. Given the expansion 

of the exemptions that market 

participants may claim, the Commission 

anticipates an increase in the number of 

notice filings; however, because of the 

relief for ‘‘higher-tier’’ entities under 

proposed regulation 151.7(j), the 

Commission expects that increase to be 

offset by a reduction in the number of 

filings by ‘‘higher-tier’’ entities. Thus, 

the Commission anticipates a small net 

increase in the number of filings under 

regulation 151.7 as a result of the 

proposed rules. The Commission 

believes that this small increase will 

create a small increase in the annual 

labor burden. However, because entities 

will have already incurred the capital, 

start-up, operating, and maintenance 

costs to file other exemptive notices, the 

Commission does not anticipate an 

increase in those costs. 

In light of the Commission providing 

for these additional exemptions, the 

Commission estimates that 90 entities 

will each file two notices annually 

under proposed regulation 151.7(b)(1), 

at an average of 20 hours per filing. 

Thus, the Commission approximates a 

total per-entity burden of 40 labor hours 

annually. Using the same labor cost 

estimates as in the existing collection 

(OMB# 3038–0077),120 such a burden 

would cost approximately $3,100 per 

entity for filings under proposed 

regulation 151.7(b)(1). Under proposed 

regulation 151.7(f), the Commission 

anticipates that 10 entities will annually 

file one notice each, at an average of 20 

hours per filing, for a per-entity burden 

of 20 labor hours annually. Such a 

burden would cost approximately 

$1,600 per entity. Finally, the 

Commission anticipates that 45 entities 

will annually file one notice each under 

proposed regulation 151.7(i), at an 

average of 80 hours per filing, for a perentity burden of 80 hours each. Such a 

burden would cost approximately 

$6,300 per entity. Monetary estimates 

have been rounded to the nearest 

hundred. 

In sum, the Commission estimates 

that 145 entities would submit a total of 

235 responses per year and incur a total 

burden of 7,400 labor hours at a cost of 

approximately $582,000 annually in 

addition to the existing burden under 

§ 151.7. 

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 email at OIRAsubmissions@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 in 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 151—POSITION LIMITS FOR 

FUTURES AND SWAPS 

1. The authority citation for part 151 

is revised to read as follows: 

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). 

2. In § 151.1, revise the definition for 

‘‘eligible entity’’ and paragraph (5) of 

the definition of ‘‘independent account 

controller’’ to read as follows: 

§ 151.1 Definitions. 

* * * * * 

Eligible Entity means a commodity 

pool operator; the operator of a trading 

vehicle which is excluded, or which 

itself has qualified for exclusion from 

the definition of the term ‘‘pool’’ or 

‘‘commodity pool operator,’’ 

respectively, under § 4.5 of this chapter; 

the limited partner, limited member or 

shareholder in a commodity pool the 

operator of which is exempt from 

registration under § 4.13 of this chapter; 

a commodity trading advisor; a bank or 

trust company; a savings association; an 

insurance company; or the separately 

organized affiliates of any of the above 

entities: 

* * * * * 

Independent Account Controller 

* * * 

(5) Who is registered as a futures 

commission merchant, an introducing 

broker, a commodity trading advisor, or 


srobinson on DSK4SPTVN1PROD with PROPOSALS
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an associated person of any such 

registrant, or is a general partner or 

manager of a commodity pool the 

operator of which is exempt from 

registration under § 4.13 of this chapter. 

* * * * * 

3. Revise § 151.7 to read as follows: 

3. In § 151.7: 

a. Revise paragraph (b); 

b. Add paragraph (e)(4); 

c. Revise paragraphs (g), (h), and (i); 

and 

d. Add paragraph (j). 

The revisions and additions read as 

follows: 

§ 151.7 Aggregation of positions. 

* * * * * 

(b) Ownership of accounts generally. 

For the purpose of applying the position 

limits set forth in § 151.4, except for the 

ownership interest of limited partners, 

shareholders, members of a limited 

liability company, beneficiaries of a 

trust or similar type of pool participant 

in a commodity pool subject to the 

provisos set forth in paragraph (c) of this 

section or in accounts or positions in 

multiple pools as set forth in paragraph 

(d) of this section, any person holding 

positions in more than one account, or 

holding accounts or positions in which 

the person 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. However— 

(1) Any person with a 10 percent or 

greater ownership or equity interest in 

an owned entity, need not aggregate the 

accounts or positions of the owned 

entity with any other accounts or 

positions such person is required to 

aggregate, provided that: 

(i) Such person, including any entity 

that such person must aggregate, and the 

owned entity: 

(A) Do not have knowledge of the 

trading decisions of the other; 

(B) Trade pursuant to separately 

developed and independent trading 

systems; 

(C) Have and enforce written 

procedures to preclude each from 

having knowledge of, gaining access to, 

or receiving data about, trades of the 

other. Such procedures must include 

document routing and other procedures 

or security arrangements, including 

separate physical locations, which 

would maintain the independence of 

their activities; 

(D) Do not share employees that 

control the trading decisions of either; 

and 

(E) Do not have risk management 

systems that permit the sharing of trades 

or trading strategy; 

(ii) Such person does not have greater 

than a 50 percent ownership or equity 

interest in the owned entity; and 

(iii) Such person complies with the 

requirements of paragraph (h) of this 

section. 

(2) [Reserved] 

* * * * * 

(e) * * * 

(4) The futures commission merchant 

or the affiliate has complied with the 

requirements of paragraph (h) of this 

section. 

* * * * * 

(g) Exemption for underwriting. 

Notwithstanding any of the provisions 

of this section, a person need not 

aggregate the positions or accounts of an 

owned entity if the ownership interest 

is based on the ownership of securities 

constituting the whole or a part of an 

unsold allotment to or subscription by 

such person as a participant in the 

distribution of such securities by the 

issuer or by or through an underwriter. 

(1) Further, a broker-dealer registered 

with the Securities and Exchange 

Commission, or similarly registered 

with a foreign regulatory authority, need 

not aggregate the positions or accounts 

of an owned entity if the ownership 

interest is based on the ownership of 

securities acquired as part of reasonable 

activity in the normal course of business 

as a dealer, provided that, such person 

does not have actual knowledge of the 

trading decisions of the owned entity. 

(h) Notice filing for exemption. (1) 

Persons seeking an aggregation 

exemption under paragraph (b)(1), (c), 

(e), (f), or (i) of this section shall file a 

notice with the Commission, which 

shall be effective upon submission of 

the notice, and shall include: 

(i) a description of the relevant 

circumstances that warrant 

disaggregation; and 

(ii) a statement of a senior officer of 

the entity certifying that the conditions 

set forth in the applicable aggregation 

exemption provision have been met. 

(2) Upon call by the Commission, any 

person claiming an aggregation 

exemption under this section shall 

provide such information concerning 

the person’s claim for exemption as is 

requested by the Commission. Upon 

notice and opportunity for the affected 

person to respond, the Commission may 

amend, suspend, terminate, or 

otherwise modify a person’s aggregation 

exemption for failure to comply with 

the provisions of this section. 

(3) In the event of a material change 

to the information provided in the 

notice filed under this paragraph, an 

updated or amended notice shall 

promptly be filed detailing the material 

change. 

(4) A notice shall be submitted in the 

form and manner provided for in 

§ 151.10. 

(i) Exemption for law information 

sharing restriction. Notwithstanding any 

other provision of this section, a person 

is not subject to the aggregation 

requirements of this section if the 

sharing of information associated with 

such aggregation creates a reasonable 

risk that either person could violate 

state or federal law or the law of a 

foreign jurisdiction, or regulations 

adopted thereunder, and provided that 

such a person does not have actual 

knowledge of information associated 

with such aggregation. Provided further, 

that such person file a prior notice 

pursuant to paragraph (h) of this section 

and an opinion of counsel that the 

sharing of information creates a 

reasonable risk that either person could 

violate state or federal law or the law of 

a foreign jurisdiction, or regulations 

adopted thereunder. Provided however, 

the exemption in this paragraph shall 

not apply where the law or regulation 

serves as a means to evade the 

aggregation of accounts or positions. All 

documents submitted pursuant to this 

paragraph shall be in English, or if not, 

accompanied by an official English 

translation. 

(j) Higher-Tier Entities. If an owned 

entity has filed a notice under paragraph 

(h) or (i) of this section, any person with 

an ownership or equity interest of 10 

percent or greater in the owned entity 

need not file a separate notice 

identifying the same positions and 

accounts previously identified in the 

notice filing of the owned entity, 

provided that: 

(1) Such person complies with the 

conditions applicable to the exemption 

specified in the owned entity’s notice 

filing, other than the filing 

requirements; and 

(2) Such person does not otherwise 

control trading of the accounts or 

positions identified in the owned 

entity’s notice. 

(3) Upon call by the Commission, any 

person relying on the exemption in 

paragraph (j)(1) of this section shall 

provide to the Commission such 

information concerning the person’s 

claim for exemption. Upon notice and 

opportunity for the affected person to 

respond, the Commission may amend, 

suspend, terminate, or otherwise modify 

a person’s aggregation exemption for 

failure to comply with the provisions of 

this section. 

4. In § 151.10, revise paragraph (b)(4) 

to read as follows: 

§ 151.10 Form and manner of reporting. 

* * * * * 


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Federal Register / Vol. 77, No. 104 / Wednesday, May 30, 2012 / Proposed Rules 31783 

(b) * * * 

(4) A notice of disaggregation is filed 

pursuant to § 151.7(h), in which case the 

notice shall be effective upon filing. 

* * * * * 

5. In § 151.12, revise paragraph (a)(5) 

and add paragraph (a)(6) to read as 

follows: 

§ 151.12 Delegation of authority to the 

Director of the Division of Market Oversight. 

(a) * * * 

(5) In § 151.7(j)(1)(iii) to call for 

additional information from a trader 

claiming the exemption in § 151.7(j)(1). 

(6) In § 150.10 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. 

* * * * * 

Issued in Washington, DC, on May 17, 

2012 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Note: The following appendix will not 

appear in the Code of Federal Regulations. 

Appendix 1—Statement of 

Commissioner Jill E. Sommers 

I support the Commission’s proposed rules 

that, among other things, expand the 

exemptions relating to information sharing 

restrictions, expand the circumstances under 

which market participants will not be 

required to aggregate positions, and reduce 

the reporting burdens on higher tier entities. 

I am pleased that we recognize that the final 

position limits rules issued on November 18, 

2011 set forth an unworkable and overly 

restrictive approach to these issues. 

Essentially, as they relate to ‘‘owned 

entities,’’ the proposed rules contain three 

‘‘tiers’’ for purposes of aggregation. First, if 

the ownership interest is less than 10 

percent, one need not aggregate positions 

with those of the owned entity. Second, if the 

ownership interest is between 10 percent and 

50 percent, one must aggregate positions with 

those of the owned entity unless it can be 

shown that there is a lack of knowledge of, 

and control over, the trading of the owned 

entity. Third, if the ownership interest 

exceeds 50 percent, one must always 

aggregate positions with those of the owned 

entity, even if there is a lack of knowledge 

of, and control over, the trading of the owned 

entity. 

I question whether a bright-line approach 

is the correct approach, and if it is, whether 

the line should be drawn at 50 percent. In the 

absence of knowledge of, and control over, 

trading of an owned entity, is there a real 

difference between owning 49 percent and 

owning 50 percent? I don’t think there is. In 

justifying 50 percent as the correct place to 

draw the line, the preamble to the proposed 

rules states, ‘‘such a bright-line rule would 

provide clarity to market participants and a 

useful tool for the Commission to simplify 

aggregation.’’ Providing clarity and certainty 

to market participants is important. However, 

if providing clarity and certainty results in a 

one-size-fits-all answer that fails to take into 

account the varying needs of a very diverse 

group of market participants, the clarity and 

certainty are of little use. Moreover, while it 

is important to establish an aggregation 

approach that the Commission can effectively 

administer, I hesitate to put too much weight 

on ‘‘simplifying’’ the approach if the 

simplified approach is needlessly restrictive. 

In my dissent to the final position limits 

rules, I expressed concern that with regard to 

the 19 new reference contracts, the 

Commission was taking on ‘‘front-line 

oversight of the granting and monitoring of 

bona-fide hedging exemptions for the 

transactions of massive, global corporate 

conglomerates that on a daily basis produce, 

process, handle, store, transport, and use 

physical commodities in their extremely 

complex logistical operations.’’ My concerns 

apply equally to the issue of aggregation. We 

have limited experience as it relates to these 

new reference contracts, and no experience 

aggregating swaps into the overall 

calculations. In the face of such limited 

experience, our apparent certainty on where 

to draw lines is troubling. 

[FR Doc. 2012–12526 Filed 5–29–12; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–141075–09] 

RIN 1545–BJ15 

Property Transferred in Connection 

With the Performance of Services 

Under Section 83 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations relating to 

property transferred in connection with 

the performance of services under 

section 83 of the Internal Revenue Code 

(Code). These proposed regulations 

affect certain taxpayers who received 

property transferred in connection with 

the performance of services. 

DATES: Written or electronic comments 

must be received by August 28, 2012. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–141075–09), room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to CC:PA:LPD:PR (REG–141075– 

09), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC, or sent electronically 

via the Federal eRulemaking Portal at 

http://www.regulations.gov/ (IRS REG– 

141075–09). 

FOR FURTHER INFORMATION CONTACT: 

Concerning these proposed regulations, 

Thomas Scholz or Dara Alderman at 

(202) 622–6030 (not a toll-free number); 

concerning submissions of comments, 

and/or to request a hearing, 

Oluwafunmilayo (Fumni) Taylor, at 

(202) 622–7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 83(a) of the Internal Revenue 

Code (Code) provides that if, in 

connection with the performance of 

services, property is transferred to any 

person other than the person for whom 

such services are performed, the excess 

of (1) the fair market value of the 

property (determined without regard to 

lapse restrictions) at the first time the 

rights of the person having the 

beneficial interest in such property are 

transferable or are not subject to a 

substantial risk of forfeiture, whichever 

occurs earlier, over (2) the amount (if 

any) paid for such property, is included 

in the gross income of the service 

provider in the first taxable year in 

which the rights of the person having 

the beneficial interest in such property 

are transferable or are not subject to a 

substantial risk of forfeiture. Section 

83(c)(1) provides that the rights of a 

person in property are subject to a 

substantial risk of forfeiture if such 

person’s rights to full enjoyment of such 

property are conditioned upon the 

future performance of substantial 

services by any individual. 

Section 1.83–3(c)(1) provides that, for 

purposes of section 83 and the 

regulations, whether a risk of forfeiture 

is substantial or not depends upon the 

facts and circumstances. Section 1.83– 

3(c)(1) further provides that a 

substantial risk of forfeiture exists 

where rights in property that are 

transferred are conditioned, directly or 

indirectly, upon the future performance 

(or refraining from performance) of 

substantial services by any person, or 

the occurrence of a condition related to 

a purpose of the transfer, and the 

possibility of forfeiture is substantial if 

such condition is not satisfied. 

Illustrations provided in § 1.83–3(c)(2) 

of the regulations demonstrate when a 

substantial risk of forfeiture will be 

considered to exist. 

In addition to providing that a 

person’s rights in property are subject to 

a substantial risk of forfeiture if 

conditioned upon the future 


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